Economics and Finance
A Country and Market Analysis on India

Introduction

This report will perform a country and market analysis on India, one of the many emerging countries of most promising economic outlook in the future. To facilitate the discussions, the report is separated into a total of five sections. These include: (a) the local business environment, (b) globalization and international trade, (c) legal environment, (d) the cultural and social environment, and (e) environmental and ecological issues. The discussion is presented below.

PART A: The Local Business Environment

In this section, the local business environment in India will be discussed. The discussion will focus firstly on the opportunities as well as problems or risks pertaining to India. Then, the discussion will proceed to outline some of the important business trends happening in India. Lastly, issues such as the key industry segment in India as well as the equity market in India will also be briefly discussed.

Opportunities. First of all, India is a famous emerging country, which is categorised under the term ‘BRICS’ – that has been associated with the notion of those significant emerging countries that will be powerful driver of economic growth in the next few decades (Drysdale, 2011). The rationale would be easily understood. First of all, India has a population of over 1 billion people (Thornhill, 2002). Given the huge population size, the country actually possesses large pool of technologically skilled manpower (Sumanjeet, 2010). Then, the country also has young labour force, and has been famous for its human capital advantage – that has good knowledge of English and elite education (Zhou, 2014).

Problems or risks. However, it is crucial to highlight that the country is not without business problems or risks. For that, India is still a country troubled by mass poverty (Thornhill, 2002). Indeed, in many of those ‘disconnected’ or rural areas, there is still lack of reliable electricity, running water and sanitation system (Tannon & Puri, 2014). Then, while the country has a large pool of labour force, majority of the workforce is still largely unskilled, lack of education and training, as well as unable to cope with the needs of foreign multinational corporations (Zhou, 2014). Indeed, India is a country famous for weak implementation. For that, it is not uncommon for foreign multinational corporations to found out that these issues: varied literacy rates, low-financial resources, a digital divide, multiple languages and different socially acceptable practices, tend to cause implementation failure (Venkataraman, 2010). Then, the foreign multinational corporations that are unprepared will also likely be caught by surprise that there are many internal crossing barriers within India that can lead to disruption of business process or inefficient business execution. One example is that a truck running 500 miles across India will likely be subjected to internal tariffs at three different places (Zhou, 2014). Unfortunately, such issues remain unsolved, as these are issues that cannot be solved at national-level; and must involve the different states in the country to effectively deal with these internal barriers or hurdles in India (Zhou, 2014). Indeed and very interestingly, being a democratic (and often being perceived as being too democratic) country is regarded as one of the reasons preventing India to achieve true success – as lengthy and sometimes seemingly impossible negotiation must precede the efforts to enforce labour discipline, mobilising domestic savings, implementing industrial policies and directing cheap capital into export-oriented companies (Thornhill, 2002). Anyway, these are not the only problems. Some other problems or risks that may plague businesses include these issues: agricultural stagnation; growing urban-rural divides (i.e., social inequality); oppressive bureaucracies; political division; poor infrastructure construction; sectarian conflict; unwarranted nationalism caused social instability; as well as widespread corruption (Thornhill, 2002; Zhou, 2014; Velmurugan & Velmurugan, 2014).

Trends in India. From another perspective, there are some trends that has been happening in India that worth the attention from businesses. First of all, India has been growing fast (relatively to the developed nations) since its independence in 1947 (Zhou, 2014); of which the growth was accelerated further after the Nehru government policy reforms (i.e., to encourage imports of capital goods and products, moderate relaxation of industrial control, and moderate tax reform) during the 1980s (Zhou, 2014); and later due to the effective use of Special Economic Zones (SEZ) as engine for economic growth (Srivastava & Srivastava, 2012). Indeed, it is expected that India will continue to grow into the future; to perhaps becoming the third biggest economy in the world by 2050 (Drysdale, 2011). Given that, population in India have enjoyed the rising disposable income, and hence purchasing power over the past decades (Hussin & Yik, 2012) – and that effectively turn India into a big market to target by multinational corporations.

Then, consistent with the growth of economy in India, there are progressive governmental plan to build extensive new roadways, establish a high speed rail network, link the great rivers and create an efficient and effective national transportation system; as well as to invest heavily in the high tech communication industry (Tannon & Puri, 2014).

Yet, there are also findings that workforce in India have been expected to work longer and restless; and that the local companies are increasingly aggressive in competing for talents from the competitors (Osunde, Ashima, Anup & Shankar, 2015).

Nevertheless, there are also views that India has been facing a problem of deteriorating governance; as public has been observing that key institutions responsible for governance (example: Parliament, civil services, judiciary, the Election Commission, the Central Bureau of Investigation, the Central Vigilance Commission, and the Comptroller and Auditor General) are highly inefficient and seriously lack of integrity (Chatterjee & Roychoudhury, 2013), which perhaps had bring bad reputation to India as a highly corrupted country (Jain, 2011).

Key Industry Segment. Other than that, it is also worthy to discuss about the key industry segment in India. Contrary to the export or manufacturing led model by the other emerging countries, India growth is driven primarily by the service sector (Hussin & Yik, 2012). The service sector growth in turn is heavily contributed by the IT industry – whereby in recent years, the average growth rate of Indian services industry reached 9%, among which software industry growth amounts to over 10%; and account for 10% to total exports of India (Zhou, 2014).

The Equity Market. Last but not least, India also has quite a developed and sound financial markets (Zhou, 2014), which will be able to support the growth of the country in the future.

PART B: Globalization and International Trade

Globalisation has been shaping the global business landscape – and has effectively contributed to the fast growth of many emerging countries, and India is not excluded. Under the context of globalisation, it can be observed that global trade has been increasing. For that, some details about international trade pertaining to India will also be outlined.

Key Trading Partners. Currently in 2015, as shown in Figure 1 below, the biggest trading partner for India is China (i.e., with a total of $49.5 billion or 8.7% share in India’s total trade), followed by United States (i.e., at $46 billion or 8.1% share in India’s total trade) and the third place by UAE (i.e., at $45.4 billion or 8% share in India’s total trade).

 

Figure 1: Trading Partner of India (in Financial Year 2015)

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Source: International Trade Centre

 

Trade Agreement. Other than that, India has been negotiating trade agreement with many other countries. For example, negotiation is ongoing for a free trade agreement between India and European Union. Nevertheless, issues remained as the free trade agreement demanded by the western country tend to be more ambitious and far-reaching; while India tend to maintain trade agreement that would sound ‘comprehensive’ in name, but contains less liberalisation than the EU desires (Kapur, 2008).

National Policies. There are also some distinctive national policies of India that worth discussing. First of all, the major of the foreign policy of India is modelled after the Nehruvian concept of non-alignment (Kapur, 2008), which is about not to participate in choosing a side in the case of handling international conflict. Then, India also practices several pro-business and Foreign Direct Investment (FDI) policies. In recent years, the foreign direct investment (FDI) or investment in company share capital in India are liberalised, as FDI of up to 100% is allowed (in majority of the sector, which include: manufacturing, power, construction development projects, natural gas and most kinds of mining) (Prasad, 2007).

Nevertheless, there are some critiques on national policies of India. For example, there are concerns on the lack of an effective competition and antitrust policy in India, whereby the government has excessive control over the many industry, restrictions on private participation in industry, price control and significantly exit barriers (D’Souza-Monie & Farias, 2001). Yet, there are also views that national policies for business are often shaped by powerful oligarchs to protect their economic interests (Jain, 2011). For that, the many national policies enacted can actually contribute very little to the welfare of the society.

Overall, as with any emerging countries, it can be seen that India has pro-business policies, but is troubled by some efficiencies and self-interests of some of the policy makers.

PART C: Legal Environment

Overall, the legal system in India is similar or modelled after the English common law system, especially on the context of concepts of justice, equality, precedence, the civil and criminal procedure codes (Prasad, 2007). To have an overview of the main legislation in India, a list of the central legislation in India is provided in Table 1 below.

 

Table 1: Main Legislation in India

 

1.      The Constitution

2.      Criminal law

3.      Law of torts

4.      Contractual law

5.      Civil law

6.      Commerce law

7.      Taxation law

8.      Individual income and corporate tax laws

9.      Customs duty and excise duty

10.  Corporate law

11.  Dispute resolution laws

 

Source: Prasad (2007)

 

While there are comprehensive and established legislation in India, it is yet also worthy to mention about the legal or security related risks in the country. First of all, the many laws available in the country seemed not able to stop violence from happening in the country, which often caused by caste, political and religious related problems (Broom, Sibbritt, Nayar, Nilan & Kirby, 2013). Then, it is also crucial to acknowledge that certain parts of the country have also been plagued by high crime rate and insecurity – and it is definitely dangerous for managers and workers to work in such areas or work late (Osunde, Ashima, Anup & Shankar, 2015). Other than that, the enforcement of the legislation seemed to be ineffective or weak. For example, it is widely noted that the labour law does not have a notable influence on the industrial labour adjustment, such as in improving the labour quality or building a more free flow labour market (Zhou, 2014). Other than that, there are also a lot of concerns on human rights issues in India – especially on issues related to human rights of female in the country (Sharma, Pardasani & Nandram, 2014). Then, there are also issues on poor legal regime for e-commerce (Sumanjeet, 2010). Last but not least, there are also concerns of acute crisis of corruption (and worse, sometimes oppressive bureaucracies) in the country, of which cannot be easily solved with current governance system in the nation (Chatterjee & Roychoudhury, 2013; Jain, 2011; Thornhill, 2002).

Nevertheless, as from the perspective of emerging country, India is a country of relatively good legal system for IP protection – give that the government has a strong policy on supporting basic research in R&D investment, patent protection, and scientific research institutions (Zhou, 2014). In a way, that had also contributed to high patent development as reflected in the ownership of patents developed in India (Bhaumik, Chakrabarti & Mäkinen, 2009).

PART D: The Cultural and Social Environment

Of many issues pertaining to India, the societal and cultural related issues are perhaps the most interesting, but also the most complicated issues that can surprise or even troubled the foreign investors.

Societal Characteristics. First of all, India is a country of diverse populations of over 1 billion people (Thornhill, 2002); with the GDP per capital at US$ 1,124 per annum (Srivastava & Srivastava, 2012). The issue becoming much more complex as India has a complex and multifaceted society (Tannon & Puri, 2014); reflected by the high degree of social, cultural, linguistic and biological diversity in the nation (Osunde, Ashima, Anup & Shankar, 2015). For example, it is estimated that 80% of the population is Hindu; 8% of the population is constituted by tribal who are ancestor worshippers and are largely endogamous; while the remaining belongs to other religious groups including Muslims, Christians, Buddhists and Jews (Osunde, Ashima, Anup & Shankar, 2015). That is yet to mention about the different sect in a religion, such as the Muslim in India can be separated to Bohra Muslim, Shia or Sunni (Srivastava, 2010). Then, it is also estimated that there are several thousand endogamous groups in India; forming a total of 4693 communities; with 325 functioning languages and 25 scripts (Osunde, Ashima, Anup & Shankar, 2015).

Next, the issue of social inequality is also a serious problem in India, as the growth of India has been actually confined to few major cities and some industries (Sumanjeet, 2010). Based on the statistics, it is noted that 40 percent of the population in India lives below poverty line while the richest family can spend extravagantly on constructing a two-billion-dollar family residence (Jain, 2011). Given that India is still characterised by the problem of mass poverty, there is sign of growing urban-rural divides (Thornhill, 2002). Nevertheless, inequality is not due to geographical region only; as inequality is also contributed by differences of social classes (i.e., caste); a serious issue perceived by many as one of the main factor that will eventually lead to unsustainable economic growth in India (Zhou, 2014; Broom, Sibbritt, Nayar, Nilan & Kirby, 2013). Perhaps for all of these issues, civil unrest are not uncommon in India – due to political, caste and religious tensions (Broom, Sibbritt, Nayar, Nilan & Kirby, 2013).

Aside from these, there are also stresses caused by dislodgment of people, by the drive for ethnic and caste identities; or by the fact that people have to move to the city area in search of job (Osunde, Ashima, Anup & Shankar, 2015). Indeed, as the result of diversity within the Indian society; there is a problem of distrust between communities (Osunde, Ashima, Anup & Shankar, 2015).

Cultures. Then, from another perspective, India is a country of highly diverse cultures. That can be easily understood as India is the birthplace of Hinduism, Buddhism, Jainism and Sikhism (Rajagopalan, 2005), and different people in different geographical region in the country have different living practices (Srivastava, 2010). Anyway, some scholars believed that in recent years, Hindu-Muslim tensions had heavily shape the Indian cultural landscape (Broom, Sibbritt, Nayar, Nilan & Kirby, 2013), which had resulted sometimes in rape, murder, and serious physical and psychological injuries.

Other than that, it can also be generalised that India has a culture of strict social hierarchy; and that different communities are subjected to different taboos (Rajagopalan, 2005). Yet, from the Hofstede cultural dimension, India is often found to be exhibiting higher levels of collectivism (Kwantes, 2009), as well as higher level of power distance (Rao, 2011), as compared to the western countries.

Considering the discussions presented above, it can be seen that India is actually a diverse countries, and that it is therefore inappropriate to treat it as a homogenous country (Srivastava, 2010). As such, a foreign manager or foreign business shall not make any generalised assumption on the Indian cultures, and be rather expect to deal with diverse and heterogeneous cultural behaviours in the nation.

PART E: Environment and Ecological Issues

While the economy of India has been growing very fast in the recent years, it is also witnessed that the country has been facing with a problem of slow and steady depletion of its natural resources (such as: air, water, land, greenery, biodiversity, forests, eco-systems and so on) (Dhara, 2009). The loss of natural resources is currently becoming more an obvious problem, as the loss of biodiversity, loss of forests and so on (due to unsustainable development), and that the fact that some of the metropolises like Calcutta, Bombay, Delhi, Hyderabad, Bangalore, and Chennai are growing out of proportion – had eventually resulted in negative impacts towards the health of the population in the country (Dhara, 2009).

In order to protect the natural environment, the Indian government had actually enacted many different Environmental Acts to preserve the natural environment. The list of these Acts is shown in Table 2 below.

 

Table 2: Environmental Acts in India

 

General

1986 – The Environment (Protection) Act

1986 – The Environment (Protection) Rules

1989 – The objective of Hazardous Waste (Management and Handling) Rules

1989 – The Manufacture, Storage, and Import of Hazardous Rules

1989 – The Manufacture, Use, Import, Export, and Storage of hazardous Micro-organisms

1991 – The Public Liability Insurance Act and Rules and Amendment,

1995 – The National Environmental Tribunal Act

1997 – The National Environment Appellate Authority Act

1999 – The Environment (Siting for Industrial Projects) Rules

2000 – The Municipal Solid Wastes (Management and Handling) Rules

2000 – The Ozone Depleting Substances (Regulation and Control)

2001 – The Batteries (Management and Handling) Rules

2002 – The Noise Pollution (Regulation and Control) (Amendment)

2002 – The Biological Diversity Act

 

Forest and Wildlife

1927 – The Indian Forest Act and Amendment.

1980 – The Forest (Conservation) Act and Rules

 

Water

1882 – The Easement Act

1977 – The Water (Prevention and Control of Pollution) Cess

1978 – The Water (Prevention and Control of Pollution) Cess Rules

1991 – The Coastal Regulation Zone Notification

 

Air

1948 – The Factories Act and Amendment

1981 – The Air (Prevention and Control of Pollution) Act

1982 – The Air (Prevention and Control of Pollution) Rules

1982 – The Atomic Energy Act

1987 – The Air (Prevention and Control of Pollution) Amendment Act

1988 – The Motor Vehicles Act

 

Source: Ravi & Pallavi (2012)

 

Fortunately, with the enactment and enforcement of new environmental regulations, there are evidences that there are some improvements in air quality in India recently (Greenstone & Hanna, 2014). Then, it is also apparent that more corporations in India are becoming more environmentally responsible, and be proactive in disclosing environmental information in the respective annual report (Sen, Mukherjee & Pattanayak, 2011). Nevertheless, from the overview, such acts of stewardship towards the natural environment are still insufficient and uncommon in the country (Bhal, 2014).

Conclusions and Recommendations

Overall, the discussion above had informed businesses about the key issues to be expected from India. The information provided can provide some insights or suggestions on how to conduct business more effectively in the country. First of all, it is crucial to have proper expectation and awareness, on the complexities, diversity, dynamic and sometimes problematic aspects of India as a nation. For that, it is crucial not to treat India as a homogenous country, and be prepared to learn along the way during the conduct of business in the country. The different people in different region have different culture, religion and even languages. That demands any business to stay very flexible – in dealing with the many consumers of different characteristics. For that, it is perhaps valuable to seek out different local business partners in India, as to deal with the many a different local community in different areas in India. Aside from relying on their local network for market penetration purposes; that can also be important in supplying the know-how aspects on how to deal with local citizens for a foreign business. Other than that, street smart can be very important – as while comprehensive and well-established legislation may be available, the enforcement of the laws can be very weak. Indeed, to rely upon law as the protection would be unrealistic. A foreign business would better rely on other means as to influence the others in India; rather than to expect that a legal contract can protect his or her own interest. Not only is that, risk management can be very important, as while India has high growth potential, the risks due to social inequality, social unrest, poor infrastructure, corruption and so on can affect the business development process in the country unexpectedly. In other words, it is necessary to have proper contingencies plan, and expect the worst may happen – as to protect or limit the downside of a business when conducting business in India. Nevertheless, given that India is a populous country and has been experiencing relatively fast economic growth (and perhaps more importantly, is expected to continue so into the future) – foreign businesses should venture into the country, to so capitalise on the growth of the nation – to one that might be becoming the third largest economy in the world by 2050.

 

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