Indian Business Environment - PRESENT & FUTURE

Generalizing India's market
 is a difficult task as it is a country with so much variety. It is an impressive market with respect to the population, but whether the huge population base is enough to make it a good market is more difficult to ascertain.


When discussing markets it is important to analyse whether India fulfils all the conditions of an international market. In simple terms a market is a place where the buyer and seller meet irrespective of whether they are able to crack a deal. But in order to be a successful market the deals should be closed and beneficial to both parties. Bringing the buyer and seller to a common platform is not an easy task. In order to be a successful market the following features should be present:

o Suitable Business Environment/Climate

o Political stability

o Availability of buyers

o Regulatory framework

o Infrastructure developments

1. Indian business environment and climate

India is traditionally a mixed economy. Many of the important sectors, especially the infrastructure and industrial sectors, were in the hands of the government with other sectors existing in the private sector. Since the liberalization of the economy in 1991, India has really understood the importance of global players and the relevant growth effects on the local suppliers and customers of India.

The government previously had considerable control over the private sector through licensing for additional manufacturing, import of capital goods, raw materials and technology. After liberalization, things have changed, and government has altered the process for many licensing activities and in some cases the licensing system was abolished completely.

These economic reforms have changed the business environment in India and a new spirit of economic freedom is in the process of bringing change. Regular economic reforms are aimed to deregulate the country and stimulate foreign investment.

The overall environment is improving but it needs speeding up in order to attract more foreign investment and maintain a high growth rate.

2. Political stability

India is the world's largest democracy. It has been a long journey for Indian politics and it has changed a lot in comparison to the early years. India has not seen a single-party government since 1989. This suggests political instability, but over the past 20 years the transformation of Indian politics from a stable single-party government to a stable coalition government has given some confidence to the international market, with the last two coalition governments completing full terms and successfully taking economic reforms ahead.

3. Availability of buyers

The most important factor for a successful market is that it should have buyers who are willing to purchase. This plays the most important role in making India an attractive market. India has a huge and varied customer base which is the second largest in the world in terms of population. India's multicultural environment makes it a complicated market, which makes it harder to understand and predict the behaviour of the buyer. In terms of population, however, we can be sure that the potential exists for various types of consumer goods, and many foreign companies have been successful in establishing a presence in India.

India's population gives scope to all other sectors such as education, pharmaceutical, agriculture and various other industries. It is also one of the world's fastest-growing economies, meaning opportunities exist in various other heavy industries such as shipping, bulk machinery, refineries, infrastructure and real estate, etc.

With education levels increasing and sustained economic development, India promises to provide numerous opportunities for foreign investment.

4. Regulatory framework

A market must be well regulated in order to develop and maximize its reach. In India, the markets are generally regulated by supply and demand of goods, but at the same time government is regularly involved in regulating the market and taking efforts to ensure the market doesn't suffer.

For the foreign investor there are many regulations in place. This creates some obstacles to investment. However, the Indian Government is regularly reviewing them and amendments are constantly being made in line with market requirements. Proper care is also being taken with the domestic market to ensure the local business community is not affected.

The regulatory framework in India is very complicated and time-consuming, and foreign investors are generally not satisfied with the various registrations and formalities involved in setting up a business. As investment generally comes from the developed nations, where the regulatory framework is simple and strong, investors can feel that India's regulatory framework needs a lot of improvement.

There are various laws and regulations involved for industries being set up in India. Furthermore, it can take considerable time to get approval from government organizations. Important regulations applicable to setting up in India are:

o company registration

o permanent account number

o tax deduction number

o state VAT registration

o central VAT registration

o central excise registration

o professional tax registration - differs from state to state

o shop and establishment registration

o provident fund registration

o pollution control certificate

o employee state insurance certificate

Besides the above registration there are certain regulations and certificates required depending on the industry to be established. Companies must also regularly comply with various other monthly, quarterly and annual forms with various government departments.

The above regulations make the regulatory framework more complicated. However, the government is regularly working towards improvement of this framework which will help to boost investor confidence. Recently, the government has brought about significant reforms:

o online registration of companies

o online payment of taxes

o online completion of TDS return

o online completion of income tax return

o online payment of services tax

o online completion of sales tax returns

Hence the government is working towards streamlining the framework in future.

5. Infrastructure developments

In the development process of a country the most important factor is to have strong infrastructure development. Infrastructure includes the development of the airport, railway, power, telecommunications, ports, bridges, highways and dams. India has always been on the weak side in respect of the infrastructure development process. Over the last decade, great efforts have been taken to develop these infrastructures, and there has been a significant boom in the infrastructure and real estate sectors.

There are many projects still taking place in the infrastructure sector which will change the face of Indian infrastructure. Unfortunately, execution of projects is still slow, but looking at the current reforms and development processes it looks like India will be very sound in relation to infrastructure availability.

Future outlook

The Indian economy continues to grow, with reforms being regularly implemented. In the last decade, the government has focused on the reform process and infrastructure development. As such, the Indian market is impressive, and future development will only make it stronger. Looking at the future of India, it will continue and progress as a favoured destination for the international business community.