In the current business scenario, it is becoming important for the countries to develop their competitiveness in order to gain the major portion of the foreign direct investments. In the current era of globalization, economy of the countries is heavily depended on the inflow of the foreign direct investments (Fligstein and Clader 2015). However, in order to gain the attractiveness among the investors, countries should improve their external business environmental factors along with laws and regulations. In the recent time, one of the major countries creating positive buzz in the global scenario is India. They are having the highest growth of economy in the world and this is reflecting in their increasing inflow of foreign investments.
However, in order to gain an insight of the investment scenario in India, it is important to determine the different aspects relevant to this. This report will discuss about the external business factors evident in the Indian scenario (Gaur, Kumar and Singh 2014). In addition, national resources and factors important to gain competitive advantage will also be evaluated. Trade barriers and policies will be identified and the existing level of foreign investments in the country. In accordance to the identification of issues, a few recommended steps will also be discussed.
It is reported in the global economy that India scored 2 in terms of political risk. This denotes that business organizations doing business in India will face moderate level of political risk. In the current business scenario, moderate level of political risk is being treated as considerable (Mitra and Schottli 2016). In addition, it is also reported that India scored -0.83 in terms of political stability and this denotes that political situations are stable in the country. This is also contributing in attracting more foreign investments. However, on the other hand, it is also identified that India is having the ranking of 81 in global transparency index (Dreher and Gassebner 2013). This is denoting that corruption is evident in the country and this will pose challenge for the business organizations. Thus, the governance in India is favorable but facing the challenge of corruption. The democratic approach of the government with the market based initiatives is also helping in creating positive political environment in the country.
As discussed in the previous section, it is identified that India is having highest rate of economic growth. Thus, it is posing huge business opportunities for the foreign investors. In addition, it is also reported that India scored 35 in terms of corporate tax rate and it denotes that business organizations will face moderate rate of taxation in doing business in India. Moreover, the rate of corporate tax rate is way lower to that of the developed countries. This is another reason behind inflow of the foreign investors in the country (Agarwal and Whalley 2015). However, it should also be noted that India is facing issues in terms of business freedom. This is due to the reason that it is reported that score of India in terms of business freedom got deteriorated from 2009 to 2017. Thus, the business organizations doing business in India will face the challenge of lower freedom in the decision making process.
One of the major social factors evident in India is huge population. India is the second largest country in the world in terms of population and thus the business organizations operating in the country will have huge market opportunities. In addition, Indian population is having diverse population from different social and cultural backgrounds. Thus, different business sectors are having opportunities in operating in the Indian market. With the increase in the economic growth of the country, the purchasing power of the customers is also increasing, which is further increasing the market demand forces (Buhaug and Urdal 2013). Due to the fact that India is having huge population, the average cost of human resources is low. This is also attracting the foreign investors to have their manufacturing facilities in the country to take the advantage of lower cost of operation (Harkavy 2013). It is also reported that India is the largest country in the world in terms of the middle class customers. This is also a huge market opportunities for the foreign investors in doing business in the country.
India is improving in terms of the innovation as it is reported that India is scored at 35.5 as of 2017. This is denoting that business organizations will have the opportunities of accessing new technologies (Gupta and Singh 2014). India is also known for the export of information technologies and this is also attracting new investments by improving technological infrastructure of the country. India is also one of the major countries in the world in terms of startups and thus the foreign investors will have huge access to the complementary industries in abundance.
There are number of factors evident in India, which are helping in gaining competitive advantages. One of the major factors is the availability of different natural resources such as coal and iron ore. According to the reports, India is the fourth largest producer of coal in the world and seventh producer in terms of iron ore. Thus, foreign investors mainly in the power and heavy industries will have the benefits in having their operation in India. In addition, India is also having large reserve of natural gas, which is also helping in having the business sustainability in operating in India (Gadgil and Guha 2013). Another major competitive factor doing business in India is lower cost of production. India is having lower cost of skilled employees in the country along with wide access to other resources, which is helping in having low cost of operation for the business organizations. Thus, the foreign businesses are investing in India to have low cost and they will gain more profitability in their operation. India is also having the competitive advantage of efficient and effective legal enforcements. This is also helping the business organizations in having proper legal frameworks in the country. Thus, it can be concluded that India is having competitive advantages from different sectors for the foreign investors.
India is facing a major issue in terms of foreign exchange as the value of Indian rupees is constantly decreasing compared to the American dollars. Thus, the foreign investors will have to incur added cost in exporting their offerings from India. In addition, fluctuations in the global exchange rate of currencies are getting increased and this is enhancing the vulnerability of the business organizations operating in the Indian market (Singh 2013). However, it should also be noted that foreign currency exchanges are having favorable impact on the foreign investors. This is due to the reason that there are few countries mainly in the South Asian regions are having lowered value compared to the Indian currency. Thus, the foreign investors will have the opportunity to cover the entire South Asian regions from their Indian facilities.
India is having dedicated provision for the foreign direct investments with having different levels of investments being stated in different business sectors. In the recent time, the level of foreign investments is being increased in some of the sectors such as retail where foreign investors can now invest for up to 50 percent in the Indian retail establishments. However, foreign investors can also have investments through joint ventures in the defense sectors also. Apart from these standards, there are number of incentives being provided to the foreign investors such as initiation of the special economic zone (Bagli and Adhikary 2014). Foreign investors can avail tax benefits and tariff benefits by having their facilities in these zones. It is reported that investment in the special investment zone will be eligible for total exemption from tax for the first five years and 50 percent exemption for the following five years (Levien 2013). In the recent time, government of India initiated the MAKE IN INDIA initiative under which, foreign investors are being offered with array of facilities. Thus, it can be concluded that India is having number of incentives to be gained by the foreign investors.
However, on the other hand, there are number of barriers also being identified that to be faced by the foreign investors. One of the major barriers is the higher intensity of bureaucracy in place. This refers to the involvement of huge time in gaining the approval for the new businesses. In addition, it is also causing higher degree of complexities in the entire process. Another major barrier in the foreign investment is limitation of investment in certain sectors (Anand, Kochhar and Mishra 2015). For instance, foreign investors cannot have single proprietorship in the Indian retail market. These limitations are reducing the market attractiveness for the foreign businesses and are increasing the added complexities in doing business in India.
India is having an average constant inflow of foreign direct investments in the country from the last 5 years. It is reported that 2017 witnessed the maximum inflow of foreign investments in the country and got much reduced in the early 2018 (Malhotra 2014). However, as of mid 2018, the trend is on the recovering mode and is again showing increasing growth. It is also estimated that India will have foreign investments of more than US$ 2600 million by 2020. This shows the huge potentiality of foreign investments in the Indian scenario. However, it should also be noted that the major identified issues in investing in India are also playing a major role in restricting the trend of foreign investments. Thus, overcoming these issues will further enhance the trend in the long term (Pillai and Rao 2013).
Conclusion
Thus, it can be concluded that India is having number of positive as well as negative factors for the foreign business organizations. In this report, there are number of factors being discussed from different perspectives. The major external business factors for doing business in India are being discussed in this report and it is identified that India’s huge population is contributing in attracting more foreign investments. On the other hand, complexities in the approval process are identified as the major issues for doing business. In addition, this report also discussed the impact of the currency exchanges, trade policies and barriers in doing business in the country and identified a few positive as well as negative factors. In accordance to these negative factors, a few recommended steps are also being discussed.
Reference
Agarwal, M. and Whalley, J., 2015. The 1991 reforms, Indian economic growth, and social progress. In WORLD SCIENTIFIC REFERENCE ON ASIA AND THE WORLD ECONOMY (pp. 3-22).
Anand, R., Kochhar, M.K. and Mishra, M.S., 2015. Make in India: which exports can drive the next wave of growth? (No. 15-119). International Monetary Fund.
Bagli, S. and Adhikary, M., 2014. FDI inflow and economic growth in India an empirical analysis. Economic Affairs, 59(1), p.23.
Buhaug, H. and Urdal, H., 2013. An urbanization bomb? Population growth and social disorder in cities. Global Environmental Change, 23(1), pp.1-10.
Dreher, A. and Gassebner, M., 2013. Greasing the wheels? The impact of regulations and corruption on firm entry. Public Choice, 155(3-4), pp.413-432.
Fligstein, N. and Calder, R., 2015. Architecture of markets. Emerging Trends in the Social and Behavioral Sciences: An Interdisciplinary, Searchable, and Linkable Resource, pp.1-14.
Gadgil, M. and Guha, R., 2013. Ecology and equity: The use and abuse of nature in contemporary India. Routledge.
Gaur, A.S., Kumar, V. and Singh, D., 2014. Institutions, resources, and internationalization of emerging economy firms. Journal of World Business, 49(1), pp.12-20.
Gupta, V. and Singh, S., 2014. Psychological capital as a mediator of the relationship between leadership and creative performance behaviors: Empirical evidence from the Indian R&D sector. The International Journal of Human Resource Management, 25(10), pp.1373-1394.
Harkavy, O., 2013. Curbing population growth: An insider’s perspective on the population movement. Springer Science & Business Media.
Levien, M., 2013. Regimes of dispossession: From steel towns to special economic zones. Development and change, 44(2), pp.381-407.
Malhotra, B., 2014. Foreign Direct Investment: Impact on Indian Economy. Global Journal of Business Management and Information Technology, 4(1), pp.17-23.
Mitra, S.K. and Schöttli, J., 2016. India’s 2014 General Elections: A Critical Realignment in Indian Politics?. Asian Survey, 56(4), pp.605-628.
Pillai, K.R. and Rao, M.S., 2013. Determinants of inward FDI to India: A factor analysis of panel data. Journal of contemporary management research, 7(1), pp.1-16.
Singh, P., 2013. Depreciation of Rupee in Indian Economy: An Analysis,“. International Journal of Innovations in Engineering and Technology (IJIET), 2(4), p.332.
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