Business Environment of India Research Paper


Business Environment of India

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Spread over three million square kilometers and located entirely in the northern hemisphere, India is the seventh country in the world in terms of geographical size. India’s neighbors are Bangladesh and Myanmar in the east, Bhutan, China and Nepal in the north, Pakistan in the west and Sri Lanka in the south (Doing in Business in India, n.d.).

When entrepreneurs put together a business plan and try to get off the ground, the first obstacle that they often face are the actions required to incorporate and register the new firm before they can legally do business. Economies fluctuate greatly in how they control the entry of new businesses. In some the process is straightforward and affordable. In others the actions are so troublesome that entrepreneurs may have to bribe officials in order to speed up the process or may decide to run their business unofficially. Analysis often shows that troublesome entry regulations do not boost the quality of products, make work safer or reduce pollution. Instead, they limit private investment; push more people into the unofficial economy; increase consumer prices and fuel dishonesty (Doing Business 2010 India, 2010).

The Indian market with its one billion plus population, offers profitable and diverse opportunities for exporters with the right products, services, and promise. India’s requirements for equipments and services for major sectors such as energy, environmental, healthcare, high-tech, infrastructure, transportation, and defense will exceed tens of billions of dollars in the mid-term as the Indian economy further globalizes and expands. India’s GDP, which usually grows at 6.7% rate, makes it one of the fastest growing economies in the world and the second fastest in Asia. India has the possibility for a sustained growth of 8-10% for the next couple of years. So now is the time for foreign companies to enter the growing Indian market (Doing Business in India, 2010).

Country Profile

The republic of India has an area of 3.29 million sq. km. (1.27 million sq. mi.) which makes it about one-third the size of the U.S. The Capital is New Delhi which has a population of 12.8 million, according to the 2001 census. Other chief cities include Mumbai, which is formerly known as Bombay (16.4 million); Kolkata, which is formerly Calcutta (13.2 million); Chennai, which is formerly Madras (6.4 million); Bangalore (5.7 million); Hyderabad (5.5 million); Ahmedabad (5 million) and Pune (4 million). The landscape varies from Himalayas to flat river valleys along with deserts in the west (Background Note: India, 2010).

The estimated 2010 Population 1.17 billion of which 29% is urban. The population has an annual growth rate of 1.376%. Ethnic groups in India include: Indo-Aryan 72%, Dravidian 25% and others 3%. While the national census does not distinguish racial or ethnic groups, it is thought that there are more than 2,000 ethnic groups in India. Religions include: Hindu 80.5%, Muslim 13.4%, Christian 2.3%, Sikh 1.9% and other groups including Buddhist, Jain and Parsi at 1.8%. Languages in India include Hindi, English, and 16 other official languages (Background Note: India, 2010).

Although India inhabits only 2.4% of the world’s land area, it supports over 15% of the total world’s population. Only China has a bigger population. India’s median age is 25, which is one of the youngest among large economies. Almost 70% live in more than 550,000 villages, and the rest in more than 200 towns and cities. Over many thousands of years in its history, India has been attacked from the Iranian plateau, Central Asia, Arabia, Afghanistan, and the West; Indian people and culture have immersed and customized these influences to produce a remarkable racial and cultural synthesis (Background Note: India, 2010).


India has the world’s 12th largest economy, and the third largest in Asia behind Japan and China, with total GDP in 2008 of around $1.21 trillion ($1,210 billion). Services, industry, and agriculture make up for 54%, 29%, and 18% of GDP respectively. India is capitalizing on its huge numbers of well-educated people skilled in the English language to develop into a major exporter of software services and software workers, but more than half of the population depends on agriculture for its living. 700 million Indians live on $2 per day or less, but there is a huge and growing middle class of more than 50 million Indians with throwaway income ranging from 200,000 to 1,000,000 rupees per year ($4,166-$20,833). Approximations are that the middle class will grow ten-fold by 2025 (Economy, 2009).

Trade relations between India and Australia can be traced back to when the first Australian ship loaded with coal came to India in 1801 as a part of the East India Company. India Australia trade relations are lively today but their full potential has still not been realized. There is substantial scope for development in India Australia trade relations. The India Australia trade revenue between the two countries reached a record A$7.25 billion in 2004-2005. The quantity of total trade saw an increase of about 23.7% or A$1.39 billion over the equivalent figure of A$5.86 billion in 2003-2004. In 2004- 2005, India’s export to Australia was at A$1.22 billion or increased by 22% than the matching figure of A$999.7 billion in 2003- 2004. In 2003- 2004, India’s import figure stood at A$4.87 billion and it increased by 24% in the next year to stand at A$6.05 billion. India ranked sixth in Australia’s export market in the year 2004- 2005. Throughout this period, India’s share of Australia’s total export was 4.8% and import was 0.8% (India Australia Trade Relations, 2010).

India’s tariff system has long had a reputation of being complex and opaque. Besides having a comparatively high average tariff rate, India also had a more dispersed range of tariff rates, even among similar types of products. Moreover, India had many exemptions or exceptions to the standard most favored nation (MFN) tariff rate, making it difficult for foreign companies to determine the correct tariff rate for their exports. Finally, there were frequent reports of uneven enforcement of existing tariff laws, as well as claims of arbitrary evaluation of imported goods (India-U.S. Economic and Trade Relations, 2007).

Political System

As a federal republic, the Republic of India incorporates the United Kingdom’s as well as other democratic countries, like the United States constitutional system and has a constitution which rules it. The government’s power can be separated into three branches: executive, judiciary and parliament. Just like with the United States, India is made up of individual states. India’s central government has power over these states and even has the authority to alter the boundaries of the states (India’s Politics, 2000).

India is a Sovereign, Secular, Democratic Republic with a Parliamentary form of Government. The Constitution was accepted by the Constituent Assembly in November 1949 and came into power in November 1950. The Constitution supports the trinity of justice, liberty and equality for all the people. The Constitution was developed keeping in mind the socioeconomic progress of the country. India pursues a parliamentary form of democracy and the government is federal in arrangement (India’s Politics, 2000).

In the Indian political system, the President is the constitutional leader of the executive of the Union of India. The real executive power lies with the Prime Minister and the Council of Ministers. According to the Article 74(1) of the constitution, the Council of Ministers under the leadership of the Prime Minister is accountable to aid and assist the President in implementing the Presidents function. The Council of ministers is accountable to the House of People. In states the Governor is the delegate of the President, though the real executive power is with the Chief Minister along with his Council of Minister. A documented political party has been classified as a National Party or a State Party. If a political party is recognized in four or more states, it is thought to be a National Party (India File – Political System, 2010).

Legal and Regulatory Environment

While India lacks specific laws on privacy and data protection, there are proxy laws and other indirect safeguards, which provide adequate protection to companies off shoring work. The Indian Government is proactively increasing the existing legal system to cover data protection issues. A few of the proxy laws are Section 65, 66 and 72 of the Indian IT Act, the Indian Contract Act, Section 406 and 420 of the Indian Penal Code, and the Indian Copyright Act (Regulatory Environment In India, 2006).

The legal situation in India plays a major role in supporting an environment, which is favorable for many stakeholders. Legal framework is thought to be an important infrastructure element that needs to be user-friendly and implementable at all levels for the purpose of conformity. The Indian legal system though healthy and based on a strong historical custom is proving somewhat unproductive for the growth and development of advancing technologies. There does not appear to be a legal framework in India that identifies health services, captures usage, or stores health information. The legal framework lacks the structure and support that is required to help operate and promote the evolving health services in the country (Legal & Regulatory framework, n.d.).

Socio-Cultural Environment

Home to the world’s tenth largest economy and second largest population, India defies swift generalization. It includes a vast range of developmental situations, cultures, languages, and climates. The country remains largely rural, with just 26% of its people living in cities. Yet in 1995 it had over 30 cities of one million or more residents, including three of the world’s 20 largest cities — Bombay, Calcutta, and Delhi — according to United Nations estimates (The Anguish of India, 1997).

Currently Indian labor laws, regulations, and workforce standards are very outdated. India is plagued with corruption. India has been ranked 9th in a list of 75 countries where dishonest practices are common, which is indeed an uncertain distinction. The corruptions, delays, bureaucratic red tape, and archaic labor laws are ingrained in India’s business culture. These pitfalls have deterred foreign investors from investing in India (Stokes, 2003).

From the market standpoint, people of India make up different segments of consumers, based on class, status, and income. An important and new development in India’s consumerism is the appearance of the rural market for several basic consumer goods. It is thought that about three-fourths of India’s population lives in rural areas, and contribute one-third of the national income. This rural population is extended all over India, in close to 0.6 million villages (Chennai, 2005).

The Indian consumers are well-known for the high degree of value orientation. Such orientation to value has tagged Indians as one of the most discriminating consumers in the world. Even, lavishness brands have to design an exclusive pricing strategy in order to get a foothold in the Indian market. Indian consumers have an elevated degree of family orientation. This direction in fact, extends to the extended family and friends as well. Brands with characteristics that support family values tend to be popular and accepted easily in the Indian market. Indian consumers are also linked with values of nurturing, care and affection. These values are far more overriding than the values of ambition and achievement. Product which converse feelings and emotions are often received well with the Indian consumers (Chennai, 2005). The Indian economy had been thriving for the past few years. The country has held great promise for the future. Liberalized foreign policies have unleashed the entrepreneurial spirit of its people and many multi-national firms (Doing Business in India: A Cultural Perspective, 2004).

Availability of resources

The major natural resources of India are iron ore, bauxite, and copper ore. India is one of the main producers of iron in the world. Iron ore is located all over India, the major places being the states of Bihar and Orissa. A quarter of all mining is done in the southern part of Orissa. Gold, silver, and diamonds make up a tiny part of additional natural resources that are available in India. The gemstones are found in Rajasthan. Major segments of the energy in India are produced from coal. It is thought that India has about 120 billion tons of coal in reserve, this is thought to be enough to last for around 120 years. Huge assets of petroleum have been established off the coast of Maharashtra and Gujarat (Natural Resources, 1999).

Electrical energy generated by hydroelectric power, coal, and nuclear energy. Half of the hydroelectric power is formed by snowfield reservoirs high up in the Himalayas. Huge dams have also been built across many major rivers to produce electricity and water for irrigation. In villages throughout India, people use wood or dried cow-dung cakes as fuel for cooking and heating water. The command for firewood and the increasing population is moving the existing forests. It is expected each year 3.7 million acres of forest are cut down in order to provide timber, paper pulp and firewood (Natural Resources, 1999).

India is home to a large collection of human resources that is made up of educated, English speaking, tech-savvy workers. Every year, there are about 19 million students are enrolled in high schools and 10 million students in pre-graduate degree courses throughout India. Furthermore, 2.1 million graduates and 0.3 million post-graduates pass out of India’s non-engineering colleges. These figures give the idea of human resources accessibility in India (Human Resources, n.d.).

Concern for Ethics and social Responsibility

India has a long rich history of close business involvement in social causes for national development. In India, CSR is thought to be from ancient time as social duty or charity which through diverse ages changing its nature in broader aspect, now normally known as corporate social responsibility (CSR). From the source of business, which leads towards excess wealth, social and environmental issues have profound roots in the history of business. Over time four different models have appeared all of which can be found in India concerning corporate responsibility. India has had a long tradition of corporate philanthropy and industrial welfare has been put to practice since late 1800s. Philanthropy is practice of doing well to one’s fellow men. It is not a relationship, and therefore corporate philanthropy often does not have stakeholder’s interaction and responsibility as a focus, unlike CSR. CSR on the other hand is under taken by the company not along charitable lines or with the “intent to do good” but also building of a good public image. It is transnational corporations under global ideological influence, and the need to engage with all stakeholders that introduce the concept of CSR on to the India horizon (Das Gupta, 2007).

In a diverse and complex country like India, it’s difficult to impart generic conclusions that could be used by those wanting to do business here. Regionalism, religion, language and caste are all factors that need to be taken into account when doing business in India. Behavior, etiquette and approach are all modified depending on whom you are addressing and the context in which they are being addressed. Unlike western societies, in India religion, fatalism and collectivism are all components of daily life and they need to be respected for healthy and successful business relationships. Despite the traditional caste system being dismantled, remnants may still be witnessed in the Indian hierarchical structure of business practices and decision-making. There is a strong sense of tradition tied into daily business practices. Yet, signs of change are becoming more evident. Ever since the economic reforms began in 1991, India’s market is growing rapidly. With its geographical positioning in the Indian Ocean, a major international trade route, and with its rich mineral and agricultural resources, India’s economy is witnessing increased inflows of foreign investments. India is also recognized for its competitive education system and vast pool of highly skilled laborers, making it an attractive market for foreign businesses. No matter what the industry is, foreign businesses should expect some degree of differences in business norms in India. Included below are some basic business etiquettes that the U.S. companies should follow when developing and maintaining relationship with Indian businesses (Doing Business in India, 2010).

Doing business in India involves building relationships. Indians only deal favorably with those they know and trust, even at the expense of lucrative deals. It is vital that a good working relationship is founded with any prospective partner. This must take place on a business level, i.e. demonstrating strong business acumen, and at a personal level, i.e. relating to your partner and exhibiting the positive traits of trustworthiness and honor (Doing Business in India, n.d.).


“Background Note: India,” 2010, viewed 23 August 2010,

Chennai, Matrade, 2005, “Product Market Study: Consumer Behavior in India,” viewed 23 August 2010,

Das Gupta, Aruna, 2007, “Social responsibility in India towards global compact approach.” International Journal of Social Economic, 34(9), 637-663.

“Doing Business in India.,” n.d., viewed 24 August 2010,

“Doing Business in India.,” n.d., viewed 24 August 2010,

“Doing Business 2010 India.,” 2010, viewed 24 August 2010,

“Doing Business in India.,” 2010, viewed 24 August 2010,

“Doing Business in India: A Cultural Perspective.,” 2004, viewed 24 August 2010,

“Economy.,” 2009, viewed 23 August 2010,

“Human Resources.,” n.d., viewed 23 August 2010,

“India Australia Trade Relations.,” 2010, viewed 23 August 2010,

“Indian Political System.,” 2008, viewed 23 August 2010,

“India’s Politics.,” 2000, viewed 23 August 2010,

“India File – Political System.,” 2010, viewed 23 August 2010,

“India-U.S. Economic and Trade Relations.,” 2007, viewed 23 August 2010,

“Legal & Regulatory framework.,” n.d., viewed 23 August 2010,

“Natural Resources.,” 1999, viewed 23 August 2010,

“Regulatory Environment In India.,” 2006, viewed 23 August 2010,

Stokes, Pam D., 2003, “The Corporate and Workforce Culture of India., viewed 23 August 2010,

“The Anguish of India.,” 1997, viewed 23 August 2010,

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