Sie sind auf Seite 1von 6

Introduction India is a developing economy and is considered to be one of the fastest growing economies in the world.

With the increase in the number of multi-national companies and privatization, India is a preferred destination for FDI. According to recent data published by the International Monetary Fund (IMF) and the World Bank (2012), the economy of India is the tenth-largest in the world in terms of nominal Gross Domestic Product (GDP), and third-largest in terms of Purchasing Power Parity (PPP). During the 2008 global financial crisis, when most of Europe and the United States were washed by the recession, India not only survived the meltdown but also witnessed an economic growth of more than five percent. According to the World Bank GDP (2009) growth data (annual percentage), India witnessed an annual growth rate of 8.5% after the recession. 3. Strengths, weaknesses, obstacles, constraints and opportunities for the development of the private sector Strengths for the development of private sector: 1) Public Private Partnership (PPP) Public Private partnerships are gaining importance and are benefiting from government support. According to the PricewaterhouseCoopers (2012), the PPP is estimated to be around $150 billions. Over the decade, establishing PPP is considered as a default option for vast infrastructure project such as roads and highways, bridges and railways, dams, ports and airports. Along with increasing number of local PPP, Multi-national companies have also showed interest over variety of projects. PWC 2012 India has become an attractive PPP market and its attractiveness is likely increase in the future, Therefore the ever increasing importance for PPP is one of the strengths for private corporations. 2) Liberalized Government Regulation for Private Corporations Government of India has liberalize their economy in 1991 to fewer government regulations and restrictions for greater participation of private entities. The new neoliberal policies gave full support to domestic and international firms with more international trade opportunities and investments, privatization and tax reforms. 3) Tax Incentives: The country offers numerous tax benefits for private firms. The benefits includes: incentives for incorporating new industrial undertaking, incentives based on specific industrial sector such as energy, ports, highways, electronic and software. In addition, private firms also entitled to tax benefits for initiating an industry in the less developed region. A research based report by Deloitte (2012) regarding taxation and investments in India reported the following tax incentives private sector is entitled to: Tax holidays depending on the industry or the region Weighted deduction at 200% for in-house R&D expenses including capital outlay Companies can also claim deductions for expenses incurred in the three years immediately preceding the year in which company commenced business

Accelerated depreciation for categories such as energy savings, environmental protection and pollution control equipment.

4) Strong Exposure for private entities by incorporating in developing country: Since India is considered as one of the fastest growing economy and a very attractive destination for investment, Private entities are entitled to function in a competitive market. This enables them to drive their focus more on R&D for manufacturing firm and customer service for service sector to keep up with their market.

5) Large and Low Cost Force: India has a large pool of highly skilled, low cost, and educated workforce. Even though only 20 percent of the labour force is highly skilled, the increasing literacy rate in India can provide a great advantage for the development of private sector. According to reported provided by Dilip Chenoy regarding skill development in India, it highlighted that the country has around 92 percent of population involved in skilled and unskilled labour force. The very cheap minimum wage in India provides private sector with a comparative advantage of manufacturing and providing the services at low overhead expense. Weaknesses 1) Bad Governance: Poor governance can be a big weakness for private entities because it could adversely affect the confidence of the private market and directly impact the capital inflow of private sector. Poor government decision can significantly affect the performance of private entities and thereby they are in threat for suffering losses. Unstable and frequently changing government with opposing intentions and opinions can make the renegotiation of the private projects very difficult. Firms might have to spend unnecessary amount of capital to settle down the changes or pay a very high renegotiation fee. 2) Lack of public Infrastructure: Poor public infrastructure and lack of capacity of public sector can be a major problem for the implementation of PPP projects. According to Guidebook on Public-Private Partnership in infrastructure (2011) highlighted that in the absence of such institutional arrangement and resource materials, public officials face difficulties in project development and implementation, and general public can have many misunderstanding regarding underperformance of PPPs. In India due to lack of public infrastructure, most of the time private entities have to make their own arrangements of the resources or import them in possible in order to meet the capacity of the project. This adds up additional cost in their operating budget.

3) Less Skilled Labour Force:

India has one of the biggest and cheap labour force however, majority of the population lack training and skills. According to Skill Development in India report by Dilip Chenoy (2011), Out of the total labour force only 2 percent are formally trained, 40 percent of the work force is illiterate, another 40% is made up of school dropout and rest 18 percent are vocationally trained graduates and diploma holders. This inherits additional training expense for private sector. 4) Poor Operation of Commercial Court: The commercial division of the high court bill was passed in 2009 and currently it is inefficiently operated. The procedure and trails of the commercial courts are unresponsive and its takes lot of time to settle the disputes. This poor regulation can give hard time for the private entities to survive in the Indian markets. 5) Poor Bankruptcy Framework: Recovery of distressed assets and lack of bankruptcy regulations have made industrial restructure and business exit very difficult. According to the report by World Bank regarding the private sector strategy in India, heavy bankruptcy regulations has burdened the financial sector with non-performing loans and deterred lending to the private sector. The private sector industry is waiting for the new bankruptcy framework to be formed and to be implemented. Risks: 1) Terrorism: India is surrounded with various rival nations who are competing to bring down the economy performance through terror attacks. The effect of terrorism is very significant and can cause enormous loss to the firms operation. There are direct costs associated due to the loss of properties and ultimate effect on the productivity of the entities. Risk of terror attacks can lead to decrease in the consumption from the consumer and gradual shift of resources. The highest risk of terrorism is associated with tourism, hotel and airline industry. 2) Liberalized and Very Competitive Market: Although due to liberalization and privatization the entry rules has been very easy but the private sector has to struggle hard to survive in the competitive Indian markets. Small firms are threatened by big industries and very competitive and popular multi national companies threaten domestic firms. Every firm in the Indian market has to invest intensively to continuously innovate and be competitive in the market. 3) Dynamic Business Environment: The private sector had losses when firms have failed to recognize the need for and the potential of, widening their activities with the given opportunities for growth due to ever changing business climate. Private sector growth in India has been uneven and with limitless exploitation of natural resources: the countrys largest growth areas have failed to create enough job opportunities. In addition most of the industries are concentrated in the four major cities namely Mumbai, Chennai, Kolkata and Bangalore.

Opportunities: 1) A Vast Land of Construction Opportunities: The policies by the Indian government encourage both local and foreign investors to take advantage of infrastructure opportunities in India. PricewaterhouseCoopers (2012) estimates that India will become third largest economy by 2050. Therefore, government regulations on the private sector are liberalize as one of the strategy of Indian government to promote spells infrastructure opportunity. All of the private sector is exposed to excellent set of favourable circumstances such as roads and highways, ports and airports, railways and energy sector standing out as a right set of field, with staggering investment plans. 2) Global Macro Environment: The private sector in India have access to a well functioning global macro business environment involving a dynamic global economy that provides market with adequate trade rules and resources that encourage competitive access to market opportunities. Indian market is flooded with open markets, good quality foreign and domestic investment, effective development aid and efficient transfer of technology. All this factors provide plenty of market and development opportunities for private entities. 3) Unstable and Volatile Economy of India: India being a developing nation can provide great opportunities for private sector. However, the unstable and volatile nature of Indian economy can be huge constraints for the development of private sector. Increase in Foreign Direct Investments (FDI) in India can increase the growth rate but if government fails to stabilize the ever-increasing inflation through their monetary and fiscal policies than private sector can face a drastic loss. Therefore they might be force to withdraw their investment from Indian market. The Rupees crisis of August 2013 can be a good example of this constraint where FDI decreased during to poor market performance and resulting currency crisis. Constraints: 1) Access to Finance: Although the access to finance in India has much improved over the years but remains difficult, especially for small and medium size firms. According to the Nations Encyclopedia, India has only 15.53% of firms access to finance and rest of them see it as a major constraint for their growth and development. This is because of the credit to the private sector is largely consists of loans to a few large, capital intensive businesses and as a result, making access to finance is difficult for small and medium size firms. 2) Majority of Population Still Engaged in Agriculture: Traditionally India was considered as a agro-based economy since majority of the population was engaged in agriculture. Due to privatization the agricultures contribution to Indias GDP has declined to around 21%. However, according to the World Bank data 72% of the poor population is still engaged in agriculture industry. This could impact the

support of the labor force towards the private sector. The trade offs of this large portion of the population not engaged in private sector can be a huge constraint. 3) Long Government Procedures Cause Delays in Projects: Although due to liberalization, the government of India has eased the entry rules in the private sector, but the operating and project implementation regulations are time consuming which can lead to delays in many projects. There are too many regulations imposed by the government, which often resulted in procedural delays. The Economic Times (2012) reported that it is estimated that on an average it takes 67.77 months from the conceptual stage to the production stage for any significant investment project to materialize. This delay could cause investment and opportunity losses, therefore slowing down the growth of the private entities. 4) Other Constraints: Other Government restrictions such as price control (on goods and services which do not give incentives for additional productions) and capacity restrictions ( to prevent concentration of wealth and economic power) can impact the private sector initiative and flexibility. Private entities expect government to impose policies, which can encourage production, benefiting both private companies as well as the economy.

United Nations ESCAP. (2011). A Guidebook on Public- Private Partnership in Infrastructure. Bangkok: Univted Nation. World Bank. (n.d.). Agriculture in South Asia. Retrieved Febraury 9, 2014, from The World Bank. (2009). GDP (growth Annual %). Retrieved February 9, 2013, from The World Bank Data: Chenoy, D. (2011). Skill Development in India: A Transformation in the Making. Retrieved Febraury 9, 2014, from NSDC India: Deloitte. (2012). Taxation and Investments in India. Deloitte . Nations of Encyclopedia. (n.d.). % of Firms Identifying Access to Finance as a Major Constraint - Enterprise Survey Indicators. Retrieved Febraury 9, 2014, from PricewaterhouseCoopers. (2012). Infrastructure in India: A Vast Land of Construction Opportunity. PricewaterhouseCoopers.

The Economic Times. (2012, June 19). Delay in completion of projects in Odisha to cost Rs 3200 cr more. Retrieved Febraury 9, 2014, from The Economics Times: