Indias Economic and Commercial Environment

India is emerging as a global leader in todays world. The international expansion to India is a
worthwhile investment as the country continues to further develop. India boasts thriving
information technology, engineering, and textile sectors. Indias GDP has been growing by
approximately 7 percent since 2013 and is forecasted to continue to grow at a similar rate (India
- Gross domestic product (GDP) growth rate 2020, n.d.). Comparatively, the United States is
growing much slower with 2.5 percent growth since 2013, but its economy is much larger.
Additionally, Indias share in global GDP has increased by .5 percent whereas the United States
is seeing a decline in its global share (World Economic Outlook Database, n.d.).Furthermore,
Indias gross national savings is ranked 22nd among all countries at nearly 30 percent (The
World Factbook, n.d.). Additionally, investment in India is large, approximately 33 percent of
GDP. Table 1 below provides the supporting data for national expenditures.
Table 1. National Expenditures for India and the United States from 2013 to 2015
National
Sourc
India
United States
2013
2014
2015
2013
2014
Expenditures
e
GDP (Billions
A
1863
2042
2090
16663.1 17348.0
of U.S. $,
5
8
current prices
Growth GDP
B
6.64
7.24
7.34
1.49
2.43
(%)
GDP PPP (% A
6.276
6.486
6.732
16.035
15.895
share world
total)
Gross National A
32.932
32.679
32.002
18.239
18.831
Savings (% of
GDP)
Investment (%
A
34.661
34.093
33.256
19.548
19.921
of GDP)
A: (World Economic Outlook Database, n.d.)
B: (India - Gross domestic product (GDP) growth rate 2020, n.d.)

2015
17947

2.57
15.809

18.734

20.238

Indias Inflation Rate is Decreasing

Indias inflation rate is falling to more favorable levels with an improvement of approximately 4
percent since 2013. Comparatively, the United States is even more favorable with incredibly low
inflation rates. Indias higher inflation rate has negatively affected Indias currency. Currently,
the Rupee is depreciating in value compared to the US dollar. This works in favor of the
expansion because it will decrease the start-up costs. In the long-run, if the Rupee continues to
depreciate once the subsidiary is functional, then the subsidiary will earn less US dollars.
Another consideration is that Indias unemployment rate is increasing. Additionally, Indias
prime lending rate is on the downward trend showing that banks have increased confidence that
borrowers will be able to pay off their loans. Furthermore, acquiring credit in India is relatively
favorable with a global ranking of 42 out of 189. Table 2 provides additional numerical data
concerning financial rates.
Table 2. Financial Rates for India and the United States from 2013-2015
Financial Rates

Sourc
e
A

India
2014
5.927

2013
Inflation
9.437
(annual %
change)
Unemployment A, B
6
7.1
Rate (%)
Prime Lending A
10.5
10.25
Rate (%)
Exchange Rates A
.017165 .016397
Indian Rupee
per US Dollar
A: (World Economic Outlook Database, n.d.)
B: (The World Factbook, (n.d.)
Indian Labor Unions have a Limited Influence

United States
2014
2015
1.61
0.118

2015
4.932

2013
1.467

7.3

7.375

6.167

5.283

10

3.25

3.25

3.25

.015605

Since the emergence of the first labor union in 1926, India has had an increasing amount of labor
unions. However, the workforce participation in unions is limited. In 2010, there was a total of
18,602 trade unions in India. However, only 15.8 percent of Indian unions submitted returns to
the government (Trade Unions in India, 2010). In addition, the average membership for state
labor unions is 1769 and 1277 for central labor unions meaning that there are approximately 28
million workers who are in a labor union in India. This number is much smaller than Indias
workforce of half a billion, only 5.6 percent. (The World Factbook, n.d.). In sum, the influence
of labor unions is marginal and therefore, is not a major concern for the international expansion
to India.
Indias Infrastructure is Concerning
Indias current market presents an opportunity for the international expansion of our information
technology services. However, Indias infrastructure is severely lacking. Inconsistent electricity
and poor rail systems are major areas of concern.
The country suffers from frequent power outages. In 2012, a massive power outage left
approximately 500 million people without power for days (Xu, B., & Albert, E., 2014). If this
were to happen again when the companys operations are in place, this will reduce our
productivity which will cost the company money. Furthermore, as a services company, our
customer satisfaction would decrease. Although this a major issue, the Indian government is
taking steps to improve the electrical infrastructure. According to doingbusiness.org, getting
electricity in India has improved substantially in the world rankings. They have moved from a
ranking of 99 to 70 from 2015 to 2016 (Doing Business in India World Bank Group, n.d.).
Furthermore, the Indian government has plans to generate a quarter of the countrys energy

through nuclear energy by 2050 (Xu, B., & Albert, E., 2014). To meet this long-term goal, they
have partnered with other countries to provide resources and know-how.
Indias rail projects face setbacks. The countrys deteriorating rail system has not been
maintained or developed enough to meet the demands of a nation with over one billion people.
The government has plans to update the system, by adding additional trains and tracks, but
project setbacks created by neglect and bureaucratic red tape, have cost the government
substantially. Across the board, project setbacks account for nearly 2 percent of Indias GDP (Xu,
B., & Albert, E., 2014). In 2013 alone, rail projects generated losses of approximately $5 billion
US dollars (Lakshmi, R., 2014). Additionally, passenger trains are given priority over freight
trains which often leads to logistical problems.
Indias Complex Tax System
Another important consideration with the companys expansion is tax rates and collections.
Currently, the corporate tax rate for a foreign enterprise is between 41 and 43 percent depending
on income levels. Domestic companies, however, pay between 30 and 33 percent (Doing
Business in India, 2013). Furthermore, there is a service tax of approximately 12.36 percent
(Doing Business in India, 2013). In terms of citizens and taxes, many do not pay taxes. The
reasons for this are that their salary is undocumented or they do not make enough money to be
taxed. Additionally, depending on the municipality, there are varying state taxes.
Costly and Time-Consuming Facility Building
Access to facilities can be a challenge in India. According to doingbusiness.org, India is ranked
183rd in dealing with construction permits, and 138th in registering property. Acquiring
construction permits can take up to 147 days and there are 40 steps. (Doing Business in India

World Bank Group, n.d.). Because of this, it may be more cost-effective to acquire a facility that
is already built. Additionally, the associated costs of registering the property are 7 percent of the
propertys value.
India is Lacking Proper Distribution Channels
Indias distribution channels are lacking. According to Harvard Business Review, modern
distribution networks are rare in India; you either create one or have to work with several small
and often unreliable players (Patil, S., 2012). In order to reach consumers through television,
businesses have to operate through numerous small distributors. These distributors create
bottlenecks that waste time and money. Furthermore, contract enforcement in India is a major
issue. So, even though there be agreements with distributors, having that agreement enforced is
unlikely. According to doingbusiness.org, India is ranked 178th in contract enforcement out of
189 countries (Doing Business in India World Bank Group, n.d.).
The best way to reach consumers with marketing materials is through the mobile phone
market. According to trai.gov, there are 1.017 billion wireless phone subscribers in India
(Highlights of Telecom Subscription Data, 2016). Using this medium, we can effectively reach
a majority of the population without having to deal with unreliable distributors.
Indias Road system is poor. Two-thirds of all commerce in India is transported by truck
through its road system (Xu, B., & Albert, E., 2014). However, only half is paved, and less than a
quarter of its national highways meet required standards (Xu, B., & Albert, E., 2014). Since the
international expansion will be concerned with information technology services, and the
companys products can be distributed through networks, this problem has a limited impact.

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