The 5 most important things you need to know about Indian business culture

Having a good understanding of the norms, values and customs in India is essential to successfully doing business in the country. We will walk you through the cultural differences you need to be aware of as you take your first steps into the Indian market.

1. Preparation: a good personal relationship with your business partner is essential in India

Personal relationships play a big role in Indian business culture, so it is important to really take the time to build those relationships. For Indians, having confidence in the person being done business with weighs heavily. You are therefore expected to make the effort to get to know your partners and continue to invest in the relationship.

Indians talk more about personal matters during business meetings than we are used to in Europe for this reason. They will also ask you more questions about your private life. Don't shy away from these kinds of questions; it comes across as rude and disrespectful. Try to show interest in the business partner's private life yourself by asking questions and accepting invitations to events such as a birthday party of a family member of your business partner. If you are on a business trip to India is going, keep space available in your schedule for possible dinners and other activities.

2. The first meeting: consider local customs

Before you travel to India, it is important to plan all your appointments at least a month in advance. If you want to set up a meeting with someone you have not met in person, it may help if a third person makes the initial contact. If you already know each other, take the trouble to make an appointment by phone instead of sending an email, as personal contact is also very important for Indians in these kinds of small interactions.

The best time for an appointment is either late morning or early afternoon. It is also advisable to confirm the meeting the week before and call again the day before you get in the car.

A handshake is also the standard way to greet each other in a business setting in India. However, you must keep two things in mind. First, in India business culture is still very hierarchical. If you meet several people at the same time during a meeting, always greet the oldest person present first. Second, if you are a man, it is important that you wait until the female attendees take the initiative to shake hands with you. It is not common in India for men to initiate the greeting with a woman.

Greeting someone with the traditional "Namaste," placing both hands together in front of your chest and making a slight bow, is appreciated and shows respect for Indian customs.

Due to the strong hierarchical structure in India, people are always formally addressed by their title and last name and will also always address you by sir, madam or your title.

3. Etiquettes around business cards in India

When meeting for the first time, business cards are usually exchanged in India after the initial handshake and greeting. A business card always includes your company's full name, occupation, title or specialty, phone numbers, e-mail, and address and website.

Since people in India are used to addressing each other by titles, it doesn't hurt to include your own titles on your business card. This exudes a certain seniority that Indians are sensitive to.

When indicating your business card, always present the card with the text facing the recipient so he or she can read the text. Always give and receive a business card with the right hand or with both hands by holding the card at the ends.

When you receive a business card, always read what is on it, even if you do not understand the text. This shows respect and interest in your business partner. They will conversely do the same. Then put the card in a notebook, side pocket of your bag or the pocket of your jacket.

4. The business meeting: silences during the meeting are a sign of respect

In India, it is considered polite to arrive a little late for meetings and gatherings, but by arriving on time, you can win high praise from your Indian business partners with your punctuality. No strict agenda or schedule is maintained during meetings, so meetings often start and end late.

If you are meeting several people at the same time and they have already joined the conference table, it is good to know that the most important people always sit in the middle, with their assistants on either side. So the least important people always sit at the ends of the table, farthest from the center.

Meetings usually begin with small talk about personal matters and general small talk. This is an important part of doing business and therefore should not be cut short too soon. It is therefore smart to put your Indian partners in charge in this area during your first meetings; they will indicate when the business part of the meeting can start.

Business meetings in India are always very formal and quiet affairs. It is rude to talk loudly or point at other people in the room. Body language is also highly valued; a closed or aggressive attitude, such as folded arms or hands on hips, should therefore be avoided.

In addition, silence is a very normal and even important way in India to show respect for those present. Pausing before answering shows that you have listened carefully to your interlocutor and thought about your answer.

In some companies, interruptions in meetings are not uncommon and people may pick up their phones in the middle of the meeting. If that happens, to remain calm and not show irritation.

5. Negotiation is a long-term affair in India

Because in India trust plays a major role in doing business, you should not expect to be able to close a deal during your first meeting. In India, both the buyer and the seller play an important role in the negotiations and both have to ensure that they come to an appropriate agreement. Therefore, in India, negotiations take place in multiple rounds and closing a deal is seen as a long-term affair.

Therefore, if Indians say "yes" to your proposal fairly early in the negotiations, it does not mean that you have a deal. It purely means that they are listening to you and are interested. In India, everything is negotiable, so be prepared for aggressive proposals and considerable pressure from your business partner. Don't be alarmed by this and take your time to find a compromise point by point. The tough position Indians often take at the beginning of negotiations does not mean they are not reasonable.

Are you curious about how best to communicate with Indians?Read it here:

Country guide India: this is what you need to know about India if you want to do business in the country

India offers interesting opportunities for those looking to tap a new (large!) consumer market, looking for a highly skilled and affordable workforce, or setting up production in a reliable hub with excellent export opportunities in Asia.

Before European companies delve into the business opportunities offered by India, it is also important to have a good understanding of the country, its politics, economy and culture. So that when you take your first steps into the Indian market, you are well prepared. IndiaConnected has therefore listed the most important things you need to know about India.

The Indian economy

In 2022, the Indian economy passed that of the United Kingdom, officially taking the fifth spot among the largest economies worldwide.

India has had consistently high growth rates ranging between 4 and 8 percent year-on-year since the 1980s.

Due to its rapidly growing middle class, India is the third largest economy in the world in terms of purchasing power. In terms of purchasing power parity, India's GDP is estimated to reach $13.1 trillion by 2023.

The sectors that contribute the most to GDP are the service sector and the industrial sector. They account for 53.8 percent and 25.9 percent of GDP, respectively. They are also the country's two fastest-growing sectors, due in part to the country's high level of education and relatively low wages. India's largest sector is still agriculture, which employs nearly 60 percent of India's population. This sector contributes about 20 percent of GDP.

India is one of the favorite destinations for investors worldwide, according to the World Investment Report by the United Nations Conference on Trade and Development (UNCTAD). In the fiscal year 2022-2023, nearly $71 billion in foreign direct investment (FDI) entered the country.

The political system in India

India is a democratic republic with a federal structure. At its head is a president, this is currently Draupadi Murmu. The duties of this president are largely ceremonial. The country's president and vice president are elected every 5 years by a special electoral college.

Executive power lies with the council of ministers (the cabinet), who are led by a prime minister, currently Narendra Modi. The president appoints the prime minister, who is nominated by the ruling political party or coalition. The president then appoints ministers on the advice of the prime minister.

The Parliament of India has two chambers, the upper house called the Rajya Sabha, and the lower house called the Lok Sabha.

Key cultural aspects of India

India is a large and diverse country, better compared to the EU than, say, Germany.

The different Indian states in fact, like European countries, have their own cultural characteristics in terms of religion and language, among others.

Religion

India has six major religions: Hinduism, Islam, Christianity, Sikhism, Buddhism and Jainism. Hinduism is the largest religion in the country; nearly 80 percent of India's population adheres to this religion. Adherence to the other religions is largely concentrated in specific states in the country, for example, concentrations of Muslims are highest in the states of Jammu and Kashmir and Assam, and the number of Sikhs is relatively high in Punjab. In addition to the six major religions, India also has several minor religions, which holidays people get time off from work therefore often varies by individual.

Language

In terms of language, India is also very diverse, with as many as 122 languages spoken in the country. In its constitution, India has recognized and established 22 of these languages as the official languages in the country. The most important of these 22 is Hindi, which is the native language of about 40 percent of India's population and is the official language used by the federal government. English is the second official language of the government and is used by the government mainly in the southern states, where Hindi is neither the official language nor accepted. English is the second most widely spoken language in the country and plays a major role in academic and business contacts in India. Those who travel to India therefore need not worry about communicating with Indians; English is spoken in all states.

Sectors and industrial clusters

The Indian states also differ in terms of climate and available resources, so most states have their own specialties. For example, the southwestern states such as Maharashtra and Karnataka are a suitable base for technical sectors such as automotive, engineering, as well as outsourcing IT and Research & Development teams.

Northern states such as Punjab and Haryana, among others, have thriving agricultural sectors, creating opportunities for food processing and renewable energy industries.

Are you curious about where and what interesting opportunities exist in India for your product or service? In our sector overview, we have listed industry clusters, growth opportunities and other important information for you by major sector.

The financing options for your Indian subsidiary: capital, ECBs or a bank loan

As the Indian operations of European companies grow, foreign shareholders often struggle with how best to finance the operations, given India's restrictive regulations. We therefore cover three strategic options for financing your subsidiary in India.

European companies in India have 3 options to finance their subsidiary

1. Share Capital

You can raise capital by issuing additional shares in your Indian company. Increasing share capital is a relatively sustainable and institutionalized way to grow the Indian subsidiary. Moreover, it signals to the outside world that the parent company is serious about developing the subsidiary's services or products in India.

There are two drawbacks to this route. Issuing new shares is a bureaucratic and time-consuming process and thus cannot be arranged at short notice. Thus, in the event of acute cash flow problems, it offers no solace. It can also affect ownership of the company, especially in joint ventures with Indian partners.

2. External Commercial Borrowing (ECB).

Your Indian subsidiary can borrow from the parent company in Europe, but this is only possible under the so-called External Commercial Borrowing construction (ECB). Applying for an ECB is a bureaucratic and time-consuming process, but it has a big advantage: the interest rate on an ECB loan to an Indian party is based on LIBOR + a premium of up to 300 basis points.

3. Bank loans

Indian Banks: Your subsidiary can apply for a loan from a local bank, but the enormously high interest rates rarely make this option attractive or feasible. Interest rates on credit from local Indian banks start at 10-12% and can easily exceed 15%. Only with a cash deposit as a guarantee can a lower rate be negotiated in some cases. In addition to sky-high interest rates, Indian banks routinely ask for collateral if you want to apply for a loan. To organize the paperwork with the bank, you need a local consultant. In addition, you pay the bank another administrative fee of 1% on average. With local banks, you can raise a maximum of 1-2 million euros this way.

If you need more capital, you can apply to several banks at the same time that can provide a loan as a consortium. Of course, this only makes obtaining the loan more complex and expensive.

International development banks: For projects supported by the Indian government, you can turn to development banks, such as IFC (World Bank) and the Asian Development Bank. In addition, Chinese banks may be an option, although these often impose the condition that the loan be spent on products or services from Chinese (state-owned) companies.

A comparison of the 3 financing options for your Indian subsidiary

CONSIDERATION	SHARE CAPITAL	EXTERNAL COMMERCIAL BORROWING (ECB)	LOAN AT LOCAL BANK
Interest expense	Not applicable.	Maximum: 500 basis point + acceptable reference rate. 3-4% interest rate would be ideal based on our experience and can be justified as arm's length.	Flexible structure with fixed and variable interest rates that can be negotiated with the lending bank. The average interest rate is about 10%.
Other costs	There are legal and filing fees associated with issuing new shares.	Exchange rate fluctuations for borrowers and monthly compliance costs for reporting data to the Central Bank of India.	Costs related to corporate guarantees or letters of credit issued by foreign banks of the parent company.
For- charges	Benefit from Income Tax Act -20% + surcharge & Cess.	Benefit from Income Tax Act -20% + surcharge & Cess.	Not applicable.
Corporate Income tax	Parent company must pay tax in the country of establishment. Tax deduction for taxes paid in India is applicable.	Parent company must pay tax in the country of establishment. Tax deduction for taxes paid in India is applicable.	Not applicable.
Payment terms	Repayment of capital occurs upon business termination. Dividend payment according to the rules of the Indian entity.	Average maturity requirements (ranging from 3 to 10 years) must be met, which provides flexibility in terms of repayment of interest and principal.	Strict payment terms and defaults affect credit scores and interest rates for future loans.
Regulatory considerations	Foreign lenders must meet tax liability through PAN registration, Form 10F and filing of Indian tax returns (only in case of dividend income).	Foreign lenders must meet tax liability through PAN registration, Form 10F and filing of Indian tax returns (only in case of dividend income).	Less hassle with regulations because established procedures are used.

Special guide for CFOs with operations in India

India can be a challenging country for European CFOs. Therefore, to give you a better understanding of the complex tax and financial system that every CFO in India faces, consulting firm IndiaConnected has created an insightful guide that addresses the most frequently asked tax questions.

We can, of course, support you at all times in such matters. From choosing the right financing option to helping you apply for ECB or bank loans, so you can always focus fully on your business in India. Contact us here.