Analysis of India's Business Environment and Macroeconomic Policies

This report, prepared for the CEO of an Australian investment company, provides a comprehensive analysis of India's business environment and macroeconomic policies to inform long-term investment decisions, particularly in the air transport industry. The report examines various aspects of the Indian economy, including the ease of starting a business, dealing with construction permits, accessing electricity, registering property, availability of credit, protection of minority investors, taxation, trading across borders, contract enforcement, and insolvency resolution. Furthermore, it delves into key macroeconomic indicators such as economic growth, unemployment, average wages, human capital, inflation, interest rates, government expenditure, domestic credit, taxation policies, infrastructure development, exchange rate trends, and monetary policies. The report also considers the impact of the global financial crisis on the Indian economy. The analysis aims to provide the company's management with a clear understanding of the risks and opportunities associated with investing in India, offering recommendations and conclusions based on the findings.

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MACROECONOMIC POLICY
INDIA’S BUSINESS ENVIRONMENT AND ECONOMY

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Executive summary
This paper contains a report directed to the CEO of the Australian investment company
regarding nature and the characteristics of the target market. The study of the paper aims to
help the decision maker of the company regarding a long-term investment in one of the trade
partners of Australia that in this case in India. Using the data from the World Bank and
studies from the other sources regarding the performance of Indian economy, the paper has
showcased the characteristics of Indian economy and its likeliness to become a target market
for the Australian investment organisation.

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Table of contents
1.0 Introduction..........................................................................................................................4
2.0 Analysis and discussion.......................................................................................................4
2.1 General business environment of India................................................................................4
2.1.1 Starting a business.............................................................................................................4
2.1.2 Dealing with construction permit......................................................................................5
2.1.3 Getting the connection to electricity.................................................................................6
2.1.4 Registering property of the target market.........................................................................6
2.1.5 Availability of credit.........................................................................................................7
2.1.6 Protection of the minority investors..................................................................................7
2.1.7 Ease of paying taxes..........................................................................................................8
2.1.8 Trading across borders......................................................................................................8
2.1.9 Enforcement of the contracts............................................................................................8
2.1.10 Resolving insolvency......................................................................................................9
2.2 Economic growth and business cycle of the target market................................................10
2.3 Unemployment rate............................................................................................................11
2.4 Average wage rate..............................................................................................................11
2.5 Analysis of the human capital............................................................................................12
2.6 Inflationary pressure...........................................................................................................13
2.7 Real interest rate and the central bank...............................................................................14
2.8 Expenditure of the government..........................................................................................14
2.9 Domestic credit to the private sector..................................................................................15
2.10 Taxation policy.................................................................................................................16
2.11Expenditure of the government on infrastructure development........................................17
2.12 Trends in the exchange rate and its fluctuations..............................................................18
2.13 Monetary policies of the government..............................................................................19
2.14 Effects of the global financial crisis in the target economy.............................................20

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3.0 Recommendations and conclusion.....................................................................................20
Reference..................................................................................................................................22

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1.0 Introduction
Long-term investment decision of any country requires a lot of research and analysis. One of
the important features of the long-term investment in the foreign country is that it is affected
highly by its economic affairs. The study presents a report to the management of an
Australian investment company that is looking to invest in the air transport industry of India.
The paper focuses on the study of the Indian economy at the macro level in order to get
insight regarding the behaviour and the potential performance in the future. While the
favourable policies of the government will allow the Australian company to have a higher
return on their investment, any kind of unfavourable situation or changes in the
macroeconomic variable can hamper the progress of the company. Apart from that, the paper
also examines the behaviour of the government regarding the expenditure of the government
in a different sector of the economy in order to find out any potential benefit that the target
country may offer.
2.0 Analysis and discussion
2.1 General business environment of India
This general business environment of the target market is expected to provide current
information regarding the economic operation and the role of the government. The
knowledge of these economic indicators and behaviours will make it easier for the CEO to
undertake long-term investment decision in the target country which in this case in India.
2.1.1 Starting a business
Historically, starting a new business have been challenging due to a high level of bureaucracy
in India. However, there are few steps which need to be followed in order to introduce a new
business in India.
1. Research regarding the business opportunity of the market
2. Having some legal assistance regarding the structure of the organisation.
3. Deciding on the legal structure of the organisation based on the financial capabilities
and the number of ownership (Varghese et al. 2016).
4. Getting the organisation incorporated as a business in India.
5. Setting a name of the company such that it does not become similar to an existing
registered company in the country.
6. Verification of the visas and passport of the owners and the directors of the company.
The overall process to register a business and start operating regularly takes more than 3
months in case of India. Agrawal (2015) commented that this is due to the presence of high
bureaucracy in the structure of the administration of the country. However, the government

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recently has come up with policies for the startup in which they get funding initially as a
form of support and appreciation.
2.1.2 Dealing with a construction permit
A construction permit is a clearance from the administration regrinding the establishment of
the business. Kaushal and Pathak (2015) pointed out that in terms of the permission, India is
the worst place to start a business as each of the major cities of the country takes a lot of time
to clear the permission.
Ahmedabad
Bengaluru
Bhubaneshwar
Chennai
Gurgaon
Guwahati
Hyderabad
Indore
Jaipur
Kochi
Kolkata
Ludhiana
Mumbai
New Delhi
Noida
Patna
Ranchi
0
500
1000
1500
2000
2500
3000
Dealing with the construction permit
Time (days)
Cost (% of warehouse value)
Figure 1: dealing with construction permits in different cities of India
(Source: World Bank Open Data | Data. 2018)
In addition to the extended time for the permission, the cost of issuing the permission is also
very high for few of the cities of the country. While the cost of issuance of permit for the
construction is very high for Kolkata and Mumbai, they are comparatively cheap for Chennai
or Bangalore given the value these locations have in the economic map of the country.
There are few of the steps which need to be followed in order to get permission for
construction in India. These are furnished below:
1. The company needs to confirm the land which is entitled to the permission from the
administration for new construction (Kaushal and Pathak, 2015).
2. Collection of the clearance certificate pertaining to the selected land.
3. Collection of the building approval from the administration upon the submission of
the zonal clearance and other land documents.

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2.1.3 Getting the connection to electricity
From the data of the World Bank, it is easier for the new businesses to get a new electricity
connection in India than in Australia. There are a number of procedures in the case of this as
well that needs to adhere in order to get electricity connection for the new business in India.
1. Application to the local electricity board.
2. Getting the property reviewed regarding the security.
3. Getting the connection as per the convenience of the business owners.
The time it takes to supply the connection from filling up the form and paying the perquisite
money is only 5 days. Ahmad et al. (2016) highlighted that, under the policies of the
government to extend electricity in every village of the country, the overall provision of
services have improved drastically.
2.1.4 Registering property of the target market
Registering the property for the business in India is one of a tough job for the business
owners. According to Moosvi (2015), the rank of India in terms of registering new property is
154 compared to that of 51 of Australia. While it takes around 5 days in Australia to register
a new property, in India it takes more than 120 days. This is due to the fact that widespread
corruption in terms of registration exists in the structure for India. This not only increases the
time taken for the registration, it also increases the cost of the registration of the property as
well. The process to register new property for the business purpose in India is as follows:
1. Estimation of the value of the property.
2. Buying the nonjudicial stamp for the documentation of the registration.
3. Completion of the sale deed pertaining to the property.
4. Submission to the sub registrar’s office.
5. Payment of the taxes and other fees.
2.1.5 Availability of credit
In terms of getting credit for the introduction of new business, Australia has a better rank than
India. Due to the bureaucratic inflexibilities, the time it takes for the banks to sanction loan is
very high. However, with the new policies of the government appreciating new business
introduction, the government has introduced a fast track process to get loans for the new
businesses (Singh and Singh, 2016). However, in order to get credit for the business, there are
few of the steps and requirements which need to be fulfilled. These are presented below:
1. Submission of the application form to the bank approved by the local administration.
2. Review of the current financials of the businesses including the assets and the
liabilities.

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3. Collection of the loan upon the successful reviews of the background check of the
owners and the board of directors of the company.
The requirements for applying for credit is,
1. The structure of the company complies with the legal requirements.
2. The company has a predefined board of directors.
3. The company has already funded the business in its first stage.
2.1.6 Protection of the minority investors
Investors are an important source of fund for the new business. Therefore their protection and
security are important in order to ensure a smooth investment for the continuous expansion of
the new business in its initial phases. There are few of the indicators that show the security
and the protection of the minority investors of the company. These are,
1. Conflict resolution management for the investors of the company (Bogra et al. 2016).
2. The degree of consideration of investors views on the decision making of the
company.
3. Strong corporate governance of the company that ensures security for the
shareholders (Sangwan, 2015).
In terms of the practice that exists, India is better protected for the minority shareholder than
that of Australia. There is a strong legislation in the country that compels the organisation to
take action against the conflict between the shareholders of the company. Aggarwal (2018)
commented that the interest of the minority shareholders also needs to be taken care of by the
management for better implementation of the decisions of the company.
2.1.7 Ease of paying taxes
Paying taxes for the commercial production and operation is important for the adherence of
the national rules and the regulation of the target market. However, the ease of paying taxes
differs from country to country (Sheeba et al. 2016). While, it is easier for the businesses in
Australia to pay their taxes without many hassles and bureaucratic inflexibilities, paying
taxes in case of India is much more troublesome. The rank of Australia in this regard is 26
while that of India is 119. Since the independence in India, there have been a lot of changes
in the tax regimes including the taxes for the commercial production and operation. Dutta
(2015) commented that some of the times, the changes have been redundant making the
structure complex and difficult. Apart from that, there are different tax liabilities for a
business in India. Along with the Value added tax and the commercial tax of 30%, there are
other taxes such as sales taxes which needs to pay to the respective state governments.
However, Cappelli et al. (2015) stated that recent modifications in the tax regimes have made

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it easier for the businesses wherein the businesses pay a single GST to the government. The
ease of this structure is subject to testing and research and hence its effects on the new
business are not known.
2.1.8 Trading across borders
Trading is an efficient way to increase the gain of the company from the market.
Galaskiewicz (2016) stated that trading allows the organisation to make use of other markets
surrounding the target market. In that case, there is Bangladesh, Nepal, Pakistan, and Sri
Lanka, market of which can be utilised by the management of the company in order to extract
gains from the market. However, border consent plays an important role in this which
influences the hassles of the company (Chakrabarti and Ray, 2018). Australia's rank in terms
of trading across the border is 95 while that of India is 154. This shows for both the country it
is not easier for the businesses to collect consent for the across the border trade. In India, it
takes more than half a year to get them across the border trade consent which allows the
businesses to sell their products in the market of other neighbouring countries Perdikis
(2018). Furthermore, a business may also acquire the raw material from the neighbouring
countries. For that also, the company needs to take consent from the government which is
equally problematic in case of India.
2.1.9 Enforcement of the contracts
The contracts and the laws of the target company are important for the business to succeed.
Khan (2016) noted that it is the orientation of the policies of the government and their
alignment with the business laws of the country that makes it easier for the business to
operate. The government has the interest to support the new business due to the fact new
businesses have the high potentiality to influence the labour market as well.
According to the data of World Bank places like Hyderabad in India have some good level of
enforcement of a contract that can help the company to operate smoothly (Bhatia and Thakur,
2017). There are three indicators that measure this variable of the economy.
1. Time taken by the courts to enforce the contracts.
2. Cost of the enforcement
3. Quality of the judiciary system in the target market.
The enforcement of the contracts not only reflects the judiciary processes of the target
country it also shows the discipline in general that might have its effects on the operation of
the company. In terms of enforcement of the contract, Australia is a better country compared
to India. However, Hooda (2018) pointed out that recent changes in the orientation of the

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government towards entrepreneurship might have its influences on the contract enforcement
of the target country.
2.1.10 Resolving insolvency
Insolvency is a situation where the company fails to take the financial liabilities. Insolvency
of an effective organization has many negative impacts on the economy as the employment of
the economy is related. Therefore, it is the responsibility of the government to take care of the
insolvency issues of the companies of the market. In dealing with the insolvency of the
companies, each of the cities of India is scored on a scale of 1 to 16. This shows that
Hyderabad is the most effective place that deals with the insolvency with more efficiency.
Chittoor et al. (2015) pointed out that, due to having a huge number of commercial
businesses in places like Bangalore, the insolvency management of the local government is
inefficient.
However, overall, the insolvency management skills of India are much lesser than the other
major countries of the world. While the global rank of Australia in resolving insolvency is 18,
it is 113 for India showing that there is a huge risk for the investors if the business somehow
leads to insolvency (Derudder and Witlox, 2016).
2.2 Economic growth and business cycle of the target market
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
2
4
6
8
10
12
14
16
18
20
Economic growth
World
India
Australia
Figure 2: Economic Growth of India
(Source: World Bank Open Data | Data. 2018)
The widely used measurement for the economic growth of a country is the growth in the GDP
of the country. According to the GDP growth India is way ahead than Australia. Saranga et
al. (2018) pointed out that, one of the main characteristics of developing economy is that its
GDP growth rate is very high and there is no doubt that India is one of the promising

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emerging economies of the world. The current GDP growth rate of India is close to 7.1% per
year compared to Australia’s 2.8%. Thus, in terms of scope India is a great choice for new
business compared to other Asian countries as well. According to, Middlemiss (2017) after
the introduction of neo-liberal policies in the economy of India in the year 1991, the economy
have not stopped growing, even the global economic crisis of 2007 failed to have an impact
on the GDP growth rate of the country. Although the business cycle phases have hit the
economy of the target market, proper policies and management of the government have
ensured to have a smooth GDP growth rate of the country (Pattanayak and Roy, 2015).
2.3 Unemployment rate
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0
2
4
6
8
10
12
Unemployment rate
Australia
India
World
South Asia (IDA & IBRD)
Figure 3: Unemployment rate over the years
(Source: World Bank Open Data | Data. 2018)
The unemployment rate is referred to as the ratio of the percentage of the labour force of the
economy that is not employed in any production process of the economy and hence earns no
wages for a living (Buckley et al. 2016). The unemployment rate is one of a major indicator
of economies performances. The objective of the government is to reduce the unemployment
rate of the economy so that all the resources can be allocated for the production. India’s
unemployment rate has been almost consistent since the year 1991 compared to other Asian
countries, whose unemployment rate increased during the financial crisis of the year 2007.
However, Mohan and Kar (2017) pointed out that this low unemployment rate of the country
has also resulted in high inflation and in the future, this can pressure the inflation of the

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market to go up as well. The low unemployment rate in the Indian economy implies that it
will be difficult for the new business to employ workers for the company at a low wage rate.
2.4 Average wage rate
The average wage rate of the country is the total wage income earned by the population
divided by the number of labours. The wage rate of a country is determined by the supply of
labour and the demand for labour in the market. Chittoor et al. (2015) highlighted that, due to
the fact that, the supply for labour is very in the Indian market, the average wage rate is lower
than most of the Asian countries. However, the factor of specialisation of labour in the
market has an upward push in the wage rates of India. The specialisation of the labour in
Indian labour market also explains the inequality that remains in the wage rate of the different
labours of the country. India has a global rank of 99 in terms of average wage rate which
stands at $3168 annually. According to Kale and Singh (2017), this average wage rate of the
labour of the market may be beneficial for the new business despite the target country’s low
unemployment rate.
2.5 Analysis of the human capital
Human capital is referred to as the knowledge of the labour of the country. According to the
data of World Bank, the human capital of India is increasing steadily over the years.
Srivastava and Malhotra (2015) commented that India human capital growth has been so
strong over the years that it has also explained the growth in the human capital for the South
Asian region as a whole. This growth can be a benefit for the new business as human capital
of the economy has been reported to be associated with productivity as well. However,
Chauhan and Giri (2016) pointed out that brain drain in case of India is also very high leading
to a decrease in the absolute value of high-quality labours in the labour market.
2000
2002
2004
2006
2008
2010
2012
2014
2016
0
5
10
15
20
25
30
35
40
Human capital index
India
World
South Asia (IDA & IBRD)