The Business Environment of INDIA

THE BUSINESS ENVIRONMENT OF INDIA

by
Claire CHARIFI-KHOUB

Master International of Business

Sydney Business School
Chandrakumara, A
27 October 2010
 The Business Environment of INDIA 2

Outline:

1.0 Executive Summary:

1.1 Introduction
2.0 Country Profile:
3.0 Economy of India:
4. Political System:
5. Legal and Regulatory Environment:
6. Socio-Cultural Environment
7. Availability of Resources:
8. Concern of Ethics and Social Responsibility:
9.0 Conclusion:
9.1 Recommendation:
Reference List
 The Business Environment of INDIA 3

Executive Summary:

The purpose of this report is to prepare a country report of India in order to

assess the business environment of this country and to provide the CEO with
important information for making a decision about business. In order to do so, this
paper considers political, social, and economical environment of India, Gross
Domestic Product, FDI, geographical position, natural resources, work force
values, and consumer attitudes.

1.1 Introduction

NCAER (2010) argued that the global financial downturn caused by the
Western countries in 2008 and prolonged all over 2009 has seriously injured the
world economy but China and India have gained tremendous economic growth
under the recessionary economy. India has achieved such challenging success for
its policy, business innovation, and skilled human resource. Prabhudesai (2010)
analysed the economic survey of India 2009 and pointed out that the country is
going to record 7% GDP growth in 2009-10 whirl it largely connected with the US
Economy and the quick recovery of financial crisis. Indian policy has vastly aimed
to accelerate the economy with balanced Human recourse development,
Information Technology, Agricultural and infrastructural development while the
county is the pioneer of global outsourcing market. Meanwhile the government and
private sector of the country to grasp greater equity in the banking sector while it
has also aligning of attracting FDI1 inflow, export oriented Industrial growth and
regulatory reforms in higher education.

1
Foreign Direct Investment
 The Business Environment of INDIA 4

2.0 Country Profile:

2.1 Geographic & Demographic Overview:

According to the report of World Wealth Report and World Economic

Report, India is now the ideal place for multinational companies to do business
because it situated in Southern Asia (between Myanmar and Pakistan), which has
link with the Indian ocean, the Arabian Sea, and the Bay of Bengal by Bangladesh
(Hamsapriya, 2010, p.10).
IndexMundi (2010) provided the data of the total population of India and it
was about 1,156,897,766 in 2010 while it was 1,166,079,217 in 2009. Initially, the
population growth rate was high but not this rate is reducing dramatically, for
instance, in 2004, 2005 & it was 2.91 % and 0% gradually and now the growth rate
is -0.79%.

Figure 1: - Total population of India from 2003 to 2009

Source: - IndexMundi (2010)
 The Business Environment of INDIA 5

Age (Year) Percentage

0 to 14 30.5%
15 to 64 64.3%
65 and older 5.2%

Life expectancy Age (Years)

women 67.17
Men 65.13
Total (Average) 66.09
Table 1: - Life expectancy, Age groups
Source: Self generated IndexMundi (2010)

3. Economy of India:

India has a highly developed economical environment, as it is the eleventh

position in world economy and its economy grew at its fastest rate due to rapid
growth of software sector, infrastructure development, industrial revolution, and
proper use of its resources.
According to the report of Library of Congress (2006) from 1947 to the late
1970s, central government centralized the economy of India, but this position
changed from 1880s, for instance, privatization of government industries and
reduced tariffs help the country to experience 7% annual growth rate. Library of
Congress (2006) also addressed that FDI has enlarged to an annual range of $3.0
billion to $5.0 billion, but the annual progress was not reach at expecting level due
to local corruption and external bureaucratic problem with China.
However, the currency of India is “Indian Rupee” (INR), where 1 dollar is
equals to 40.55 Indian Rupee, all currencies are in notes and coins, which issued
and controlled by the Reserve Bank of India. Despite huge development of this
country, the Indian currency has depreciated gradually against the dollar since the
 The Business Environment of INDIA 6

1971; for example, in 1993, the average exchange rate was only Rs31.290 for $1
while this rate was Rs46.590 in 2003.

Indian Exports:

According to the view of Dewett (2005), exporting indicates the promotion

and direct sells of locally manufactured products in the foreign market and it is a
well-developed and conventional form of strategy to acquiring foreign markets.
Therefore, export is the core basis of revenue for the India’s financial system since
it generates large amount of money from this sectors, such as, India’s exports
totalled $165 billion in 2009 and about $200.9 billion in 2008 (IndexMundi, 2010).

Figure 2: - Total Exports from India 2003 to 2009

Source: - IndexMundi (2010)

According to the Library of Congress (2004), major exports items are textile
products, finished gems and jewellery, electronics items, iron, steel, chemicals,
vehicles, petroleum products, oil, fruits and vegetables, beverages and tobacco,
precious stones, machinery, leather, leather goods and so on.
 The Business Environment of INDIA 7

Imports to India:
India has to import very few items such as raw materials for manufacturing and its
main imported commodities are–
o crude oil, precious stones,
o fertilizer,
o Specific chemicals
o Machinery equipment and transport equipment;
o mineral fuels, lubricants and related materials;
o Foods as well as Beverages
o Other luxury products (Library of Congress, 2004);

Fiscal Year Total Imports ($billion) Rank

2003 53.80 24
2004 74.15 23
2005 89.33 24
2006 113.10 22
2007 187.90 17
2008 230.00 16
2009 305.50 15
2010 253.90 14
Table 2: - Total imports to India (Year by Year)
Source: - Self generated from IndexMundi (2010)

India and its GDP:

IndexMundi (2010) stated that the economic situation of the country is much
more favourable for business than any other countries of the globe because India’s
GDP for 2007, 2008, & 2009 were $3.113 trillion, $3.344 trillion, and $3.561 trillion
gradually. As GDP demonstrates the main economic strength of the country, it is
essential to compare the recent data with previous years and after comparing the
 The Business Environment of INDIA 8

data, it can say that the GDPO in India has fall but it is still stable position and the
following figure shows it more perfectly -

Figure 3: India and its GDP for last 10 years

Source: IndexMundi (2010)

Foreign Direct Investment in India:

IndexMundi (2009) mentioned that the foreign direct investment in India

measured as $161.3 billion at the end of 2009, which was $123.4 billion in 2007.
 The Business Environment of INDIA 9

Figure 4: - FDI at India

Source: - IndexMundi (2010)
On the other hand, India Company’s investment in abroad where they have
significant percentage of equity is treated Direct Investment Abroad (DIA) of India.

Figure 5: - FDI at India at abroad

Source: - IndexMundi (2010)

4. Political System:

Kohli (2001) pointed out that after a two centuries British colonial rule India
became independent in 1947 and established a multi party federal democratic
system based on secularism and social justice. India the world’s biggest
 The Business Environment of INDIA 10

democratic country has evidenced successful balance of power between the

central and state government with rich diversity of nations. The major political
parties are Congress- that carried out independence, BJP and Left Alliances
though there are dozens of regional parties in every state with strong institutional
infrastructure. With high religion diversity such as Hindu, Muslim, Buddha, and
Christen, Indian political system has ensured human right, freedom of speech,
liberty of media, and nourishing scholars to face the challenger of globalisation.

5. Legal and Regulatory Environment:

India is a budding market and so it endorses Foreign Direct Investments in

the nation; therefore, the legal system for firms in India is very flexible and the
government tries to afford the highest possible business-friendly environment to
new-entrants too. However, it is arguable that commercial legislations regarding
labour and environmental concerns are indeed very strong. As per NASSCOM
Newsline (2006), India lacks specific laws on privacy and data protection and due
to the emergence of IT businesses in the economy, the government is trying to
fortify the existing legislations regarding data protection issues including the Indian
IT Act, the Indian Contract Act, the Indian Penal Code, and the Indian Copyright
Act.

6. Socio-Cultural Environment

Many people argues that the impact of socio cultural factors are embracing
every perspectives of Indian economy, starting from entrepreneurial behaviour,
workforce management, consumer attitudes, to overall corporate environment. The
consumer attitudes and their buying behaviour, for example, are widely influenced
by their religious backgrounds; according recent studies, the Indian consumers
show marked increases in demand for many consumer-goods during periods of
 The Business Environment of INDIA 11

religious festivals (like Durga-Puja, Diwali, Eid, Christmas, etc). The following table
shows the percentage of the population in to context to religious backgrounds:

Religion Percentage
Table 4: Hindu 80.5%
Religious
Muslim 13.4%
Background of
the Population Christian 2.3%

Source: Self- Sikh 1.9%

generated from
Buddhist 0.8%
neoncarrot
Jain 0.4%
(2009)
Zoroastrian 0.01%

Numerous Other 1.3%

generations and
cultures in the workplace have caused alterations in motivations and values
affecting personal-preferences; India is a place where managing workforce
diversity effectively is the most challenging work to do; on the other hand,
according to NASSCOM Newsline (2007), there have been significant
improvements and changes in values in India in allowing and appreciating women
in workplace.

7. Availability of Resources:

o Natural resources: India's total cultivable area is 1,269,219 km², and it has a
total water surface area of 314,40 km² are the main natural resource for the
country; in addition, Coal, Iron, steel, oil and natural gas also key natural
resources; however, the following figure shows that earning from oil exports
 The Business Environment of INDIA 12

Figure 7: - Oil exports

Source: - IndexMundi (2010)

o Human resources: The human resource of India is one of the key factors of
why the country is showing marked trends in economic development. The
country has over years emphasized in edifying and training the HR that has
resulted in the creation of highly skilled workforces specialising in different
sectors of the economy.

8. Concern of Ethics and Social Responsibility:

The multinational companies operating in India are very much concerned

about the imposition of corporate social responsibilities within their organisations in
order to ensure that the Indian communities, environment, labours, and other
stakeholders does not have any adverse affects by their regular operations. Many
large Indian businesses strictly follows their own corporate regulations regarding
ethical concern, but, however, as India is still a developing country, the issue of
social responsibility is still quite new to the local businesses and many other new-
entrants in the market does not comply to the ethical issues at all. Visser (2007)
argued that the issue of corporate responsibility is still quite immature in developing
 The Business Environment of INDIA 13

countries like India and the large companies operating there more often relates
CSR with doing charities and spending on education, health, and games; making
an economic contribution is often seen as an effective way for a company to built
social reputation
.

9.0 Conclusion:

As an emerging economy that always promotes, appreciates, and affords

the best possible business environment in order to develop the economic
conditions, India is indeed an ideal marketplace where any kind of business can
have a good prospect. Additionally, the rural areas of the country with its
conventional observations have developed over time and it is now growing at two-
times quicker rate than urban cities, contributing to 60% of the overall national
demand that makes these markets as an attractive place for businesses too. These
enhancements of the Indian economy would continue to rise in near future turning
it into one of the most promising nations throughout the world.

9.1 Recommendation:

o India rapidly developed their human resources, as a result it would be a

perfect place for business;
o Excluding corruption and some legal barriers, Indian government is
cooperative to help foreign investors;
o India is the ideal place for trade because of geographic location, business
environment and less burden imposed by the government and all legal
established products can easily enter in the market of India;
o The labour cost is comparatively lower than other countries, so India is a
potential place for business;
 The Business Environment of INDIA 14

o The rural areas of India are currently contributing more than the urban areas
in the economy and the labours in those regions are specially trained for the
manufacturing industry. Most importantly, the wage costs in those areas are
far lower than the central cities, so setting up the business over there will
undoubtedly be more profitable than any other places.

Reference List
Dewett, K. K. (2005) Modern Economic Theory. 22nd ed. New Delhi: S. Chand &
Company Ltd.
 The Business Environment of INDIA 15

Hamsapriya. (2010) Culture And Business Environment In India. [pdf] Available

from: http://www.reingexeeni.edu.es/open/hamsaindia.PDF [Accessed 27
October 2010]
IndexMundi (2010) Exports, Import& GDP of India. [Online] Available from:
http://www.indexmundi.com/india/exports.html [Accessed 27 October 2010]
IndexMundi (2010) India Age structure. [Online] Available from:
http://www.indexmundi.com/india/age_structure.html [Accessed 27 October
2010]
IndexMundi (2010) Population of India. [Online] Available from:
http://www.indexmundi.com/india/population.html [Accessed 27 October
2010]
Kohli, A. (2001) Success of India's Democracy. 1st ed. UK: Cambridge University
Press.
Library of Congress (2004) Country Profile: India. [pdf] Available from:
http://lcweb2.loc.gov/frd/cs/profiles/India.pdf [Accessed 27 October 2010]
NASSCOM Newsline (2006) Regulatory Environment in India. [Online] Available
from: http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?
id=26104 [Accessed 27 October 2010]
NASSCOM Newsline (2007) Workforce. [Online] Available from:
http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=50996
[Accessed 27 October 2010]

NCAER (2010) Annual Report 2009-10, The National Council of Applied Economic
Research (NCAER). [pdf] Available from:
http://www.ncaer.org/downloads/annualreports/AnnualReport_2010.pdf
[Accessed 27 October 2010]
Neoncarrot (2009) All India Quick Ref stats. [Online] Available from:
http://www.neoncarrot.co.uk/h_aboutindia/qref_statistics_all.html [Accessed
27 October 2010]
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Prabhudesai, A. (2010) India Economic Survey 2009 – Analysis and Full Report.
[pdf] Available from: http://trak.in/tags/business/2009/07/03/india-economy-
survey-2009-analysis-full-report/ [Accessed 27 October 2010]
Visser, W. (2007) Corporate Social Responsibility in Developing Countries. [Online]
Available from:
http://www.waynevisser.com/chapter_wvisser_csr_dev_countries.pdf
[Accessed 27 October 2010]