DESTINATION INDIA
An Internationally
Acclaimed Business Report
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TABLE OF CONTENTS
1.0
INDIA – AN INTRODUCTION
2.0
A SNAPSHOT OF THE COUNTRY
3.0
INDIAN HERITAGE AND BACKGROUND
4.0
INDIA'S FINE ART AND CULTURE
5.0
INDIA'S GEOGRAPHY
6.0
INDIA'S ECONOMY
7.0
INDIA INCORPORATED
8.0
BANKING SYSTEM
9.0
FOREIGN INVESTMENTS
10.0
SELECTING THE TYPE OF BUSINESS
11.0
SETTING UP A COMPANY IN INDIA
12.0
TYPES OF ORGANISATIONS THAT CAN BE SET UP IN INDIA
13.0
LOCATION AND FACILITY FOR STARTING AN OFFICE
14.0
GOVERNMENT APPROVALS AND REGULATORY BODIES
15.0
RESOURCE ARRANGEMENT
16.0
INFRASTRUCTURE SECTOR
17.0
URBAN INFRASTRUCTURE
18.0
BUSINESS OUTLOOK
19.0
INDIAN TRANSPORT SECTOR
20.0
HOUSING
21.0
TELECOMMUNICATIONS
22.0
THE INTERNET ECONOMY & NEW BUSINESS OPPORTUNITIES
23.0
TRENDS OF THE IT ECONOMY IN INDIA
24.0
IT - A MAJOR THRUST AREA FOR THE GOVERNMENT OF INDIA
25.0
BUSINESS PROCESS OUTSOURCING (BPO)
26.0
INDIA LEADS THE WAY
27.0
INDIA – PAKISTAN TENSIONS : BUSINESS AS USUAL
28.0
THE LAND OF MANY CONTRASTS: THE MYTH AND THE REALITY
29.0
THE COUNTRY IN A NUTSHELL
CONCLUSION
EXCERPTS
India,
best described as the unity in diversity is a melting pot where people of
diverse religions and languages live as one. This is the one reason which leads
to diverse cultures and several regional variations within the country. This
also reflects in the attitudes of people from different communities and
locations. The urban life in each city is unique.
India,
being such a vast country is subject to different climatic variations as well.
This has a large influence on the lifestyle and work culture in each city. Most
of the metropolitan cities are largely cosmopolitan due to the different job and
business opportunities offered by each of them. For example, Mumbai (or Bombay)
is the financial capital of the country, while Delhi is the political hub.
Kolkata (erstwhile Calcutta) is considered the art and cultural lifeline of the
country. Likewise each city is marked by its own uniqueness.
The
seventh largest and second most populous country in the world, India has long
been considered a country of unrealised potential. A new spirit of economic
freedom is now stirring in the country, bringing with it sweeping changes. A
series of ambitious economic reforms aimed at deregulating the country and
stimulating foreign investment has moved India to the top ranks of the rapidly
growing Asia Pacific region and unleashed the latent strengths of a complex and
rapidly changing nation.
6.0 INDIA'S
ECONOMY
India
is the fifth largest economy in the world and has the second largest Gross
Domestic Product (GDP) among emerging economies, based on purchasing power
parity. In 1991, India embarked on a bold economic reforms programme, with a
view to integrate its economy with the global economy, and attain the type of
growth that countries in the Asia Pacific have exhibited over the last two
decades. Eleven years after the reforms began, the Indian economy stands
transformed to a great extent.
Private
sector investment has responded vigorously to the Government's economic reforms,
which have promoted competition, removed major policy distortions and hurdles,
and improved access to factors of production such as technology and capital.
Developing an increasingly global focus, the Indian corporate sector has
expanded in capacity and upgraded its technology. Simultaneously, it has been
clocking higher sales and profits.
With
diverse industries spread across the country, a mature and dynamic private
sector (which accounts for 75 per cent of India's GDP), and a market of immense
potential, India offers unlimited opportunities for business.
Low
labour costs, a huge pool of skilled manpower, and abundant natural resources
make India a highly competitive manufacturing base for global exports in
addition to catering to the vast domestic market. The use of English for
business and official communication, and the high-quality managerial and
technical talent created by some of the best higher education system in the
developing world, add to India's business friendliness. Besides this, its
geographic location makes it ideal for exports into the growing markets of the
world.
In
the eleven years of economic liberalisation, policies, procedures and regulatory
aspects have been radically simplified, both at the central and state levels.
State governments are encouraged to compete with one another for foreign
investment. This has resulted in the many attractive incentives being offered to
investors. Several state governments have set up 'single-window clearance
facilities' and 'investor escort services' to smoothen the passage of investment
proposals.
The
political consensus on economic liberalisation, not only at the Central level
but in all the states too, ensures the continuation and progressive
strengthening of investor-friendly policies. The reforms programme is
irreversible and no longer dependent on the continuation of a particular
political party in power.
India
possesses richness and diversity of culture, geography, climate, and natural and
mineral resources that are matched by few other countries in the world. The
world's largest democracy, India has fundamental strengths that provide a good
business environment
-
the
use of English as the principal language of business and administration
-
an
established independent judiciary
-
a
strong legal and accounting system
-
a
free and vibrant press
-
an
abundance of qualified and skilled manpower
-
self-sufficiency
in agriculture
-
buoyant
industrial growth
-
large
and diversified infrastructure and industries spread across the country
-
a
strong and mature private sector (accounting for 75% of India's GDP)
growing exports
-
a
comfortable balance of payments situation
-
current
account convertibility
-
a
developed banking system and financial markets
-
high
domestic savings and investment rates
-
stable
inflation rate
In
recent times, an ongoing transformation of the regulatory framework in India has
been initiated aimed at simplifying and rationalising policies and procedures in
every sector of the economy - trade, industry, foreign investment, finance,
taxation and the public sector. The reforms have succeeded in achieving a large
degree of macro-economic stabilisation, and economic growth based on a
sustainable current account deficit, stable inflation rate, rising domestic
savings and a lower fiscal deficit. The reform process is deregulating the
economy and stimulating domestic and foreign investments, with a significant
emphasis on promoting the development of infrastructural facilities and foreign
investment in the same.
A
revolution is sweeping through India's business sector. New ideas about how
companies should be run, and how they should relate to their investors are
taking root - to an extent unimaginable even three years ago.
Earlier
only a handful of pioneers in India's high-tech sector paid attention to the
demands of minority shareholders. But the standards set by companies such as
Bangalore-based Infosys Technologies became an example others are following.
Infosys
was one of a small group of software, pharmaceuticals, and new
financial-services companies that pioneered Anglo-American standards of
corporate governance in the early 1990s and were well rewarded.
About
five years ago, India's big industrial groups started to mimic their nimbler
peers. The most respected of India's feudal business houses, the Tatas and
Birlas, brought in executives to review their business portfolios, and made
efforts to woo minority investors with greater transparency and measured capital
allocation.
Most
recently, a third group of new-economy entrepreneurs have joined the trend.
Businessmen even from the entertainment sector have reorganised their empires,
which had been structured for flexibility rather than disclosure, into
transparent listed companies.
The
implications of this revolution are profound. Better governance should help
India allocate capital efficiently to generate growth. It is also enhancing its
attractiveness to foreign investors, and its ability to manage capital flows.
The
Reserve Bank of India, the central bank, recently said banks must consolidate
the balance sheet of their subsidiaries, initially on a notional basis. And the
Securities and Exchange Board has asked India's accounting regulators to bring
Indian accounts into line with international practice. That would require
radical changes. The significance of new regulatory initiatives is that they
build on trends in the capital markets that are already forcing Indian companies
to reorganize business culture.
There
was this ethos in India that a company belongs to a family. Most companies were
controlled by founder-families with less than 20 per cent of the shares, who
nevertheless treated the company as their private property. That has changed
considerably today.
When
India first began to open its markets in 1992, the old corporate structure has
unreformed. In the gold rush that followed, companies with appalling records of
governance gorged themselves on capital. Much of it ended up financing the
lavish lifestyles of the industrial elite, paying for forays into unrelated
businesses or propping up other family interests. Sometimes to disguise such
abuses, disclosure was opaque. Companies camouflaged accounts, shuffled funds
between a web of commonly owned companies, and failed to consolidate their
results.
But
a stock market collapse and a mini-recession later, companies are finding they
can no longer take investors for granted. A decade of financial-sector reform
has created something approaching a genuine market for capital in India.
Foreign
institutional investors in Indian equities, are active. By demanding better
returns from wayward companies, Financial Institutional Investors (FIIs) are
forcing change - such as the sale of non-core assets as part of a wider
restructuring.
Local
mutual funds are increasingly aggressive too. And the big public- sector banks
are responding to competition from dynamic private and foreign banks by becoming
more assertive. Their influence counts in a corporate world funded mainly by
debt.
India's
best companies have started listing in stock markets abroad, including in the
US. The combination of these market trends and several regulatory initiatives
suggests that the corporate governance revolution will lead to better work
culture in the country. There will of course be a long tail of declining
companies, which stand little chance of ever raising more capital, and so see
little incentive in joining in. But the focus of most foreign and new local
investors is the cluster of large companies that have mostly adopted these new
practices.
There
are cultural reasons why this trend may gather pace. India's English-language
speaking elite instinctively looks west, to the UK and US. India is an open,
democratic society, and its institutions, though sometimes weakened by
corruption and poverty, are grounded in English common law. It is thus easier
for India to adopt the checks and balances of corporate governance than it is
for, say, China. Better corporate governance will encourage private-sector India
to make better use of its capital.
The
Indian Banking system has The Reserve Bank of India (RBI) as the apex body for
all matters relating to the banking system. It is the‘Central bank’ of
India. It is the banker to all other banks.
Functions
of RBI:
1. Currency issuing authority
2. Banker to the Government
3. Banker to other banks
4. Framing of Monetary Policy
5. Exchange control
6. Custodian to Foreign Exchange and Gold Reserves.
7. Developmental activities
8. Research and Development in the banking sector.
8.1
Classsification
Following
is the classification of banks:
8.1.1
Non Scheduled Banks: These are banks which are not included in the Second
Schedule of the Banking Regulation Act, 1965. It means they do not satisfy the
conditions laid down by that schedule. They are further classified as follows:
a.
Central Co-operative Banks and Primary Credit Societies.
b.
Commercial Banks.
8.1.2 Scheduled Banks: Scheduled Banks are banks which are included in the
Second Schedule of the Banking Regulation Act, 1965. According to this schedule
a scheduled bank:
#
Must
have paid-up capital and reserve of not less than Rs.500,000;
#
Must
also satisfy the RBI that its affairs are not conducted in a manner detrimental
to the interests of its depositors.
Scheduled
banks are sub-divided as:
a.
State Co-operative Banks:
b.
These are Co-operatives owned and managed by the state.
c.
Commercial Banks:
d.
These are business entities whose main business is accepting deposits
and extending loans. Their main objective is profit
maximisation and adding shareholder value.
8.1.3
Foreign Banks
These
are banks that were registered outside India and had originated in a foreign
country. India's time tested institutions offer foreign investors a transparent
environment that guarantees the security of their long term investments. These
include a free and vibrant press, a judiciary which can and does overrule the
government, a sophisticated legal and accounting system and a user friendly
intellectual infrastructure. India's dynamic and highly competitive private
sector has long been the backbone of its economic activity. It accounts for over
75% of its Gross Domestic Product and offers considerable scope for joint
ventures and collaborations.
8.2
Capital Market
The
Indian capital market is regulated by the Securities and Exchange Board of India
(SEBI), a statutory body established in 1992, with the following objectives:
(a)
protecting the interests of investors in securities
(b)
promoting the development of the securities market and
(c)
regulating the securities market.
There
are 23 stock exchanges functioning in the country. The number of companies
listed are over 10,000.
Although
several multinational corporations and banks were already present in India prior
to the liberalization process for decades, a very large number of foreign
investors have entered various sectors of the Indian market over these eleven
years and are still doing so. They range from several Fortune 500 companies to
small and medium enterprises from all over the world. This scenario continues
even inspite of various war threats and natural disasters that have faced the
country several times over the same period of time.
The
USA, which has traditionally been the largest foreign investor, accounted for
nearly 40 per cent of the foreign direct investment (FDI). The global network of
expatriate Indians has constituted the second largest category of investors.
Other leading investor countries are the UK, South Korea, Germany, Japan,
Switzerland, and France. India's largest trading partners are the United States
and EC countries, but trade with the Asia Pacific is surging.
9.1
Foreign Investment Promotion Board (FIPB)
In
order to promote accelerated growth in the industrial sector and to increase
inflows of Foreign Direct Investment into the country, as also to provide
appropriate institutional arrangements, transparent procedures and guidelines
for investment promotion and to consider and recommend proposals for foreign
investment (other than those eligible for automatic approval by the Reserve Bank
of India), the Government of India have constituted the Foreign Investment
Promotion Board ( FIPB ) chaired by the Secretary (Department of Industrial
Policy & Promotion), Government of India.
The
objective of the Board is to promote foreign direct investment into India:
1.
by undertaking investment promotion activities
2.
by facilitating investment in the country by international companies, Non
Resident Indians (NRIs) and other foreign investors.
The
Board considers all investment proposals with or without technical collaboration
and/or industrial license. This Board meets every week and considers all
applications within 15 days of its receipt with the endeavour to communicate
decisions to the applicants within four weeks. The Board has flexibility of
purposeful negotiation with investors and considers project proposals in
totality, free from parameters, with a view to maximizing foreign direct
investment into the country.
9.2
Foreign Investment Implementation Authority (FIIA)
The
Foreign Investment Implementation Authority ( FIIA ) has been set up to
facilitate quick translation of FDI approvals into implementation as also to
provide a one stop service to foreign investors by helping them to obtain
necessary approvals, sort out operational problems and meet with Government
agencies to find solutions to problems. The FIIA is headed by the Secretary
(Dept. Of Industrial Policy & Promotion) and is serviced by the SIA.
9.2.1
Simplified Mechanisms
Under
the existing Industrial Policy, a short list of only six industries is kept
under licensing. All applications for which approval is required from the
Government, are to be filed with SIA and considered by subject specific
Committees/Boards and decisions are taken in a time bound manner. These
Committees include the Project Approval Board (PAB) for foreign technology
agreement cases; the Board of Approval (BOA) for 100% Export Oriented Units; the
Licensing Committee (LC) for industrial license, the Inter Ministerial Committee
for Electronic Software & Electric Hardware Technology Park Sectors (EHTPs
& STPs), Empowered Committee for granting concessions under the Income Tax
Act for Industrial Model Towns, Industrial Parks, etc.
9.2.2
SIA's Promotional Activities
As
an investor friendly agency, it provides information and assistance to Indian
and foreign companies in setting up industry and making investments. It
disseminates information and data on a monthly basis through the "SIA
Newsletter" and the "SIA Statistics". It also assists potential
investors in finding joint venture partners and provides information on relevant
policies and procedures.
Since
1991, the Indian government has announced many policy measures to attract
foreign investments as part of structural adjustment programme. Although
the economic reforms initiated by Congress government since 1991 were criticised
by all major political parties, ranging from the right-wing Bhartiya Janata
Party (BJP) to left-wing communist parties. But, with the change of
governments at the Centre in 1996, commitments to continue
liberal foreign investment policy first by BJP and later by United Front, it is
becoming very clear that there is a growing consensus among political
parties on inviting foreign investments to India. However, despite the growing
confidence of foreign investors, the actual inflows are just 19% of the approved
investments during 1991-96.
During
the post-liberalisation period ( 1991-96 ), the industrial
sector
alone has contributed
over 90 percent of the total
German collaborations. The agriculture sector collaborations amount to
less than 2% of the total collaborations and the rest belong to service sector.
The rapid increase in
foreign investments in India, since 1991, is an outcome of intense
lobbying and pressures from Multi National Companies (MNCs)
as well as government representatives.
