Domestic and Global Business

Topics: Economic system, Economics, Economy Pages: 8 (2296 words) Published: March 5, 2010
Domestic Business Environment



India's business environment has improved considerably after the initiation of economic reforms in early 1990s. Domestic and foreign investors are finding it easier to do business after the reforms, which are aimed at reorientation of the centrally-controlled economy to a market-oriented one in order to foster greater efficiency and growth. This is being done by introducing greater competition in the economy through progressive internal deregulation accompanied by foreign direct investment and trade liberalization. However, the turmoil which surfaced in the US financial system has also adversely hit the Indian economy. Compared to other emerging economies, India has several strengths that can help mitigate the adverse effects of the global economic crisis. In spite of the global meltdown, Indian economy offers ample opportunities for business, both to the domestic and foreign entrepreneurs. This work contains 21 research papers dealing with various aspects of current business scenario in India, and it examines the economic policies of India's government.

Investments Incentive

The role of the private sector and foreign investment in the Indian economy is increasing. • The rupee is now convertible on the current account, and exchange rates are market-determined. • There has been rapid progress in implementing government commitment to the deregulation process. • Industrial policy emphasizes boosting economic growth through encouraging the generation of income and wealth. • The vast and growing middle-class population provides a large domestic market. Skilled manpower and professional managers are available at moderate cost. Capital markets, the banking infrastructure and the financial services sector are well developed.

Industrial Climate:

India has a mixed economy, with the government-owned public sector and the private sector playing active roles. The public sector has traditionally been dominant in infrastructure and in basic industries, while the private sector has played an important role in all other sectors. Until a few years ago, the government exercised considerable control over the private sector through licensing for additional manufacturing capacity; control over imports of capital, raw material, technology and capital goods; and allocation of basic raw material. While the liberalization process began a decade ago, it was in 1991 that it gathered momentum and was set out in the Industrial Policy. The earlier preoccupation with equality in income distribution has been welcomed by industry, some Indian businesses have asked for time to be able to compete with foreign investment.

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India has also initiated an ambitious reform program, involving a shift from a controlled to an open market economy showing signs of overheating because of basic infrastructure constraints, both physical and human.

So far, the bulk of infrastructure was in the public sector. Public sector in India operating in a protected set up has been largely subsidized by the Government. Since the launching of reform, Government is trying to reduce its borrowing which means that further subsidization will not be possible. There is one area where there is a need for private sector and foreign investment to come in. Because of the long gestation period, and many social implications, the infrastructure sector compares unfavorably with manufacturing and many other sectors. For this, specific policies in this area are needed to make infrastructure attractive.

Clearly, there is a wide gap between the potential demand for infrastructure for high growth and the available supply. This is the challenge placed before the economy, i.e. before the public and private sector and foreign investors....
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