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Business in India

India at a Glance

India is a country rich in potential and diversity. Tapping the different sectors of India for business-related ventures warrants a veritable inquiry regarding its cultural, economic, regional, political, foreign exchange, global manufacturing, materials, and global manufacturing environments and features. The following are the pre-requisite information for starting business in India.

“India is a South Asian country bounded by Pakistan in the northwest, Nepal and China in the north, Bhutan, Bangladesh and Myanmar in the northeast. The Arabian Sea and Bay of Bengal surround it in the south” (International Finance Corporation).  Its land area equals 3.29 million square kilometers having a climate of mainly tropical with temperature range of 10 – 40 degrees Celsius. “India’s capital is New Delhi”. The nation’s population was pegged at 1.091 billion in October 2004 with almost 2% growth rate.

There are 324 individuals per square kilometer with a literacy rate of roughly 65%. Although there are 18 different principal languages, most Indians speak Hindi while the business language is English. There are 6 major religions in India which are Hinduism which is the largest, followed by Islam, Christianity, Sikhism, Buddhism and Jainism. There are 14 international airports and 12 major seaports in India (International Finance Corporation).

Cultural Environment

In terms of cultural environment, the Indian society is shaped by its highly diverse religious and traditional practices. With rapid globalization and increase in literacy rate and education, the cultural environment of India is undergoing crucial changes. Social conduct is influenced by different religious, socio-economic and regional norms. Gender distinctions are obvious particularly in rural areas although the Constitution of Independent China promulgates equality between sexes as a fundamental right (Communicaid).

The Indian Constitution recognizes 22 languages spoken and written in the country rich in diversity. The national language is Hindi and English is the business language. The central government, state governments and business community utilize English although there are initiatives to enhance the usage of Hindi (Ernst & Young). India is considered as a secular country in terms of religion. Hinduism is the largest religion in India with approximately 80% followers, followed by Islam with roughly 13% followers and third is Christianity with around 2% followers. Religions such as Sikhism, Buddhism and Jainism comprise the remaining approximately 3% of other religions (Communicaid; Ernst & Young).

When doing business in India, the following religious and cultural concepts must be observed: religion as a way of life, concept of fatalism and collectivism. In order to maintain successful relationships with Indians, one must regard their religion, for instance Hinduism, with importance since it largely influences the hierarchical structure of business in contemporary India. Fatalism is due to the spiritualism of Indians, which has an implication on taking time in making decisions and accepting developments as dictated by Karma. Collectivism simply refers to Indian’s strong sense of community and attachment to hierarchical structures (Communicaid).

Economic Environment

India is now one of the countries that posted the greatest growth in recent years. The average growth rate of India is placed at 6 percent of the Gross Domestic Product (GDP) since its 1992 opening and has been inching closer and closer to an average growth rate of 8 percent.

India’s GDP growth for 2004-2005 was at 6.9 percent. Inflation rate was pegged at an average of 6.4 percent during 2004-2005. India’s GDP highest record was at 8.5 percent during 2003-2004 and it has maintained the current average of 6.9 year on year. This growth rate is spurred by the industry and services sector. Year on year, the services sector grew by 8.9 percent while the industry sector grew by 7.7 percent brought about by a robust and sustained industrial resurgence.

India’s agricultural sector grew only by 1.1 percent year on year. In stark contrast, the industrial production of India witnessed an accelerated growth during the last few years. During 2004-2005, the growth of the Index of Industrial Production was at 8.4 percent from 7.0 percent during 2003-2004, 5.8 percent during 2002-2003, and 2.6 during 2001-2002 (International Finance Corporation; Ernst & Young).

More good news is expected for the coming years in India. During 2005-2006, performance of the economy was better than expected. The April to September real GDP growth was 8.1 percent compared to the same period in 2004-2005 at 7.1 percent. Moreover, in the coming years, India’s real GDP is predicted to maintain a 7.6 percent growth rate with the agriculture sector at 3.0 percent, industry sector at 8.1 percent and the services sector at 9.2 percent (PKF International; International Finance Corporation).

Regional Environment

In terms of regional trade agreements, India has been getting into these relationships for the past several years which are aimed to offer better tariff rates on the trade of goods among member states. Furthermore, these are put up in order to provide better economic cooperation in areas of trade in services, investment and new technology. India has entered bilateral trade agreements with Sri Lanka through the India – Sri Lanka Free Bilateral Trade Area, with Thailand through the India – Thailand Free Trade Agreement, within South Asia through the South Asia Association for Regional Cooperation Preferential Trade Agreement, and with Singapore through the Comprehensive Economic Cooperation Agreement.

The last was recently established and was aimed to enhance trade in goods, services and investments. Moreover, economic cooperation was envisioned regarding education, science and technology, intellectual property and air transportation (Ernst & Young).

Political Environment

According to its Constitution, India is a sovereign, socialist, secular, democratic republic. Twenty nine states and six union territories comprise India which takes a federal form of government wherein each state is under the state government while the whole country is run by the central government (PKF International; Ernst & Young).

A parliamentary form of government is followed by India wherein the real power is held by the Prime Minister although the president is considered as the Head of the Republic. There are three branches of the Indian government which are the legislative, executive and the judicial branches (Ernst & Young).

The legislative branch of the central government is bicameral, composed by the Lower House and the Upper House. Members of the Lower House are directly elected by the people while members of the Upper House are nominated by the president. State governments either have bicameral or unicameral legislatures. In the executive branch, the leader of the Lower House majority party becomes the Prime Minister who, together with his Cabinet, runs the daily affairs of the central government. State governments are run by the Chief Minister together with his Council of Ministers. India’s judicial branch is made up the Supreme Court, the High Courts and subordinate courts (International Financial Corporation; Ernst & Young).

There are many political parties in India consisting of national, regional and local parties. There are nine prominent national parties in India and the Indian Parliament is characterized by strong opposition parties (PKF International; Ernst & Young).

Foreign Exchange Market

India’s foreign exchange market is an appropriate indicator of the sustained macroeconomic stability and strong economic growth over the years. India’s foreign currency reserves expanded from 51 billion USD in 2002 to 131 billion USD in 2005. India’s mushrooming services exports and robust capital inflows are the primary factors that bankrolled this trend in reserve accretion. These are mainly to the foreign direct investments and foreign portfolio investments pouring in from foreign investment institutions (DIPP).

The Indian rupee has performed magnificently against the US dollar over the recent years. During 2001-2002, the rupee-dollar exchange was at 48.80 which plummeted to 43.75 during 2004-2005. During recent years, the Indian rupee was able to maintain steady ground (International Financial Corporation).

Global Manufacturing and Materials Management

India has an abundance of natural resources, producing 4 fuel minerals, 11 metallic minerals, 52 non-metallic minerals and 22 minor minerals for a total of 89 mineral products. India’s mineral production is valued at 16.43 B USD in 2004-2005, 77% of which or 12.72 B USD was from fuel minerals. Metallic production is dominated by iron-ore, gold, chromate and concentrates to name a few. Limestone, dolomite and kaolin are just some of the non-metallic minerals India produce. India is the number one producer of mica blocks and splittings in the world. In terms of chromate production which has been of great demand lately, India has claimed third position among the world’s top producers (Naushad 4; DIPP; Ernst & Young).

The mining sector is monitored by the Department of Mines of the Ministry of Mines and Minerals. Coal, petroleum and natural gas have independent government departments to oversee their production. Under the Indian Constitution, state governments own the minerals in their jurisdiction while the central government owns minerals in other areas (Ernst & Young). India’s information technology sector is one of the fastest growing sectors in the world. It had a 22% revenue growth from 2000 to 2003 with more than 80% of which is exported (PKF International; International Financial Corporation).

Global Marketing

India’s foreign trade consists of exports amounting to 79.41 B USD during 2005-2005. The country’s major exports are made up of traditional products made of garments, cotton yarn, textiles, gems, jewelry, and various agricultural products. In addition, rapidly emerging goods and services sectors consisting of chemicals, engineering products, pharmaceuticals, information technology services and petroleum products are gaining global markets (Ernst & Young).

Aside from the neighbors or regional partners with which India has trade agreements, there are large economies that serve as markets for Indian goods and services. The list includes the United States of America; European countries such as Germany, United Kingdom, Italy, France, Netherlands and Belgium; United Arab Emirates in the Middle East; and China, Hong Kong and Bangladesh in addition to Singapore (DIPP; Ernst & Young).

Conclusion

Doing business in India logically entails a comprehensive knowledge of the cultural, economic, political, regional and other environmental factors or background. These were adequately narrated in this paper and summarized in the following assessments. First is the importance of cultural and religious understanding of the Indian people. In order to have successful business relationships with locals, one must give high regard to religious and community traditions, which are very important to them. Second is the economic environment of India, which generally paints a bright picture in terms of the current growth rate of the economy.

Different sectors are undergoing fast expansion such as the services and industry sectors. In terms of regional trade agreements, India has carved its own stable niche in South Asia together with Sri Lanka, Thailand and Singapore to name a few, and is propelling the growth of the region due to its dynamic economy. India’s political structure has a long history and has clear mandates, power and will important in the provision of government services and laws related to businesses although cannot be considered as a matured democracy.

India’s currency is characterized by its recent and sustained rise and stability against the dollar. India has also rich mineral reserves and appropriate departments are tasked to monitor and enhance their efficient use. And lastly, India’s resolve to meet globalization head-on, has given its highly skilled manpower and resources plenty of room for diversification and advancement. India’s pharmaceutical, information technology and biotechnology are among its brightest performing sectors receiving large markets not only in the region and the United States but to the whole world as well.

Works Cited

Communicaid. Doing business in India: Indian Social and Business Culture. 2004. Cummunicaid Group Ltd. 9 July 2007 < www.communicaid.com/pdf/doingbusiness/ Doing%20Business%20in%20India.pdf >

 DIPP. Investing in India: A Comprehensive Manual for Foreign Direct Investment – Policy and Procedures. Nov 2005. Department of Industrial Policy & Promotion, Ministry of Commerce and Industry, Government of India, New Delhi. 9 July 2005 <dipp.nic.in/manual/manual_0403.pdf>.

Ernst & Young. Doing Business in India. 2006. Ernst & Young, Pvt. 9 July 2007 <www.ey.com/india>.

Forbes, Naushad. Doing Business in India: What has Liberalization Changed?  Working Paper No. 93. Department of Economics. Stanford University, California, 2001.

International Finance Corporation. Doing Business in South Asia 2007. IFC, World Bank. 8 July 2007 <http://www.doingbusiness.org/>.

PKF International. Doing business in India

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. 2002. PKF International. 9 July 2007 <www.pkf.com/jahia/webdav/site/pkf/>.

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