Attractiveness of India to Do

Business

Global Business Environment

Submitted To: Submitted By:

Ms. Meeta Das Gupta Sagar Dwivedi

PG20095029

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 INTRODUCTION

The geological changes that have taken place around the world in the last few years
and the gradual changes in India’s economical policies have led to a transformation
in the bilateral relationship between India & the US which is best reflected in the
vastly increased co-operation of the two countries in political, strategic and
economical spheres. Indo-US co-operation in batting terrorism around the world is
well established, as is India’s commitment to promote globalization and democracy,
to alleviate poverty both at home and abroad and to work closely with the US to
contain regionally focused armed tension and promote global peace. Strategic co-
operation between the countries is probably at an all time with the much debated
Indo-US nuclear deal.

The India story comes for an interesting telling and at this point the world is
witnessing a strong fast-growing and vibrant Indian economy, which is rapidly
integrating with the global economy.

Reasons that make India an attractive investment destination:-

 India is the world’s largest democracy with a stable political environment.

 India has abundant English speaking, educated, skilled human resource base
which offers its services at cheaper rates than that may be found in any
other developing or developed countries.
 India is world’s leader in global outsourcing with more than 80% of the
market.
 India has at this time a young population with roughly 80% of its population
below 45 years of age.
 The India market is made more attractive by the fast going consumer-class
that is markedly western in its orientation.
 With favorable investment policies, tax incentives and strong economic
fundamentals, India offers attractive returns to prospective investors.

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Some Facts about India:-

 Avg. Annual growth rate – 8.9%

 India is 100 in the Fortune 500 countries have R& D facilities.
 India is second in world’s largest small car market.
 India was the third country to make super-computers
 India ranks as the 4th largest economy based on the purchasing power.
 India occupies second place in the world of software development, after USA.
 India was the sixth country to launch its own satellites.

Business investment climate:-

 Highly skilled manpower.

 Liberal, attractive and friendly investment climate.
 Polices on investment and business and business are liberal and transparent.
 Under new rules, investors only have to inform the Reserve bank of India of
their investment.
 Profits and dividends from sales is fully reparable.

 Rupee is fully convertible on current account. This gives freedom to foreign

investors to repatriate foreign exchange at the existing market rate.

 25% of total receipts in foreign currency account from exports can be

retained in a capital account.

Foreign investment in India:-

Foreign direct investment (FDI):—

India welcomes foreign direct investment in almost all sectors. Foreigners can
directly invest in India either by themselves or as a joint venture. Moreover, the
investment ceilings in certain sectors are gradually being removed.

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Opportunities exist for investing in India sectors as diverse as tourism and
infrastructure, petro-chemicals and mining technology and engineering, real-estate,
bio-technology etc. India is also being seen as the global destination for R&D,
engineering design and prototype development & a manufacturing hub for high
technology products.

FDI Policy:-

The Foreign direct investment scheme and strategy depends on the respective FDI
norms and policies in India. The FDI policy of India has imposed certain foreign
direct investment regulations as per the FDI theory of the Government of India
(GOI). These include FDI limits in India for example:

 Foreign direct investment in India in infrastructure development projects

excluding arms and ammunitions, atomic energy sector, railways system ,
extraction of coal and lignite and mining industry is allowed up to 100%
equity participation with the capping amount as Rs. 1500 cores.
 FDI figures in equity contribution in the finance sector cannot exceed
more than 40% in banking services including credit card operations and in
insurance sector only in joint ventures with local insurance companies.
 FDI limit of maximum 49% in telecom industry especially in the GSM
services

Other growing sectors:-

 Energy
 Infrastructure
 Non-banking Financial Services
 Banking
 Real-Estate
 Media-Broadcasting
 Tele-communication.

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India is a complex country, and those arriving here to do business will discover that
the path to success is often, not very smooth. The following tips will give them an
idea of the working and business norms in practice here. These form the basis of
doing business in India as well as closely connected to risks of doing business in
India.

Our cultures define our fundamentals beliefs about how the world works and form
ways in which we interact and communicate with others and develop and maintain
relationships. Doing business in a particular nation requires a focus on a multi-
dimensional understanding of its culture and business practices. Understanding
those differences and adapting to them is the key.

In the United States of America, efficiency, adhering to deadlines and a host of

other similar habits are considered normal and are expected. But when it comes to
India, one needs to understand that one is dealing with people from a different
cultural background that think and interact differently. As a result, what is
considered to be reasonable and feasible in America may not work so in India and
vice-versa.

Aggressiveness can often be interpreted as a sign of disrespect. This may lead to a

complete lack of communication and motivation on the part of the Indians. One
needs to take the time to get to know them as individuals in order to develop
professional trust. Indians are very good hosts and will therefore, invite you to their
homes and indulge in personal talk often. All this is very much a part of business.
One is expected to accept the invitation gracefully. Taking a box of sweets,
chocolates or a simple bouquet of flowers would definitely be a welcome gesture.
Indians respect people who value their family. They will allow family to take priority
over work, whenever necessary.

The managers must quickly become adept at many new skills such as

 cross-cultural communications
 dealing with colleagues who are 8-12 time zones away
 business practices that may seem odd to American but are routine in Asia

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  concerns about complying with American laws and international practices
 distributed product development, distributed marketing, customer service
 unique aspects of marketing, distribution, sales and credit assessment
 sourcing or outsourcing products and services from unfamiliar locations
 travel or relocation to a seemingly alien society

Benefits of doing business in India:-

Building relationships

Doing business in India involves building relationships. Indians only deal favorably
with those they know and trust - even at the expense of lucrative deals. It is vital
that a good working relationship is founded with any prospective partner. This must
take place on a business level, i.e. demonstrating strong business acumen, and at a
personal level, i.e. relating to your partner and exhibiting the positive traits of
trustworthiness and honor.

Benefits of Foreign Direct Investment

Attracting foreign direct investment has become an integral part of the economic
development strategies for India. FDI ensures a huge amount of domestic capital,
production level, and employment opportunities in the developing countries, which
is a major step towards the economic growth of the country. FDI has been a
booming factor that has bolstered the economic life of India, but on the other hand
it is also being blamed for ousting domestic inflows. FDI is also claimed to have
lowered few regulatory standards in terms of investment patterns. The effects of
FDI are by and large transformative. The incorporation of a range of well-composed
and relevant policies will boost up the profit ratio from Foreign Direct Investment
higher. Some of the biggest advantages of FDI enjoyed by India have been listed as
under:

Economic growth- This is one of the major sectors, which is enormously benefited
from foreign direct investment. A remarkable inflow of FDI in various industrial
units in India has boosted the economic life of country.

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Trade- Foreign Direct Investments have opened a wide spectrum of opportunities
in the trading of goods and services in India both in terms of import and export
production. Products of superior quality are manufactured by various industries in
India due to greater amount of FDI inflows in the country.

Employment and skill levels- FDI have also ensured a number of employment
opportunities by aiding the setting up of industrial units in various corners of India.

Technology diffusion and knowledge transfer- FDI apparently helps in the

outsourcing of knowledge from India especially in the Information Technology
sector. It helps in developing the know-how process in India in terms of enhancing
the technological advancement in India.

Linkages and spillover to domestic firms- Various foreign firms are now
occupying a position in the Indian market through Joint Ventures and collaboration
concerns. The maximum amount of the profits gained by the foreign firms through
these joint ventures is spent on the Indian market.

Disadvantages of Foreign Direct Investment:-

 More costly travel/communications abroad.

 Not having a close familiarity with local business tax laws, business scene in
general, and various government regulations.
 The MNEs face risks such as exchange rate changes, expropriation by the
government, and other actions that can be taken against them.
 Language and culture differences
 Higher wages/benefits must be paid to the personnel going abroad.
 inflation may increase slightly
 domestic firms may suffer if they are relatively uncompetitive
 if there is a lot of FDI into one industry e.g. the automotive industry then a
country can become too dependent on it and it may turn into a risk that is

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 why countries like the Czech Republic are "seeking to attract high value-
added services such as research and development (e.g.) biotechnology)".

CONCLUSION

1. Research the market before you invest. Understand the size, potential and
price dynamics - and how and where you want to enter it. Is your product or
service right for the Indian markets?
2. Make sure that you have top management commitment and adequate
resources to manage a business relationship in India.
3. Visit the market and take time to build personal relationships - be prepared
to make follow up visits.
4. Choose your partner with care - do thorough Due Diligence and take
independent advice. Consider what kind of agreement you need – and don't
give away too much information in advance of finalizing any agreement.
5. Allow plenty of time for meetings and traveling around the market.
6. Don't be patronizing or under-estimate how quickly India is developing.
7. Understand the business culture and do not be aggressive.
8. Don't assume anything - find ways of checking progress without causing the
other party to 'lose face'.
9. Be patient - it always takes longer than you think!
Talk to your local International Trade Adviser and find out what help is
available.

REFERENCES

 http://business.mapsofindia.com/fdi-india/advantages.html
 http://www.economywatch.com/
 http://businesstoday.intoday.in/bt/
 http://www.ibef.org/economy/fdi.aspx

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