INTERNATIONAL BUSINESS

Republic of India
Christopher Pappas, Ruth White, Sagar Churi and Souvik Biswas
MBA 6100 8/4/2009 Dr. James M. McFillen

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Geography: India, officially the Republic of India is a country located in South Asia. It is the seventh-largest country by geographical area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the south, the Arabian Sea on the west, and the Bay of Bengal on the east, India has a coastline of 7,517 kilometers (4,700 miles). It is bordered by Pakistan to the west; People’s Republic of China (PRC), Nepal, and Bhutan to the north; and Bangladesh and Myanmar to the east. India is in the vicinity of Sri Lanka, the Maldives, and Indonesia in the Indian Ocean. India is a republic consisting of 28 states and seven union territories with a parliamentary system of democracy. It has the world’s twelfth largest economy at market exchange rates and the fourth largest in purchasing power. Economic reforms since 1991 have transformed it into one of the fastest growing economies; however, it still suffers from high levels of poverty, illiteracy, and malnutrition. A pluralistic, multilingual, and multi-ethnic society, India is also home to a diversity of wildlife in a variety of protected habitats.

Government: The Constitution of India, the longest and the most exhaustive constitution of any independent nation in the world, came into force on 26 January, 1950. The preamble of the constitution defines India as a sovereign, socialist, secular, democratic republic. India has a bicameral parliament operating under a Westminster-style parliamentary system. The Legislature of India is the bicameral Parliament, which consists of the upper house called the Rajya Sabha (Council of States) and the lower house called the Lok Sabha (House of People). The Rajya Sabha, a permanent body, has 245 members serving staggered six year terms. Most are elected indirectly by the state and territorial legislatures in proportion to the state’s population. 543 of the Lok Sabha’s 545 members are directly elected by popular vote to represent individual constituencies for five year terms. The other two members are nominated by the President from the Anglo-Indian community if the President is of the opinion that the community is not adequately represented. The President of India is the head of state elected indirectly by an electoral college for a fiveyear term. The Prime Minister is the head of government and exercises most executive powers. The Prime Minister is by convention supported by the party or political alliance holding the majority of seats in the lower house of Parliament. The executive branch consists of the President, Vice-President, and the Council of Ministers (the Cabinet being its executive committee) headed by the Prime Minister. Any minister holding a portfolio must be a member of either house of parliament. In the Indian parliamentary system, the executive branch is subordinate to the legislature, with the Prime Minister and his Council being directly responsible to the lower house of the Parliament.

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Legal System: India has a unitary three-tier judiciary system, consisting of the Supreme Court ( headed by the Chief Justice of India) twenty-one High Courts, and a large number of trial courts. The Supreme Court has original jurisdiction over cases involving fundamental rights and over disputes between states and the Centre, and appellate jurisdiction over the High Courts. It is judicially independent, and has the power to declare the law and to strike down Union or State laws which contravene the Constitution. The role as the ultimate interpreter of the Constitution is one of the most important functions of the Supreme Court.

Administrative Divisions: India consists of twenty-eight states and seven Union Territories. All states, and the two union territories of Puducherry and the National Capital Territory of Delhi, have elected legislatures and governments patterned on the Westminster model. The other five union territories are directly ruled by the Centre through appointed administrators. In 1956, under the States Reorganization Act, states were formed on a linguistic basis. Since then, this structure has remained largely unchanged. Each state or union territory is further divided into administrative districts. The districts in turn are further divided into tehsils and eventually into villages.

Economy: For an entire generation from the 1950s until the 1980s, India followed socialist-inspired policies. The economy was shackled by extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth. Since 1991, the nation has moved towards a market-based system. The policy change in 1991 came after an acute balance of payments crisis, and the emphasis since then has been to use foreign trade and foreign investment as integral parts of India’s economy. With an average annual GDP growth rate of 5.8% for the past two decades (GDP growth rate is 6.7% for 2008-09); the economy is one of the fastest growing economies in the world and the second fastest in Asia. India has potential for a sustained growth of 8-10% for the next couple of years. It has the world’s second largest labor force, with 516.3 million people. In terms of output, the agricultural sector accounts for 18% of GDP; the service and industrial sectors make up 54% and 28% respectively. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes; cattle, water buffalo, sheep, goats, poultry; fish. Major industries include textiles, chemicals, food processing, steel, transport equipment, cement, mining, petroleum, machinery, software. India’s trade has reached a relatively moderate share 24% of GDP in 2006, up from 6% in 1985. India’s share of world trade has reached 1%. Major exports include petroleum products, textile goods, gems and jewelry, software, engineering goods, chemicals,

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leather manufactures. Major imports include crude oil, machinery, gems, fertilizer, and chemicals. India’s GDP is US$1.237 trillion, which makes it the twelfth-largest economy in the world or fourth largest by purchasing power adjusted exchange rates. India’s nominal per capita income US$1,068 is ranked 128th in the world. In the late 2000s, India’s economic growth has averaged 7.5% a year, which will double the average income in a decade. Despite India’s impressive economic growth over recent decades, it still contains the largest concentration of poor people in the world, and has a higher rate of malnutrition among children under the age of three (46% in year 2007) than any other country in the world. The percentage of people living below the World Bank's international poverty line of $1.25 a day (PPP, in nominal terms Rs. 21.6 a day in urban areas and Rs 14.3 in rural areas in 2005) decreased from 60% in 1981 to 42% in 2005. Even though India has avoided famines in recent decades, half of the children are underweight, one of the highest rates in the world and nearly double the rate of SubSaharan Africa. Ongoing reforms are watched closely as India could become potentially important for the global economy. A Goldman Sachs report predicts that “from 2007 to 2020, India’s GDP per capita will quadruple,” and that the Indian economy will surpass the United States by 2043, but India “will remain a low-income country for several decades, with per capita incomes well below its other BRIC peers. But if it can fulfill its growth potential, it can become a motor for the world economy, and a key contributor to generating spending growth.” Although the Indian economy has grown steadily over the last two decades; its growth has been uneven when comparing different social groups, economic groups, geographic regions, and rural/urban areas. World Bank suggests that the most important priorities are public sector reform, infrastructure, agricultural and rural development, removal of labor regulations, reforms in lagging states, and HIV/AIDS.

Demographics: With an estimated population of 1.17 billion, representing 17% of the world population, India is the world’s second most populous country. The last 50 years have seen a rapid increase in population due to medical advances and massive increase in agricultural productivity made by the green revolution. Almost 70% of Indians reside in rural areas, although in recent decades migration to larger cities has led to a dramatic increase in the country's urban population. India’s largest cities are Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad and Ahmedabad. Language: Hindi, with the largest number of speakers, is the official language of the union. English is used extensively in business and administration and has the status of a ‘subsidiary official language;’ it is also important in education, especially as a medium of higher education. In addition, every state and union territoryhas its own official languages. The constitution also recognizes in particular 21 other languages that are either abundantly spoken or have classical status.

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Literacy: India’s literacy rate is 64.8% (53.7% for females and 75.3% for males). The state of Kerala has the highest literacy rate at 91% while Bihar has the lowest at 47%. The national human sex ratio is 944 females per 1,000 males. India’s median age is 25.3, and the population growth rate of 1.548% per annum. There are 22.01 births per 1,000 people per year.

Culture: India is the world’s most culturally, linguistically and genetically diverse geographical entity after the African continent. India’s culture is marked by a high degree of syncretism and cultural pluralism. It has managed to preserve established traditions while absorbing new customs, traditions, and ideas from invaders and immigrants. It has spread its cultural influence to other parts of Asia, mainly South East and East Asia. Traditional Indian society is defined by relatively strict social hierarchy. The Indian caste system describes the social stratification and social restrictions in the Indian subcontinent. Social classes are defined by thousands of endogamous hereditary groups, often termed as castes. Traditional Indian family values are highly respected, and multi-generational patriarchal joint families have been the norm, although nuclear families are becoming common in urban areas. An overwhelming majority of Indians have their marriages arranged by their parents and other respected family members, with the consent of the bride and groom. Marriage is thought to be for life, and the divorce rate is extremely low. Child marriage is still a common practice, with half of the women in India marrying before the legal age of 18. The Indian film industry is the largest in the world. Bollywood, based in Mumbai, makes commercial Hindi films and is the most prolific film industry in the world. Established traditions also exist in Bengali, Kannada, Malayalam, Marathi, Tamil, and Telugu language cinemas.

Geert Hofstede Analysis: The Geert Hofstede analysis for India shows a large power distance society and all other measures are relatively moderate. This would be indicative of the fact that India is in the midst of change. The traditional caste systems has been outlawed, however the large power distance score indicates that the attitudes still remain. 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

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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.

Why Invest in India There are several good reasons for investing in India.
➢ India is among world’s fastest growing economies. It is the 5th largest economy in terms



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of purchasing power parity. India is the 10th most industrialized economy and its economic growth is sustained Strategic location - access to the vast domestic and South Asian market Strong macro-economic performance A large and rapidly growing consumer market up to 300 million people; constitute the market for branded consumer goods - estimated to be growing at 8% per annum. Demand for several consumer products is growing at over 12% per annum Among the highest rates of returns on investment. Profitability of US investments in India: 19.33% in 2000 (according to US Department of Commerce) Foreign investment is welcome; approval is required but is automatic in sixty categories of Industries One of the largest manufacturing sectors in the world, spanning almost all areas of manufacturing activities One of the largest pools of scientists, engineers, technicians and managers in the world. Abundant, high-quality, cost-effective, competitive, skilled manpower. Over 100,000 IT professionals added each year. India has the second largest group of software developers after the U.S. Rich base of mineral and agricultural resources Long history of market economy infrastructure Sophisticated financial sector Well developed banking system

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➢ Strong and independent judicial system ➢ Vibrant capital market with over 9,000 listed companies and market capitalization of US$ ➢

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154 billion (March,1996) Well developed R&D infrastructure and technical and marketing services. 100 of the Fortune 500 companies have R&D facilities in India. 255 Fortune 500 companies getting services Policy environment that provides freedom of entry, investment, location, choice of technology, production, import and export Well balanced package of fiscal incentives A sophisticated legal and accounting system 2nd largest English-speaking population. English is widely spoken and understood Rupee is convertible on Current Account at market determined rate Free and full repatriation of capital, technical fee, royalty and dividends Foreign brand names are freely used. No income tax on profits derived from export of goods Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for five years for 100% Export Oriented units and units in Export Processing Zones Treaty Corporate Tax Rates: Can be lower of tax applicable to the foreign country of a company or the treaty rate. Avoidance of Double Taxation exists. A long history of stable parliamentary democracy India rated as the most attractive destination for offshore business processing by global consultancy A T Kearney. IT Industry $14 billion; growing at 50% per annum Exports $12 billion; 2008 exports target: $60 billion, to be 35% of India’s total exports. Job creation: a million direct & 2-3 million indirect Stable tax regime. Only 3 rates of indirect tax. Trade facilitation measures introduced. An open exchange stock market Profits, dividends and capital investment can be repatriated. Royalties can be paid by wholly owned arms to parent companies. Trade policy liberalized. Most items on Open General License. Policies fully compatible with WTO. Modernization of legislations on intellectual property. All IPR Laws are TRIPS compliant. Intellectual Property Appellate Tribunal functional. Simplification and re-engineering of work procedures.

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References

CIA-The World Factbook-India. Retrieved from https://www.cia.gov/library/publications/theworld-factbook/geos/in.html Doing Business in India. Retrieved from http://www.buyusa.gov/india/en/motm.html India. Retrieved from http://www.cyborlink.com/besite/india.htm India. Retrieved from http://www.indexmundi.com/india/ India. Retrieved from http://en.wikipedia.org/wiki/India India at a Glance. Retrieved from http://www.buyusa.gov/india/en/288.html India Shining. Retrieved from http://kakaji.com/ Invest In India. Retrieved from http://kakaji.com/invest_in_india.htm

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