The last two decade of the 20th century witnesses a dramatic global increase in the practices of trading (Shah, Rao and Shankar, 2007). In India, the wave of liberalisation and globalisations sweeping across the world has opened many national markets for multinational business. Many big corporations play a major role in world trade and investments because of their demonstrated technical skills, management knowledge, financial resources and various related aspects. Recent developments in India are indicative of the rapidly growing international business in the developing country. The economy in India is emerging tremendously with inclusion of international investments, trade and financial transactions along with the integration and openness of international markets (Zeschky, Widenmayer and Gassmann, 2011).
India economy is the fastest growing economy in all over the world but it is framed by various challenges and hurdles such as corruption, poverty and different cultures and beliefs. It is the world seventh largest country as per the area and also has second largest standing army.
There are various factors, which affects the foreign direct investment in India. From past 10 years, the investment consequence is being continuously changing in India due to several agreements and contracts in relation with privatisation, globalisation and liberalisation (Raja, 2016). India has substantial amounts of resources and ready to be employed in any sector so as to contribute in the outflow and inflow of capital formation in their respective domain. Moreover, the political environment is impacting these outflows and inflows and on various areas such like telecommunication, insurance, banking and many more.
With the introduction of numerous reforms in 1991, there are many advantages come up for India due to the FDI and political scenarios of the economy. This economic reform lead to the initiation of several crucial policies related to import and export, licensing, franchising, etc. This also brings rise in the technological sector as with FDI, many foreign firms get autocratic rights and foreign equity. For instance, introduction of 51% FDI in retail sector, allowances of 100% foreign equity and many more with the global market players (Kumar and Arora, 2015). The International players and companies will be benefitted with all these aspects and investment in India. For example, Apple can start manufacturing in India including opening of its retail stores due to the recent change in trade policies under foreign direct investment rules with rising of limit i.e. 3 years to 5 years.
India as emerging country shows various positive and potential signs in relation with FDI. Inflow of FDI will be more important for the emerging nations in comparison with the developed countries. Moreover, as per International monetary fund (IMF), FDI will be comprised of global investment that shows the aims of a resident entity in one country and getting an eternal control and importance in another economy (Kersan-Skabic, 2015). In the India economy, FDI will also come with up with various employees opportunities due to a labour intensive economy and India achieve a higher growth rate of its economy by having labour intensive industries. Apart from this, it can be ascertained in recent years that there is various recent alteration into the policies of India in form of introduction of GST and demonetisation. According to the reports of World Bank, due to these changes, Indian economy can be expected to go at faster pace in the next 5 years, which will give positive assumptions for the global business organizations to invest in India. For instance, an astounding of $3.55 billion in the Indian capital market this month is provoked by the foreign investors this month after the end of GST rates for bulk of the items (Business-standard, 2017).
Indian economy is also gaining FDI inflows from many international countries and companies, however, some of the Socio and cultural environment practices have impacted these FDI inflows (Kolk, 2016). Moreover, when these countries constantly invest in Indian economy, they will also relate to the mutual sharing of the culture. Along with this, India will see social progress with the encouragement in the sector of education and healthcare and with the reducing employment. This results in an integrated connection between social development and FDI due to the further development in these sectors and along with that, political security will also gain more foreign investment from the countries. The business culture of India also provides various opportunities in venturing between foreign market companies as well as national firms (like JIO and APPLE) and this leads to innovation in terms of particular market under the effective business environment (Jyoti and Kour, 2015).
One of the significant aspect influencing foreign direct investment in India is technology as from the past few decades; India is lagging of advancement in technological sector specifically in information technology. The IT sector plays an important role for both emerging nations as well as developed countries (Watkins et al, 2015). This sector is surrounded by the exports of hardware and software in align with the nation low level of development and income. As per the report by DIPP, India collectively gets inflows under FDI worth $18.17 billion USD (Sharma, 2017). Moreover, the IT sector increases the demand in many segments in India, for instance, education (doctors and engineers), healthcare (equipment), businesses (data management) and many more. Along with this, this importance of IT industry attracts many countries and nations to invest in this segment.
From most of the emerging nations, India is the country where constant development can be seen in the industrial sector. The business environment in India is highly favourable and that is why it is reflected as a wonderland for the purpose of investment (Colaso and Rao, 2016). In addition, because of these abundance national resources and economic benefits, many big companies consider India to have an investment in comparison with other developing countries like China and Russia. Along with this, India has huge number of skilled workforce with various beneficial policies for foreign investment.
India is a land of wealth and natural resources such as coal, chromite, diamonds, natural gases and various other rare elements of the earth. This gives the country a distinct position in the globe. In addition, the forex reserve of India in USD is around 375.274 billion and also the country comprises of 356 million population where majority of the population comprises youth (NetIndian, 2017). This helps the country in making shift of big chunk of the population into working age group.
International trade in factory endowments is known as a “Vent for Surplus” where the country extracts advances from resource, which are not exploited by the nation as of closed economy in relation to native demand. In addition, one of the important aspect gaining competitive advantage is the natural resources. In respect to the resource endowment, there is huge pool of trained and skilled labour force gathering value for the business. This segregation will help India in future investment in the economy.
In terms of developing nations, India preference is more as compared to the other countries. Moreover, the country receives highest amount of foreign investment leaving behind China and US in the year 2015 (Sangwan, 2015). There are some factors or elements, which influence the inflow of foreign investment. In these elements, one of the key aspects is exchange rates. There is various level in exchange rates where price of one currency is evaluated in terms of other currency. In many nations, these fluctuations in the level of exchange rates convening to alteration in demand and supply of financial assests. With exchange rate, some other major aspects like inflation, rate of interest and money supply are also a reason for these changes.
With rise in foreign direct investment, there will also be increase in the demand of India currency i.e. Rs. This will be a cause for appreciation in the exchange rate. For example, pre FDI inflows exchange rate was 1$ = 61 ? and post FDI inflows it will be appreciated to say 1$ = 60 ?. Therefore, when the nation will get inflows through FDI, value of India currency will rise. Moreover, this will be a positive connection between exchange rate level and FDI in India and this shows that the country needs to adopt effective policy measures in order to attract FDI and promote youth with more employment opportunities.
In 2017, the GDP of India reach to Rs 167.73 trillion and the reason is the linkage of domestic economy to many trade channels (Ibef, 2018). The GDP growth rate of India as well as per capita incomes is also influenced by the India trade and external sector.
After the globalization, the economy of India is opened for the other countries, but it tariffs continue to raise in relation with the other countries, although the policies are still restraining other markets to enter fully. India was very restrictive before 1990s but trade reforms initiated in India after liberalising certain aspects of policies and result can be seen in India with in last 10 years. In addition, various policies relating to trade and investment are changed by the government so that to prevent ‘producers’ to benefit ‘customers’. Concluding all these aspects, India is rapidly moving towards becomes a developed economy and it will be one of the major country in the world to push mode liberal global trade regime majorly in terms of services.
With these benefits, there are some barriers also for India in relation with FDI such as the growth of the country is affected by lack of infrastructure, complex economic reforms because of slow administrative practices at central level, rigid labour laws, problems related to poverty and corruption, and pressure of political parties at all levels of business stages.
Along with all this, the government of India provide inducement to various foreign manufacturing organizations to setup in SEZ (Special Economic Zones) including relief in taxation with various segments (Moberg, 2015). Each state in India have their own practices and policies and thus offers several enticements (subsidised land, long-term loans, and many more). Central and State government provide long and medium term loan to the foreign market players.
As per the report of INCTAD, the rank of India is among the top 10 host economies in terms of FDI. The inflow (in FDI) was USD 44.5 billion in 2016 but in 2017, it was declined to USD 39.9 billion due to the changes of various policies by the government in relation with GST, and Demonetisation of currency (Nordeatrade, 2018). This downward trend affects negatively to the India economy for short period.
In 2018, some necessary amendments were also introduced in relation with FDI policy where 87 FDI rules among 21 sectors were simplified by the government so as to gain more inflow of FDI from several countries.
Conclusion and Recommendations
In the globe, India is among the major countries who attract many foreign companies and countries for the investment in their economy. After simplifications of various economic policies and reforms, many companies find the substantial potential to invest in various sectors with the integration of culture.
India needs to make transparent boundaries for others countries to attract more investment. Moreover, there also need to simplify their labour laws and exploit their skills in the right place. They country also need to maintain adequate infrastructure for the companies who are setting up a manufacturing unit in India. These infrastructures need to be ideally designed as per the needs of the investors.
References
Business-standard. (2017) GST attracts $3.55 billion of foreign capital through FPIs to India in June [ONLINE] Available from: https://www.business-standard.com/article/economy-policy/gst-attracts-3-55-billion-of-foreign-capital-through-fpis-to-india-in-june-117061800129_1.html [Accessed 19/12/2018].
Colaso, G. and Rao, D.K. (2016) The Wonderland of Equity and Real Estate Investment. Anveshana, 6(2), pp.61-84.
Ibef. (2018) INVESTMENT IN INDIA [ONLINE] Available from: https://www.ibef.org/economy/investments [Accessed 19/12/2018].
Jyoti, J. and Kour, S. (2015) Assessing the cultural intelligence and task performance equation: Mediating role of cultural adjustment. Cross Cultural Management, 22(2), pp.236-258.
Kersan-Skabic, I. (2015) The importance of corporate taxation for fdi attractiveness of southeast european countries. Panoeconomicus, 62(1), pp.105-122.
Kolk, A. (2016) The social responsibility of international business: From ethics and the environment to CSR and sustainable development. Journal of World Business, 51(1), pp.23-34.
Kumar, R. and Arora, N. (2015) An analysis of foreign direct investment with reference to SMEs in India. ACADEMICIA: An International Multidisciplinary Research Journal, 5(2), pp.138-147.
Moberg, L. (2015) The political economy of special economic zones. Journal of institutional economics, 11(1), pp.167-190.
NetIndian. (2017) India’s forex reserves rise by $. 1.502 billion to $ 400.297 billion [ONLINE] Available from: https://netindian.in/news/2017/10/21/00043703/india%E2%80%99s-forex-reserves-rise-1502-billion-400297-billion [Accessed 19/12/2018].
Nordeatrade. (2018) Foreign direct investment (FDI) in India [ONLINE] Available from: https://www.nordeatrade.com/dk/explore-new-market/india/investment [Accessed 19/12/2018].
Raja, M.E. (2016) Importance of micronutrients in the changing horticultural scenario in India. Journal of Horticultural Science, 4(1), pp.1-27.
Sangwan, S. (2015) Making “Make in India” a realism: role of FDI. International Journal of Applied Research, 1(7), pp.770-773.
Shah, M., Rao, R. and Shankar, P.V. (2007) Rural credit in 20th century India: overview of history and perspectives. Economic and Political Weekly, pp.1351-1364.
Sharma, S. (2017) Information technology, FDI, and economic growth in India: An overview [ONLINE] Available from: https://www.embedded-computing.com/embedded-computing-design/information-technology-fdi-and-economic-growth-in-india-an-overview [Accessed 19/12/2018].
Watkins, A., Papaioannou, T., Mugwagwa, J. and Kale, D. (2015) National innovation systems and the intermediary role of industry associations in building institutional capacities for innovation in developing countries: A critical review of the literature. Research Policy, 44(8), pp.1407-1418.
Zeschky, M., Widenmayer, B. and Gassmann, O. (2011) Frugal innovation in emerging markets. Research-Technology Management, 54(4), pp.38-45.
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