As the largest country in the south Asian subcontinent, India is not only one of the oldest ancient civilizations, but it also is one of the fastest growing countries in the world. In India the development of the software industry is outstanding, also the finance, research, technical and services industry is developing rapidly. From 2011 to 2012 the gross domestic product (GDP) of India was growing from 1710.9 billion of U.S. dollars to 1872.9 billion which is near 9.5% increase (see figure 1). For this reason more and more oversea company pay more attention to the India, also more and more foreign direct investment (FDI) choose into the Indian market. This report discusses that what effect from the Indian political economy make to the FDI.
The political economy
The political economy is include the political system, the economic system and legal system, they not only will make effect to the FDI, but they also affect each other. The economic development must rely on the government to provide some economic environment with suitable political and legal. However the political and legal are part of the superstructure which determined by the economic base (K Marx, 1859). Now it will be showed that how these three systems impact on FDI in India.
First a tranquil political system can make more attention for FDI. Nowadays the Indian internal political state is very stable, and the relationship between India and other is peaceful and friend. There are no any chance for civil war or war between India and other in the coming decades. And from the independence in 1947, India has never interrupted to use the FDI, but it expand the using of foreign capital which was beginning from one political decision which is an economic reform in early 1990s. The direction of Indian reform is changing the economy from a state-led one to a market one, thereby increase economic efficiency and boost development of economy. For accomplish this goal, first the Indian government relaxed the regulation of industrial production, it make the oversea company can have more stock rights of its investment to manage it. And government changed the field of investment for FDI to be more wider which made it possible for that more and more different industries can invest in India. Also government implemented the free trade what mean bring more competes and profits into the market. In addition government reformed the public sector and the financial sector, it boost the speed of examine and approve, someone just need 7 days ( P Goel & U C Satapathy, 2012). These changes not only decrease many requirements of investment , but they also increase rate of future return for FDI. From 1992 to 1997, there are lager increase about the percent of India’s share in world FDI which was rising by near 4 times (see figure 2). Therefore after the economic reform, in India the FDI enter into a stage of unprecedented prosperity, many of the large foreign multinationals swarmed into India, it made India become an another priority country of FDI in the world after United States and China.
Similar to the political system of country, the legal system also play the important part of that making more attention for FDI. Companies who entered a new country, are always need a strong local laws to protect their assets and the right. As one members of the commonwealth countries, Indian legal system is relatively sound, there are various laws can cope with any different situation. In June 1994 the Indian government made great changes and additions for the copyright law. It clearly defines the rights of copyright holder, and the code of conduct for the user, also it show the penalties and fines for infringement of copyright (Z Thomas, 2012). This law promoted the FDI flowing to the Indian software industry. After 1997 there are a increase about the turnover of Indian IT industry is from near $10 billion to more than $50...