Foreign Direct Investment in India: Opportunities and Challenges

This report provides a comprehensive analysis of Foreign Direct Investment (FDI) in India, examining the country's political, economic, socio-cultural, and technological environments. It delves into key aspects such as political culture, democracy index, economic growth (including PPP and nominal GDP), population trends, technological advancements, and the availability of national resources. The report highlights India's attractiveness to foreign investors, emphasizing its large and growing population, advancements in technology, and abundance of natural resources. The analysis covers policy-related factors such as competition, foreign investment, and trade policies, providing a holistic view of the opportunities and challenges for FDI in India. The report concludes with recommendations, offering insights into how India can further enhance its appeal to foreign investors and foster economic growth.

Running Head: Foreign Direct Investment in India
foreign direct investment in india
[Document subtitle]

Foreign Direct Investment in India 1
Table of Contents
Introduction....................................................................................................................................................2
Political Analysis...........................................................................................................................................3
Economic Analysis........................................................................................................................................4
Socio-Cultural Analysis.................................................................................................................................6
Technological Analysis..................................................................................................................................7
National resource that creates competitive advantage...................................................................................8
Foreign Currency and Exchange Influences..................................................................................................9
Trade Policies, systems, incentives, and barriers.........................................................................................10
Recommendation and Conclusion...............................................................................................................11
References....................................................................................................................................................12

Foreign Direct Investment in India 2
Introduction
Foreign Direct Investment play a significant role in the success of a country. India is also called
the Republic of India. It is a country in South Asia and considered as the seventh large country as
per area, and the second large country as per the population which is approximate 1.3 billion
now. It is a growing country which earned huge success nowadays. In this report, we will
conduct the assessment of India. It has been done to understand the potential opportunities for
foreign direct investment in India. The conducting analysis gives us significant knowledge
regarding the market trend of the country.
Business Environment of India in a single glance:
Policy related to competition and the Enterprise: During 2013 and 2014, the country
maintains its focus mainly on difference populist measures. It continues to part-private state-
owned organizations and grow further with the help of current and modern reforms that
significantly play an important role in increasing competition (Aggarwal, 2012). Apart of this, it
can be said that the pace of change in India is comparatively slow than other countries.
Policy related to foreign investment: It can be said that India works hard to attract a large
number of foreign investment in the country. During 2013-14 the Indian National Congress party
performs various efforts to convince the government of the state to adopt its reform package.
With the help of this package, they can successfully loosen restrictions on foreign investment.
On the other hand, during 2015-17, the government felt the requirement of foreign investment
and a more investor friend climate (Moosa, 2016). For fulfilling this purpose, it is continuously
performing a large number of efforts such as liberalization of the economic.

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Foreign Trade and Exchange Control: During the period of 2013-14, the number of tariff
bands imposed on India gets reduced. After some time, restrictions on the outward investment
are relaxed by the government. It is done so to barring the occurrence of balance-of-payment
problems.
Political Analysis
Political Analysis of India includes following:
 Political Culture: India's get a poor score in its political culture. This category mainly
represents the impatience of the different society segments with the cumbersome of the
country and poor moving system of government and their wishes for a more effective
leadership form.
 Enhancement in budget on continuous basis.
 Democracy Index: As per the report of Economist Intelligence Unit 2012, India got 38th
rank out of 167 countries as per its democracy. The democracy of India is considered as
"flawed democracy". This designation of the country exists in the Asian countries like
Malaysia, Thailand, Philippines, and Indonesia. India got strong positions and earned
high scores in the pluralism and process of electoral or various civil liberties categories.
The overall status of the country is the largest democracy in the world, and the society of
the country is considered very pluralistic and vibrant (Jadhav, 2012). The below-
mentioned figure represents the outcome of India in some long-established democracies
such as US and UK: (Kathuria, 2015)

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 The government of India performs various steps to establish a healthy relation with the
Bangladesh. For fulfilling this motive, Mr Mukherjee's visit to Bangladesh. But, he is not
able to establish relations with the general political establishment in Bangladesh.
 Industrial Relation: The government of India has been established a cool relationship
with the China. On the other hand, India has a cordial relationship with Pakistan. It is
because the country has full freedom related to the movement of goods and people. The
good relationship enables the government of India to build mutual confidence and expand
bilateral trade.
Thus, it can be said that political environment of the country is stable which able to attract huge
foreign direct investment because most of the person make an investment on the basis of the
stability of the political environment. Therefore, India has large opportunities to increase its GDP
by attracting more and more foreign investment.
Economic Analysis
Economic Analysis of the country is following:
 India is considered the third largest economy in the world by PPP: It is a significant tool
for measuring economic output of different countries. It mainly considers the inflation
rates and the relative costs of the countries. It does not take into consideration the
exchange rates because it may bring differences in income. The economy of India
generally does self-adjust to currency changes. On the other hand, raw materials, energy
prices, luxury and technology intensive goods of the country are highly influenced by the
difference in currency. Therefore, all this is taken into account by conducting price

Foreign Direct Investment in India 5
comparison surveys like International Comparison program which are utilized as the
basis of PPP calculations.
 On the basis of nominal GDP, India is considered the 10th largest country in the world.
 According to the forecast of Goldman Sachs, in next 20 years, India would be the third
largest economy in the world just after China and US.
 On the basis of expenditure, real GDP growth of the country will slow to an estimated
5.5% in the fiscal year of 208-19 (Jadhav, 2012).
 Economic growth: It is considered an important measure on the basis of which
profitability of the country is measured by the government of the other countries.
Economic growth of the country is a slowdown in private consumption growth. This
influence the overall productivity of the country apart from four season's expansion
because it is a plan established for biz travellers or the corporate expenditure. The below-
mentioned figure represents the economic growth of India in different years (Moosa,
2016).
Thus, it can be said that economic growth of the country will work as an efficient factor in
attracting a large number of potential investors. Better the economic growth, improve the level of
foreign direct investment. It will grow as per the economic growth of the country. Generally,

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intelligence report of the Economist unit concludes that economic growth of the India during
2017 will be 7.5% which makes it the attraction of different investors.
Socio-Cultural Analysis
A socio-cultural analysis of India is following:
 It is considered that India will become the most populous country within the next 30
years. Although, the growth of population in India is generally slowing. In its past, the
country becomes a failure in establishing family-planning policy. On the basis of this
policy, India expected to overtake China as the most populous country in the world in the
mid of 2020s. It expected the population of the country during 2020 will reach
approximate 1.5 billion. On the other hand, the growing rate of population will bring both
the costs and opportunities. Enhancement in population will increase environmental
degradation and growing food resources or water strain appear inevitable.
 Furthermore, it can be said that India will have an increasing working-age population, but
at the same time, the country like China face growing dependency ratios. It can be said
that if the government of India put more efforts towards the development of different
education system, then it will able to fulfil the global demands of working age
populations.
 On the other hander gender distribution of India's population also have significant
importance in stability. As per the census report of 2011, for every 1000 boys under the
age of seven, there were only 950 girls. But, in most of the state number of girls on 1000
boys were below then the 800 (Bisaria, 2012). Mortality rates of the child are higher for

Foreign Direct Investment in India 7
girls than boys. In addition, the rate of feticide is higher than the prior. It is because of
technology advancement and freedom.
Thus, it can be said that India is able to attract more and more investors. It is because the country
have a large population and they have the significant opportunities to earn more and more profit
by serving their products and services to a large number of people. Due to the high population
rate, it becomes the focus of every investor.
Technological Analysis
It can be said that India has made necessary advancement in technology. It used lots of advance
technologies in IT sector as well as FMCG sector. Advancement in IT sector and the automotive
sector enable it to compete with the technologies of another country. The government of the
country spent a huge amount of their income on conducting research and development activities.
It has prepared new smartphones with more innovative features and also did an efficient deal in
IT technology. Now, the government of the country giving its more attention on the development
of new products and also introduced various new innovative processes to cut down the costs of
different manufacturing processes. It also offers 4G and 3G facilities to its citizens.
Advancement of new technology helps them in enhancing the living style of Indian people. Due
to the advancement of new technologies, they are able to reduce the manufacturing cost of
products and also make an improvement in the quality of its products (Chari, 2012). It can also
be said that advancement of technology forces innovation in the country with which they are able
to get their predetermined motives in an efficient manner. Various new operators are launching
their services including new material and its processes, IT development, software upgrade,
government technology funding, and speed of technology transfer.

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Thus, it can be said that advancement of technology enable the government to enhance the level
of export. But, it can be possible due to the high quality of products. New technology and
innovation enable them to cope with cross-cultural challenges in an effective manner. So, it can
be said that due to advancement in technologies there are lots of opportunities for the foreign
investors to come in India and establish their business. This will provide them with the facility of
using its available natural products and technologies in an efficient manner. Availability of
foreign investment grow the economy of India and make it very competitive.
National resource that create competitive advantage
India is considered the king of different natural resources like minerals and water, forests,
agriculture, and fertile soil. These resources are distributed in an unbalanced manner. On the
basis of these natural resources, it becomes the major focus of various investors. They can get
every facility which they needed for conducting their business. The below mentioned are some
national resources existed in India:
 Soil Resources: India has an efficient watered fertile lands. In the alluvial soil of its
Northern Great Plains of the Brahmaputra and the Sutlej-Ganga valley maize, wheat, jute,
rapeseed, linseed, rice and sugarcane are grown in large quantity with better quality
(Devajit, 2012). Due to the presence of all these natural products foreign investors can
easily get raw material for their products and can utilize them for producing efficient
products. This will enhance their earning and can easily get foreign income. All these
products can easily sell by the government of India to another country and can get a
foreign exchange in large quantity.

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 Mineral Resource: India is considered a rich country in some minerals such as coal,
bauxite, gypsum, mineral oil, copper, mica, and manganese. The presence of all such
resources gives the opportunity to foreign investors. They are attracted to invest in India
and get a huge amount of foreign exchange. India is earning huge part of their income
from the mineral resources (Ray, 2012). There are lots of organization like Geological
Survey of India, and Indian Bureau of mines engaged in development and exploration of
mineral resources. With the help of these resources, foreign investors can produce various
precious goods which can be sold at high prices in other countries.
So, it can be said that presence of natural resources enables the country to attract a large number
of foreign direct investment. In the absence of all these things, it will be very critical for the
country to get a necessary exchange for performing their different functions.
Foreign Currency and Exchange Influences
The foreign currency of India is considered the foreign assets for the government of India. It is
mainly controlled by the central bank of India which is known as Reserve Bank of India. The
total amount of foreign currency reserve in India is 3622990 USD Million (Mathur, 2013).
Availability of foreign currency enables the country to make imports and foreign investments.
Exchange facility of money influences the economy of India in a positive manner. The below
mentioned are some influences which affect the economy positively:
 Leverage facility: Availability of foreign exchange provides the various leverage
facilities amongst all financial asset markets. This will influence the trade system of the
country in a positive manner and they got lots of investment opportunities.

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 Transaction costs: Availability of foreign exchange provides an environment with low
costs of transactions as compared to markets of the other countries.
Thus, it can be said that foreign currency grows the economic condition of the country and also
provides various opportunities to make an investment in foreign countries.
Trade Policies, systems, incentives, and barriers
Foreign trade policies of India is also known as Export-Import policy. The main motive of this
policy is to the development of the main potential and make improvements in existing
performance. The below mentioned are some trade policies of India:
 Foreign Trade Policy of 2015-2020: It is announced by the commerce minister of India. It
is a combination of two different schemes which are "Services export from India scheme"
or "Merchandise Exports from India Scheme" (Malhotra, 2014). The main motive of both
policies is to promote specific services for specific markets foreign trade policy.
 Branding different campaigns planned to enhance the level of export.
 Debits against scraps would be eligible for CENVAT drawback or credit also.
Apart from trade policies, the government of India also develop some policies for the trade
incentives such as SEIS and MEIS is available for special economic zones. This will prove
helpful in extending the number of units in special economic zones.
On the other hand, India also has some trade barriers which are following:

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 Bureaucracy: Establishing an organization in India can be daunting to a foreign
organization. It is necessary for the foreign organizations to follow the myriad process for
filing paperwork that can consume more than 28 days (Kathuria, 2015).
 Taxation System: The main barrier in front of foreign organizations is a tax. They need to
pay taxes in 33 different payments in a particular year.
 Infrastructure: Due to the enormous population of the country, the infrastructure of India
is not good, and it does not support the fast distribution of services and goods.
Recommendation and Conclusion
After studying all this, it can be said that natural resources and facilities of India have the
capability to attract a large number of foreign investors to make the investment. Foreign
investment enhances the foreign reserve of India which can be further utilized to make imports
and investments (Bisaria, 2012). So, it is the responsibility of the government of the country to
remove all trade barriers and should establish such trade practices which are able to attract more
and more foreign investors to make the investment.

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Business Management and Information Technology, 4(1), 17-23.
Mathur, A., & Singh, K. (2013). Foreign direct investment, corruption and democracy. Applied
Economics, 45(8), 991-1002.
Ray, S. (2012). Impact of Foreign Direct Investment on Economic Growth in India: A Co
integration Analysis. Advances in Information Technology and Management, 2(1), 187-201.
Devajit, M. (2012). Impact of foreign direct investment on Indian economy. Research Journal of
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economic, institutional and political factor. Procedia-Social and Behavioral Sciences, 37, 5-14.
Chari, A., & Madhav Raghavan, T. C. A. (2012). Foreign direct investment in India’s retail
bazaar: opportunities and challenges. The World Economy, 35(1), 79-90.
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