Challenges of doing business in India
NEW DELHI: Doing business in India is not without serious trouble. There can be many risks.
Businesses attracted by relatively cheap labour discover that infrastructure costs can be astronomical, navigating through complex government policies and procedures can be frustrating, enforcing contracts bothersome and once you have fulfilled the requirements, the goalposts may change.
India’s market size is big and major players in any sector cannot resist the temptation of setting up a presence in India.
For large enterprises it’s easier than small- or medium businesses to operate in the difficult terrain. But that is not always the case as it becomes clear from the Indian police’s investigation against AirAsia Group chief executive officer Tan Sri Tony Fernandes and a few other people over their alleged violation of rules in setting up AirAsia India Ltd.
The venture involves Asia’s biggest low-cost airline and Tata Sons, India’s largest conglomerate.
AirAsia Bhd owns 49 per cent of AirAsia India, the maximum a foreign entity is allowed under Indian aviation laws, while another 49 per cent is owned by Tata and the remainder by two Indian shareholders.
India’s Central Bureau of Investigation (CBI) on May 28 registered a case alleging that Fernandes and other individuals broke rules in getting permits for setting up and running the airline.
Some of the charges reflect allegations made by the Federation of Indian Airlines, representing local carriers IndiGo, Jet Airways, SpiceJet and GoAir, that opposed AirAsia India’s entry into the Indian market.
The airline achieved significant growth in four years with a fleet size of 18 A320 aircraft and with a network of 19 destinations, served from its hubs in Bengaluru, New Delhi and Kolkata, it is a well-established market player.
AirAsia India also plans to launch an initial public offering and start foreign flights when its fleet expands to a minimum of 20 aircraft in the domestic market.
According to one allegation in the CBI report, there were unfair lobbying efforts to get rid of India’s so-called “5/20” rule to enable AirAsia India to start early international operations.
Under the changed rules, an airline is no longer required to have five years of local operations, but it must still have at least 20 aircraft serving the Indian market.
If there are charges of not adhering to Indian laws, these must be clearly established. AirAsia has rejected the allegations and suggestions of wrongdoing.
The “5/20” reform benefits not just AirAsia India, but also Singapore Airlines venture Vistara.
Vistara, a full-service carrier, came into being in 2013 as a result of India’s aviation reforms.
Tata Group owns 51 per cent of Vistara and 49 per cent is controlled by Singapore.
A senior government official believes the CBI’s AirAsia case would not affect the Air India disinvestment process.
However, not everyone can be so confident.
Potential investors will be watching how AirAsia is treated in India.