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India is acknowledged to be one of the fastest growing economies in the world, continuing to sustain annual growth in its GDP at over 7% per annum.
The reasons for this growth include a youthful population and a rising middle class of well-educated workers, which have fuelled expansion amongst businesses, new job creation, increasing wages and, with the help of low inflation, more spending power amongst the domestic population of more than 1.25 billion people.
As a result, whilst many other sectors are growing fast, the retail and wholesale sector currently makes the most significant contribution to the country’s GDP at around 22%, with growth in this area supported by domestic demand, and India being currently ranked in the top five retail markets globally in terms of economic value. Other fast-growing sectors include IT, financial services, health care, construction, biotechnology, aeronautics, consumer electronics, telecommunications, and the automotive industry.
Governmental economic policy
The Indian government has taken a very pro-active and successful stance in its attempt to increase the level of foreign investment in the country, enacting policies in support of the liberalisation of its Foreign Direct Investment (FDI) regime, which have resulted in many multinational companies such as IBM, PriceWaterhouseCoopers, Goldman Sachs, ABN Amro, Microsoft, Unilever, Adobe, and BP establishing operations in India over the past few years. Strong investment in infrastructure development has also begun to pay dividends for private sector growth, as transport links, access to quality utilities (water, gas, electricity), and simplified business regulation have improved conditions for both existing and new businesses. The table below shows the relative positions of Australia, India, the UK, and the U.S. according to the 2016 World Bank Ease of Doing Business Index (EDBI).
| Country | Ease of Doing Business Score (1-190) |
|---|---|
| India | 67.23 |
| Australia | 80.13 |
| UK | 82.65 |
| US | 82.75 |
The pro-active approach taken towards creation of a favourable business environment within India by both central and state governments has raised India’s overall ranking by 23 places in the EDBI in the past 12 months, bringing the country into the Top 100 for the first time. There has been significant progress within distinct areas, for example: starting a business (up 19 places since 2018), trading across borders (up 66 places) and, most impressively, dealing with construction permits (up 129 places). However, some of the EDBI markers have remained stubbornly entrenched — registering property, enforcing contracts, and resolving insolvency - whilst an important finance marker, paying taxes (minus two places), appears to be losing traction.
The current regulatory conditions in India make starting a business or establishing a branch operation there complicated, potentially time-consuming, and expensive. Nevertheless, the benefits of a relatively inexpensive and increasingly highly educated, youthful work force, coupled with increasing levels of Foreign Direct Investment (FDI) and a government keen to continue to develop and consolidate the economic position of the country, mean that India could represent a very attractive proposition to businesses keen to establish a foothold in what is proving to be an emerging economy to rival the economic powerhouse of China.
Additional Sources