India is a newly industrialized economy in South Asia. Since it gained independence from the UK in August 1947, “through a negotiated act of transfer of power from the British rulers of a colonial empire to the political leadership of two sovereign countries, India and Pakistan.” (STATE AND POLITICS IN INDIA, p1), India has been on the way to build a strong economy. Being a second populous country in the world, India has become the potential market for foreign suppliers in almost every aspect.
is the world’s fourth largest economy, based on purchasing power parity has a middle class estimated at 300 million out of a total population of 1 billion has become increasingly attractive to foreign investors in various sectors its low costs and huge, English-speaking, workforce have made it popular with ultinationals for work including manufacturing and call centers. provides many tax exemptions to companies set up in Special Economic Zone has a stable political system based on parliamentary democracy is emerging as a major market and investment destination.India is the largest country in South Asia and the seventh largest in the world.India is committed to a free economy after having an economy controlled by licensing until 1991. India has become a member of the WTO and is disbanding quantitative restrictions on imports.
“The government of a country defines the legal framework within which firms do business- and often the laws that regulate business reflect the rulers’ dominant political ideology.” (international business, competing…, 3th, 41). That is the reason why it is a necessity to discover the political system of India to start doing business in this country.
India is a “parliamentary federal democracy with an indirectly elected president,currently Pratibha Patil. The prime minister, Manmohan Singh, leads the United Progressive Alliance (UPA), a coalition dominated by the Congress party.” ( Country profile 2008, p4). It has been said as one of the largest democracies in the world with the leading of Indian National Congress in the federal government and several dominant national political parties in the state level such as Indian National Congress, the Bharativa Janata Party and the Communist party of India. The political parties in India could be divided into two levels: The national level of parties in India were those taking part in elections within the whole country, while the state level ones were parties participating in elections throughout the particular states. India’s political system has “clear demarcation of powers between the Central Government and the State Governments.” (http://hcilondon.in/businessindia.php ). Elections in India are also mainly held at these two levels: the national one to form the national government and the state level to form the state one. The leader of Indian government is the prime minister, and the leader of state is the president.
According to The Economist Intelligence Unit’s 2008 democracy index, India has a “relatively strong position; the title of “the world!s largest democracy”, and the country!s vibrant free press and pluralistic society, have long been justly celebrated. In these areas India outscores even some long-established democracies that fall into our designation of “full democracies”, including the US and UK.” (country profile 2008, p8)
|Democracy index||Overall score||Overall rank||Electoral process||Government functioning||Political participation||Political culture||Civil liberties|
|Overall and component scores are on a scale of 0 to 10; overall rank is out of 167 countries.|
About the legislations, India possesses a common law with written charter. Even some politicians criticized India regulations because of there complication, “in some ways it is simpler than the United States.” For instance, most of regulations are consistent in any state of India. This could make it easier and clearer for companies to do business in this country. (http://www.amritt.com/business-laws-regulations-in-india.html)
All companies incorporated in India are deemed as domestic Indian companies for tax purposes, even if owned by foreign companies.
|Foreign Corporate Income Tax Rates|
|Withholding Tax Rate for non-treaty foreign companies||Withholding Tax Rates for the USA Companies Doing Business in India under the IndiaUSA Tax Treaty|
- Inter-corporate rates where there is minimum holding. There tax rates are applicable under the India USA Tax Treaty. For other countries the tax rates are different under the tax treaties between India and other countries, including Australia, Austria, Bangladesh, Belgium, Brazil, Belarus, Bulgaria, Canada, China, Cyprus, Czechoslovakia, Denmark, Finland, France, Germany, Greece, Hungary, Indonesia, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, Libya, Malta, Malaysia, Mauritius, Mongolia, Namibia, Nepal, Netherlands, New Zealand, Norway, Oman, Philippines, Poland , Qatar , Romania, Singapore, South Africa , South Korea , Spain , Sri Lanka , Sweden, Switzerland, Syria, Tanzania, Thailand, Trinidad & Tobago, Turkmenistan, Turkey , U.A.E. , U.A.R., U.K., U.S.A., Russian Federation, Uzbekistan, Vietnam and Zambia
- 10% or 15% in some cases.
- Withholding tax is charged on estimated income, as approved by the tax authorities.
- There are other favorable tax rates under various tax treaties between India and other countries..
Political risk can be defined as: “ uncertainty that stems, in whole or in part, from the exercise of power by governmental and non-governmental actors” ( Zonis and Wilkin, 2000). Stuart wall and Bronwen Rees even divided this definition into macropolitical risks and micropolitical risks. “Macropolitical risks potentially affect all firms in a country, as in the case of war or sudden changes of government. Micropolitical risks within a country affect only specific firms, industries or types or types of venture”. (136)
International business, stuart wall and bronwen rees, 2rd
Political risk has been assessed as being medium in India, with the score of 45, where 100 is the highest of risk level, according to Economist Intelligence Unit’s 2008.
India is also referred as the collectivism, which is defined as “ a political system that stresses the primacy of collective goals over individual goals” ( textbook, 43).
Zonis, M. and Wilkin, S. (2000) “Driving defensively through a minefield of political risk”, Financial Times, 30 May
State and politics in India:
India is considered as one country which has the steady growth and is a potential market for investments because of its large population. It is one of the ten largest economy in the world and in terms of purchasing power parity, it is the fourth largest economy after USA, China and Japan, according to information of Indian embassy in the UK. (http://www.indianembassy.org/newsite//Doing_business_In_India/).
This table below indicates the GDP of India recently:
It can be seen from the table that the GDP growth was slower in 2008-2009 as the global recession began. However, this rate is expected to accelerate moderately in the period of 2010/2011, to 6.4% since the world economy recovers. ( country profile 2008)
About inflation, according to country profile 2008, this rate in India has fallen modestly from around 8.7% in 2008 to approximately 5.2% in 2009, and is estimated to be 4.3% in 2010.
“Year-on-year inflation as measured by the wholesale price index was negative for the first time in three decades in the week ending June 6th, when wholesale price inflation ran at -1.6%.” (country profile 2009) 15 largest economies, 1992, USA=100 .15 largest economies, 2020, USA=100 Growth of the global economy, 1992-2020 (index number USA=100) Forecast assume countries grow at regional rates projected in the World Bank’s Global Economic prospects report.
Source: World bank
It is estimated that newly-industrialized economies such as India, China, Indonesia, South Korea, Thailand and Taiwan may become the strongest economies in 2020. ( World Bank)
|Table A9. South Asia forecast summary
(annual percent change unless indicated otherwise)
|Memo items: GDP
Source: World Bank
Note: To simplify presentation across countries and with other regions, annual national income and product account data for South Asia are reported in calendar years, although official country data are originally reported by fiscal year:
- Growth rates over intervals are compound average; growth contributions, ratios, and the GDP deflator are averages.
- GDP measured in constant 2000 U.S. Dollars.
- GDP measured at PPP exchange rates.
- Exports and imports of goods and nonfactor services.
While a country’s political and economic system is probably the big locomotive driving its rate of economic development, other factors are also important (66): international business, competing…, 4th)
According to Geert Hofstede™ Cultural Dimensionst, India possesses the high Power Distance index of 77, while this index for the world average is just 56.5. This presents the high
India has Power Distance (PDI) as the highest Hofstede Dimension for the culture, with a ranking of 77 compared to a world average of 56.5. This Power Distance score for India indicates a high level of inequality of power and wealth within the society. This condition is not necessarily subverted upon the population, but rather accepted by the population as a cultural norm.
India’s Long Term Orientation (LTO) Dimension rank is 61, with the world average at 48. A higher LTO score can be indicative of a culture that is perseverant and parsimonious.
India has Masculinity as the third highest ranking Hofstede Dimension at 56, with the world average just slightly lower at 51. The higher the country ranks in this Dimension, the greater the gap between values of men and women. It may also generate a more competitive and assertive female population, although still less than the male population.
India’s lowest ranking Dimension is Uncertainty Avoidance (UAI) at 40, compared to the world average of 65. On the lower end of this ranking, the culture may be more open to unstructured ideas and situations. The population may have fewer rules and regulations with which to attempt control of every unknown and unexpected event or situation, as is the case in high Uncertainty Avoidance countries.