India, The New Investment For Global Trade

National University ECO 631 Savinder Lal September 23, 2011

The New Investment For Global Trade 1 Introduction India has become the new investment home for global trade. because of this the domestic regulations have been amended for preferential treatment for non-resident Indians. Investing Jain (2011) indicates that foreign investors especially..). India has become the new center for American-based companies to invest within. whether the company be a coffee shop. THE NEW INVESTMENT FOR GLOBAL TRADE India. The Reserve Bank of India has placed the overall non-resident Indian participation in any given . the Indian expatriate community (NRI – non-resident Indians) are a significant economic source of investing within the Indian stock market. The Indian government has changed their policy for allowing trade into secondary markets directly and place orders with limits on stop loss ceilings allowing non-resident Indians to access the market from different time zones (United States. India is a democratic society unlike its neighbor China.. this gives India the added advantage and appeal from foreign investors and traders. a pizzeria. IT centers. United Kingdom. or call centers for American banks.INDIA. Australia. fast food restaurant. etc.

6%. 2011) has made the recent changes for investors particularly for non-resident Indians (NRI) and Persons of Indian Origin (PIO). this was previously set a tax rate of 30. The Reserve Bank of India feels it is important for the creation of accounts such as these because NRI investors are . The Indian government (Jain. the non-resident Indian or person of Indian origin (PIO) can only own up to 5% of the total company. and insurance. there are restrictions permitted for shareholding in certain sectors such as defense.INDIA.9%. these changes include the possession of property as long-term capital asset where the tax rate is now set at 20.54-55). Foreign direct investment has led to the start up of several franchise companies which originated in United States. such as Domino's pizza and Kentucky fried chicken (p. Foreign direct investment is highly encouraged and is generally permitted under sectors of manufacturing and service. telecom finance. THE NEW INVESTMENT FOR GLOBAL TRADE company to a maximum of 10% or 20% by specific and general 2 body resolution. however. The Reserve Bank of India has also allowed for Indian banks to open special accounts (NRE/ NRO accounts) for foreign direct investors these accounts are maintained by authorized banks in India and they allow for investable funds to be deposited and remitted through normal banking channels from overseas.

Foreign Direct Investment Aggarwal (2011) who recently interviewed Ajay Kaul of Jubilant Foodworks. India is an ideal place for Dunkin' Donut and stores their to with the exponentially for coffee growing and the middle-class. 200 Barista Café McDonald's restaurant chain. boast that allowing the West Jubilant Coast of Foodworks America does not have nearly as many stores compared to what is about to be launched in India. 60 Kentucky Fried Coffee Chicken chains. One the most exciting things for Jubilant Foodworks is the launching of the hundred has Dunkin' the right Donut to chains. In recent years there has been 378 Domino's pizza chains opened. and by the end of 2011 Jubilant Foodworks will be opening 100 Dunkin' Donut chains. association of tastes lifestyle coffee advancements Jubilant Foodworks believes there could potentially be a need for a few hundred more stores after the test of the initial .INDIA. along with roads and bridges (p. commercial premises.54-55). chains. retail. 280 170 Pizza Hut chains. 1000 Coffee Day chains. THE NEW INVESTMENT FOR GLOBAL TRADE 3 suggested to and being directed to invest in activities such as development of townships. this is the parent company which oversees franchisee outlets for hundreds of companies whose origins are based in the United States.

the pizza industry only accounts for 2% of the $13 billion (USD) Indian food industry and therefore by default 50% of that 2% is owned by Jubilant Foodworks. and 300 core Rupees is the cash flow expected to be generated by the company during fiscal year 2011 through 2013. heading into fiscal year 2012 Jubilant Foodworks has a target of 644 crore Rupees. this is important because 50% of market shares for pizzas belong to Jubilant Food works. royalty determined rupee basis so it is not impacted on currency fluctuations. Jubilant Foodworks (Aggarwal. the franchisee already knows that their 10% of royalty to be paid will be and Jubilant Foodworks hopes the franchisee work this into managing their stores and financial outlook for the fiscal year and the fiscal year to come (P. A lakh is equal to one hundred thousand) Rupees. According to the CEO of Jubilant Foodworks. they will makes this franchisees is because able the to afford is and start brand on the stores. THE NEW INVESTMENT FOR GLOBAL TRADE 4 hundred. 32-35).INDIA. or 100 lakhs. 2011) over the past five years has seen sales of 678 crore (A crore in the Indian number system is equal to ten million. with an expected growth of 32% over the coming years. it is important to note that Jubilant Foodworks has zero debt on its balance sheet.000 crore Rupees. The total fast food service business in India is worth about 60. the burger joints account for roughly .

and the Café industry accounts for roughly around 1300 crore Rupees (P.INDIA. services and United States. 5 Off shoring Vogiatzoglou reported that in (2011) the of 20 Athens. From . 32-35). China. This strategic option for American firms to offshore in India has yielded minimizing overall costs which was aided by lowering tariffs. THE NEW INVESTMENT FOR GLOBAL TRADE 3000 crore Rupees. This intense globalization has created a global production supply chain throughout the world better known as off shoring and international production sharing. the off shoring of intermediate goods has given India a significant rise within the last decade. years Greece India has recently last has accelerated steps in simplifying trade relations among countries. Many of the host countries the are the European the Union. a difference facilitate worker a technologies service of which goods. in for a decrease wages. largest occurs mainly from the European Union and the United States. faster production Through collecting data from the OECD international trade it is determined that more source countries are investing in India and exporting at the intermediate production stages in order to subsequent production stages in the host country. offshore Switzerland. opening trade relations. in and transportation new or costs.

and information technology centers. .38-41).3841). centers (such as call centers). Indian business which service and has sector had a increased development intermediate positive within the service sector and its export performance (P. Revision in recent policies have also yielded to more extensive involvement in IT related off shoring activities particularly beneficial to the financial industries in the software technology development industries (P. automobile.INDIA. being clothing. service electronics manufacturing. for India is widely becoming related is a an international and result is center information technology research direct this creative of off development shoring in activities. THE NEW INVESTMENT FOR GLOBAL TRADE 6 2000 to 2010 the off shoring phenomenon has helped create tens of thousands the of jobs in India in a wide in the variety of industries. improvement country's innovation capabilities. In 2011) India has led the to off shoring phenomenon in the (Vogiatzoglou . research and development efforts in technology transfer from foreign own forms. positive effect on local firms and Indian exports. most importantly sector.

7% to 9. In the short term it is visible that investing in India is economically viable and can yield high results with the growing middle-class yearning for Western tastes.1% as of April of 2011 and is expected to be at 8. The CPI has changed from 13. the association of the affluent with cafés. The Economist (2011) also reports that for the second quarter of 2011 India had a 7.INDIA.97-99). According to data collected by The Economist (2011) indicators identify that the employment outlook for India is one the highest in the world and is expected to increase for Q3.8% increase in their GDP.2% ending fiscal year 2011 (P.1% for fiscal year 2011. The Economist (2011) indicates that of the 39 countries which is covered in the research India has one of the lowest unemployment rates. or other American (and Western) goods it is safe to say the middle-class will continue to grow in the near future giving investors an opportunity to . further research is needed to examine 7 what the timeline and the economical benefits for investing and India will become. THE NEW INVESTMENT FOR GLOBAL TRADE Conclusion In conclusion. American cuisine. whether it is the taste for wines. with a overall projection for a 8.8% and is expected to be at 5.6% GDP for all of 2011. The Economist (2011) reports the unemployment rate ending 2010 was at 10.

INDIA. THE NEW INVESTMENT FOR GLOBAL TRADE 8 jump in into one of the new nation's staged for global trade and investment security. . It would also behoove investors to take a closer look at Indian investment and trade policies and determine for themselves the risks involved.

S. 38-41. 97-99. Outlook Profit. (2011. Economic and financial indicators. (2011. Jubilant Foodworks. The Economist. The Great Indian Dream. Investing in stocks on home turf. K. June). Outlook Money. June). June 29). Offshoring and India's export development in services. THE NEW INVESTMENT FOR GLOBAL TRADE References Aggarwal. . (2011. 32-35.INDIA. June 18). 9 Jain. 54-55. Vogiatzoglou. The Economist. (2011. R.