India's Economic Landscape and Challenges

This assignment analyzes India's current economic situation, examining factors contributing to its growth, challenges like import dependency and trade deficits with China, and the impact of government policies. It delves into consumer sentiment regarding Chinese goods, India's foreign exchange reserves, and the role of global institutions like the IMF in shaping India's economic outlook.

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INDIA POTENTIAL IN INTERNATIONAL BUSINESS
By:
HI5014 Professor (Tutor)
Holmes Institute
Sydney/Brisbane/Melbourne
Date:

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Executive Summary
India is an interesting country for international business analysis because of various
reasons. First, it features among the emerging markets of the world, which show economic
potential for investment in the modern system. Multinational corporations continue to flock into
India as an investment hub because of its favorable market economy. Part of this is the labour
laws, which encourage producers to access cheap labour in the market. Despite the advantages,
there are also challenges, which hinder investment in the region. Some of these include the
multiple political ideologies and class systems. It also faces environmental challenges, which
threaten its sustainability. This report provides a competitive analysis of its strategic behavior
and international business. It is a comparative analysis of the Foreign Direct Investment in India.
Unlike its neighbor, India has high rates of poverty and inequality, which limits its potential and
opportunities. Economic analysis using the international context brings out the political,
economic, socio-cultural and technological factors and their impact on India. The result is an
integration of competitive advantage, growth potential analysis, opportunity elements and
sustainability. The global environment is dynamic therefore; the Indian government has the
challenge of designing unique policies. These may either support or hinder businesses
investment in the country. The exponential growth of India within a short period is an interesting
case scenario.

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Contents
Executive Summary............................................................................................................................5
1. Introduction..................................................................................................................................7
2. General overview of the country/region......................................................................................7
3. India’s models of competitive analysis........................................................................................9
4. Trading Policies and Barriers.....................................................................................................10
5. Foreign direct investment and Regional economic integration.................................................12
6. Porter’s competitive advantage..................................................................................................14
7. Foreign currency and exchange influences, international monetary system.............................15
8. Summary and recommendations................................................................................................17
9. Bibliography...............................................................................................................................18

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1. Introduction
The global market provides access to different opportunities in large economies as well
as emerging ones. International economic analysis comprises of the underpinnings of business
strategy in international production, distribution, and income as well as wealth generation. Once
struggling economically, India is today a leader in the global economy. Rated by IMF among the
leading economic powerhouse, India’s economy depicts a high GDP (Worstall, 2017). Different
factors contribute to its emergence as an economic giant. However, it faces challenges in its
policies and corruption, which hinder its exponential growth. It also needs to upgrade on its
infrastructural development. International theory describes the interaction of countries in the
global market. It defines the strategic policies used as well as factors influencing the
interrelationships (Dunning, 2012, p. 72). In global business, there are different stakeholders and
each has a role to play. The government in India makes the tax rule thereby encouraging foreign
investment. In order to stimulate economic growth, countries devise unique strategies that shape
their direction. The theory of competitive advantage describes this strength for uniqueness. As
an Asian economy, its strategic location connects it to giants like, Taiwan and Japan.
2. General overview of the country/region
Political India represents a mixture of ideologies including communism, socialism and
democratic alliances. The agenda for most political ideologies in the country focus on
unemployment, underdevelopment and poverty (Heritage, 2017). In India, culture is an
important aspect of the society and manifests through race, religion and the caste system.
Global consumption trends have gradually brought changes in India. Asian communities have a
strong attachment to their traditional values hence they prefer local brands.

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The economic ideologies in India contribute to the reduction of massive poverty levels.
These borrow from the social ownership of the means of production and free markets. Factors
shaping the Indian economy are stock markets, flow of capital, India currency rankings, global
markets and fuel imports prices. Gupta, et al (2008, p, 137) discusses the process of developing
India into economic giants to bring out the free market system, foreign investment,
entrepreneurship and privatization as greatest contributors in the Asian economies. The advent
of globalization sparked progress in India through policy changes and the reduction of
government’s control in economic issues. Its growth has had an impact on its regional neighbors
including Japan and South Korea.
Socio-cultural factors reveals India’s affiliation to family systems, cultural lifestyle,
values, and traditions. These have clear notions about gender roles, education, attitudes and
social status (Bhoganadam, 2015). These factors influence the penetration of foreign investors in
the country. MNCs entering the markets face language barriers, racial discrimination and gender
disparities. These reflect on the international business, especially in marketing and consumer
trends where local values become part of adverts and communication tools (Papadopoulos &
Heslop, 2014, p. 223).
Technology in India spreads through innovation country boasts of fast progress in
industrialization, and technology innovation. Home to reputable medical and scientific centers,
India invests heavily in Research and Development. The enterprising economy also hosts top
manufacturers in fashion, electronics and household goods. Technological influences and
advantages propel the economy to progress in the contemporary market system (Kamrany &
Jiang, 2017).

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Figure 1: Widespread market share showing India’s adoption of technology devices (Tech, 2016)
3. India’s models of competitive analysis
For India to develop a competitive advantage, it needs to compare its Return on
Investment approach (ROI) with its resources against production ability and consumption rates.
India has 1.32 billion people and a market share of 2.23% (Gray, 2017). Taking advantage of
this strength, the country chose to provide affordable labour to the world. The introduction of
affordable technology products like Xiaomi from Asia makes technology affordable to most of
its population.
However, India has not reaped much from the foreign trade because of more imports
than exports hence its lesser supplies and economic growth. Efficiency in the use of resources is
still questionable in India because of environmental effects (Greencarcongress, 2015). The
ability to gain from economies of scale is important. This means that the increase in production
of goods needs to have an increase in output. India also needs a strategy that would prevent
environmental degradation because production without sustainability is a risk (Worker, 2015).
The fact that it ranks among the highest in environmental concerns prevents its effective

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0manipulation of natural resources. Health issues also affect its people’s livelihood hence the
huge poverty gaps. India’s high fertility rates has poverty consequences if left uncontrolled.
4. Trading Policies and Barriers
India has bilateral and multilateral trade policies (Ball, et al., 2013, p. 120). Besides the
challenge of commitment to environmental sustainability and trade policies, India also has
policies to deal with global barriers (Dunning, 2012). India’s GDP per capita in 2016 was at
1861 with a GDP of 2263 (Economics, 2017). This growth rate is partly due to its skilled work
force. With its per capita, India stands in the third position of largest economies. Its main
industries are Agriculture, construction, manufacturing, mining and the service industry. India’s
bilateral trade agreements with Asian counties in the region affects consumption rates in the
country (M.F, 2016). Economic effects on large-scale outputs like the manufacturing sector,
affects the cost of goods, which become cheaper when there is a variety. Trade strategies include
the creation of a competitive advantage using these factors of production and demand. Often
India’s bilateral and multilateral trade has had challenges such as effects of overproduction in
which the local industry suffers (M.F, 2016)
India’s service industry shows immense growth especially in Business Process
Outsourcing (Ball, et al., 2013). Its merchandise exports comprise of a variety including gems,
medical products, textile and clothing and engineering. Suggestions for reforms in India’s export
strategies include more diversification, foreign trade, export competitiveness, digital and
infrastructure as well as intelligence in global market (Prassard, 2017). The government of India
places a lot of emphasis on manufacturing, technology and entrepreneurship. Concerns about the
massive

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Figure 2: India’s main trading partners (Financial Express, 2015)
In international trade, location is crucial and the ASEAN regional market is supportive of
the Indian market (ASEAN, 2016). Regional markets complement the national products. For
example, India has local and regional brands like Maruti, Xiaomi and Vivo. Cost reduction is
another important aspect that makes their exports easily acceptable in India (Cavusgil, et al.,
2017, p. 247). As a result, the Indian government invests heavily in local businesses. By giving
financial incentives such as tax relief and subsidies, India encourages production and growth of
local industries (EY, 2014). However, trade barriers such as the dominant partners pose a
challenge of market penetration.
Poor infrastructural developments such as lack of electricity in some parts of India hinder
economic excellence. Inefficiency is another challenge, which lowers the successful
performance of a country (Griffin & Pustay, 2014). Ethical practices by government officials
encourages transparency and reduces corrupt dealings. Equality reinforces the balanced
development of its population with women getting a fair chance of professional opportunities.
Labour laws, copyrights, high loans and taxes in India should encourage internal and external
investors.
Culture is another barrier, which hinders global industries like Fashion and lifestyle
(Ram, 2017). In India, the consumers prefer traditional attires for men, women, and children.
Despite the influence from the global markets, the Indian consumer continues to resist

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2westernized clothing and poor quality products (Hindustantimes, 2017). Language and cultural
barriers influenced by religion prevents multinational employees from working in India
effectively.
5. Foreign direct investment and Regional economic integration
India’s cash reserve ratio in 2017 is at 4%. This is lower than other countries in Asia as a
region (Economics, 2017). Its inflation rate is 2.36% with a GDP growth rate of 6.25%. Its
economy shows rising consumer inflation and trade deficits. Trends across the years indicate
difficulties but a progressive growth in capital outflows. Although India’s free market encourages
foreign countries and companies to invest in India, the result is lower than the expected outcome.
Its balance of trade is $-2240.52 million. The FDI policy is supposed to lead to massive job
creation especially in manufacturing, service industries and technology. This could explain drops
in unemployment rate, which is at 3.75%.
The national differences in the political economy and culture are significant in shaping the
outcome of international relationship (Baylis, et al., 2017, p. 363). Global trade and finance
encourages regional integration and India’s FDI plan “Make India” has gained popularity because
it stirs up national brands and MNCs to produce in India. Initiated in 2014, this policy propelled
India to be ahead of regional powers and global leaders in 2015 (Team, 2016).

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3
Figure 3: India’s Modern Index Strategy Index (Awasthi, 2016)
Figure 4 India’s Current Account Deficits (Bell, 2015)
India’s Net FDI shows a drop from $9.3 billion in 2014/2015 to $8.8 billion in 2016
(Bell, 2015). Trade barriers cause such falls. Its portfolio investment shows massive drops of
$11.5 perhaps because of market competition in the region as well as drops in local investments.
The MSCI comparisons featuring India in figure 3 reveal drops in India’s index by 2.7%, which
is quite low. India saw drops of $11 million in Foreign exchange hence, the massive difference

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4between the current balance and investor activities shows (Hindustantimes, 2017). The rises in
the flow of goods could be due to economic changes in the global market, which causes a
decrease, or increase in volume of export and import goods.
Similar to business organizations, countries also need to balance their accounts with
foreign assets and net assets (Hill & Hult, 2016). India’s Balance of Payment analyses the trade
factors for both goods and services (exports, imports, surpluses, trade structures, diversification,
and e-commerce). It also counts direct investments in domestic and foreign markets, portfolio
investment among others. India needs to weigh its BOP with its socio economic progress (Dell
& Roger, 2013). Improved income accompanied by increases in the balance of financing reveals
improvements of $26. 2 billion (SAFE, 2017). Micro and macro analysis indicates the country’s
trade flow, transfer of technology, and domestic capital at specific costs and benefits (Dunning,
2012, p. 357).
6. Porter’s competitive advantage
Each country in the international market is endowed with its own natural resources. India’s
features amongst countries with the largest natural resources. Endowed with coal, iron ore,
natural gas, diamond and limestone it also has large coastlines. Porter’s Diamond of National
Advantage explains this competitive edge by citing the role of government in developing
successful corporate strategies (Baylis, et al., 2017). India’s government strategy targets these
resources, India’s strategic location, and its skilled labour as well as the technological
innovations. However, it needs to improve on efficiency. Good road infrastructural network
should be a priority for India. The country also looks at its challenges in order to capitalize on
through the risk management plans. India has numerous biotic and non-biotic resources.
Unfortunately, it also has natural disasters like earthquakes, which are quite destructive yet hard
to predict.

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Figure 5: Porter’s Diamond of National Advantage (Researchgate, 2017)
Based on the highly competitive regional and global market, India needs to devise competitive
advantage strategies that further stimulate growth (Ball, et al., 2013). This means that the
government policies should encourage competition and protect businesses. For example, when
the education system provides a skilled workforce, MNCs should not exploit services through
outsourcing plans.
7. Foreign currency and exchange influences, international monetary system
The Indian Rupee is currently equal to 64.o8 USD. International accounting describes
the international finance management of a country in terms of its foreign currency, wealth status
and cash flow management (Ball, et al., 2013, p. 457). Fiscal and monetary policies in India do
not have a mechanism that counteracts the effects of the economic recession. This makes it
prone to effects of a recession and international financial markets (India, 2017). India’s capital
flow include its economic performance as well as monetary policies. Strategies that enhance
business in the domestic, regional and global markets are a plus (Cavusgil, et al., 2017, p. 316).

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6India encourages increased production and competitiveness but it has a centralized system (The
Monetary Policy Committee) which oversees activities in the monetary reserve. It also has price
controls, which might hinder some investors (EY, 2014).
Figure 6: India’s much smaller market share in market share (Gray, 2017)
India needs to approach its debt with a management strategy that stabilizes its economy.
This could be through the purchase of foreign exchange and improvements in forex reserves.
(EY, 2014) The success of emerging markets India, and Brazil and Russia motivates other global
economies especially the developing world. Opportunity assessment strategies guides India’s
internal and external planning (Cavusgil, et al., 2017, p. 349). Good governance, a favorable
environment for investment and foreign capital are helpful. Since its service sector continues to
thrive, the country needs mechanisms to exploit the industry to its optimum level. A region full
of human resources, it is an example for African and highly populated countries of the global
system.

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78. Summary and recommendations
The international theory explains why organizations engage in cross border business. Despite this
access to the global opportunities, some countries seem to benefit more than their counterparts do.
There are numerous explanations for this occurrence. The international trade environment is
highly competitive. Regionalism and the free market system positions states strategically.
However, it is upon the state itself to devise strategies that give it an edge against the others. The
performance of the emerging markets has brought out economies like India as some of the most
promising in Asia and the region. As India follows in the footsteps of developed economies as a
regional and global power, it has to overcome its challenges. Taking advantage of its human and
natural resources, the country needs to find a balance through financial management.
Economic performance does not depend on a country’s resources only. Instead, it focuses
on the creation of a competitive edge using comparative advantages. Porter’s theory gives a
guideline for countries to develop a management approach to economic policies. This includes
monetary, fiscal, production, consumption and foreign policies. The example of India as an
emerging economy is incomplete without a comparison with other economies, which seems to
have made good use of its strengths and weaknesses to excel. Similar to business operations,
countries of the world also need partners. A good business partner in international economics
provides financial support as well as opportunities for growth. In an atmosphere where the best
country wins, through best practices in cross border business.

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