Indian Economy: Overview, Market Size, Growth

India has emerged as one of the fastest growing major economies and is expected to be one of the top three economic powers of the world in a little over a decade. Over the years, India has slowly formed into an open market economy which has propelled it as an economic powerhouse. For starters, India is the second most populated country in the world with a little more than 1.3 billion people, which is a lot of potential customers looking at it from a business standpoint.

India was not always considered an ideal place to conduct business, but over time the country has strived to make it easier for other countries to get involved with their market. International business is very important for economic success and development, but the main issue continues to be the cultural differences and business practices that differ from one country to another. One of the biggest obstacles to overcome, when entering the Indian market or doing business in India, is the cultural differences that you will undoubtedly encounter, although it is a country with a lot of business potential.

To understand how or why India has had such a rapid growth in the last few years, it is important to know their history/culture and analyze what ascended them into a major player in the international business field.

Before you can analyze the business aspect of a country or even a specific market, you need to fully understand the culture that comes along with it. Before choosing any country to do business with, it is important to research and immerse yourself in that country because the more knowledge someone has in the area they are doing business, will help create better relationships and be more successful in these new markets.

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India is a democracy and the Prime Minister is Narendra Modi. “It is 80% Hindu but also home to one of the world’s largest Muslim populations” (India, 3). Hinduism is also the most common religion in India. India is actually considered one of the largest Islamic nations in the world. People in India are also flocking to major cities like Delhi or Mumbai in recent years with 68% of India having an urban landscape. With India being the second most populated country in the world, there does not appear to be any signs that it is slowing down their population growth. They are expected to surpass China as the most populated country on earth by 2024. Another important note is that India’s population is very young which provides a tremendous amount of young working-class people. “India’s diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services” (India, 3).

India is known for their services that range from software workers to information technology. India has a large population of English speakers which is how they can export their services globally to different countries. Many younger Indians even go to countries like the United States for a college education or work experience before returning to India to work. India’s judiciary system is independent, but Indian courts lack the staff needed and lack the technology needed to handle the enormous amount of information. Often authorities are caught accepting bribes in India, but also a lot of bribes happen without anyone knowing. Unfortunately, in many areas of business, this practice has become almost an acceptable way of doing business. Labor laws in India make it difficult to fire workers and also construction permits are still very hard to obtain. The unemployment rate in the country is 3.5% which has drastically improved in the last two decades (India Unemployment Rate, 1). With some knowledge into what makes up the country, the people and their processes, it is becoming easier for other countries to conduct international business.

India is one of the most diverse countries in the world. It’s rich culture and vastly large population make it home to businesses from all over the world. It is important to dress the part and expect your day to start late. Meetings start around ten in the morning and are subject to be changed last minute. Contrary to western culture, the handshake is not used in India, instead of saying Namaste is used. Gift giving and exchanging business cards is one of the first tasks done when meeting about business in India. Of all of the cultural influences that most impact Indian culture, hierarchy plays a key role. It is important to respect the caste system while doing business in India. Culture affects international business. Some examples would be consumer behavior, local preferences, buying decisions, managerial styles and decisions, brand image, and the nature of business negotiations. The different aspects of culture range at different levels in India. You have the national level, the regional level which is ethnic or religious differences, gender level, generation level, social level, and corporate level. It is important to know each level’s culture.

While India has been growing at a fast pace, in 2017 they lost their fastest growing economy title. Within the country, domestic investment has fallen as businesses have been hesitant to invest. India’s exports have also dropped since Prime Minister Narendra Modi came into power. Modi had a similar campaign slogan as the United States President Trump did; “Made in India”, to help fire up the country’s manufacturers. In July 2017, the government implemented the good and services tax which is the biggest tax reform since India gained their independence. Economists say the tax will help bring long-term growth since it will protect Indian made products. India has about one million people entering the labor force every month which would mean the county needs significantly more growth to get them good jobs and to sustain that growth. Growth projections have been cut recently due to the higher oil prices in the international market which have a tremendous impact on India’s economy. Higher oil prices could mean higher important cost and higher inflation. India is the country’s third-largest oil importer in the world. To put India’s massive population and the lack of jobs into perception, there is an interesting statistic to use as a reference point. Recently, there were ninety thousand job openings for India’s railway, but twenty-five million people applied for that job. There was another time where there were two hundred thousand applicants for one thousand job openings on the police force. Available labor is not the issue in India. Many multi-national companies are excited about India because as more people are working, the consumer market grows. These multi-national companies are dreaming of selling fast food, and even fashion to a rapidly growing middle class but India’s middle class is still extremely tiny.

Understanding the Indian mindset, adapting your business models into Indian needs and keeping your eyes open to the everyday changes that are happening in India are the keys to a successful business with India. Entering into India’s diverse market requires businesses to acknowledge and adapt to the differences in languages, economic status and cultural differences that the country has to offer. It’s important to look at the pros of conducting international business in India, as well as the cons. India has been damaged in the past by poor infrastructure, although that is turning around in the country which helps overall economic development. Another positive of doing business in India is the area of which they are located in. Their location gives them the opportunity to manufacture items and send them to the Middle East, Africa and Southwest Asia easier then China can. India offers enormous opportunities for overseas investors, but it is a complex market which needs careful analysis to achieve success. It is best to view India, not as a series of interconnected regional markets where laws and the type of business may change from state to state. India has twenty-nine states. The Indian market attracts European and global companies who have become aware of the country’s tremendous growth. “Doing business in India has several advantages because of its development-friendly reforms” (E27, 3). Although India looks like the right market to get into, there are some drawbacks or concerns businesses should look for before diving right in. It is crucial for businesses to research and develop a plan before going into a new market. Every business should take a look at both the advantages and disadvantages before starting a new business venture in a new country. India has not only grown in population but also has had tremendous economic success recently. Without having local help, it is difficult to achieve success in starting a business there. A big issue in working with another country is the diversity in culture and standard business practices. India is no different. They have a very complex market which requires a country to research the country’s culture and business etiquette. A big downside is a cost of starting up a business in India; it is extremely expensive and takes almost a month to set up. One area that continually frustrates foreign investors is the complex procedure for getting a construction permit. It is very difficult to get permits to build on land in India. The tax environment in India remains tough, and mistakes will be made if you do not consult with people who know the tax structure in India. “Doing business in India isn’t easy, and it’s important to engage local knowledge and professional services to guide you through the legal, financial, bureaucratic, and cultural complexities” (Requirements for doing business in India, 1).

India’s efforts to help boost the economy and business in the country have not gone unnoticed. “In the World Bank’s latest ease of doing business report, India’s ranking has increased 30 places to 100 in 2018, up from 130 in 2017′ (The improving investment climate in India). This shows the measures the government is taking to improve the country financially have been so far successful. Each of India’s twenty-nine states is held to a standard and each one is monitored differently. This idea promotes each state to step it up and add to the improvement of business in the country as a whole. The reforms that the government has put into place is what is driving this economy. Still, there are problems the country faces and a big issue is the amount of time things get done in. “The Paying Taxes indicator has been expanded to cover post-filing processes, such as tax audits and VAT refund. These new measures reveal space for improvement in India. For example, it takes 54 hours to comply with a corporate income tax audit in India, compared to the global average of 17 hours” (India Makes Big Strides to Improve Business Climate, says Latest Doing Business Report, 11). Taxation in India is complex, with different taxes levied by central and state governments. A central government levies direct taxes, such as corporate income tax, capital gains tax and dividend distribution tax, securities transaction tax, commodities transaction tax, customs duties. Tax still remains confusing and complicated in the country. Without proper guidance from a professional on doing your taxes, issues and errors will likely occur. Things like this hold back the country from being even potentially more prosperous.

After analyzing the business practices that India offers to outside investors, the question may be. What companies have taken the risk and decided to invest in the emerging market. Well, what company is now a household name? Amazon. Amazon is battling for the e-commerce market in India along with Walmart. Smartphone penetration In India is rising, people are rising out of poverty and joining the middle class so it is not a surprise that these big e-commerce companies see huge advantages in a populous country like India. While eBay has been in India for some time, Flipkart started to gain traction in the company. Amazon has invested heavily to get into smaller cities to sort of train mom and pop shops to start selling online. In other countries, Amazon is taking out the middleman but in India, they are using it. Amazon realizes they need to gain trust in India’s market due to the fact no one has ever shopped online. Flipkart and Amazon are accepting cash but looking to really accelerate the adoption of online payment. Flipkart has established a dominance in the smartphone industry in India and Amazon is spending tons of money testing out the market. ‘India’s new economic initiatives and tax reforms are designed to attract more investment, and a shift towards a digital economy is well underway’ (US companies doing business in India, 12). Walmart, another competing company vying to gain traction in the middle-class Indian market has a big stake in Flipkart. The United States and other countries are seeing the business potential in India. ‘India’s leap on The World Bank’s ‘Ease of Doing Business Index’, from 130 out of 189 economies in the world in 2016 to 100th position in 2017, is helping to build confidence and attracting more investors to the country’ (US companies doing business in India, 2). The booming economy and size of the country are what attracts large companies like Amazon and Walmart. Understanding international business is more than just starting up a business in India. International business also includes outsourcing work to India from a hosting company or vice versa. My father who is the owner of an architecture company here in New Jersey outsources work to Indian based companies for drafting. The reason being is that India is still much cheaper by the hour and they also have a high quality of work. Another advantage is the difference in time zones. Work can be electronically transmitted during the day in the United States and the firms in India are about 10.5 hours different so they can be working while the United States offices are closed for the night. Work is then sent back and is ready in the morning for the United States firms to review. A lot of Indians come to the United States and come to get a degree here. They then return back to their home country with the knowledge and expertise to perform work for US-based companies. The availability of cheap but increasingly skilled labor is a key attraction to firms around the globe.

Developing a marketing and distribution strategy is important in any industry but even more important when working with companies located outside the United States. Marketing internationally can become easier for a business when they align themselves with the local culture. Marketing efforts in somewhere like Mexico will be drastically different than in India. People looking to do business in India need to come up with different market research for each of the different states that India has. Each state of India has is drastically different. For example, your target audience in Delhi or Mumbai, big cities, will be very different from the population living in the poorer areas of the country. “New-to-market businesses must address issues of sales channels, distribution and marketing practices, pricing and labeling, and protection of intellectual property” (India-Market Entry Strategy, 2). The reason businesses enter into new markets is because they feel as if they can reach a bigger audience and ultimately increase profits in doing so. Marketing internationally should still withhold the basic fundamentals of marketing, but local culture should be implemented into the strategy. You need to fully grasp things like buying behavior, marketing environment, and distributors in that country. The room for growth in India is massive and the audience of one point three billion people is exciting to hear, but the risks of losing money are very high. If you do not pinpoint your marketing method then investing heavily in India can be a big mistake. In today’s business world, India has a place as a developing country and as a prosperous business country for the future. Since its independence as a democratic country, India has witnessed many milestones in the history of its business. The government has intended to create change and promote its’ country as an open market economy. The opening up of the economy has launched the pace of economic growth and development and paved the way for the businesses and for foreign investors. “Some of the important points for market entry in India are: the ability to understand the diverse market and strategies towards specific regions and income groups (i.e. target segments); crafting offerings according to the target group in order to gain early acceptance; considering the large informal sector into your planning; approaching the market consistently; obtaining mandatory licenses and approvals; and understanding that import procedures are one of the key issues for first-time exports to India” (India-Market Entry Strategy, 4). Business in India has huge potential, but the key word is potential. China was the main hub for international business in the last few years but India has slowly been on the rise. Strategic planning in a foreign market will help you be successful in a country like India. Careful and methodical planning in India will ensure overseas success for companies who are looking to invest.

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Indian Economy: Overview, Market Size, Growth. (2021, Apr 26). Retrieved from http://studymoose.com/indian-economy-overview-market-size-growth-essay

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