This report provides information on the current economic climate of the Republic of India, including the analysis and evaluation of several internal factors with the intention to demonstrate the attractiveness of this country for future, possible foreign direct investment. In further detail, the historical, political, societal, and economic conditions, including the general background of India, the structure of the government, the liberalization policy towards FDI, the economic environment, investment opportunities, and lastly, appropriate recommendations in favor of future investments will be discussed.
India is located in South Asia, more commonly referred to as the Global South; an area of the world that hosts a multitude of nations, previously considered to be exclusively marked by crippling low income, internal developmental incapabilities, and a lack of economic growth. Today, however, the term “Global South” is no longer plagued primarily by negative connotations, but is rather recognized by the international community as a steadily developing region with a highly populous emerging market. Positive economic impact can be specifically attributed to a group of particular countries that are geographically located within this region, internationally referred to as BRIC (Brazil, Russia, India, and China). Excluding Russia in this case, Brazil, India, and China are significant leaders in the increased economic presence of the Global South and will continue to be a force of power within the international community in the coming years. As India is listed among this distinct list, it would be economically beneficial to consider a future interest, as it is prime for foreign investment.
India fell victim to British imperialism in the late 1700’s and remained under the control of the British empire until the granting of their independence in 1947. The first wave of imperialism created a strict rule over Indian goods, trade ability, and the basic rights of citizens. Because of India’s key location in Asia, the abundance of valuable resources, and the large population, Great Britain sought to take advantage of unrestricted goods, a highly profitable trading competency, and inexpensive labor force. Though subjected to a dominant nation, it is possible that India profited through economic development, infrastructure improvements, and the integration of a more stable system of common law (Living in the British Empire: India), however, it is also possible that colonization created a habitual dependency whereby India seemed incapable of self determination and future stability. “In 1947, Great Britain granted independence to India after which decolonization—the freeing of colonial peoples from their dependent status—gathered speed” (Kegley and Raymond 276). From 1947, India began the process of independent development, attempting to solidify their global economic presence within the international community. Though previous exploitation and control by dominant forces created a considerable disparity, India has since surpassed the expected rate of developmental growth and is projected to continue in surpassing future expectations.
India has since formed itself into a federal parliamentary republic, based on the common law system of the British Empire including an executive branch, legislative branch, and judicial branch, which oversees approximately 28 states and 9 union territories (The World Factbook: India). The Indian government has made strides towards liberalizing their policies towards foreign direct investments in order to attract firms capable of increasing the economic productivity of the country and advancing further international market entry and growth. Foreign direct investment, commonly known as FDI, is the investment in a particular country by an individual or company from another country. “By adopting a liberal, friendly, and flexible policy towards foreign direct investment during the 1990s and 2000s including incentives, exemptions, and business policy relaxations, the country became host to massive inflows of FDI in concert with her efforts to create more favorable settings through trade liberalization, market deregulation, privatization of national ownership and encouragement to regional integration” (Kumar and Dhingra 1). For market seeking firms with a need for political safety, India remains a relative to low risk country compared to others within the Global South. India also presents a multitude of attractive investment factors apart from the traditional seeking of political safety including an increase in market size, a steady incline in the growth of Gross Domestic Product, an escalating population with a higher purchasing power, and a large, capable pool of skills labor workers across numerous sectors.
“India represents one of the largest consumer market opportunities of the next two decades” (Beinhocker, Eric D, et al 61), and is “projected to be one of the most lucrative markets in the coming years, especially in regard to e-commerce, with a market value of $16 billion in 2016 that was expected to grow to $48 billion by 2021” (Dess, Gregory G., et al 227). The market will continue to increase as economic productivity is expanded and perfected at a faster rate. Increased productivity leads to an increase in economic ability, which in turn leads to higher household incomes and greater purchasing power, which eventually is put back into the Indian economy to be used for internal development and international participation, creating a more attractive investment perception to foreign interests. With a population size of approximately 1.3 billion people, India represents the second most populous country in the world, trailing only China, though India is expected to surpass China within the coming years. Of India’s population, the labor force, heavily made up of skilled youth workers educated in society’s most notable and sought after fields, remains as a valuable resource for firms attempting to enter specific sectors. Though India’s purchasing power and GDP continue to steadily rise, with “projections by many analysts suggesting that India’s percentage share of the world’s gross domestic product will rank third by mid-century, behind only the United States and China” (Kegley and Raymond 183), and consumers are transitioning from lower income status to the middle class, it still remains a moderate to extremely low wage workforce. In this case, labor and production efficiency seeking firms looking for foreign investments can still expect an inexpensive outlet while continuing to reap the benefits of a new market entry, higher consumer power, and cheaper labor costs.
As India continues to surpass expectations, foreign investments can be considered an economically viable and rewarding option for individuals and firms. Political safety seekers can find solace in the liberal attitude of the Indian government towards FDI and low risk “ease of doing business.” As the projected growth of India’s market size, GDP, and consumer capability, market seekers will not only experience an ease of entry but also a highly profitable opportunity. Labor and production efficiency seekers can expect to find a low wage, yet skilled labor force ready to contribute productively without causing financial hardship on the investor. In conclusion, India remains today as one of the most highly anticipated emerging markets, committed to internal development, participation in the international community, and is ripe for a future of profitable foreign investment.