International Business: India's Political Impact on Businesses

This essay critically examines the impact of India's internal political environment on businesses, both small and large. It provides a general overview of the political climate in India, discussing how government policies, such as corporate tax cuts and the implementation of GST, affect the business landscape. The essay also explores the role of political stability, corruption, and government regulations in shaping the business environment, using examples such as Vodafone's potential exit and allegations against Jio to illustrate the challenges and opportunities faced by businesses operating in India. The conclusion emphasizes the pivotal role of the government in establishing a transparent and unbiased business environment for the benefit of all companies.

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Political climate of a country impacts business (small or large) in a nation. Business is an
entity which is not built in vacuum or space. It is an entity which is a part of the society.
Business is considered to be a part of socio- economic and political background of the
contemporary world (Cavusgil, Knight &Riesenberger, 2017). So, changes in the external
environment have either mild or severe, depending upon the magnitude of change and dynamics
of the business. Nevertheless, some changes are positive and some are negative. The particular
paper is an essay which discusses how internal political environment of the India impacts on the
businesses, whether small or large. The essay contains general overview of political milieu of
India and examples of impacts it has on business with critical discussions.
In postmodern times, politics can be defined as certain systems, establishments and
activities that have direct impact on how power and authority of a nation is allocated and used.
As far as business is concerned, it is a part of the society and political system under which it
operates. Businesses get affected by several aspects, such as liberalization, imposition of tax and
duties, business ethics and standards set by a country and so on (Hadjikhani, Ghauri, &Ghauri,
2012). It can be stated that the Modi Government is trying to transform the entire business
orientation inside the country. There are several changes in the corporate taxation in India as it is
considered to be the one of the most important projects for the Indian government to get more
investment. As a result of that moneycontrol.com (2019) pointed out that the tax cut will bring
more strategic advantage for India to attract more foreign direct investment into to the country
economy. In fact, the reduction of corporate tax will help the business environment to become
closer to the peers throughout Asia and enhancing corporate sentiment and foster slow flow of
credit in the financial sector (Huang, 2019). It will definitely considered to be an effective
business environment that Indian requires in order to refurbish its economy and GDP growth.

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However, there are some threats to the financial stability of the country in terms of loss of
revenue due to reduction of corporate tax. From the point of view of the multinational business
companies, it can be stated that the cut off of corporate tax definitely helps the international
companies to invest in Indian market.
From the research of Sikarwar (2019) it can be argued that the role of volatile political
environment in India has a direct impact on the vulnerability in business. For instance, before the
election of 2014, Indian economy was booming at a rapid pace and in the early 2015-2016 it
reached the point of 8% GDP growth. For a growing nation like India, it supplemented huge
exposure and opportunity for the country to attract more companies to invest. However, the
election of 2014 ended such dream of surpassing China and becoming the Asian giant (Dave,
2017). The 1st term of the Modi government created a nation-wide security threat and the country
was on the verge of a war with neighboring state Pakistan. Jalloh, Djatmika and Putra (2017)
pointed out that war brings an instability into the financial condition of a nation. The same
impact had been seen in case of India where the financial condition of the country was shattered
and the GDP was also started decreasing at a rapid pace.
The internal policies of the Indian government was also created a debacle into the Indian
economy as well as the existence of the small and medium scale industries. For example, GST
was implemented in 2017 and at that time the rate was so high that it became the second highest
in the world. The impact was highly intense and it ended the growth rate, consumption, demand
and inflation to a great extent. Price of different products was at its peak and people were unable
to purchase products as the price was so high. It left a great deal of adverse impact on the
business as well. In Gujarat, the small and medium scale businessmen and traders were started
protesting against the high Goods and Services Tax. As a matter of fact, the high GST also hit

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the business as many of the small and medium scale traders were no longer able to operate their
business.
On the other hand, corruption and malfunctioning in the government also damaged the
business environment in India. It can be stated that particular companies that has a close link
with the ruling party in India, enjoys high benefits in business. For instance, one of the popular
and oldest telecom company Vodafone is looking to shut down its business in India due to huge
government taxes on telecom industry. The company did not take it well that the government is
trying to collapse the entire telecom sector by increase the tax up to 8% (Parkin, 2019). In
response to this, Jio telecom is not only gaining advantage of Vodafone’s withdrawal from
Indian market but also alleged with evading tax. The Cellular Operators Association of India
(COAI) informed the government that Jio deliberately skipped the government tax
(economictimes.indiatimes.com, 2016). As a result of that it is clearly identified that the
irregularities in the government and favoritism for particular business companies lead to a hostile
business environment in India where the business companies are suffering with severe threat due
to ineffectiveness of the government.
From this point of view, it can be stated that the role of the government in business is a
very crucial in order to establish a transparent and unbiased business environment for the benefit
of all the business companies. The policies and guidelines along with government administration
is very important for successful establishment of the market. In case of India, the government
failed to create a good business environment where all the interest groups can get enough
opportunity to meet their interests. Therefore, it can be concluded that government plays pivotal
role in establishing effective business environment otherwise it will be a catastrophe for the
nation to revive its financial capacity and capability to a great extent.

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References
Cavusgil, S.T., Knight, G., &Riesenberger, J. (2017) International Business: The New Realities,
Fourth Edition (Global Edition), Pearson
Dave, H. (2017). Patidar protests to business anger at GST: 5 issues that matter in Gujarat polls.
Retrieved 10 March 2020, from https://www.hindustantimes.com/india-news/patidar-
protests-to-business-anger-at-gst-5-issues-that-matter-in-gujarat-election/story-
3q5OemiwCQJGW7kGmFba4L.html
economictimes.indiatimes.com. (2016). Jio Evading Revenue Share Payment to Govt: COAI
Writes to PMO. Retrieved 10 March 2020, from
https://economictimes.indiatimes.com/tech/internet/jio-evading-revenue-share-payment-
to-govt-coai-writes-to-pmo/articleshow/53818400.cms?from=mdr
Hadjikhani, A., Elg, U., Ghauri, P.N&Ghauri, P.M. (2012) Business, Society and Politics:
Multinationals in Emerging Markets, Emerald Publishing Limited
Huang, E. (2019). India's surprise tax cut spurs questions about offsetting lost revenue, economic
impact. Retrieved 10 March 2020, from https://www.cnbc.com/2019/09/24/indias-tax-
cut-spurs-questions-about-lost-revenue-economic-impact.html
Jalloh, I. J., Djatmika, E. T., & Putra, I. W. J. A. (2017). Political Instability and its Effects on
International Companies: A Case Study on Sierra Rutile Limited (Sierra
Leone). International Journal of Academic Research in Business and Social
Sciences, 7(6), 2222-6990.

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moneycontrol.com. (2019). How volatile political environment impacts Indian businesses.
Retrieved 10 March 2020, from https://www.moneycontrol.com/news/business/impact-
of-volatile-political-environment-on-indian-businesses-4004701.html
Parkin, B. (2019). Vodafone warns it may ‘shut shop’ in India over $4bn charge. Retrieved 10
March 2020, from https://www.ft.com/content/15af5d8c-1811-11ea-9ee4-11f260415385
Sikarwar, D. (2019). Sitharaman's tax cut move: Why it matters so much for India Inc, economy
and Modi govt. Retrieved 10 March 2020, from
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matters-so-much-for-india-inc-economy-and-modi-govt/articleshow/71228078.cms?
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