Businesses Should Get to Know the "India Opportunity"

09/12/2012 05:04 EDT | Updated 11/12/2012 05:12 EST
Indian yoga guru Baba Ramdev, in saffron robes on a jeep, speaks to his supporters as he marches to India’s Parliament to intensify an anti-corruption protest and press for a change of government in New Delhi, India, Monday, Aug. 13, 2012. Waving Indian flags and shouting slogans, the protesters climbed into a row of police buses parked around the sprawling New Delhi fairground that Ramdev and his supporters had occupied for the past four days. Police said the protesters would be taken to a stadium on the outskirts of the city and would likely be released by Monday evening. (AP Photo/Rajesh Kumar Singh)

It has a population of over 60 million. Over the past 20 years, annual growth has hovered near 10 per cent --beating even China. Its business capital is the third fastest growing city in the world. Plans are underway to build another 12 cities from scratch over the next decade. This spring, it opened the world's largest solar park. And Volkswagen and Suzuki just announced plans to build several new factories there, joining the likes of Ford, Peugeot and GM.

No, it's not a country.

Meet Gujarat, one of the so-called "second-tier" regions that help make up India's 28 federal states. In July, the Canada-India Business Council signed an MoU with the State as part of a drive to raise awareness of regional business trends in India.

Specific regions are often overlooked in India's broader growth story. Of course, not all of them have performed as impressively as Gujarat. But that's the point: to properly understand the India opportunity, it needs to be broken down into its parts.

c. Growth has dipped to 5.4 per cent, inflation remains uncomfortably high and the Central Government has failed to reign in the large budget deficit or pass key legislation seen as necessary to restore growth. Unsurprisingly, this has prompted some bearish investors to write the entire country off.

But the tendency to focus on the national level glosses over sharp regional differences and underplays the importance of policy at the state level.

To start, India's slowdown is being felt unevenly. Among the larger economies, Maharashtra, Punjab, Karnataka, Andhra Pradesh and Uttar Pradesh have seen growth drop well below recent trends. But others, including Bihar, Gujarat, Kerala and Tamil Nadu, continue on almost untouched. In the capital region of New Delhi, growth actually rose.

The divergence is partly explained by economic policies that lie outside of the Centre's control. Land acquisition, infrastructure, skill development, security, taxation and other top business considerations are primarily the realm of state governments. And some of these governments are better at getting the factors right than others.

There's good reason to believe that policies at the state-level in India will continue to improve and will help fill some of the governance gap created by the Centre's political stalemate. Writing in the Financial Times last month, Devesh Kapur and Arvind Subramanian argue that the deepening of national capital and labour markets has forced states to compete with one another for much-needed investment and increasingly mobile workers. States are also learning from each other's experiences, replicating what works, and avoiding what doesn't.

The negative headlines coming out of India are indeed concerning. But they're only part of the story. Canadian investors and companies with carefully tailored regional strategies stand to make a lot of money by going against the broader market pessimism and seizing emerging or undervalued opportunities.