Doing business in India is easy. Just ask Vijay Mallya...

When Vodafone agreed to buy a controlling stake in India's fourth- largest mobile phone operator, Hutchison Essar, for $11.1bn (£5.7bn) last month, it was a sign of the times. No longer is India seen as one of investment's wild frontiers, where you can make big bucks if you take big risks. Increasingly, Western companies are viewing India as a market in which they simply can't afford not to be present.

"You rarely find a country with an acknowledged consumer class of more than 300m people, and an economy growing at 9 per cent a year. It would be quite idiotic to ignore the opportunity," is how Vijay Mallya sums it up.

The self-styled "Richard Branson of India", Mr Mallya's love of the limelight may not be to everybody's taste. But as chairman of India's UB Group, the world's second-largest liquor manufacturer, and owner of Kingfisher beer and India's fastest growing airline, he certainly knows the Indian market.

For foreign investors, India can be bewildering - from the moment you step off the plane into decrepit old airports that are falling apart. It's hard to believe that this is the tiger economy everybody is talking about. The roads are still Third World, rutted with potholes. Traffic jams are so bad it can take two hours to get from the airport to central Mumbai. Pick up a landline telephone to make an international call and you may just get a long silence. And if you don't have your own generator, you're likely to be plunged into darkness by the four-hour power cuts. Yet somewhere behind all this lurks one of the world's fastest-emerging markets.

Then there is the maze of Indian bureaucracy. You need permission to set up almost any sort of business here - and the general perception in the West is still that it is fearsomely difficult. For a start, there are so many different layers of government to deal with. If you want to set up in Mumbai for instance, do you have to deal with the central government, the government of Maharashtra state, the city authorities, or all three?

"Doing business in India is unfortunately misunderstood to be be much more complicated than it actually is," says Mr Mallya. "In the old days of socialist governments there were a lot of bureaucratic procedures. But over the last few years it's been extraordinarily simplified. It's really not that difficult. I can tell you right now the designated agencies the government has set up to approve foreign investments, and they all guarantee they will give you an answer within 30 days. And once you've got permission, the state governments are literally falling over themselves to get foreign investors to set up industries."

Even the once die-hard communist government of West Bengal is buying up agricultural land by compulsory purchase so foreign companies can build factories, and it is offering them generous tax incentives into the bargain. Vilasrao Deshmukh, the Chief Minister of Maharashtra, India's economic powerhouse, turns up in person to conferences to woo investors.

But there are pitfalls. Indonesia's Salim Group thought it was onto a winner when the West Bengal government agreed to let it build a massive chemical industry hub at Nandigram.

But Nandigram has since become a byword in India for rural rebellion against major developments, after villagers refused compensation money, barricaded themselves in and kept the authorities from taking over the land by force.

And there remain choking restrictions on some sectors of the economy. There are still regulations limiting foreign investment in key sectors like retail and banking, and this month's budget was widely criticised in international business circles for not doing more to clear the old restrictions away. Part of the reason it did not is growing discontent in India over the prospect of multi- nationals moving in and clearing away Indian small businesses - a factor that may make foreign investors pause. Small retailers have been protesting at plans by Western supermarket chains such as Wal-Mart to move in.

And for all the state governments' eagerness to get foreign investors in, most companies still have largely to opt out of using public sector infrastructure.

There are massive projects underway to improve things. Delhi and Bombay airports have been privatised and will be modernised; Bangalore and Hyderabad are building new airports from scratch. There is a national programme to build highways between the major cities.

But problems remain. Power supplies are too unreliable, so most companies put in their own generators. Off the major highways the roads are atrocious, so companies build their own roads.

In the IT hub of Bangalore, even hotels are in such short supply that companies have built their own "guesthouses" - five-star hotels for their visitors in all but name.

But it's a mistake to judge India by its bureaucracy and creaking infrastructure. Many foreign businessmen say they are stunned by the difference between the public and private sectors. "Bureaucracy is everywhere in the world but it's that little bit more in India, says Jean-Marc Delpon de Vaux, the managing director of SABMiller's India division.

"But when you talk about dealing business-to-business, they're as fast as anyone. When you talk about relocating here, as an individual you have to get used to certain things being more difficult. But at the top end, things really get done pretty fast."

SABMiller, the second-largest brewer in the world, is moving onto turf Kingfisher has traditionally considered its own. But Mr Delpon de Vaux says the Indian economy and local lifestyles are changing so fast that SABMiller just has to be here. "If you look at our market, beer only accounts for 4 per cent of alcohol consumption," he says. "The potential for growth is huge."

So big that SABMiller is prepared to deal with India's infrastructure problems to get a toehold. "There are electricity shortages," says Mr Delpon de Vaux. "Transporting our products takes a lot longer than we're used to. Trucks basically don't move faster than 40kph in India. But you can't say you will wait for the infrastructure. That's like standing on the platform and watching the train go by."

But if India is such an important market, what does a potential investor need to know? The first thing with a country on the scale of India, most business people here agree, is to decide where to invest. In part, that means dealing with the federal sturcture. "There's a huge difference between the states in India," says Mr Delpon de Vaux.

But R Ravimohan, managing director and chief executive of Crisil, India's premier ratings agency, says it goes further than just the states. "In a sense, we have a Switzerland, an Ethiopia and a couple of Thailands all inside one country," he says. "The important thing is to identify where you want to invest: in the class market, or the mass market. Let me give you an example. When mobile telephone companies started here, it was thought of as something to aim at the class market, the elite, so they charged premium rates. Then Reliance [India's biggest company] went into the same business using a mass-market model and turned it upside down. They had very low charges - but they got 20m customers."

Reliance's model now prevails in the Indian mobile market, which has some of the lowest tariffs in the world - and the third-largest number subsribers.

The sheer number of consumers in India, and the massive wealth gaps, mean any investor has to identify his market carefully, says Mr Ravimohan. "Take the different approaches used by Johnson & Johnson and Unilever. Unilever plays for the mass market. They want every Indian to be one of their customers. So they develop products that cost 25 rupess (30p). Johnson & Johnson decided they weren't interested in 25-rupee products. They've identified a market of 200,000 Indians who will pay premium prices, and they go after them. These two have worked it out. But most foreign companies who come to India don't communicate their products right."

When it comes to doing business in India, one rule still applies, according to Supriya Banerji, head of the international department of the Confederation of Indian Industry (CII). "In India, it's still not what you know that counts," she says. "It's who you know."

Personal contacts are far more important in India than in the West. Call a government department cold and you'll never get past the telephone operator. But if you have the right contacts, you can get a cabinet minister's mobile number - and he'll talk to you. The way you present yourself is important too, says Ms Banerji's colleague, TS Vishwanath. "You need to speak up and speak out in India. People don't really understand British politeness. Most Indians are in a great hurry to do what they want to do, so no-one really has time to work out if you're being polite or if you mean what you say.

"In Britain, sometimes 'maybe' is a polite way of saying no, but in India, if you say 'maybe' it means you're going to try to make it happen."

International groups join rush to make India the jewel in their crown

Vodafone became one of the highest-profile foreign entrants to the Indian market after it bought a majority stake in Hutchison Essar, the country's fourth largest operator.

Arun Sarin, Vodafone's Indian-born chief executive, had already led the British operator to invest in the country when it bought a 10 per cent stake in Bharti Airtel a year earlier. Yet with such huge growth potential, Mr Sarin was determined to gain control of a significant player in the world's fastest-growing telecoms market. Renault and Nissan last month said they are building a $900m (£466m) car plant in Chennai (Madras) with India's fourth-largest car group, Mahindra & Mahindra, that will produce nearly half a million cars.Fiat is partnering the ubiquitious conglomerate Tata, which is itself has an ambitious project to produce a mass-market £1,200 car.

International retailers are keen to move into a market forecast to reach £330bn by 2015. Wal-Mart got a head start on Tesco last year by signing a deal with Bharti Enterprises, the conglomerate run by Sunil Mittal. But Sir Terry Leahy's group is expected to unveil a joint venture with Tata soon.