Report on India’s and China’s Investment Climate
The Structure of the Indian Market.
India is officially known as the Republic of India and is found in South Asia. It’s one of the largest countries in the world. As per the surface area rankings, it stands at number seven worldwide and also the second most populous country after the Peoples Republic of China.
Economic GDP growth in the year 2012 was 5.1 while the GDP for the year 2013 is projected to drop slightly to 5.0 and is projected to reach 7.1 in the year 2015. Fixed investments in the year 2012 were 1.5 % and are projected to reach 4.2% in 2013 and later to 7.1% in the year 2015. Industrial production is expected to increase to 7.9 % in the year 2015 from the current production of 0.7%. Exports of goods and services are also expected to reach a high of 10.8% in the year 2015 from 6.6% in 2012. Imports and exports are expected to reduce to 10.8% from 11.7% in the year 2012. (Nida, 2013) These economic conditions are expected to encourage more production in the automotive sector.
Performance of India’s potential new markets
Foreign direct investment is expected to increase by an average of 21.17% annually since the year 2005 until the end of the year 2015. (Global insight, 2013) The country business environment is expected to increase by 60.6% between the years 2012 and the year 2016. Personal disposable income is expected to reach $2871 dollars in the year 2016 from $2277.4 in 2012. E-Business is also expected to be 41.7 ratings as per the European Union assessment country ratings. The country risk factor of India currently stands at 51.9 slightly behind Russia which is in the forefront.
Domestic demand in the year 2012 stood at 5.5 but dropped slightly in the year 2013 to 4.9% but it’s projected to increase to 7.5% in the year 2015. Private consumption is also expected to reach 7.6% from the current 5.9% i.e. in the year 2013.
Main trends in recent years
The year 2012, was particularly bad for foreign investors as private consumption was at its lowest during the last months where all economic indicators were showing decreasing trends i.e. industrial production and sales data and car sales pointed to very weak economic activities. RBI i.e. (Reserve Bank of India) acted swiftly and positively and stabilized the interest rate to 7.25% to control the high inflation and also stabilized the rupee. These actions rekindled the faltering economy.
Business Environment and Risks
The graph has been drawn with information from EU countries Assessment rating.
| India | China | |
| Risks | 51.9 | 44.6 |
| Bzn Env | 60.6 | 64.1 |
India’s business risks are slightly better because of its renowned political democracy and the general peaceful elections. It’s also favorable due to its large market and affordable labor force. Economic Survey of India 2007 The economy of India is the tenth largest in the world going by its nominal GDP. It also has the third largest purchasing power in the world (PPP). It is one of the fastest growing important economies in the world currently. (Nayak, Goldar, Agrawal, 2010) The market based government economic reforms in the year 1991 provided a solid foundation for its current economic growth.
These economic conditions provide a perfect opportunity for the bank to expand its activities in India. The economy is improving at a very high rate and the domestic market is gradually changing to adopt the liberalized market opportunities and openings that are finding their way into the country. The other strengths are found in its huge market and the enormous population.
Strengths, Weakness, Opportunities and Threats for the republic of India.
However the major weaknesses for the republic of India are found in its corrupt systems. The cost of corruption on average is estimated to be between 6 – 10% of most government contract costs. (Siddhartha, 2004) About 55% of the firms operating in India openly admit that they have to make irregular payments when dealing with government officials. These figures are quite unfavorable compared to other countries. The major threats to business operations are the weak structures of the judicial systems, policy instability and bad roads.
The major strengths for India are found in its large and diverse market together with its strategic position in relation to its neighbours. Its large population and its open capitalistic tenets and policies provide opportunities for multinational corporations willingly to invest in the country.
Main reasons for choosing India
Whereas the economic conditions are better in China than India, I would recommend India as a country of choice due to its democratic political maturity and the respect of human rights and the protection of intellectual property rights that are easily enforceable in India than in China. The judicial system India suffers less interference from the executive unlike in China where the court system is less independent and untrustworthy. (Siddhartha, 2004) The FDI (Foreign Direct Investment) as taken as a percentage of the total gross fixed capital of the entire business formation process was about 17% in the year 1997 while India has an average of 3%. 55% of Chinese exports are made up of foreign equity enterprises. These are mostly on hi-tech goods such as computer parts and other electronic devices.
However, according to WTO (World Trade Organization) both India and China have a problem with
particular institutional inadequacies. (Siddhartha, 2004) India’s corruption index very high in government offices but its judiciary is independent and such officers are regularly arrested whenever they are discovered but China’s judiciary is entirely not independent. (Aaditya, 2003) The conventional wisdom and theories holds that very strong intellectual property rights protection is required to attract or draw foreign direct investment in less developed nations. Companies are normally reluctant to make huge investment in foreign countries that have no assurance on the protection of their intellectual property rights, assets or financial investment. China has a very strong capacity to copy and imitate most products and services from foreign countries. This makes it mandatory for china to have very strong intellectual property rights protection to attract more investment. (Quin, 2003) A country that has a large market like China must have a strong intellectual property protection act to control the large influx of foreign companies that may want to take advantage of the economies of scale available in the country. In order to foster faster economic growth, china needs to identify which form of protection in terms of intellectual properties needs to be promoted and strengthened to promote the much needed economic growth. (Clarke, 2003)
Possible Entry Strategy
The best strategy for the Bank’s expansion strategy to India is to adopt the interactive approach which includes multiple feedbacks and loops. These multiple feed backs help in performance evaluation and control. They also utilize economies of scales and location advantages. The risk involve when expanding to overseas markets require constant revaluation of policies to ensure they are in line with the companies objectives and goals. These goals have to be integrated with the economic conditions which are prevailing in that particular country. (Roots, 1994)
To conclude, china has better economic prospects than India, however its legal institutions are largely influenced by the government whose officials can be compromised. The protection of intellectual property rights is not guaranteed in China. This leaves India as a better alternative than China. Both countries have achieved so much as in the banking sector. The reforms that have been undertaken to reduce state ownership in the banking industry will encourage more private participation in the banking industry in both countries. The major source of financing in the two countries still remain the banking sector instead of the stock market as in other developed countries. The major challenge for the two countries remains in their role as the supervisors of banks and also as part owners of the banks. They need to ensure genuine banking industry business is supported and allowed to grow naturally without state interference.
References
Aaditya, M. (2003) China’s accession to the WTO: the service dimension, Journal of international Economic Law, Vol. 6, No. 2.
Clarke, D. (2003) China’s legal system and the WTO: the prospects for compliance, Washington University Global Studies Law review, Vol. 2
Economic Survey of India 2007: Policy Brief: Organisation for Economic Co-operation and Development, October 2007, retrieved 22 July 2011
EU Countries Assessment Rating.
Global Insight (2013) Global Country Intelligence Rankings for FDI.
http://www.bcg.co.jp/documents/file37441.pdf
Nayak, P., Goldar, B., Agrawal, P. (2010), India’s Economy and Growth: Essays in Honour of V. K. R. V. Rao, SAGE Publications,
Nida, A, (2013) Country Economics Forecast; Oxford Economics
Quin, J. (2003) WTO Plus obligations and implications for the WTO legal systems an appraisal of the Chinese accession Protocol, Journal of world Trade, Vol.37, No. 3
Root, F.R. (1994), Entry Strategies for International Markets, Lexington Books, Francisco,
CA
Siddharthan, N. S. (2004) Business Environment, Investment Climate and FDI: Chinese and Indian Experiences, Economic and Political WeeklyVol. 39, No. 36 (Sep. 4-10, 2004), pp. 3986-3988
http://www.jstor.org/stable/4415496
