India: Country Profile

Background information

History

The Indus Valley civilisation, one of the world’s oldest, flourished during the 3rd and 2nd millennia B.C. and extended into north-western India. Aryan tribes from the northwest infiltrated the Indian subcontinent about 1500 B.C.; their merger with the earlier Dravidian inhabitants created the classical Indian culture. The Maurya Empire of the 4th and 3rd centuries B.C. – which reached its zenith under ASHOKA – united much of South Asia. The Golden Age ushered in by the Gupta dynasty (4th to 6th centuries A.D.) saw a flowering of Indian science, art, and culture. Islam spread across the subcontinent over a period of 700 years. In the 10th and 11th centuries, Turks and Afghans invaded India and established the Delhi Sultanate. In the early 16th century, the Emperor BABUR established the Mughal Dynasty which ruled India for more than three centuries. European explorers began establishing footholds in India during the 16th century. By the 19th century, Great Britain had become the dominant political power on the subcontinent. The British Indian Army played a vital role in both World Wars. Years of nonviolent resistance to British rule, led by Mohandas Gandhi and Jawaharlal Nehru, eventually resulted in Indian independence, which was granted in 1947. Large-scale communal violence took place before and after the subcontinent partition into two separate states – India and Pakistan. The neighbouring nations have fought three wars since independence, the last of which was in 1971 and resulted in East Pakistan becoming the separate nation of Bangladesh. India’s nuclear weapons tests in 1998 emboldened Pakistan to conduct its own tests that same year. In November 2008, terrorists originating from Pakistan conducted a series of coordinated attacks in Mumbai, India’s financial capital. Despite pressing problems such as significant overpopulation, environmental degradation, extensive poverty, and widespread corruption, economic growth following the launch of economic reforms in 1991 and a massive youthful population are driving India’s emergence as a regional and global power.

Economy

India’s diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly less than half of the work force is in agriculture, but services are the major source of economic growth, accounting for nearly two-thirds of India’s output with less than one-third of its labour force. India has capitalised on its large educated English-speaking population to become a major exporter of information technology services, business outsourcing services, and software workers.
India is developing into an open-market economy, yet traces of its past autarkic policies remain. Economic liberalisation measures, including industrial deregulation, privatisation of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and served to accelerate the country’s growth, which averaged under 7% per year from 1997 to 2011. India’s economic growth began slowing in 2011 because of a decline in investment caused by high interest rates, rising inflation, and investor pessimism about the government’s commitment to further economic reforms and about slow world growth. Rising macroeconomic imbalances in India and improving economic conditions in Western countries led investors to shift capital away from India, prompting a sharp depreciation of the rupee.

Growth rebounded in 2014 and 2015, with both years exceeding 7%. Investors’ perceptions of India improved in early 2014, due to a reduction of the current account deficit and expectations of post-election economic reform, resulting in a surge of inbound capital flows and stabilization of the rupee. Since the election, economic reforms have focused on administrative and governance changes largely because the ruling party remains a minority in India’s upper house of Parliament, which must approve most bills. Despite a high growth rate compared to the rest of the world, in 2015 India’s government-owned banks faced mounting bad debt, resulting in low credit growth and restrained economic growth.

The outlook for India’s long-term growth is moderately positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. However, India’s discrimination against women and girls, an inefficient power generation and distribution system, ineffective enforcement of intellectual property rights, decades-long civil litigation dockets, inadequate transport and agricultural infrastructure, limited non-agricultural employment opportunities, high spending and poorly-targeted subsidies, inadequate availability of quality basic and higher education, and accommodating rural-to-urban migration are significant long-term challenges.

GDP (purchasing power parity):
$7.965 trillion (2015 est.)
$7.421 trillion (2014 est.)
$6.92 trillion (2013 est.)
Note: data is in 2015 US dollars
Country comparison to the world: 4
GDP (official exchange rate):
$2.091 trillion (2015 est.)
GDP – real growth rate:
7.3% (2015 est.)
7.2% (2014 est.)
6.6% (2013 est.)
Country comparison to the world: 12
GDP – per capita (PPP):
$6,200 (2015 est.)
$5,800 (2014 est.)
$5,500 (2013 est.)
Note: data are in 2015 US dollars
Country comparison to the world: 158

(Information courtesy of The CIA World Fact Book)

Employment Issues

The information below gives and overview of some the usual market benefits and statutory benefits in India:
• 4-10 public holidays, varying by region of hire.
• 12 – 21 days vacation time. 21 vacation days is the normal recommended vacation days allocated to white-collar Indian nationals, although many senior professionals may request more and get them.
• The normal termination notice would be 1 on behalf of either the employer or the employee, but this is not fixed.
• An Employer’s contribution to social security or statutory benefits is on top of salary in India can be estimated as about 12% extra to the total salary costs.
• Many employers in India also provide supplementary insurances.

Negotiating the Total “Cost to Company”

Negotiating compensation packages in India can be relatively complex and lengthy, because employees tend to be very concerned about maximising their take-home pay and argue for various allowances in addition to their basic pay. There are a great many pre-tax allowances for employees in India and the amount of basic salary can be as low as 30% or as high as 80% of the total compensation package. The total compensation package comprises a multitude of additional allowances as well as the basic salary. The allowances that employees are able to receive at a tax advantage vary, but here is an example of a typical breakdown:
• Basic: the basic salary, which is paid out every month and is taxable
• Dearness Allowance (DA): this compensates for increases in the cost of living due to inflation and is taxable. We aware that inflation can be high in India and this increase needs to be factored into medium-term calculations.
• Incentives/bonuses: these are paid out depending on employee performance, should be negotiated and are taxable.
• Conveyance allowance: this is a monthly allowance paid out to meet expenses on transport to and from work. Up to Rs 800 per month is tax-free and any amount over that is taxable.
• House Rent Allowance (HRA): this is paid out to meet full or part of an expenditure on renting a house. It is paid out monthly and can be tax-free depending on conditions.
• Medical allowance: is paid out monthly to help with the amount that is spent on medical treatment and medicines.
• Leave Travel Allowance of Concession (LTA/LTC): is paid to encourage periodic vacations. These are paid out once a year and can be tax-free provided certain conditions are met.
• Vehicle Allowance: may be given to maintain a car. This allowance is paid out monthly and would be taxable.
• Telephone/Mobile Phone Allowance: this allowance is given to maintain a landline or mobile phone. It is paid out monthly and is taxable.
• Special Allowance: this one is just in case you missed anything in all the others! This allowance can be given out to pay money that doesn’t fit into any other category. A “special” allowance may be paid out monthly and is taxable.

The employment contract of a new employee should always show the complete breakdown of the total salary package (Cost to Company, or CTC) in a monthly amount.

Recruiting in India:

When recruiting in India, it may be helpful to have some cultural insight into the lives of your candidates:
• Job titles are vital and most employees in India will negotiate very hard for a good job title. There is an old saying in India which is, “the better the title, the better the wife.” The job title is key especially for young people that haven’t yet married, because one’s professional title is a matter of great prestige. Many marriages in India are still arranged and an employee’s job title impacts his or her entire life. Many candidates will turn down high-paying jobs if the title isn’t deemed prestigious enough and you can lose a good candidate by haggling over the title.
• Salary inflation in India is high. Employees expect a title increase and a wage increase of 10-15% per year. If the increase is not given each year, he/she is likely to start looking for other jobs. Attrition is also high and there is a lot of job-hopping in most sectors.
• Providing a great workplace environment and culture is very important to Indian employees – it is not yet part of the normal work culture in India to work from home. However, will probably change over time due to the traffic in large cities like Bangalore and Mumbai.
• As Indian labour law is complex it is best to put a strong employment contract in place which spells out in detail the terms of the employee’s compensation, their benefits and any termination requirements. An offer letter and employment contract in India should always state the salary and any compensation amounts should be quoted in Indian rupees.

India Trade Tariffs

For a comprehensive list of trade tariffs which apply when trading with India can be found on the website of the India Central Board of Excise & Customs. There is a great deal of very useful information on this site but we strongly recommend that you take advice on how this information applies in your specific circumstances.

Business Culture in India – top tips

Tip 1
India is a very, very diverse country and therefore all generalisations about Indian culture should be treated with caution. Try to research each region thoroughly before entering into any negotiations.

Tip 2
India, more than many other countries, places great value on the quality of personal relationships. Do not try to push things along very quickly at first – it takes time to develop relationships.

Tip 3
Both society and business are extremely hierarchically arranged and many Indians find it extremely difficult to work in a non-hierarchical structure.

Tip 4
Trying to introduce a flatter, more matrix-style approach into a society in which hierarchy is endemic can prove extremely difficult and painful for all concerned.

Tip 5
Most decisions are made at the very top of the organisation and it can, therefore, be a waste of time and resource to spend too much time negotiating at the mid-levels of a company. Start at the top if you can.

Tip 6
The boss is definitely the boss in India and is expected to ‘act the part.’ Senior managers are not expected to engage in work which could be undertaken by somebody lower down the organisation. Hierarchy of tasks are respected.

Tip 7
Managers are expected to give direct and detailed instructions to team members – and team members are expected to carry out the instructions unquestioningly.

Tip 8
Do not expect too much initiative to be shown at all times as people are more familiar with bosses who tell them what to do. Plan in great detail and explain exactly what needs to be done.

Tip 9
Meetings can seem very informal and it is possible for several meetings to be conducted by one person at the same time and in the same room. Try not to become irritated by this informal approach.

Tip 10
Time is fairly vague and imprecise. Be prepared for meetings to start and finish late and for interruptions to occur on a regular basis.

Tip 11
As relationships are important, many meetings will begin with fairly lengthy small talk. Take the time to engage in this process – it is very important to the development of solid, long-term relationships.

Tip 12
Contracts should be viewed as a starting point rather than as fixed agreements. A contract is a statement of the best set of circumstances at a given point in time. Things always change over time.

Tip 13
Teams expect to perform closely defined tasks under the strong control of a leader. It is not considered intrusive for the leader to take a detailed interest in the work of individuals within the team.

Tip 14
English language levels are, generally, very high in India and amongst the educated classes, several other (non-Indian) languages might also be spoken.

Tip 15
Do not be surprised if people seem ready to agree to most things – it is difficult for Indians to disagree directly with people. Indians have a tendency to tell you what they think you want to hear.

Tip 16
Job titles are incredibly important. Take this issue very seriously.

Tip 17
Small gifts are often exchanged – this should not be construed as bribery.

Tip 18
Women will be respected in business situations if they have a position of authority. People show respect to the hierarchical level rather than being affected by any gender issues.

Tip 19
Try to be sensitive to local religious conventions. Don’t offer alcohol to a Muslim or beef to a Hindu.

Tip 20
Before travelling to India on business check the calendar for local festivals, public holidays etc. – there are lots of them.

For a more comprehensive guide to business culture in India please visit here.

The information above is intended as background information only and professional advice should always be taken in advance of making any decisions.