Country Analysis of India's Economy and Investment Opportunities

This report provides an analysis of India's economy, including its features and how they influence investment opportunities. It discusses the strengths and weaknesses of the Indian economy and their impact on growth rate. The report also covers political, economic, socio-cultural, and technological influences, national resources and factor endowment, foreign currency and exchange influence, existing trade policies, barriers, and systems, and the existing level of FDI. Course code and college/university not mentioned.

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ECONOMICS
INDIVIDUAL ASSIGNMENT

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Executive summary
The paper contains a report that includes the country analysis for the chosen country, India,
The discussion presented in the paper includes the basic features of the Indian economy and
how the investment is influenced by the features of the economy. Subsequently the discussion
also takes into account other influences of the Indian economy on the growth rate that India
has achieved over the years. Both the strong points that help in better performance and the
weaknesses have been furnished in the paper.

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Table of contents
1.0 Introduction..........................................................................................................................4
2.0 Discussion............................................................................................................................4
2.1 General overview of the Indian economy............................................................................4
2.2 political, economic, socio-cultural and technological influences........................................5
2.3 National resources and factor endowment...........................................................................6
2.4 Foreign currency and exchange influence............................................................................6
2.5 Existing trade policies, barriers, and systems......................................................................7
2.6 Existing level of FDI............................................................................................................7
3.0 Conclusion............................................................................................................................8
Reference....................................................................................................................................9

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1.0 Introduction
The economy is one of the benchmarks for the performance of a country as a whole.
Economy not only measures the overall well being of the individuals of the country, but the
scope of the study also allows opportunities for the betterment. In the study of a country’s
economy, one thing that comes at the prime position is the GDP. GDP encompasses the
overall economic activity and the health of the nation as a whole. GDP growth creates ripples
in the economy that benefits different sectors of the economy. The purpose of this paper is to
study the economic performance of one of the major developing nations in the world, India.
The document carries out an analysis of the country’s performance and its impact on the
generation of investment opportunities in the economy.
2.0 Discussion
2.1 General overview of the Indian economy
The economy of India is among the fastest growing economies of the world. The GDP of the
Indian economy is the fourth largest in terms of PPP and stands at 10.3 Trillion USD. One of
the biggest features of the Indian economy is that it has a mixed economy and public sector
and the private sector works hand in hand. The economy of India has been growing at an
average rate of 6.5% since the year 2009. Agriculture and the service sector of the Indian
economy are the two major sectors that contribute to the national GDP. While the
contribution of agriculture is reducing, the contribution from the service sector is increasing
over time. Despite the spectacular economic performance of India, one of the drawbacks that
are worth mentioning is the unequal distribution of growth and the low per capita income of
the economy. Ahmad et al. (2016) highlighted that low per-capita income and inequality is
hampering the potentiality of the economy.
However, the huge pool of young population below the age of 29 years helps the economy to
grow through the splendid growth of the service sector. The savings rates of the country have
shown improvement since the last decade which has further boosted the capability of the
economy to perform at its peak. The service sector of the economy is expected to grow at a
healthy rate of 9% till the year 2025 and hence prospect of the economy to attract foreign
investment is very high in the future (Kaushal and Pathak, 2015). Investment has been a
major fuel for the economy of India since the country enacted the neo-liberal policies in the

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year 1990. It has integrated the Indian market to the global world and has generated immense
opportunities for the Indian companies in the foreign markets. India ranked second in terms
of the attractiveness as an FDI destination and hence magnificent performance of the country
is expected to last more than 15- 20 years (Agrawal, 2015). The trade blocks and the
participation of the Indian economy in global forums have paved the way for a further
increase in foreign investment into the Indian economy.
2.2 political, economic, socio-cultural and technological influences
The political orientation of the Indian economy has changed vastly since the last century. The
government of India decided in the year 1990 to adopt the neoliberal policies paving the way
for foreign investment in the indigenous markets and companies. Since then, capital and
technological know-how have been extensively transferred to the Indian economy making it
grow more than the normal rate. Economically also, the neoliberal policies have helped the
economy of India to have an impressive GDP growth rate (Perdikis, 2018). The figure 1
below shows the abrupt reduction in the unemployment rate in the Indian economy after the
year 1990.
Figure 1: The decreasing unemployment rate of the Indian economy
(Source: Shetty, 2017)
The rising employment, mainly in the service sector of the economy has influenced the
performance in two major ways. First, through the increasing average disposable income of
the consumer of the economy that further influenced the overall aggregate demand. Secondly,
it has increased the size of the middle-class consumers giving the economy a chance to grow.
India has become an attractive market for any given firm in the world. The number of
absolute target customers is huge in the Indian economy (Santangelo, 2016). That inevitably

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has increased the investment inflow and hence has allowed the economy of India to grow
consistently at an average rate of 6-7% per year since the year 1990. Apart from that, the
economy of India has also got impacted by the technological advancement that it has
experienced over the years. Economy devotes a sizable amount of resources for research and
development that has lifted the economy a number of indigenous technologies that have
helped the economy to grow since the last decade (Bose, 2018). One of the major
advancement in technology has been catered by the space exploration organisation that has
allowed the economy to generate a huge number of businesses that have distributed the
growth in other parts of the economy.
2.3 National resources and factor endowment
One of the notable national resources of the Indian economy is the largest pool of young
citizens that has the potential to foster the economic growth of India. As discussed above the
service sector is the largest contributor to the GDP of India and this young population works
as a fuel to the growing service sector that in turn increases the national product of India at an
impressive rate (Mani and Durand, 2016). Apart from that, average technological skills of the
labour pool of India have also improved over the years. Thus, currently, India has an
attractive skilled labour pool that cannot only foster the growth of a single organisation but
also the nation as a whole. In addition to that, good quality cultivable land in India is in
abundance (Rasool, Adil, and Tarique, 2018). It has helped the economy of India to have a
huge production of agricultural output and hence the high GDP growth rate.
Furthermore, the oil and natural gas industry of India has also flourished since the year 1990.
Discovery of new oil deposits in many parts of the country have allowed the economy to
reduce the oil export from the foreign nations. In the year, 1987, the economy of India
imported 94% of the oil from the foreign country. This figure has reduced to 72% in the year
2016 giving the economy an opportunity to boost the natural gas and oil industry of India.
The indigenous ethanol fuel and the thorium received along the coastline of India also
generated a great value for the economy (Chavan and Murkute, 2016). Lastly, the natural
resources and endowment have also contributed to the tourism industry of the country that
has transformed into a catalyst for the growth of the Indian economy. The tourism industry
growth in India has surged from 6.7% in the year 2004 to 9.7% in the year 2016. The high
growth rate and the stability of most of the natural resources based industry have ensured a
high investment inflow into the Indian economy.

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2.4 Foreign currency and exchange influence
Despite the contribution from a different sector of the economy towards the economic growth
of India, exchange rate and currency value is something that has performed below the par.
The value of Indian rupee has not only decreased since the introduction of the neo-liberal
policies, but it also has been unstable till now. The unstable exchange rate discounts the rate
of return of the foreign investment and hence worries the foreign investors. In addition to
that, decreasing value of the Indian currency also increases the overall amount of debt
payable in the future. Rajan (2015) noted that the decrease in the value of Indian rupees have
put an increased pressure on the Indian government. Investment from the side of the
government for the infrastructure development has often been compromised due to the
pressure and hence the economy failed to operate at the potential level.
2.5 Existing trade policies, barriers, and systems
Currently, the government of India uses a neoliberal policy that allows foreign firms to
operate in the selected industry. In few of the industry, the government of India has reduced
the cap to 0% making it easier for the global market to penetrate into the Indian economy.
Apart from that, India has been a part of major trade blocs that has fostered the economic
growth rate of India. Trade blocs such as AIFTA, BIMSTECH have allowed the Indian
companies to use the growing markets of neighbouring Bangladesh, Nepal, Pakistan and
other Asian countries (Bhat, Ganaie and Sharma, 2018). Additionally, trade blocs with
advanced nations such as South Korea, Japan have allowed the economy to import important
technological know-how. These gains not only helped the big players of the market, but this
has also paved the ways for the small and the medium companies of the economy as well.
Gupta (2018) noted that the transfer of technological know-how mainly impacted on the
production process of the economy that eventually helped in the reduction of prices. The
lower operating cost for the firms also made it attractive for the new domestic organisation to
enter the market. This, in turn, has increased employment opportunities in the Indian
economy. According to Nath (2017), the increasing participation of small companies and
startups have been the most important indirect influence of international trade on the
economic growth rate of India.
2.6 Existing level of FDI
The existing FDI into the Indian economy takes two different routes at that moment. First is
the automatic route that, allows the foreign players to invest directly in the markets of India.

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The second is the government route which compels the investor to follow a complex route in
order to invest in the Indian market. This route and the investment is strictly governed by the
Indian government. Different sector of the economy has different norms in terms of FDI.
Infrastructure sector got the highest investment according to the figure of 2017 (Benz,
Khanna and Nordås, 2017). 1 Trillion USD has been invested by the Indian government
along with the contribution from the private sector. The government allows 100% investment
through FDI through the automatic route. In the automobile sector, 89% is permitted by the
government through the automatic route of FDI. Due to the introduction of FDI in this sector,
the contribution of this sector towards the national GDP has increased drastically to 9%. The
service sector and the insurance sector currently allow 49% of FDI while 100% investment
through FDI is allowed in the pharmaceutical industry (Kumar, 2017). The FDI cap for the
airline sector of the economy has recently been increased to 100%. There are few industries
where the FDI is not permitted by the Indian government and that include the real estate
sector, lottery business, and the agriculture.
3.0 Conclusion
Therefore, the Indian economy has presented an impressive performance in front of the world
in recent years. The introduction of the neo-liberal policies has been crucial for the Indian
economy as it has increased investment from the foreign countries and reduced
unemployment rate. One of the important achievements of the Indian economy has been the
expansion of the middle-class segment of the consumer that has significantly increased the
aggregate demand of the economy. Furthermore, the low dependency ratio and high youth
workers of the economy have helped the savings rate of the economy to go up. As a result,
the capital accumulation has increased in the economy leading to an improvement in the
internal investment of the country. However, there are many drawbacks in terms of the
operation of the economy that needs to be fixed in order to have a sustainable economic
performance. The exchange rate fluctuations and the deteriorating value of Indian currency
have reduced the potential gains of the Indian economy. Therefore the government of India
needs to peg the value of Indian currency at a fixed level in order to have a better result from
the external environment and the internal capabilities.

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Reference
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