Overview of India: PEST Analysis and Trade Policies

This report provides a brief overview of India with PEST analysis covering political, economic, socio-cultural, and technological factors. It also discusses trade policies, systems, barriers, and incentives.

Running head: INTERNATIONAL BUSINESS
International Business
December 20
2018

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Executive Summary
International business exports services and goods across the world, which support in earning
appreciated foreign exchange. This foreign exchange is utilized to recompense for imports.
Foreign exchange supports in making the business profitable and increases the strength of the
economy of the country. The motive of this report is to provide a brief overview of India,
which is considered as the seventh largest country across the world. The report has discussed
different aspects of the country such as trade policies, natural resources, barriers, the position
of foreign direct investment, etc. Besides this, it has provided some highlights of the country's
political, technological, social, and economic situations. In the end, some recommendations
have been provided for India that can support it in long run.

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Table of Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Overview of India..................................................................................................................3
PEST Analysis of India..........................................................................................................4
Political Factors..................................................................................................................4
Economic Factors...............................................................................................................5
Socio-cultural Factors........................................................................................................5
Technological Factors........................................................................................................6
Natural Resources..................................................................................................................6
Land Resource....................................................................................................................6
Forest resources..................................................................................................................7
Mineral Resources..............................................................................................................7
Factor endowment that creates competitive advantage..........................................................7
Exchange and Foreign Currency influences..........................................................................8
Influence of Exchange Rate...............................................................................................8
Existing trade policies, systems, barriers, and incentives......................................................9
EXIM Policy System..........................................................................................................9
Export Promotion Capital Goods Scheme.......................................................................10
Import Licensing..............................................................................................................10
Incentives.........................................................................................................................10
Anti-dumping and countervailing measures....................................................................10
Existing levels of foreign direct investment.........................................................................11
Summary and recommendation................................................................................................11
References................................................................................................................................13

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Introduction
The intent of this report is to provide a clear understanding of India as an assessment of a new
emerging market where rapid GDP growth has created attractive investment opportunities.
The report will be comprised of a general overview of India or region. The political,
economic, socio-cultural, and technological influences, benefits, and advantages will be
discussed to understand the viability of the nation. Besides this, it will give an overview of
the present natural resources and factor endowment that create a competitive advantage for
the nation. The key aspect that is important to be discussed while talking about India is the
influences of the exchange rates and foreign currency. Moreover, to increase the knowledge
regarding the different restrictions and advantages offered by the government of India, the
report will provide a brief idea of the countries present trade policies, barriers, incentives, and
systems. It will also include the discussion regarding existing foreign direct investment and
will provide some of the recommendations for the country to overcome all the barriers in the
route of development.

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Overview of India
Source [(Top Tour Guide, 2018)]
India is also called as the Republic of India and it is placed in South Asia. In terms of area,
India is considered as the seventh largest nation, world's populous democracy, and second
populous nation. The country is bounded by the Bay of Bengal from the Southeast, Indian
Ocean from the south and the Arabian Sea from the southwest. Besides this, with Pakistan, it
shares land borders to the west, Bhutan, China, and Nepal to the northeast, and Myanmar and
Bangladesh from the east. India is the name provided to the huge peninsula, which was
thrown out from the Asian continent to the south of the superlative mountain varieties that
expanse in a sword like a curve all over the Tibet’s southern border. The shape of the nation
is like an irregular quadrilateral, and it is called India (Maps of India, 2018).
In 2017, the economy of India was considered to the sixth largest in terms of nominal GDP
and third largest in terms of purchasing power parity in the world. Due to 1991, market based
economic restructurings country converted into the fastest developing economies and
presented as a lately industrialized nation. However, it endures dealing with the challenges

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related to corruption, insufficient public healthcare, poverty, and malnutrition. Considering
the regional power, and state of nuclear weapons, India possesses the world's second largest
standing army and positioned at a fifth place in the military expenditure between different
countries (The World Bank, 2018).
PEST Analysis of India
Political Factors
India is the most influential nation in the world. In terms of democracy, it is the largest
democracy across the world and possesses a comparatively steady political environment.
India's capital is New Delhi. Two powerful neighbors of the country are Pakistan and China.
Other neighboring republics are Bhutan, Bangladesh, Sri-Lanka, Myanmar, and Nepal
(Adamkasi, 2016).
The key concern area for India is the increasing corruption level. It negatively affects the
political as well as business environment, which increase the challenges to the economic
growth of the nation. Corruption enhances the business operations cost and frequently
influences foreign direct investment. However, increasing government initiatives and public
awareness are opposing the corruption challenges.
Economic Factors
As per the 2017 economic forecast report of IMF, the GDP of India is valued at $2.4 trillion,
which makes it the world's seventh largest economy in terms of nominal GDP. The Gross
Domestic Product of the nation is projected to increase by 7.0% at the end of the financial
year 2018 and projected to reach 7.4% financial year 2020. The existing rate of corporate tax
in the country is 30%. It is important to consider that the nation experiences recurrent
changes in the rates of corporate tax over the years. For instance, in 2010, the tax rate was
around 33.99%, whereas it touches a high record of around 38.95% in 2001 (Bhasin, 2018).

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Socio-cultural Factors
India possesses a huge consumer market with an overall population of around 1.2 billion; this
reflects an enormous market opportunity for international businesses. This is the reason why
numerous numbers of international firms are visiting India for business. Besides this, another
reason for the market expansion of international companies in India is the availability of
cheap labor and the labor force is probably to touch 160-170 million by 2020 (Adamkasi,
2016).
India is called as a multi-religious, multi-lingual, and multi-ethnic nation. Communal
coordination is a strength; though, the nation occasionally experiences pressures in ethnic
lines. India possesses the renowned film industry in the world. It is also known for some
famous sports such as Hockey and Cricket. Indian Premier League popularly known as IPL
entices legends of cricket and attitudes towards India.
Technological Factors
India is counted in the list of most technologically advanced nations across the world. In fact,
as per the sources, it is the world's third technologically advanced nation. This is the reason a
numerous number of tech giants are interested and investing a huge amount in India such as
Facebook, Microsoft, and Apple. India is considered as the main destination for
subcontracting labor in Information Technology (Rahman, 2018). With the support of highly
talented IT personnel and advanced IT infrastructure, India provides huge opportunities to
entrepreneurs to board technical schemes like e-commerce, business solutions, software
development and upgrades, mobile apps, etc.
Natural Resources
Natural resources are normally determined as things given by nature under, above, and on the
earth surface. In these comprehensive sense natural resources comprise, forests, water, and,

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animals, sources of energy and mineral ores such as uranium, coal, petroleum, and gas, etc.
(George and Schillebeeckx, 2018). Some of the natural resources are explained below:
Land Resource
Considering the Indian area, it is positioned at a seventh position across the world with the
overall area of 32, 87.263 sq. km. It covers around 2.42% of the overall area of the world. In
overall terms, India is actually a huge nation. However, the ratio of land man is not favorable
due to the huge size of the population (Chand, 2018).
Forest resources
In 2007, forest in India constituted around 69.09 million hectare that is 21.02% of the overall
physical area. From this, around 8.35 million hectares is covered by dense forest, 31.90
million hectare is a discreetly dense forest, and the remaining 28.84 million hectares is
covered by open forest.
Mineral Resources
Iron Ore
India has a great quality of iron-ore in great quantity. The nation has haematite of around
14.630 million tonnes and magnetite of over 10,619 million tonnes. Haematite iron is mostly
originated in Odisha, Karnataka, Chhattisgarh, Goa, and Jharkhand (Enarth, Pathak and Shah,
2016).
Crude Oil
In India, oil is explored at different locations of Gujarat and Assam. Palliaria, Mourn,
Naharkatia, Digboi, Kasimpur, Shivsagar, Badarpur, Rudrapur (in Assam) and Ankaleshwar,
Kalol, and Hay of Khambhat (in Gujarat) are the essential locations of oil exploration in the
country.

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Factor endowment that creates competitive advantage
Income growth results in savings, investment, and consumption, however, the growth rates of
income, investment, and consumption vary in unstable growth. If the production structure is
varied to fill up the experiential gaps, output composition will also alter. This is particularly
so in the situations of nations such as India, which allocated essential part to the development
of weighty and rudimentary industries of goods to substitute capital goods imports by
domestic production to achieve independence. The approach not only increases investment
but also fundamentally alter the structure of production which require not just extra capital
per unit of output but better and educated accomplished human capital is also essential for
manufacturing. Weighty and rudimentary goods are utilized for the investment, which
increases the formation of future capital and productive capacity; it quickens
industrialization. Income Growth excites investment and savings gradually but progressively,
which alleviates the early capital shortage in labor plentiful and capital rare emerging
economy and alteration in the structure of production affects trade structure (Prakash and
Anand, 2014).
Exchange and Foreign Currency influences
Influence of Exchange Rate
Purchase Power Parity
If there is a limited, restriction imposed by the nation on the trade the rate of exchange
between two currencies is permitted to regulate freely. In addition, with the more assumption
that transportation cost of goods between the nations is zero, then the rate of exchange
between both the currencies will imitate the alterations in the level of price in the two nations
(Mukher, 2018).

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The rate of inflation and the rate of exchange
A comparatively higher inflation rate-instigating increase in goods prices in India in
comparison to those in the United States of America will create US goods comparatively low-
priced and the expensive goods in India. This will aid as an inducement for the Indian firms
and individuals to surge their goods imports from the USA (Mukher, 2018)..
This will result in the increase of demand for the US dollars, which shifts the curve of
demand towards the right for dollars in the foreign exchange. As shown in the below graph
the US dollars demand curve is shifted from DD to D’D’ in the effect of higher inflation rate
in India resulting in superior imports by India (Mukher, 2018)..
Source [((Mukher, 2018).]
However, due to the higher price level people from America find that the goods of India are
more expensive and as an outcome, it will decrease their level of imports of India products.
This will be a reason behind the decline in the goods exports from the country India to the
USA, moving the dollars curve of towards left to S’S’ (Mukher, 2018)..
The Foreign currency effects are losses or gains on the international investment because of
the alterations in the assets relative value denominated in money other than the major
currency with which a company generally practice business. An increasing national currency

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reflects that the international or foreign investments will consequence in inferior returns when
rehabilitated back to the national currency. The conflicting is true for a decreasing national
currency (Mukher, 2018)..
Existing trade policies, systems, barriers, and incentives
EXIM Policy System
Indian EXIM Policy covers numerous decisions related to the policy taken by the
administration in the scope of foreign trade that is in relation to the exports and imports from
different nations and particularly export promotion procedures, and policies (EXIM Policy,
2018).
Export Promotion Capital Goods Scheme
It allows exporters to import equipment, machinery, and different capital products for
production at limited or free customs duties.
Import Licensing
The most general non-tariff barriers are the ban or restrictions on imports upheld by the
requirements of import licensing. However, India has eradicated its requirements of import
licensing for many of the consumer goods, some products experience some of the barriers
related to licensing. For instance, the government of India needs a singular import license for
vehicles that are limiting. Import licenses for motorbikes are only offered to foreign nationals
enduringly living in India, employed in India for international companies that grasp higher
than 30% equity (Export Gov., 2018).
Incentives
The government of India has augmented the subsidy on the rates of interest charged from
small exporters in an alleged interest equalization system. The qualified exporters will be

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capable to gain credit on rupee export from banks at 5% lower, in comparison to the previous
3% (The Economic Times, 2018b).
Anti-dumping and countervailing measures
Anti-dumping and countervailing procedures are allowable by the agreement of WTO in
stated circumstances to defend the national industry from grave damage rising from
subsidized or dumped imports. India imposes these measures regularly in order to safeguard
national producers from dumping. Execution of India's anti-dumping program has raised
some issues related to transparency and procedures (Helpline Law, 2018).
Existing levels of foreign direct investment
FDI or Foreign direct investment in India is considered as the key monetary cause for
economic development of the country. International businesses capitalize directly in fast
developing private businesses of India to grab the advantage of inexpensive wages and
altering the environment of business in the nation (Bhasin, 2012).
As per the report of Reserve Bank of India, in 2017-18 Mauritius was founded on the top list
as the source of foreign direct investment into India followed by Singapore. The overall FDI
in 2018 erected at around $37.36 billion, which was a minimal increase over $36.31 billion
documented in the preceding financial year i.e. 2016-17 (India Brand Equity Foundation,
2018). In 2017-18, foreign direct investment from Mauritius was around $13.41 billion in
contradiction of $13.38 billion in the preceding year. Foreign Direct Investment from
Singapore increases to around $9.27 billion from $6.52 billion in contradiction to $3.23
billion (GK Today, 2018).

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Summary and recommendation
The above report has provided a brief overview of India, which is the second largest in the
world in terms of population. The GDP growth of the nation has increased the foreign direct
investment in different sectors. India has different trade policies that provide relief to
different industries in terms of trade. India is abundant in different natural resources such as
land, water, crude oil, minerals, etc. Moreover, the stable political situation has supported the
government as well as businesses to experience growth in the country. The PESTLE analysis
of the country has provided a detailed analysis of the country's political, economic,
technological, as well as the socio-cultural situation. From the analysis, it could be said that
the country is enjoying a high level of foreign investment from the multinational firms
because there is the availability of cheap labor.
From the above analysis, it has been identified that in India Corporate Taxation is very thick
of often-altering rate, cesses, exemptions, surcharges, and deductions. This system is
unsteady; it is very tough to execute and to comply. Therefore, it is suggested that the finance
minister of the nation need to take some steps towards cutting the basic rate of corporate tax.
This will results in increasing money in the taxpayer's hand, and enables development of the
business. The necessities of borrowings will decrease, along with this there will be a decrease
in the interest cost and results in increasing profitability. This will report a higher profit for
the businesses and increased tax payment.
The makers of policy must create policies where foreign investment could be used for
improving national production, exports, and savings; as an intermediate of technology
diffusion and technological learning and in offering entry to the external market (Economic
Times, 2018a).

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Besides this, it is recommended the country’s government must focus towards quick
development of the sector of infrastructure, which is very essential for the business activities
diversification.
The government must confirm the reasonable dispersal of the inflows of FDI among states.
The central administration should provide freedom to different states, such that they can
entice inflows of FDI at their own level. The administration must offer extra incentives to the
foreign investors in order to capitalize in states where the FDI inflows level is low.
The government must be open the doors for international firms in the export-oriented services
that can enhance the unskilled labor and low skilled services demand and also upsurges the
level of wages in these services.

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References
Adamkasi (2016) PESTLE analysis of India [online]. Available from
https://freepestelanalysis.com/pestle-pestel-analysis-of-india/ [accessed 20 December 2018]
Bhasin, H. (2018) PEST analysis – Political, economical, sociological, technological
[online]. Available from https://www.marketing91.com/pest-analysis/ [accessed 20
December 2018]
Bhasin, N. (2012) Foreign Direct Investment (FDI) in India: Policies, Conditions, and
Procedures 1st ed. India: New Century Publications.
Chand, S. (2018) What are the Different Types of Natural Resources Produced in India?
[online]. Available from http://www.yourarticlelibrary.com/economics/what-are-the-
different-types-of-natural-resources-produced-in-india/2683 [accessed 20 December 2018]
Enarth, S., Pathak, P., and Shah, A. (2016) Community Natural Resource Management and
Poverty in India: The Evidence from Gujarat and Madhya Pradesh 1st ed. U.K: SAGE
Publications India.
EXIM Policy (2018) India Exim Policy - Foreign Trade Policy [online]. Available from
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Export Gov. (2018) India - Trade Barriers [online]. Available from
https://www.export.gov/article?id=India-Trade-Barriers [accessed 20 December 2018]
George, G., and Schillebeeckx, S.J.D. (2018) Managing Natural Resources: Organizational
Strategy, Behaviour and Dynamics 1st ed. U.S: Edward Elgar Publishing.

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GK Today (2018) Mauritius remains top source of FDI into India in 2017-18: RBI [online].
Available from https://currentaffairs.gktoday.in/tags/fdi [accessed 20 December 2018]
Helpline Law (2018) Laws of Antidumping in India [online]. Available from
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india.html [accessed 20 December 2018]
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2018]
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December 2018]

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The Economic Times (2018b) Indian government raises incentives to some small exporters:
RBI [online]. Available from https://economictimes.indiatimes.com/news/economy/foreign-
trade/india-government-raises-incentives-to-some-small-exporters/articleshow/66867238.cms
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