Business Environment and FDI in India: A Comprehensive Report

This report provides a comprehensive analysis of the business environment in India, examining various factors influencing foreign direct investment (FDI). It begins with an overview of India's economic and demographic landscape, highlighting its status as a major global democracy and emerging economic powerhouse. The report delves into political, economic, socio-cultural, and technological influences, assessing their impact on business opportunities. It further explores national resources and factor endowments that contribute to India's competitive advantage, including its large market and resource availability. Foreign currency and exchange influences, along with existing trade policies, systems, barriers, and incentives, are also analyzed. The report examines the current levels of FDI in India and concludes with a summary and recommendations based on the assessment. This report is designed to offer insights into the potential and challenges of doing business in India, making it valuable for investors and businesses considering entering the Indian market. The report also covers the depreciation of Indian Rupees and the importance of foreign exchange rates for the country's growth.

Research Paper

Contents
INTRODUCTION...........................................................................................................................1
General overview of the country.....................................................................................................1
Political, Economic, Socio-cultural and Technological influences/benefits/ advantages...............1
National resource and factor endowments that create competitive advantage................................2
Foreign currency and exchange influences......................................................................................3
The countries existing trade policies, systems, barriers and incentives..........................................4
Existing levels of Foreign Direct Investment..................................................................................5
Summary and recommendation.......................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Companies around the world focus on attaining their goals and objectives. This is only
possible when they are able to understand the requirement of customers in effective manner.
Firm is able to gain maximum profit with the type of market they focus on and the products they
deliver are highly efficient to meet the satisfaction level (Miletzki and Broten, 2017). Main focus
of the current report is made on selection of a country that is effective enough to establish a
business. Further, it covers the national resources and factors endowments which create
competitive advantage. Lastly, it also includes existing levels of Foreign Direct Investment.
General overview of the country
India is one of the world’s largest democracy as per the estimation of UN. By the end of
2028, it population will exceed China and will become the most populous nation. Further, it is
the raising nuclear armed state and as an economic powerhouse. Apart from this, it has emerged
as an important regional power. Moreover, it is also tracking huge environmental, economic and
social problems. Further, it the home to most ancient surviving civilizations (Upadhyayula,
Mutheneni and Nagalla, 2012). The rate of population is raising at an increase rate. This is
effective enough to make sure that companies are able to develop a huge market in which they
can get highly benefited. When any type of product is introduced, then the chances of raising the
sales and profitability is high because there rate of target market that are decided by the
organizations are also high and so that there are high business opportunity that prevail in the
market. In addition to this, India is experiencing constant growth in its GDP along with
liberalization from 1991 till date.
Political, Economic, Socio-cultural and Technological influences/benefits/
advantages
In order to scan the business opportunities that prevail in the market, analysis of certain
factors are highly effective for the companies to achieve their desired goals. With this respect,
below given are the factors that are included:
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Political factor: Being one of the largest democracies in the world, India runs on federal
form of government. There are various type of factors due to which political environment gets
influenced. These are politician’s interest, government policies, and other related ideologies of
political parties (Basant and Shariff, 2010). This is the reason due to which business environment
in India gets negatively affected through multivariate political factors. There are well developed
taxation system and it this has helped the country to get support in developed of the societies
through the pay made by people.
Economic factors: Since the introduction to industrial reform from the year 1991
economy of India is stable. In accordance with the policy there are reduction in industrial
licensing, formation of FIBP, liberalization of foreign capital, etc. all these has resulted in Indian
economic environment (Singh, Singh and Tuli, 2013). It was in the year 2013 when $5.07 trillion
recorded as the GDP. This rate has raised tremendously each year which shows the economic
growth that has taken place.
Social factors: These are considered to be the changes in trends that has high impact over
the business operations. With this respect, the type of preferences that are made by people
changes on frequent basis (Reed, Gupta and Blankenship, 2010). This is a type of opportunity
that companies have as they can deliver services and products in order to make them get attracted
to it. However, business is required to conduct frequent market research so that they are able to
identify the opportunities that prevail in the market.
Technological factor: There are many changes that has taken place in relation with
technology. There are high growth that is identified towards use of internet. For example, people
who used to make their purchases online line very few but with the advancement in technology,
the rate of people who make use of the online platform has raised (Siddique, Selvanathan and
Selvanathan, 2012). From this, it can be started that companies need to focus on making use of
new or updated technologies so that the rate of support for customers can be raised.
National resource and factor endowments that create competitive advantage
Various type of resources are available which enable to consider the business to make
sure that they are able to get benefited in positive manner. Further, the classification of resources
are done on the basis of abiotic or biotic on the basis of their origin. For each of the resources,
there are many of the opportunities that prevail in the market with the help of which the business
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can be benefited. In biometric resources, it includes some of the resources like coal, forestry,
fish, oil, natural gas, etc. On the other hand, Abiotic resources includes copper, metallic
minerals, Iron ore, Zinc, chromite, etc. All these mentioned resources are highly effective enough
for the business to make use of it so that they are able to make their products to get completed
and are made available to customers (Lundvall, Joseph and Vang, 2011). There are different type
of competitive advantages that are included for India and some of them are as follows:
Availability of resources: the rate of resources that are available for the companies is high
and so it enables to make the business to consider them to focus on achieving the rate of set
target effectively.
Huge target market: The rate of population is high and so that firm has better options for
developing strong customer’s base. When there are huge number of target audience, then they
can achieve the goals effectively and efficiently. However, there are certain set of consideration
that has to be made in which Indian citizens prefer to make purchases is related when the
products and services delivered at lower price (Sheets, Mubayi and Kojouharov, 2010). On the
other hand, quality also matters in which there are individuals who prefer to get the services at
high quality. All these are only possible when proper focus is made on determining by
considering the need and requirement of customers. Proper research need to be conducted on
regular basis so that all the need and requirements can be considered.
Foreign currency and exchange influences
From the findings, it is identified that Indian Rupee is getting depreciated against Dollar
due to there is an imbalance identified between demand and supply in the foreign exchange
market. Apart from this, dollar has also identified appreciation in international markets (North,
Wallis and Weingast, 2013). When there are any type of fluctuations identified in the market and
this is beneficial for NRIs when fall identified in rupee at the condition when a deal closed
currency is bounces back. There are different type of norms that are followed that are helpful
enough to govern NRI investment in India. Some of them are as follows:
 Sales processing can get repatriated by NRIs. This happens in the condition when there
are any type of purchases made through foreign exchange by making use of legitimate
banking channels. When money is not exceeded, to NRE account (Ali, Wani and Saleem,
2011).
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 In accordance with FEMA (Foreign Exchange Management Act), a non-resident Indian
can transfer or acquire immovable property in India from non repatriable and repatriable
funds. In conditions when it is an agricultural land.
 For a person who is willing to make purchase for a property need to be transferred
through normal bank channels from abroad. Another options is through an account that is
complying with FEMA and RBI regulations (Singh, Dhand and Gill, 2014).
 The rate of support that companies get to make their business establish in India is high
effective. There are different type of options that are available with the help of which this
is possible.
Changes in foreign exchange rate has high impotent impact on balanced payment of
country. In conditions when there are devaluation or depreciation, the currency of country, then
it enables to make the rate of exports more cheaper and increases the costs of imports higher. In
such type of condition there is an increase in export and import decreases that causes reduction in
deficit in balance payments (Lundvall, Joseph and Vang, 2011). In order to overcome such
condition and in restoring equilibrium in it, depreciation or devaluation of domestic currency
against foreign currencies in often undertaken. It is important for the foreign exchange rate to
have low fluctuation so that country is able to grow in positive direction.
The countries existing trade policies, systems, barriers and incentives
It was in the year 2015 when new Foreign Trade Policy was announced. In accordance
with the wish of Prime Minister, share in global trade were raised for India from 2.1% to 3.5%
and change will enable to raise the exports by $900 billion (Siddique, Selvanathan and
Selvanathan, 2012). Main focus of this policy is to integrate the government make in India and
Digital India initiatives. These steps considered by government has helped in attracting more
foreign direct investment when compared with United States and China, this researched up to
$63 billion.
Further, there are different type of barriers that are included and some of them are as
follows:
International trade administration: This is a type of restriction that is imposed on the free
flow of trade is a type of trade barrier. This can be either be tariff barriers or non tariff barriers.
Import Licensing: This considered to be one of the most common non tariff barriers in
restrictions or prohibition on imports that is maintained with the help of import licensing
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requirements (Reed, Gupta and Blankenship, 2010). There is a proper estimation for the import
licensing requirements for the customers who are most important. For example, import licensing
for motorcycles are provided to foreign nationals permanently residing in India. All the firms
that hold on greater than 30% equity to foreign nations that are working at embassies and foreign
missions.
Standards, labelling, certification and testing: There are about 109 commodities that are
required to be certified by its National Standards body which is BIS (Bureau of Indian
Standards). Further, it also includes another agency like the Food Safety and Standards Authority
of India. This was established under Food Safety and Standard Act 2006 (Singh, Singh and Tuli,
2013). As per the type of roles that are taken into consideration, it is essential that all the test is
required to be considered before any type of products are being exported. For importing all the
test need to be considered so that the problems that are faced can be solved in appropriate
manner.
Existing levels of Foreign Direct Investment
In India, Foreign direct investment is considered to be the major monetary source for
economic development in India. Main focus of the foreign countries is to invest directly in fast
growing private Indian companies and this way, they are able to get benefited through the cheap
wages and changes that are taken place in relation with the business environment (Basant and
Shariff, 2010). During the 1991 economic crisis, economic liberalization started in India and this
was that time when FDI has steadily increased in India. In accordance with the research that was
carried out by Financial Times in the year 2015 China and US were taken over by India as top
destination for the FDI. By the end of 2017, India was able to attract investment of about $31
billion which was higher when compared with US and China.
There are two of the main routes that are helpful enough for India to get FDI. These
routes are as follows:
 Government route: It is essential to take up government is needed via this route. Further,
it is required to be make with the help of Foreign Investment Facilitation Portal
(Upadhyayula, Mutheneni and Nagalla, 2012). This way, it will facilitate single window
clearance of FDI application and this is under approval route. In this context, the
application is forwarded to respective ministries, this act on application in accordance
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with the operating procedure. For this respect, FIPB (Foreign Investment Promotion
Board) is responsible to oversee the route that was abolished in the year 2017.
 Automatic route: This is a type of route that is helpful enough for FDI to allow without
any prior permission from Reserve Bank of India and Government (Miletzki and Broten,
2017).
Apart from this, there are different type of initiatives that are taken up by government and
these are done so that they are able to support the country to grow in positive direction. With this
respect, it includes initiatives that are taken up for automotive, services, pharmaceuticals,
manufacturing, infrastructure, etc.
Summary and recommendation
In accordance with the findings, it can be stated that India is considered to be one of the
most effective country that can be selected for the countries to establish their business, there
different type of aspects that are needed to be focused. With this respect, it includes preferences
of customers. For a business to be established, they need to determine the opportunities that
prevail in the market. Further, there are different type of policies and laws that are followed in
India that make sure that proper services are delivered to customers and the actions take are
highly effective in which they are able to grow in positive manner.
There are certain set of recommendations that should be followed and they are as follows:
 Research and survey: In order to establish the business in effective manner, it is
important that proper steps are taken in which all needs and requirements are properly
considered. This is possible when time to time analysis is made in which the
requirements of customers are identified and services are provided accordingly.
 Technology: Time to time changes is required to be made in technology. This is done so
that qualities of services are delivered to service users. These are possible when the rate
of support from the side of management in understanding the needs is high.
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