Presentataion

Running head: POLITICAL AND ECONOMIC ENVIRONMENT OF INDIA

POLITICAL AND ECONOMIC ENVIRONMENT OF INDIA 6

Political and economic environment of India
Date: 26rd March, 2021

Introduction

India is a country based in South Asia. India is the seventh largest country in the world by area and second most populous country globally after China. The population of India is 1.395 billion. India attained independence in 1947. India is popularly known for its cultural diversity. It is also one of the most democratic countries in the world. For the past 10 years, the country has experienced a continuous growth in its GDP (Mitra, 2017). The country has also enjoyed a continuous growth of liberalization since 1991. India has been opening its doors for foreign investors and companies as a way of promoting economic growth.

Political analysis of India

India is among the most powerful nations worldwide. India’s capital is New Delhi. As one of the largest democracies globally. In India, women participate in voting process. They also run for public officers as well as political parties at lower levels than men. Voting and political activism are the strongest area where women participate. India is governed by a federal form of government under parliamentary democracy. India’s current president is Ram Nath Kovind. He took office in July 2017. He is the Chief of State. In India, a president is elected indirectly by an electoral college (Bose & Jalal, 2017). The Electoral College comprises of elected members of both houses i.e. Parliament and legislative assemblies of each state and territory of India. The prime minster of India is Narendra Modi. He took office in May 2014 and was reelected in May 2019 for the second term. He heads the government. He is selected by members of Lok Sabha of majority party after legislative election for a term of five years (Sridhar, et al., 2016). The president appoints the cabinet under recommendation of the prime minister. India has a bicameral legislature. It comprises of the Council of States (Rajya Sabha) and House of the People (Lok Sabha). Rajya Sabha has 245 members who serves a six-year term. Lok Sabha has 543 members who serves a five-year term.
The political environment of this country is significantly influenced by factors such as government policy, political stability/instability, tax policy, political interests and ideologies from different political parties. The business environment in this country is affected by multivariate political factors. India has a well-developed taxation system and governs several taxes including sales tax, income tax and services tax which are imposed by federal government (Sridhar, et al., 2016). Local government and agencies controls taxes such as controls and utilities. India has friendly taxation policies. For instance, when the current government took office, it discontinued all taxes on goods and services such as excise duty, VAT and service tax. Instead, the government launched a new taxation system known as GST (Goods and Services tax). Most agricultural products particularly those made of leather were exempted from high tax listings (Mitra, 2017). They were listed in lower tax GST of 5 to 12 percent schemes. These policies are meant to be beneficial to client companies to launch their new products and expand their businesses in India. This also attracts foreign investors.
The country neighbors two powerful countries namely China and Pakistan. Other neighbors of India are Nepal, Bangladesh, Sri Lanka, Myanmar and Bhutan. India enjoys a relatively stable political environment. However, the country has an unending dispute with Pakistan over Kashmir. This dispute is an issue of grave uncertainty (Sridhar, et al., 2016). In addition, the Citizenship /Amendment Act of 2019 caused mass violence and protests in numerous states of the country.
The democratic will of Indians that reflects in national and local elections is often accepted by political parties and the people in general. As a result of this political culture of tolerance, India maintains a stable political climate that is an essential factor in attracting foreign direct investment (FDI). This attracts many foreign investors and companies into the country.
One of the major areas of concern in the country is corruption. This greatly affect the business and political environment of India. The cause of corruption in the country includes lack of transparent laws and processes, excessive regulations, many government departments with discretionary powers and opaque bureaucracy, complex tax and licensing systems and monopoly of government controlled institutions on the delivery of particular goods and services (Sridhar, et al., 2016). Corruption poses a challenge to India’s economic growth. Corruption raised of business operations costs and mostly affect foreign direct investment. It reduces economic efficiency as well as development regardless of the many resources in India. Corruption creates an adverse national image and lead to loss of the much needed revenue by scaring away investors (Mitra, 2017). However, a growing government initiatives and public awareness are curbing the challenges of corruption. One of the government initiatives to fight corruption is the bold decision to demonetize the old Rs. 500/- as well as Rs. 1,000/- currency notes and remonetizing them with new same value Rs. 500/- and Rs. 1,000/- currency notes.
Another major challenge is government debt of GDP which is currently 52.87 percent. The government debt is causing issues like promoting inflation and dethroning private productive investments (Bal & Rath, 2014). This along with other economic factors has made the Indian Rupee to fall against the U.S. dollar. Due to these deficits, the foreign investors becomes anxious to invest in the Indian market.

Economic analysis of India

India is among the largest economies globally in terms of nominal GDP. India’s GDP in 2019 was $2.869 trillion. The GDP per capita in India as of 2019 was $2,099.60 (Myers, 2020). This was before the world was hit by Covid-19. Recently, consumer demand in the country has weakened. This is causing a slowdown in economic growth making people raise a lot of concerns. In India, the corporate tax rate is among the lowest worldwide (Paul & Mas, 2016). The federal government of India lowered the tax rates from 30 percent to 22 percent for current operating companies and from 25 percent to 15 percent for new entrants especially in the manufacturing sector September 2019 (Myers, 2020). India has witnessed regular changes in the corporate tax rates over the years. For instance, in 2010, the corporate tax rate was 33.99 percent.
India is among the top leaders in the world in terms of industrialization. For instance, it is the seventh largest coffee producer in the world. India is also one of the top agricultural producing nations worldwide (Sharma & Singh, 2015). Agricultural sector is the backbone of the Indian economy as it supports over 50 percent of the Indian population. Agriculture contributes 16 percent of the country’s GDP. The major agricultural products in India are wheat, corn, rice, millet, tea, coffee, sugar cane, cotton and potatoes. Interestingly, India is the second largest producer of cattle, third largest producer of sheep and fourth largest producer of fish globally. As the backbone of the Indian economy, the Indian government wants agriculture to be taken by its citizens (Bose & Jalal, 2017). For instance, the government increased limitations for foreign direct investment (FDI) in the agricultural sector to create space for client companies to expand in this sector. The government also eased compliances and regulations needed to launch a new start up in the agricultural sector in India for its citizens.
The services sector is the largest contributor to the GDP of India. It contributes approximately 60 percent of the GDP. The services industry employs close to 40 percent of the India’s workforce. The services sector enjoys the most benefits from the New Economic Policy. This sector has seen double digit growth (Sharma & Singh, 2015). Areas such as IT services, banking, and business process outsourcing and finance plays a great role to the country’s GDP. Major IT giants in India such as WIPRO, Infosys and TCS have made their mark on the global platform. In fact, India is the IT hub of the world (Barnes, 2013). The services sector is also creating new employment opportunities to Indians. Other areas such as stock market, forex reserves, insurance and banking have widened the services sector.
The second largest contributor to the GDP of India is the manufacturing sector. Different government initiatives such as MUDRA, Make in India, Startup India, Sagarmala, Freight Corridors and contribution from states are taking over the largest contribution to the country’s GDP in the foreseeable future. Another important sector in the Indian economy is the industrial sector. It employs about 26 percent of the Indian workforce (Bose & Jalal, 2017). It contributes about 24.7 percent to the India’s GDP. The major source of energy in India is coal. In, fact, India is the third largest producer of coal worldwide. Textile is the largest subsector in the industrial sector followed by chemical industry. Major changes like opening up of the economy and end of the “Permit Raj” were welcomed in India with a lot of optimism and enthusiasm. Due to these changes, the industrial potential has increased since 1991. India has witnessed proliferation of industries from the traditional steel and iron to automobiles and jute (Sharma & Singh, 2015). The country has gained autonomy in production, marketing and distribution. India has also witnessed massive private investments both domestic and foreign direct investment. The country had taken advantage of the transfer of technology as well as benefits of research and development to the benefit of its economy (Wagner, 2016). Investment models like public-private partnerships, joint ventures and MNCs were also brought by these changes and they have helped the country to reach where it is today. These changes also gave private players opportunities to enter new sectors that were under government monopoly before (McManus, Li, & Moitra, 2007). The food processing sector is also a major sector in the Indian economy. This sector has emerged as a high-growth and a high-profit sector. In fact, the food processing sector is one of the focus of the “Make in India” initiative. India has a vast availability of raw materials, favorable policy measures, resources and many incentives that have made it a key attractive market for the food processing sector.
The key exports of India are pharmaceutical products, petroleum products, jewelry, transport equipment, machinery, and readymade garments. On the other hand, major products that India imports are crude petroleum, electronic goods, gold, silver, precious stones, and pearls and so on (Bose & Jalal, 2017). The major trading partners of India include China, United States, UAE, Qatar, Saudi Arabia and Switzerland.

Conclusion

The political and economic analysis of India gives an overview of external business environment of doing business in India. The analysis provides an overview of what to expect when one want to do business or establish partnerships with people in India. Generally, India is a conducive country for business. The political factors that affects businesses in India are favorable to business. For instance, the government supports entrepreneurship, a good taxation system, and favorable political climate, government policies that encourage privatization and foreign direct investment and so on. The government is also fighting corruption. The economy of India also supports business and investment. The key sectors of the economy include services sector, manufacturing sector, agricultural sector, food processing sector and industrial sector. Therefore, investors can invest in these sectors since they have already established their roots.

References

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Bose, S., & Jalal, A. (2017). Modern South Asia: history, culture, political economy. Routledge.
McManus, J. T., Li, M., & Moitra, D. (2007). China and India: Opportunities and threats for the global software industry. Elsevier.
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Myers, J. (2020, February 19). India is now the world’s 5th largest economy. Retrieved from World Economic Forum: https://www.weforum.org/agenda/2020/02/india-gdp-economy-growth-uk-france/
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