The Hidden Costs of Doing Business in India
Recently, Bloomberg columnist Andy Mukherjee had a candid conversation with an industrialist who has set up factories in both Thailand and India.
The contrast between the two experiences paints a stark picture of the challenges faced by manufacturers in India, even in industrialized states like Maharashtra.
Here’s what he shared (on condition of anonymity, for obvious reasons):
Land and Registration
Industrial land in India is 25% more expensive than in Thailand. For a similar plot, that’s a $200,000 difference upfront.
Stamp duties in India are 3x higher (6% vs. 2% in Thailand).
And yes, the infamous “envelope culture” for registration still thrives, tacking on an extra $50,000 in “extras” compared to Thailand.
Construction Costs
Labor is cheaper in India, making construction costs 16% lower.
But nearly half that savings vanishes due to India’s 18% GST on construction, which can’t be offset against future tax collections (unlike Thailand’s 7% VAT).
Plus, Indian regulations allow only 55% of the plot for production, compared to 65% in Bangkok – reducing efficiency right at the start.
Bureaucratic Hurdles
From building approvals to water permits, the process in India is riddled with “speed money” expectations.
Self-insurance is necessary, given unreliable municipal services. The factory owner had to invest in:
- A diesel generator for power outages.
- Storage for 40,000 gallons of water – because daily supply isn’t guaranteed.
The “Extras” Don’t Stop After Registration
In Thailand, after paying minimal "extras," the entrepreneur was free to focus on growth. But in India, the hurdles kept coming:
An old unpaid electricity bill from the land’s previous owner (despite a bank auction) demanded an additional $200,000 before reconnection.
Now, he must sue the seller to recover those losses, another drain on time and resources.
By his estimate, 19% of the total cost of his $2.3M factory in India was due to governance gaps – inefficiencies, bribes, and systemic issues that simply don’t exist in Thailand.
He doesn’t fear bankruptcy in Thailand because of government inefficiencies. In India, it’s a constant concern.
The little things add up. For India to truly become a manufacturing powerhouse, these “extras”, both financial and procedural, need to go.
