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Political & Economic Environment India

In: Business and Management

Submitted By nickstar
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Political:
Corruption
India is ranked 85th out of 175 countries (China is ranked 100th) which is an improvement of 2 places compared to 2010 where India was ranked 87th. The new Modi government has also vowed to clamp down on corruption which will definitely improve rankings. (e.V., 2015)

Policies encourage manufacturing especially automobiles
Under the Modi government, the Make in India initiative was launched in September 2015 to promote manufacturing in India. This initiative introduced new tax cuts, streamlined administrative processes and liberalised FDI. (Makeinindia.com, n.d.)

* Streamlined regulations (easier to do business) * Manufacturing and imports in this sector are exempt from licensing and approvals. * Unified online portal for: * Registration of Labour Identification Number (LIN) * Submission of returns * Grievance redressal * Combined returns under 8 labour laws * Online portals: * Real-time registration * Payments through 56 accredited banks * Online application process for environmental and forest clearances * 14 government services delivered via eBiz, a single-window online portal * Investor Facilitation Cell established * Dedicated Japan+ Cell established * Consent to Establish/NOC no longer required for new electricity connections * Documents reduced from 7 to 3 for exports and imports * Option to obtain company name and DIN at the time of incorporation * Simplified forms for: * Industrial Licence * Industrial Entrepreneurs Memorandum * Many defence sector dual-use products no longer require licences * Validity of security clearance from Ministry of Home Affairs extended to 3 years * Extended validity for implementing industrial licences * No distinction between partial and full commencement of production for all products * Colour-coded maps for locations requiring NOC from the Airports Authority of India hosted online * FDI (easier for foreign investors to enter the Indian market) * 100% Foreign Direct investment (FDI) is allowed under the automatic route in the auto sector * Automatic approval for foreign equity investment up to 100% with no minimum investment criteria * Infrastructure (improves efficiency of operations) * Developed industrial parks in every state * Started developing National Investment & Manufacturing Zones. NIMZ is a combination of production units, public utilities, logistics, residential areas and administrative services. It would have a processing area, where manufacturing facilities, along with associated logistics and other services and required infrastructure will be located, and a non-processing area, to include residential, commercial and other social and institutional infrastructure. * Special Economic Zones: India has also developed SEZs that are specifically delineated enclaves treated as foreign territory for the purpose of industrial, service and trade operations, with relaxation in customs duties and a more liberal regime in respect of other levies, foreign investment. * Sector specific clusters: like electronic manufacturing clusters, mega food parks etc: The government of India has been promoting the development of sector specific parks. * Industrial corridors: The Government of India is developing the Delhi-Mumbai Industrial Corridor (DMIC) as a global manufacturing and investment destination utilizing the 1,483 km-long, high-capacity western Dedicated Railway Freight Corridor (DFC) as the backbone. * Other four corridors: planned include Bengaluru Mumbai Economic Corridor (BMEC); Amritsar - Kolkata Industrial Development Corridor (AKIC); Chennai Bengaluru Industrial Corridor (CBIC), East Coast Economic Corridor (ECEC) with Chennai Vizag Industrial Corridor as the first phase of the project (CVIC). * Tax Incentives (cost savings) * India provides capital subsidy of up to 25% for 10 years. * investment allowance at the rate of 15 per cent to a manufacturing company that invests more than US$ 4.17 million in any year in new plant and machinery * Several additional deductions are provided for instance deduction equal to 30% of additional wages paid to new regular workmen employed by the assesse over and above 50 workmen. * Higher weighted deductions of 200% provided for expenditure related to R&D * Exemption from BCD on lithium ion automotive batteries for the manufacture of lithium ion battery packs for supply to manufacturers of hybrid and electric vehicles. * Under the foreign trade policy exports have been provided with several incentives like duty drawback, duty remission schemes
Stability
Unlike her neighbours such as Pakistan and Myanmar, India has avoided coming under hard authoritarian rule and have become the world’s largest democracy. In addition the policy-making strength from the majority garnered by the Bharatiya Janata Party further adds to the political stability of India. As such India is ranked 14th in terms of short term political risk (lower than China) and 8th in terms of long term political risk (above China). (India Country Risk Report, 2015) As such the political stability coupled with the strong democratic nature of India enhances the viability of doing business in India.
Law

(Data.worldjusticeproject.org, 2015)
India ranks in the middle of the countries in terms of rule of law but is still ahead of China by 12 places and behind Brazil by 13 places. While not in the top few, India’s laws permit businesses to run with minimal disruptions and as the government continues with new policies to encourage manufacturing, this ranking will increase in future.
Intellectual Property
In 2014 India was tied with China and Brazil with a ranking of 46/97 in terms of IP protection
(Internationalpropertyrightsindex.org, 2014)
Since then the Indian government has been introducing new measures to improve their ranking and today India’s IP protection laws are fully compliant with the Agreement on Trade-Related Aspects of Intellectual Property Rights.
Indian IP offices have also undergone major improvements in terms of upgradation of IP legislation, infrastructure facilities, human resources, the processing of IP applications, computerization, databases, quality services to stakeholders, transparency in functioning and free access to IP-data.
State of the art, integrated and IT- enabled office buildings have been created during the last few years in New Delhi, Kolkata, Chennai and Mumbai and Ahmedabad, housing central wings for Patents and Designs and Trademarks and Geographical Indications. The Patent Office is headquartered at Kolkata with branches at New Delhi, Chennai and Mumbai. The Trade Mark Registry, headquartered at Mumbai has branches in Ahmedabad, Chennai, New Delhi and Kolkata. The Design Office is located in Kolkata and the GI Registry is at Chennai. Separate facilities house the ISA/IPEA in New Delhi and additionally, there is an Intellectual Property Office Archives is at Ahmedabad.
Simplified procedure for filing, E-filing facilities and incentives for SMEs are some of the other initiatives in the area of intellectual property rights in India. (Makeinindia.com, n.d.)

e.V., T. (2015). How corrupt is your country?. [online] Transparency.org. Available at: http://www.transparency.org/cpi2014/results [Accessed 3 Nov. 2015].
Makeinindia.com, (n.d.). MAKE IN INDIA-AUTOMOBILES. [online] Available at: http://www.makeinindia.com/sector/automobiles [Accessed 1 Nov. 2015].
Makeinindia.com, (n.d.). THE NEXT MANUFACTURING DESTINATION. [online] Available at: http://www.makeinindia.com/article/-/v/direct-foreign-investment-towards-india-s-growth [Accessed 1 Nov. 2015].
India Country Risk Report. (2015). 1st ed. [ebook] BMI Research. Available at: http://www.bmiresearch.com [Accessed 1 Nov. 2015].
Data.worldjusticeproject.org, (2015). WJP Rule of Law Index® 2015. [online] Available at: http://data.worldjusticeproject.org/#/groups/IND [Accessed 2 Nov. 2015].
Internationalpropertyrightsindex.org, (2014). IPRI 2014. [online] Available at: http://internationalpropertyrightsindex.org/countries [Accessed 3 Nov. 2015].
Makeinindia.com, (2015). [online] Available at: http://www.makeinindia.com/policy/intellectual-property-facts [Accessed 2 Nov. 2015].
Economic
Rapid growth in HNWI population and wealth
Following increases of only 2.0% and 4.0% in HNWI population and wealth in 2013, India recorded the highest growth rates across the globe for HNWI population (26.3%) and wealth (28.2%).
HNWI are those with at least US$1 million in financial assets excluding collectibles, consumables, consumer durables and primary residences. | HNWI Population | HNWI wealth | 2012 | 153.4 k | 46,222 b USD | 2013 | 156.4 k | 52,622.7 b USD | 2014 | 197.5 k | 56,403 b USD |
(The World Wealth and Asia-Pacific Wealth Reports, 2015)
Potential for middle to upper class expansion

Population distribution by income, 2011 | Poor | 19.8% | Low income | 76.9% | Middle income | 2.6% | Upper-middle income | 0.6% | High income | 0.1% |
The poor live on $2 or less daily, low income on $2.01-10, middle income on $10.01-20, upper-middle income on $20.01-50, and high income on more than $50
Middle class and above amounts to 40,293,000 people.
(PewResearchCenter, 2015)
While the middle class is still small in India, it does mean that India has the potential for much growth and estimates have shown that India’s middle class population could increase to * 20% of the population or 200,000,000 people by 2020 (Ey.com, n.d.) * 43% of the population or 600,280,000 people by 2025 (McKinsey, 2007) * 75% of the population or 1,040,293,000 people by 2039 (Brookings, 2011)
Increasing purchasing power
India GDP per capita PPP (Tradingeconomics.com, 2015) 2010 | 2012 (up 15%) | 2014 (up 6%) | 2020 (up 25%) | 2030 (up 33%) | 2050 (up 67%) | 4546.74 | 5243.95 | 5565.05 | 6947 | 9253 | 15468 |
Market Size
The Indian automobile market is estimated to become the third largest in the world by 2016 and will account for more than 5% of global vehicle sales. A growing working population and an expanding middle-class are expected to remain key demand drivers. GDP per capita has grown from USD 1,432.25 in 2010 to USD 1,500.76 in 2012, and is expected to reach USD 1,869.34 by 2018. (Makeinindia.com, n.d.)

Low cost of Labour

(Bls.gov, 2013)
Large labour force
In 2013 India’s labour force of 487,882,088 making her the second largest in the world. (Data.worldbank.org, 2015)
Inflation
Currently inflation stands at 4.41% and is expected to gradually decrease to 4.2% in 2020 and to 3.57% in 2030. As such cost of inputs will not increase significantly. (Tradingeconomics.com, 2015)
Strong steel manufacturing industry MONTHLY CRUDE STEEL PRODUCTION | thousand tonnes | | 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | 20 Oct 15 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | China | | 608 940 | | | | | | | | | | | | | | | | | | | | | | | | | Japan | | 78 810 | | | | | | | | | | | | | | | | | | | | | | | | | India | | 67 575 | | | | | | | | | | | | | | | | | | | | | | | | | United States | | 60 629 | | | | | | | | | | | | | | | | | | | | | | | | | Russia | | 53 304 | | | | | | | | | | | | | | | | | | | | | | | | |
(Worldsteel.org, 2015)
India is the third largest country in terms of producing steel and Global Tier-1 suppliers look to India for steel. (Shira, 2015) As such industries within India that require steel such as the automobile industry will experience cost savings and convenience in procuring steel for further manufacturing activities.
Exchange rate 2015 | 2020 (down 11%) | 2030 (down 17%) | 2050 (down 33%) | 65.63 | 58.43 | 48.69 | 32.46 |
(Tradingeconomics.com, 2015)
With falling exchange rates, Indian exports will become cheaper and the demand overseas is expected to increase.
Urbanization
The country is urbanizing rapidly, with the UN forecasting the total urban population rising by 26.5% to 542mn between 2015 and 2025 – and even then, only 37.2% of the population will be urbanised. (India Country Risk Report, 2015)

The World Wealth and Asia-Pacific Wealth Reports, (2015). World Wealth Report from Capgemini and RBC Wealth Management. [online] Available at: https://www.worldwealthreport.com/reports/population/asia_pacific/india [Accessed 2 Nov. 2015].
PewResearchCenter, (2015). World Population by Income. [online] Available at: http://www.pewglobal.org/interactives/global-population-by-income/ [Accessed 1 Nov. 2015].
Ey.com, (n.d.). Middle class growth in emerging markets - China and India: tomorrow’s middle classes. [online] Available at: http://www.ey.com/GL/en/Issues/Driving-growth/Middle-class-growth-in-emerging-markets---China-and-India-tomorrow-s-middle-classes [Accessed 2 Nov. 2015].
McKinsey, (2007). Tracking the growth of India's middle class. [online] Available at: https://genesis.iitm.ac.in/downloads/resources/startup/tracking%20the%20growth%20of%20indian%20middle%20class.pdf [Accessed 1 Nov. 2015].
Brookings, (2011). The Emerging Middle Class in Developing Countries. [online] Available at: http://siteresources.worldbank.org/EXTABCDE/Resources/7455676-1292528456380/7626791-1303141641402/7878676-1306699356046/Parallel-Sesssion-6-Homi-Kharas.pdf [Accessed 2 Nov. 2015].
Tradingeconomics.com, (2015). India GDP per capita PPP Forecast. [online] Available at: http://www.tradingeconomics.com/india/gdp-per-capita-ppp/forecast [Accessed 2 Nov. 2015].
Bls.gov, (2013). Manufacturing in India. [online] Available at: http://www.bls.gov/fls/india.htm#Chart01 [Accessed 1 Nov. 2015].
Tradingeconomics.com, (2015). India Inflation Rate Forecast. [online] Available at: http://www.tradingeconomics.com/india/inflation-cpi/forecast [Accessed 1 Nov. 2015].
Shira, D. (2015). Is India’s Automotive Industry Ready to Take China’s Place? - India Briefing News. [online] India Briefing News. Available at: http://www.india-briefing.com/news/indias-automotive-industry-ready-chinas-place-11257.html/ [Accessed 1 Nov. 2015].
Data.worldbank.org, (2015). Labor force, total | Data | Table. [online] Available at: http://data.worldbank.org/indicator/SL.TLF.TOTL.IN?order=wbapi_data_value_2013+wbapi_data_value+wbapi_data_value-last&sort=asc [Accessed 1 Nov. 2015].
Worldsteel.org, (2015). World Steel Association - Crude steel production 2014-2015. [online] Available at: https://www.worldsteel.org/statistics/crude-steel-production.html [Accessed 1 Nov. 2015].
Tradingeconomics.com, (2015). Indian Rupee Forecast. [online] Available at: http://www.tradingeconomics.com/india/currency/forecast [Accessed 2 Nov. 2015].
India Country Risk Report. (2015). 1st ed. [ebook] BMI Research. Available at: http://www.bmiresearch.com [Accessed 1 Nov. 2015].

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