SWOT Analysis of INDIA in FDI

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Executive Summary
Foreign direct investment (FDI) is a direct
investment into production or business in a
country by an individual or company of
another country. It seems like a lifetime ago,
yet was only 2007 when the global economy
and FDI soared to all-time highs. Then,
standstill: a housing market collapse, banking
crises, rising unemployment, and falling
consumption, leading to two years of stagnant
growth and delayed investment. FDI took
major hit in 2008 and 2009, with a miniscule
rebound in 2010.

At last, investors appear ready to get back to business. Despite fiscal policy gridblock and unresolved debt
issues plaguing many developed countries in the world, as per 2013 surveyed reports are surprisingly
optimistic about the global economic outlook.

The FDI Confidence Index (Survey based report) in it’s 13th edition since 1998 ranks countries on how political,
economic and regulatory changes will effect FDI. In the report emerging markets continue to change ahead.
They account for 16 of the top 25 countries index, with China(2nd), Brazil (3rd), and India in (5th) all in the top
five.

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India
Strength

 Growth slowdown, but still strong. The global slowdown hasn't spared India, whose GDP growth rate
slipped to 5 percent, down from a 10-year average of 7.8 percent. Same-store sales volume growth
slowed in 2012 across retail, particularly for lifestyle and value-based formats. India falls nine spots in
the GRDI to 14th; its previous low ranking was 6th place in the inaugural Index in 2002, and it was first
as recently as 2009. High operating costs, low bargaining power with vendors, and heavy discounting
to improve sales have affected profits and expansion plans. Real estate cost and space availability also
remain important issues. Many players are actively looking at improving sales productivity, cutting
operating costs, and reducing store size.
 50% of the population in 15-64 age bracket and favorable demographics with 52% people below 25
years of age.
 Median age of Indian population will remain 30 even as late as in 2025
 Fulcrum of Indian subcontinent can become feeder for market
 Natural Tourism – Boost the positive across sectors
 Large English speaking population ranked 2 after US and Indian literacy rate 75%+

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Weaknesses

 India is ranked 5th in the FDI confidence Index, However a cooling off in investor sentiments may be on
the way reflected in India’s slide spot in the index.
 Falling growth and increasing inflation and deficit are possible sign of rough path ahead.
 High Operating cost and low bargaining power with vendors and heavy discounting
 Absence of developed supply chain
 In multi-brand retail, the government allowed 51 percent FDI starting in early 2013. However, there
are preconditions about investment, sourcing, store locations, and state government approval.
Although the government has received multiple investment proposals, many multi-brand players are
taking a "wait-and-see" approach due to apprehensions about how the policy will be implemented.

Opportunity

 Large pool of young skilled labor force, cost effective production facilities and large domestic market
 Organized retail accounts for 10% of India’s roughly $435 Billion retail market and is expected to reach
25% by 2020.

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Threats

 India’s volatile political system could act as major threat in future. Economic and political tension may
accelerate or decelerate Firms entry and expansion decision.
 Adoption or rejection of Central policies at State level can bring in unpredictability in ROI on Foreign
investment.
 Wide spread corruption at based levels can promote unethical practices.
 Indian market power is in hands of unorganized retail where 90% market is unorganized.
 Changing technology

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References & Notes:

 All figures in thousand US$
 The entire analysis has done on publicly available reports
 https://in.finance.yahoo.com/
 http://www.atkearney.com/
 http://www.india-opportunities.es
 World bank report & Mckinsey Global Institute report 2007

May 2014