The Political Investment Environment of India

The Political Investment Environment of India
Investing in a country needs to take a look at all the political, economic, social and technological environments. India, as one of the post BRIC countries, developing with high economic growth, comparatively stable social and political environment, and essential infrastructure, attracts people all over the world to look for investing opportunities and start business here. Like the situation in China, it is important and critical for investors to know local political environment and government relations if planning to run business locally in India, since government has large rights over a lot of affairs.

After doing some research, I find that there are supports as well as some obstacles placed from political environment.

According to Embassy of the People’s Republic of China in India, before 1991, India government was cautious of opening domestic market to foreign investors. Introduction of foreign investment industries were mostly considered to be advanced technology or which can ensure product export. However, India government changed the attitude that they cancelled some limitations to FDI (foreign direct investment) and established Foreign Investment Promotion Board and Cabinet Committee to encourage FDI, expanding the entry scope of FDI and relaxing equity holding limits.

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Indian government encourages foreign capital to flow to the new and high technology industries, especially software industry. Thus there are preferential policies on investment in software industry, such as exempting taxes of import and export software, exempting income tax in 10 years, setting standard international intellectual property rights to protect foreign investors.

What’s more, as stated in the agreement on Trade-Related Investment Measures (TRIMS), Indian government reduced and eliminated discrimination of foreign investment, adjusting the policies of FDI in India to be as equal as domestic business, such as reducing tax rate and permitting FDI to practice all the preferential policies in high-tech commercial zones.

In certain industries, India even practices policies that are advantageous to foreign companies. For example, Indian government required that new private investors who wanted to enter telecoms service industry needed to cooperate with foreign investors, giving chances for foreign investors to break into Indian market. On the other hand, there’re some disadvantages of investing in India.

Firstly, in terms of government system, according to the website ABOUTINDIA, Indian government mainly practices federal system of government, which consists of central government and state governments and is a multi-party system of government. The general parties are state-level parties before they are registered by the Electoral Commission (EC) to become nation-level parties, which may participate in different nationwide elections. Besides, other political organizations, commissions and NGOs play major parts in India’s politics. This little bit complex political system places obstacles for foreigners who are not familiar with local political environment. Investors need to figure out the relations between different political parties and their rights over different affairs. Then it would be easier to run business locally and more possible to succeed.

Besides, it is said on ABOUTINDIA that political turmoil happens when a minority government is formed. This may affect export-oriented companies and investors who invest in these kinds of companies, since new parties draw up and implement different policies that directly impact business environment. Moreover, like other developing country, corruption in India is severe. It is stated on Euromonitor International, an international market research and business strategy provider, that corruption in India seriously impacts its business and political environment. According to Transparency International’s Corruption Perceptions Index for Selected Countries in 2010, India ranked 87th place out of 180 countries. The image of Indian government reduces investors’ confidence of investing in India. There’re supporting policies from Indian government as well as obstacles. Overall, India is steadily growing with attentions from investors all over the world and the investment political environment tends to be more loosing and encouraging.