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BUSINESS ENVIRONMENT

IN INDIA
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1/20/2010

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Submitted by: Group 10, Div B, FT MBA 2009-2011
Ashwin Anand (110) Gajendra Singh (150) Ravil Srivastav
(155) Rohit Jain (125) Tom Jose Parampath (159)
Tushar Kothavale (130)
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Business Environment in India

India, the world’s largest & diverse economy with a population of 1.14 billion people has seen a decade of 7%+
growth. The economy of India can be categorized by the presence of a number of major sectors including
manufacturing industries, agriculture, textiles and handicrafts, and services. Today, India is rated as one of the
top economies in the world in terms of the purchasing power parity (1.15 trillion) of the gross domestic product
by leading financial entities of the world such as the International Monetary Fund, the World Bank etc on
account of changes (listed below) that has been adopted by the national government in recent times leading to
improvement in business freedom, more economic freedom for individuals, reduced growth constraints and the
overall improvement in business environment.1

Many countries today are seeking ways to boost their business environment in an increasingly hostile and
increased global competition. Outlined below are the structural transformations undertaken by the government
that have had a positive impact on the growth of the Indian economy & improving the rankings of India in
terms of Business Environment among 183countries of the world.

Industrial climate
• Moving from a policy of considerable control over the private sector through licensing; control over
imports of capital, raw material, technology and capital goods to an Industrial policy boosting role of
the private sector and foreign investment in the Indian economy through the deregulation process.
Investor’s incentive-
• Making the rupee convertible on the current account, and exchange rates are market-determined.
• The vast and growing middle-class population provides a large domestic market.2
• Opening the Indian equity markets to foreign investors, development of capital markets by starting in
1994, the National Stock exchange as a computer-based trading system, reforms of India's banking
infrastructure and the financial services sector.3
• Increased investor protection with change in Company Director Liability norms, improved disclosure
norms with the amendment of security laws giving SEBI the legal authority to register and regulate
all security market intermediaries4.
Starting & Closing a Business
• Fewer number of calendar days of pre registration, registration and post registration.
• Paid in minimum capital requirement only for certain regulated sectors such as Airlines, Telecom.
• Close to 100% recovery rate5

Employing Workers
• Skilled manpower and professional managers are available at moderate cost.
• Introduction of minimum wage requirements in certain labour intensive industries, mandatory legal
requirements on dismissal for economic reasons & fixed term labour contracts.

1 http://rru.worldbank.org

2www.asiatradehub.com

3 Economic reforms in India, Wikipedia

4 Economic reforms in India, Wikipedia

5 Page 5,45, Doing Business in India ; World Bank and the International Finance Corporation; 2010
• Measures undertaken to increase flexibility in the regulation of hiring, working hours and dismissal
in a manner consistent with the conventions of the International Labor Organization (ILO).6
Free-trade zones-
• Introduction of a policy allowing setting up of Soft ware Technology Parks (STPs) for export of
computer software and other export-oriented units (EOUs). 7
Trading Across Borders
• Fewer documents required by Customs Authority of India for clearance of goods shipped.
• Easy custom clearance along with better port and terminal handling with increased private sector
cooperation (Mundra Port in Gujarat).8
• Removal of quantitative restriction in manufactured consumer goods in 2001, reduction in tariff
levels/import duty on number of non- agricultural goods from a peak of 400% in 1991 to 12.5% in
2005-06.9

Legal Framework enforcing contracts

• Reduced number of days to resolve commercial sales disputes over the internet with the introduction of
IT Act , 2000
• Lower attorney and enforcement cost as a percentage of claim value.10

Public / private sector cooperation-


• Sharing and setting up jointly many platforms and forums, e.g., chambers of commerce and industry
associations by Government and private-sector leaders.
• Launch and promotion of numerous joint projects in which the government and private-sector
promoters have nearly equal equity stakes. 11
Key benchmarks indicating Business Environment in India rankings among 183 countries of the world.

6 Page 16, Doing Business in India ; World Bank and the International Finance Corporation; 2010
7 www.asiatradehub.com

8 Page 37, Doing Business in India ; World Bank and the International Finance Corporation; 2010

9 Economic reforms in India, Wikipedia

10 Page 44, Doing Business in India ; World Bank and the International Finance Corporation; 2010

11
Based on the above finding we can conclude that there is a definite improvement in the Business
Environment in India. However, India still has to work on other areas important to business freedom such as
an economy’s proximity to large markets, the quality of its infrastructure services (other than those related to
trading across border), and macroeconomic condition or the underlying strength of institutions.