FDI in India
India is Ripe for the Picking
India ranks second only to China in its attractiveness as a target for foreign direct investment. Of particular interest are the retail and technology sectors, as well as construction and manufacturing sectors. India is an up and coming market with potential for companies that want to expand into this lucrative land of opportunities. This research examines the opportunities exist in India as well as the climate that makes it a favorable location. It also addresses the obstacles to its continued expansion.
Although India has many opportunities, it has several problems with its policies that make create a certain risk, particularly in the area of taxes and other policies. India is in a state of flux and it is experiencing growing pains. As a result the Indian government keeps changing policies as far as taxing issues are concerned. This decreases confidence due to inconsistencies in changing policies.
' In addition to inconsistent tax policies, India continues to use change its position on foreign investment. India restricts foreign investments to allow for the growth of their own businesses. Labor laws are also restrictive, forbidding layoffs for any reason. Workers are protected in India, which is another consideration when MNCs considering foreign direct investment. However, for the company that is willing to tolerate these policies and inconsistencies, India represents one of the greatest investment opportunities in the world.
Introduction
Four hundred years of British Rule in India ended when India gained its freedom in 1947. When India gained its independence and the right to form its own style of government, it adopted a highly socialistic form of democracy. It developed a complex, layered system of rules and regulations that involves a high level of government intervention (Yallapragada & Paruchuri, 2003). This pattern set the stage for the government and society that exists today. This was the foundation of the bureaucratic rules that govern foreign direct investment and that limit its ability to attract interested investors.
This research examines the governmental and bureaucratic components of the country profile that hinder its ability to attract foreign direct investment. In addition, several cultural constructs also play a role in the attractiveness of investment in India. The sectors that have achieved the greatest growth in most recent years are construction, telecommunications, computer software and computer hardware (Yallapragada & Paruchuri, 2003). In recent times, the sectors have led economic growth in many countries around the world. India has an excellent opportunity to capitalize on growth and the tech sector, but it is not able to do so unless it is willing to make changes that will result in greater attractiveness to investors. This research will explore the changes that need made by India in order to maximize their benefits in terms of foreign direct investment in these rapidly expanding sectors.
Political and Legal Environment
Main Features
The legal and political environment in India poses the greatest threat to the growth of foreign direct investment. In general, growth in foreign direct investment has been slow, compared to countries such as China. For instance, in 1990 FDI inflow to India was an equivalent of $162 million U.S. dollars. By 1998 it had grown to $3.3 billion in 1998. By comparison, China's FDI grew from $3.4 billion to $45.6 billion (Yallapragada & Paruchuri, 2003). This slow growth in India it indicates that they face problems in getting other countries to invest in them.
India's political situation is paradoxical. On one hand, and is one of the largest democracies in the world. It has one of the oldest judiciary systems in the world. By comparison, China is communist and under authoritarian rule, which often makes it less attractive as a target for FDI due to high amounts of corruption. In general, democratic governments with capitalistic economies are considered more advanced than those ruled by authoritarian, communist governments. This makes countries with established democratic governments more attractive and stable than communist markets. From this theoretical perspective, it does not make sense that China outpaced India in terms of FDI inflow during the 1990s.
India has a large middle class with a high degree of spending power. It has an active economy, yet many overlook it as a possible investment target. The amount of FDI in India does not reflect the many opportunities that exist in terms of their growth in certain sectors. Construction is the biggest growth category in the country. English is the national language in India and it has a well-educated...
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