Indian Economy- Its Transformation- Opportunity in India- Why India

Everything goes around fundamentals and reasonable logics irrespective of any field-economy, business, finance, IT, technologies or software etc. and there is always basic nature of business to grow, which works, is demand and supply and how to determine that where is demand of product or services along with scope of improvement.

This is all about how the Indian economy is based on it.

As there are huge consumer base in India and a lot of scope of improvement as it is developing economy. India is one of fastest growing economy with the rate of 7.2 % which surpass china growth as well.

Indian economy is 6th largest economy across the globe with USD 2.8 trillion and after Modi government came into power, Indian economy is into transformational phase with temporary shocks to the economy but with long term good growth path.

The Vision/ Intent is very clean and clear to get Indian economy reached at USD 5 Trillion by 2025 and 10 trillion 2030 and the way things are changing it looks possible as well.

So be the part of growth story of Indian market and let’s dare owing maximum value of targeted GDP no. of USD 10 trillion by 2030.

The long-term growth prospective of the Indian economy is positive due to its young population, corresponding low dependency ratio, and healthy savingsand investment rates, and increasing integration into the global economy. 

India has one of the fastest growing service sectors in the world with an annual growth rate above 9% since 2001, which contributed to 57% of GDP in 2016-17. India has become a major exporter of IT services, Business Process Outsourcing (BPO) services, and software services with $154 billion revenue in FY 2017. This is the fastest-growing part of the economy. The IT industry continues to be the largest private-sector employer in India. India is the third-largest start-up hub in the world with over 5200 technology start-ups in 2017–18.  The industry (manufacturing) sector has held a steady share of its economic contribution (30% of GDP in 2016–17). The Indian automobile industry is one of the largest in the world with an annual production of 29.07 million vehicles in 2017–18 and one of world’s fastest growing e-commerce markets.

So be the part of growth story of Indian market and let’s dare owing maximum value of targeted GDP no. of USD 10 trillion by 2030.

Historically, India has been a challenging destination for foreign investors, but changes to the nation’s tax and regulatory codes could unify its fragmented regional markets and streamline new investment. Additionally, Indian Prime Minister Narendra Modi’s administration has launched a raft of political reforms and development initiatives to encourage investment, promote exports and provide banking and telecom services to the nation’s underserved rural population.

These changes are laying the groundwork for the modernization of India’s workforce and the rise of the digital economy on the subcontinent. And while recent demonetization efforts may have been painful, they are encouraging the Indian economy to make the leap from undocumented cash transactions to seamless mobile and e-commerce banking services.

The Macroeconomic Outlook

Faster growth, falling deficits and tame inflation make India a relatively stable climate for foreign investment. India’s GDP growth is accelerating, with the economy projected to expand by 7.2 percent this year. The Indian workforce is experiencing a productivity surge as the population grows more educated and urbanized, and improvements in infrastructure and human development should help Indian businesses harness the nation’s immense human capital.

The young average age of the Indian workforce is also encouraging for the nation’s long-term growth prospects. Nearly 28 percent of the Indian population is under the age of 14, compared to only 6.1 percent over age 65. This means that the workforce—already 500 million strong—is projected to add 12 million additional workers annually, and the Modi administration has set a goal of creating 400 million new jobs by 2020 to absorb the population surge.

 Inflation regularly topped 10 percent in past decades, but in summer 2016, the government and the Reserve Bank of India (RBI) partnered to target a 4 percent inflation rate, with a plus or minus 2 percent range of tolerance. India’s monetary situation could promote sustainable growth and incubate an increasingly stable and business-friendly environment.

Regulatory Reforms and Pro-Growth Initiatives

In past decades, India earned a reputation for red tape, bureaucratic obstruction and regulatory hurdles, especially for foreign companies seeking entry to the domestic market. But since the launch of economic liberalization in 1991, India has made significant progress toward dismantling the old protectionist regime. Caps on foreign direct investment (FDI) in industry are steadily lifting, and the Modi government has adopted the explicit goal of increasing FDI and spurring growth domestically. Prominent programs include:

  • Make in India: A program that promotes manufacturing with the goal of achieving sustained annual growth for the Indian manufacturing sector. The initiative includes labour market reforms, licensing deregulation and easing of restrictions on FDI. In 2016, a record $46.4 billion in FDI inflows were recorded for India, while the proportion of investments directed toward manufacturing also increased.
  • Smart Cities: A government initiative to promote infrastructure developments, improve cities and leverage technology to increase the quality of life in Indian cities and help prepare for the expanding Indian population. 
  • Digital India: A program aimed at spreading digital access to residents in 250,000 of India’s rural communities, with a $17 billion investment in connecting all citizens to the internet and promoting computer literacy. 
  • Pradhan Mantri Jan Dhan Yojana: A financial inclusion program with the goal of extending banking services to every citizen. In the program’s first year, the target was to have 75 million households open new accounts, gaining access to the broader Indian economy. 

Entering India

Under the current regulatory environment, there are five routes for foreign businesses to enter the Indian market:

  • Wholly owned subsidiaries are allowed in an increasing number of sectors, including the burgeoning IT services, insurance and pharmaceutical industries. Foreign investors are also permitted to fully fund infrastructure construction, including highways, electrical distribution, oil and gas refineries, and port facilities. Subsidiaries have full access to the Indian market and are governed by the same regulations as domestic businesses.
  • Branch offices can be operated by foreign companies engaged in a limited set of activities, including:
    • Conducting joint research and development projects
    • Acting as a broker for purchases and sales with existing Indian firms
    • Importing, exporting and arranging the shipment of goods made in India
    • Providing professional and consulting services
    • Providing technical support for equipment purchased by Indian firms
    • Operating airlines and shipping for foreign carriers
  • Liaison offices can facilitate technical collaboration with Indian businesses, collect information about the local market and promote foreign brands to Indian consumers. However, a liaison office is not allowed to conduct any revenue-generating business.
  • Project offices are permitted to execute specific projects in India on behalf of an overseas corporation. Their presence must be temporary, and their operations are limited in scope to the permitted project.
  • Joint ventures are the only route for foreign companies to operate in many sectors of the Indian economy. Joint ventures are free to operate and enjoy unfettered access to the financial system, but the RBI sets limits on the share of ownership that can be held by a foreign party.

Tax Reform

An overhaul of India’s tax structure took effect in July 2017, which represents the most comprehensive economic reform since the 1990s. The reforms replace the patchwork of state-level value-added taxes, excise duties and service taxes with a single nationwide goods and services tax (GST). The GST is tiered, with most goods taxed between 12 percent and 18 percent, with lower taxes on some food products and higher taxes on luxury goods. This unified tax structure will simplify operations for Indian businesses and create a more cohesive national market for goods.

Demonetization

Following the US presidential election on November 8, 2016, Modi announced one of the most significant monetary policies to impact India in recent history. In a televised address to the country, he voided, with immediate effect, the Indian Rupee 1,000 note (USD 15) and 500 notes (USD 7.50), which combined to make up 86.4 percent of cash in circulation by value in a country with more than 1.2 billion people and where nearly 90 percent of all transactions occur in cash. This drastic policy change was reportedly undertaken to curb corruption and expose related tax evasion.

Since its initiation, the demonetization program’s focus has moved from corruption to digitization. By bringing people into the formal banking system, the reforms will expand access to the digital economy and level the playing field for large and small businesses alike, while positioning the Indian economy for more organized and transparent growth into the future.

Mobile Banking’s Expected Rise

Demonetization has also spurred the rapid growth of India’s mobile banking sector. The country recently passed 1 billion mobile phone users and expectations are that the number of smart phone users will grow rapidly over the next several years.  Furthermore, more than 950 million Indians now have access to the infrastructure necessary for cashless transactions.

Doing business in India is complicated. The nation is undergoing a rapid transformation. Immense markets are opening to international commerce, and new infrastructure is bringing hundreds of millions of people into the global economy. Managing entry into the Indian market requires knowledge of the nation’s rapidly shifting regulatory and commercial landscape, but for companies that are willing to take the risk, the emerging Indian economy holds tremendous potential.