As we know that, a country political instability or stability is an important issue to foreign invest. India has been instable politically in the past but it is a slight politically stable in these years. Therefore, our company is investing to the India capital market. There two important political factors that our company need pay attention is employee law and taxation. Furthermore, the Minimum Wages Act, 1948 provides for implementation of minimum wages in respect of arranged employments in India. From year 2011, the National Floor Level of Minimum Wage has been greater than before from rupee 80 to rupee 115 per day. Besides that, according to Factories Act, 1948, all manufacturing that is more than 10 employee and carrying manufacturing activities meaning of Factory. Our company is manufacturing cooking oil business in India, and the worker is more than 10 people, so, our company have to supplies for the health, safety, welfare, working hours and leave of workers in factories.
The second political factor taxation that need to coverage is corporate tax. According to the income tax Act, 1961 provides the specific statutes for other taxes. There are two type of corporate tax such domestic company and foreign company. Our company is foreign company, therefore we need to pay 42.23% (40% plus surcharge of 2.5% and education cess of 3%) taxable income exceeds INR 10miilion to the India government. It will affect our company by reducing profit due to payment corporate tax to India government.
Besides that, Malaysia and India agree to make a Comprehensive Economic Cooperation Agreement (Miceca). The MICECA is a comprehensive Agreement between Malaysia and India that covering Investment, Economic Cooperation, Trade in Services and Trade in Goods. Therefore, our company can across trade in services, goods (cooking oil) and investments that principal to progressive initial of markets by both India and Malaysia. Moreover, these market access opportunities are estimated to translate into more freedom movement of investment, professionals, goods and services between the two countries. In addition, MICECA will also provide for strategic partnerships between Malaysian and Indian businesses, such as joint ventures in services sectors by healthcare, construction, and franchising.
Economic is important issue that influenced by area unique to economy and comprised by economy or directly influenced by economy, areas such as exchange rates, purchase power (GDP), inflation rate, and interest rate.
From the chart shown that exchange rate between Malaysia and India are 17.82985. So, 100 Malaysian Ringgit multiply exchange rate 17.82985 and we will receive 1,782.985 Indian Rupee. A strong currency is making export more difficult due to price is raise in terms of foreign currency. Changes in the exchange rate also effects on the economy affecting variables such as the demand for imports and exports, inflation, real GDP growth, and business profits. Once the exchange rate between Malaysia and India is reduce, it will affect our cooking oil business reduce the profit.
The Gross Domestic Product (GDP) in India is expanded 0.8 per cent in the second quarter of 2012 over the previous quarter. It provides an aggregate measure of changes in value of the services and goods produced by an economy. A change in GDP, whether increase or decrease, typically has an important effect on the stock market. For example, bad economy commonly receives lower profit for a business and which in turn means lower stock prices. From the graph, it is shown India economic is going recession. And it will affect our company getting low profit.
The inflation rate in India was recorded at 7.81 per cent in September of 2012. With inflation, our company are paid a fixed rate of interest on loans and rental, so, we have been increase purchase power and receiving benefit from interest earnings. Besides that, inflation affect our company by aggravate higher wage demands from employees and raise costs.
Besides that, interest rate is also an important issue to affect economy. Lower interest rate helps it easier for people to borrow in order to buy homes and cars. Nowadays, the interest rate in India was reported at 8.00 per cent. It means that, higher interest rates in India make our company to pay more loans in interest rate.