India can still prove to be a bridge too far for businesses

This article was first published on 22 Nov 2010 in the print and online edition of The National

Sometimes customers are crying out for your products and services but the barriers to serving those customers are just too difficult to overcome, so companies don't bother. 

My parents' home town is one such place. Over the past week I've been travelling in the Indian state of Bihar and specifically its capital city Patna. Some 103 million people live in Bihar, India's third most populous province. 

Bihar is known for many things. In the 1990s the colourful Laloo Prasad Yadav, as chief minister of Bihar, entertained the public while jousting with the central government in Delhi by way of his populist agenda and unconventional methods.

Long before that, Bihar was the centre of the Mauryan civilization (321BC-185BC), which had made huge developments in learning. Today, the monuments and antiquities of this dynasty are but crumbling edifices of ancient history - and are designated UNESCO World Heritage Sites.

But long-since departed civilisations are not the only evidence of potential turmoil.

Last week, the National Election Watch (NEW), a nationwide campaign comprising more than 1,200 non-governmental organisations and other citizen-led organisations working together on electoral reforms, improving democracy and governance in India, said many candidates given tickets by the major political parties for the recent Bihar assembly elections face pending criminal investigations. Nothing new for Bihari's used to the fact that people who gain success in state level politics are generally those who take whatever measures they deem necessary to achieve it. 

What's been noticeable on my visit to Bihar this time is that, despite the state being one of the poorest in India, there is opportunity for entrepreneurs brave enough to set up there. Unfortunately, the barriers to market entry make it a bridge too far for most, resulting in many firms staying away.

Major metro cities such as Delhi have seen a surge in demand for mid-tier residential and commercial property - with prices increasing by 300 per cent in many areas over the past five years. This boom has been accompanied by concerns over the quality and safety of construction. While I was in the capital recently, a residential building collapsed, killing 60 people. This followed incidents including the bridge collapse prior to the Commonwealth Games in the city.

A visit to any of India's high-gloss shopping malls in major metropolises is akin to visiting malls in Dubai. Same brands, similar staff training and on-par prices, which is a real sore point for the tourist hoping to bag a bargain.

Big Indian cities are not cheap places to live for the burgeoning middle class. Young professionals are leveraged on their property, cars and consumables. While their parents' generation celebrated paying off their debts, the new Indians have welcomed debt with open arms. The government has kept interest rates high, at more than 13 per cent, in a bid to stop cheap credit flushing the market, risking a major implosion within the next few years. That may still happen.

In Bihar, however, things are still pretty sleepy. In Patna, the four-star Chanakya still holds its position as the best hotel in town. As for safe and snazzy places to eat outside the hotels, don't hold your breath, but there are a couple of food and beverage offerings. One such place I had the pleasure of visiting was Yo China! The entrepreneurs who started this first Chinese chain in India reasoned that the market in places such as Patna was untapped for good quality, safe, hygienic food sold at a reasonable price. They were right, and the dine-in restaurant is almost always full.

Likewise in the telecommunications sector - the Bahraini company Batelco has purchased a 49 per cent stake in STel, a pre-paid mobile network operator also with a footprint in Bihar.

"The successful completion of this deal supports our growth and expansion strategy in wireless and broadband markets and boosts Batelco's long-term plans to diversify our geographical footprint and dramatically increase our scale," said Peter Kaliaropoulos, the Batelco chief executive.

Despite these few bright spots, as well as an improvement in the economic management of the state under Shri Nistish Kumar, Bihar's present chief minister, most investors have stayed away. Dealing with the government and authorities is filled with uncertainty. Too many bureaucrats are looking for their 10 per cent. Some may also be convicted criminals and they and their hired muscle are not the kind of people you'd want to cross in a business transaction.

Basic infrastructure such as electricity is vastly deficient. The question most citizens outside Patna ask is not how long the electricity will be off for, but how long it will be on. Temperature in the summer hits 34°C and in the winter drops to 10°C, so the lack of dependable power is a huge problem for residents as well as struggling businesses.

The complete absence of a workable road infrastructure means even short journeys can take hours and accidents are commonplace. As my driver commented: "Sir, if you can drive in Patna at an off-peak time, you can drive in any major world capital at a peak time."

So, despite there being organic demand from a bustling population, I'm not expecting businesses in the Middle East to go rushing into Bihar any time soon. If, however, there are any brave enough with a long-term investment horizon in mind, then rest assured there are 103 million Biharis eagerly waiting to give you their custom.