Many critics view India?s political future as bleak. They point to the continued problem of dealing with the Sikh extremists in Punjab and the political turbulence in Kashmir as symbols of a nation in disarray. India sometimes seems fragile but its strength lies in the large and apolitical army, a ponderous bureaucracy and a powerful commitment to political freedom at the grassroots level. India is a multi-ethnic nation with a population of over 1 billion people that represent a multitude of racial, religious and ideological types and subtypes. It is beset by such problems as widespread poverty and communal disharmony. Yet it is the world?s largest democracy where ancient civilization coexists with modern technology.
The Legal System
The main sources of law in India are the constitution, statutes (legislation), customary law and case law. The statutes are enacted by the parliament, the state legislatures and union territory legislatures. There is also a vast body of subordinate legislation, which takes the form of rules, regulations and by-laws that are made by the central and state governments and the local authorities like the municipal corporations and municipalities.
In addition, local customs and conventions that are not against the statute or morality or other wise undesirable are, to a limited extent, also recognized and taken into account by the courts while they administer justice in certain cases. Also, people of different religions and traditions are governed by different sets of personal law with respect to matters relating family affairs.
A single integrated system of courts administers both the central and state laws. The supreme court of India, located in New Delhi, is the highest body in the entire judicial system. Each state or a group of states has a high court under which there is a hierarchy of subordinate courts.
The president appoints the chief justice and the other judges of the Supreme Court. The supreme court?s original jurisdiction extends to the enforcement of fundamental rights given by the constitution and to any dispute among states and the government. It has an advisory jurisdiction in matters referred by the President of India. Its decisions are binding on all courts within the country.
While the judicial process is considered fair, a large backlog of cases to be heard and frequent adjournments have meant long delays before a case can be closed. Sometimes, matters of priority and public interest are dealt with expeditiously. But for the most part, the judicial process is a lengthy one. It is for this reason that companies are increasingly seeking to solve their disputes through the process of arbitration. The arbitration laws were amended and updated in 1996 so that they could more closely conform to international practice. The Indian council of Arbitration has recently been set up and currently has around 800 members. It has entered into arbitration service agreements with major international arbitral organizations in the United States and Europe
Economic Policy
India has always placed a high value on economic growth for creating a prosperous society. However, its economic policy has been characterized by the pursuit of multiple and sometimes contradictory objectives. These objectives are embedded in two values: self-reliance and social equity. The pursuit of these objectives led the creation of perhaps the most regulated economy in the noncommunist world. The general guidelines of India?s economic strategy are enunciated by the national Planning Commission whose five-year plans establish development priorities, production goals and guidelines for allocating investments. A large public sector was created to ensure that strategic sectors of the economy remain responsive to state objectives. A comprehensive system of licensing was established to regulate industrial investment and production capacity. Trade policy became dominated be pervasive quantitative controls and some of the worlds highest tariffs and foreign investment and technology transfer have been closely regulated to safeguard the country?s self-reliance.
Recent Economic Reforms
Reforms of India?s economic policy can be traced back to the mid 1970?s. While no political leader has been more closely identified with reforms than the late Rajiv Gandhi, most of his reforms reflected an evolution in the thinking of India?s policy-making community that began long before his rise to power. Many analysts trace the improvement in India?s economic performance since the mid-1970?s to the impact of previous reform initiatives. Rajiv Gandhi?s identification with reform is in part explained by the fact that his reforms went further and were more systematic than those of his predecessors. He is also distinguished by his fascination with high technology. Rajiv Gandhi enunciated a sweeping rationale for reform, asserting that India had reached a watershed. Deploring the country?s high-cost industry with its technological obsolescence and inadequate attention to quality, he declared that India must address its shortcomings through greater efficiency, more competition and absorption of new technology.
Greater priority for Infrastructure
Since the late 1960?s, infrastructural bottlenecks have acted as major constraints on development. Energy demand outpaced supply leading to crippling power shortages. India?s railroads were unable to meet the needs for freight transport. Communications were antiquated and highly inefficient. In recent years, increased emphasis has been placed on investment in infrastructure.
Relaxing Industrial Regulation
Economic reforms initiated under Rajiv Gandhi and further strengthened by the recent Bharatiya Janata Party government have brought significant relaxation in industrial regulation. While the measures taken have curbed the intrusiveness of the regulatory regime, they reflect a continuing belief in the need for state intervention to guide the economy. The new measures are intended as much to promote structural changes in India?s industrial base by encouraging development of backward areas, high-tech industries and economies of scale as to alleviate inefficiencies resulting from regulation.
Promoting the Development of Capital Markets
Policy reforms creating new incentives for equity and debenture issues have helped to make India?s capital market an increasingly substantial source of investment finance. From 1980 to 1988, market capitalization more than tripled, from $7.5 billion to $23.8 billion. The value of equity traded increased from $2.8 billion to 12.2 billion.
Measures to Improve Technological Capabilities
Concern for improving India?s technological capabilities preceded Rajiv Gandhi?s rise to power. In 1984, a government White Paper on Technology Policy and the Report of The Committee on Trade Policies recommended measures to increase imports of modern technologies and to provide greater support for indigenous research and development. Rajiv Gandhi?s government stressed the importance of India?s technological modernization. In pursuit of this goal, he liberalized imports of capital goods, increased funding for research and development, reformed public sector research institutions and relaxed restrictions of foreign collaboration.
Promoting Exports
Recent reforms of India?s trade policies have attempted to remove the disadvantages and disincentives that exporters suffered as a result of the Indian regulatory regime. Measures to curtail quantitative controls and reduce tariffs on the import of capital and intermediate goods have been an important element of this strategy. These policies have been designed to benefit an array of ?Thrust Industries? that the government has selected for export promotion. India?s trade reform is predicated on a calculated risk that liberalization of imports in the short run will reduce trade deficits in the long run.
India?s economic reforms have important marketing implications. First, the deregulation should encourage competition in the market providing alternative choices of products and services to the consumers. Second, emphasis on technology should raise the quality of goods available. Finally, improvements in the infrastructure should encourage the development of new marketing institutions and enhance the level of services offered.
Increased Independence of States
The economy is also becoming more federalist in nature, as states compete among themselves for much needed foreign investment especially in infrastructure. Economic reforms have meant that states have been left to fend for themselves and rely on market forces to attract foreign investment. However, initial fears that the less developed states would lose out in the race to attract foreign investment or multilateral lending, have proved unfounded. States that have a relatively less-developed infrastructure or other such disadvantages have successfully wooed private investment through incentive schemes, professional marketing strategies, setting up a presence in the capital and by state government visits to potential investor countries.
Software and Hardware Boom
The country is also seeing a computer software boom. India, which was a late entrant in the field, has become one of the largest emerging markets, with its domestic market growing at a compound rate of 45 percent. Its computer software industry has grown at a compound rate of 46 percent to reach the $1.2 billion mark in 1995. Export, the mainstay of the software industry grew by more than 38 percent. The market for computer hardware too has been growing at an impressive rate of 30 percent. The major demand for computer systems comes from private firms, with an increasing demand from small office and home office end users.
Future of India?s economic Reforms
The change in government has not altered the course of Indian economic reforms. While inflation is still an important electoral issue, the relaxation of industrial regulation did not stir much controversy. Under India?s current Prime Minister, trends toward the liberalization of domestic industrial policy and the promotion of domestic capital markets and export are continuing. As a matter of fact, the new government appears to be adopting a more liberal stand. It wants to establish a worldwide economy through large-scale liberalization be freeing foreign investment conditions, cutting down protection for the Indian industry and streamlining bureaucratic procedures.
Foreign Investment
The role of foreign investment in the Indian economy is increasing. Far from being shunned as it was in the past, foreign investment is now recognized to be vital to the development of core sectors of the economy. Foreign direct investment has increased dramatically from $ 150 million in 199- to $2.1 billion in 1996 and according to estimates, 83 percent of this investment went into core sectors of the economy. Total net foreign portfolio investment in 1996 was $2 billion, with $652 million raised through Euro-Issues. Thus in 1996, total foreign investment was estimated at around $4.5 billion.
Foreign Businesses in India
There are about 250 foreign companies that maintain branch offices in India. In addition, there are 100 Indian subsidiaries of foreign companies in which they hold majority ownership; about half of these are from the United Kingdom. In addition, India approves about 1,000 collaborations between foreign and Indian companies annually. Some of these collaborations are one-time technology transfer agreements of licensing agreements, while others are joint-venture operations to manufacture the product or service in which the foreign partner can hold no more than 40 percent equity.
The United States followed by Germany and Italy remains India?s major foreign collaborators. Industry-wide, electrical equipment, industrial machinery and chemicals are the three leading industries in which India seeks foreign collaboration. The tempo of foreign collaborations increased significantly in the 1990?s as a result of sweeping changes in the foreign investment policies.
Trends and events taking shape guarantee better things for India in the new millennium. Gradual liberalization is encouraging investment and consumption leading to overall economic prosperity. There is an even more salient factor that may drive the country?s economic growth upward in the future, providing opportunities for international companies that position themselves intelligently. The general turn away from statism and import substitution policies, and the embrace of economic orthodoxy and market-based policies should provide a powerful impetus for change. Politically, such bold new thinking is not easy to adopt overnight, but there are trends that indicate a gradual shift in attitude among Indian politicians, especially in the light of structural changes being pursued in Eastern Europe and the former Soviet Union.
Perceived Problems of doing business in India
India?s colonial past, huge population and zealous concern for self-sufficiency put constraints on the extent and kind of business activities that foreign enterprises may pursue in India. Population exerts a strong pressure toward maintaining and enhancing high levels of employment which encourages labor-intensive measures in the economy. The insistence on self-sufficiency does not allow a total freedom of investment for foreign capital and makes protection for native industry obligatory; and the perception of regional power necessarily requires large defense expenditure in the foreseeable future. These factors should temper the comparison of India with the newly industrializing pacific powers.
Cultural Adaptation
India in its economic endeavors decided to pursue a mixed economy whereby both state-owned enterprises and private businesses have a role to play. Considering what India had in terms of infrastructure and basic industries, the government had to take the initiative to spur economic activity. At the same time, India pursued the nonalignment course. Putting them together, many multinational companies concluded that India would eventually become a socialist country. Such a conclusion missed an important trait of Indian culture that attributes high importance to personal freedom. India adapted its policies to become a true democracy, a secular state comprised of people with different religious beliefs and significant regional differences, speaking 16 different languages. In a way, India seeks values similar to those held dear in the United States, but India must do so in it?s own way, given its environment and limitations such as large population and limited resources. Despite the agreement in vision that India and the United States share, it is a pity that U.S. companies should perceive India differently when it comes to making business decisions.
Inadequacy of Infrastructure
India?s infrastructure has been considered inadequate to sustain foreign investment. Of course, India?s infrastructure is no match for the conditions in the industrialized countries, but despite its large population, India has a fairly good infrastructure to support foreign enterprises.
India has one the best infrastructures in terms of transport, communications, commerce, banking, technical training institutes, trained manpower and supporting services among the developing countries. India?s railroad network is the fourth largest in the world. All major cities are linked be air. There are five major ports and more and more international airports are opening in smaller towns across the nation. In addition to regular postal service, voice and teleprinter communication through telephones, cables, fax services, cellular telephony and paging services are available.
Inadequate Property Protection
Intellectual property rights in India are considered insecure. Here again, there is a problem of perception. India has a highly developed state of the law on this subject providing substantial protection to foreign companies. Trademark law is a little different from the United States in that the first person to register the trademark gets exclusive use of it rather than the first person to use it. Therefore, expeditious and proper registration is the only effective way to protect trademark rights in India.
The duration of patent protection in India has also been a debatable issue. International companies allege that the duration is inadequate and short. The duration of 14 years that Indian law provides for is comparable to similar laws around Asia. Considering the pace at which technology is moving now, the period of 14 years may seem even more reasonable now than it did when the Indian Patents Act was passed.
In the field of investment regulations and practices, India has often been judged more by perceived situations than by established realities.
Conclusion
India provides unprecedented market opportunities. For International firms, the emerging Indian market holds both a threat and a promise. The threat is dramatically increased competition from both local companies and those from other nations. As far as the promise, there is a growing market of more than 200 million consumers. In the last ten years, as India began its time-bending leap into the twenty-first century, millions of her people began an equally rapid transition from rural to urban, from agrarian to industrial, from feudal to contemporary society. With more of India?s population traveling to the urban areas to shop every day, the demand for goods and services from the most basic household commodities to sophisticated technical devices is soaring. In coming years, as incomes continue to bolster the spending power if India?s middle class, the opportunities for shrewd marketers will be unparalleled.
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An overview of India as a growing market in the global business arena. Bibliography included in report