A Report on Analysis of Macro Business Environments, Business Opportunities-Threats, and Strengths-Weaknesses Of IT, Pharmaceutical, and Textile Industry in India Submitted to Mr. Saroj Misra, Faculty, Business Development in South Asia, South Asian Institute of Management Submitted by Ajay Shrestha [#1301] Dipika Silwal [#1306] Minesh Rajbhandari [#1311] Richa Rungta [#1311] Sudhir Dhungel [#1327]
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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
Analysis of Macro Business Environments, Business Opportunities-Threats, and Strengths-Weaknesses of IT, Pharmaceutical, and Textile Industry in India.
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A Report on
Analysis of Macro Business Environments,
Business Opportunities-Threats,
and
Strengths-Weaknesses
Of
IT, Pharmaceutical, and Textile Industry
in India
Submitted toMr. Saroj Misra,
Faculty, Business Development in South Asia,
South Asian Institute of Management
Submitted byAjay Shrestha [#1301]
Dipika Silwal [#1306]
Minesh Rajbhandari [#1311]
Richa Rungta [#1311]
Sudhir Dhungel [#1327]
Swakiya Shrestha [#1330]
Fifth Term, SAIM
Date: May 24, 2010
Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
Executive Summary
This report was commissioned to analyze the critical environments of business in India,
identify the present opportunities and threats, and identify the industries which have a
huge potential considering the South Asia as an entire market.
This report provides an analysis of key environments of business in India which is one of
the fastest growing economies in the world. Those key environments include political,
economic, socio-cultural, technological and ecological environment. Analysis of these
influential environments has been used to identify business opportunities and threats in
the country along with the three industries which have been performing well. Selection of
industries has been done on the basis of its current performance, its viability with respect
to environmental analysis and its potential to contribute more to the Indian economy
through its comparative advantage in South Asia.
Environmental analysis starts with the analysis of political environment where the
Legislature, the Executive, the Judiciary, the States, Election Commission, Political
Influence in Business and Indian Corporate Governance practices has been analyzed.
Analysis of economic environment include the analysis of business ideology being
influenced by political ideology, GDP trends, per capita Income and Consumption,
Market Size, Growth Rate, Foreign Direct Investment (FDI) and reasons for FDI
attraction in India. It also analyzes the economy with respect to the models of command
and market economy. Demography, Caste System, Women Empowerment and
Consumption Pattern are important analysis that forms the socio-cultural environment
analysis. While analyzing the technological environment, transportation and
communication sector have been considered. India as an emerging market for value-
added services and telecom equipment manufacturing has been studied in the process.
Finally, environmental analysis has been concluded with the analysis of ecological
environment (Geography, Rural Environment, Biological & Agricultural Diversity and
Domestic Resources).
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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
With the help of environmental analysis, business opportunities and threats have been
identified. Also, on the basis of current performance of the industry and future prospects,
following three industries have been selected and analyzed with respect to industry
strengths and weaknesses.
i. Pharmaceutical Industry
ii. Information Technology Industry
iii. Textile Industry
After independence, development of pharmaceutical industry was one of the top agenda
of government along with steel and manufacturing industry. Today the Indian
pharmaceutical industry is the front-runner science-based industries in the country.
Measured by the age of many industries, the computer or information technology (IT)
software industry in India is still in its infancy. Yet, its growth and development has
caught the attention of the world market so much so that India is now being identified as
the major powerhouse for incremental development of computer software.
The textile industry holds significant status in India. Though the industry was
predominantly unorganized industry even a few years back, but the scenario started
changing after the economic liberalization of Indian economy in 1991. The opening up of
economy gave the much-needed thrust to the Indian textile industry, which has now
successfully become one of the largest in the world.
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1. OVERVIEW OF INDIAN ECONOMY...................................................................................................1
SECTION 1: ENVIRONMENTAL ANALYSIS OF INDIA
2. POLITICAL ENVIRONMENT................................................................................................................2
2.1 GOVERNMENT OF INDIA.........................................................................................................................22.1.1 The Legislature..............................................................................................................................22.1.2 The Executive.................................................................................................................................32.1.3 The Judiciary.................................................................................................................................42.1.4 The States.......................................................................................................................................42.1.5 Election Commission.....................................................................................................................4
2.2 POLITICAL PARTIES IN INDIA.................................................................................................................52.3 NON-STATE PLAYERS: MAOISTS............................................................................................................52.4 POLITICAL INFLUENCE IN BUSINESS.......................................................................................................62.5 CORPORATE GOVERNANCE IN INDIA.....................................................................................................8
3.1 ECONOMIC IMPACT OF THE BRITISH RULE IN INDIA............................................................................133.2 POLITICS AND ECONOMY (POST-INDEPENDENCE INDIA).....................................................................15
3.2.1 Jawaharlal Nehru (August 15, 1947 - May 27, 1964).................................................................153.2.2 Lal Bahadur Shastri (June 9, 1964 - January 11, 1966).............................................................163.2.3 Indira Gandhi (January 24, 1966 - March 24, 1977)..................................................................163.2.4 Rajiv Gandhi (October 31, 1984 - December 1, 1989)................................................................163.2.5 P.V Narasimha Rao (June 1991 – May 1996).............................................................................173.3 GDP Growth Rates under various governments............................................................................18
3.4.2 PER CAPITA INCOME AND CONSUMPTION........................................................................................193.4.3 Market Size...................................................................................................................................203.4.4 Growth Rate.................................................................................................................................223.4.5 Foreign Direct Investment...........................................................................................................23
3.5 CONTROL ECONOMY VS. MARKET ECONOMY.....................................................................................243.5.1 Pre-liberalization (Phase of control economy)............................................................................243.5.2 Post-liberalization (Move towards market economy)..................................................................25
4.2 DEMOGRAPHY OF INEQUALITY............................................................................................................274.2.1 Old Age Dependency Ratio with Gini Coefficient.......................................................................274.2.2 Relationship between percentage of public sector employees and inequality.............................284.2.3 Relationship between urbanization and inequality......................................................................284.2.4 Relationship of Corruption and Inequality..................................................................................29
4.3 POPULATION.........................................................................................................................................294.3.1 Rural and Urban Population.......................................................................................................30
Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
4.5 LANGUAGE...........................................................................................................................................304.6 LITERACY RATE...................................................................................................................................304.7 CASTE SYSTEM.....................................................................................................................................314.8 WOMEN EMPOWERMENT......................................................................................................................324.9 CONSUMPTION PATTERN......................................................................................................................33
5.2 COMMUNICATION.................................................................................................................................385.3 POWER..................................................................................................................................................385.4 R&D IN INDIAN INDUSTRY..................................................................................................................39
6.1 POLLUTION...........................................................................................................................................406.2 UNCONTROLLED POPULATION GROWTH..............................................................................................416.3 ENVIRONMENTAL ISSUES.....................................................................................................................426.4 EFFECT OF GLOBAL WARMING............................................................................................................426.5 INDUSTRIAL POLLUTION AND THE ENVIRONMENT...............................................................................436.6 INITIATIVES BY THE GOVERNMENT......................................................................................................43
SECTION 2: OPPORTUNITIES AND THREATS IN INDIA
7. OPPORTUNITIES AND THREATS OF INDIA..................................................................................44
7.1 OPPORTUNITIES....................................................................................................................................447.1.1 Political Environment..................................................................................................................447.1.2 Economic Environment................................................................................................................457.1.3 Social Environment......................................................................................................................467.1.4 Technological Environment.........................................................................................................467.1.5 Ecological Environment...............................................................................................................46
7.2 THREATS..............................................................................................................................................477.2.1 Political Environment..................................................................................................................477.2.2 Economic Environment................................................................................................................477.2.3 Social Environment......................................................................................................................497.2.4 Technological Environment.........................................................................................................497.2.5 Ecological Environment...............................................................................................................50
SECTION 3: THREE KEY BUSINESS INDUSTRIES
8. INFORMATION TECHNOLOGY INDUSTRY..................................................................................51
8.1 WHY INFORMATION TECHNOLOGY INDUSTRY?...................................................................................518.2 STRENGTHS..........................................................................................................................................528.3 WEAKNESSES.......................................................................................................................................528.4 COMPARATIVE ADVANTAGES..............................................................................................................548.5 GROWTH TREND OF SOFTWARE INDUSTRY.........................................................................................55
10.1 WHY TEXTILE INDUSTRY?.................................................................................................................6310.2 STRENGTHS........................................................................................................................................6410.3 WEAKNESSES.....................................................................................................................................6410.4 GROWTH TREND OF TEXTILE INDUSTRY...........................................................................................6610.5 FDI INFLOWS TO TEXTILES INDUSTRY AND GOVERNMENT INITIATIVE............................................67
TABLE 1: IMPACT OF EMERGENCY BY INDIRA GANDHI ON ECONOMY...........................................................16TABLE 2: ECONOMY DURING RAJIV GANDHI’S TIME.....................................................................................17TABLE 3: GROWTH OF TOTAL GDP AT FACTOR COST AND CONTRIBUTION OF SECTORS.............................19TABLE 4: OLD AGE DEPENDENCY RATIO (1961-1991)..................................................................................27TABLE 5: EMPLOYMENTS IN ORGANIZED SECTOR: PRIVATE AND PUBLIC.....................................................28TABLE 6: PERCENTAGE OF URBAN POPULATION AND GINI...........................................................................28TABLE 7: POPULATION GROWTH TREND IN INDIA, 1901-1991......................................................................29TABLE 8: PROGRESS OF LITERACY RATE IN INDIA (1901 - 2001)..................................................................31TABLE 9: MAN-DAY LOST DUE TO LOCK-OUTS.............................................................................................48TABLE 10: VALUE OF PRODUCTION OF BULK DRUGS AND FORMULATION (IRS. IN CRORE)..........................61Table 11: Export trend in textile products......................................................................................................66
List of Figures
FIGURE 1: DICTATORSHIP VS. DEMOCRACY CONTINUUM..............................................................................12FIGURE 2: GDP GROWTH RATES UNDER VARIOUS GOVERNMENTS...............................................................18FIGURE 3: GROWTH IN PER CAPITA GDP AND CONSUMPTION.......................................................................20FIGURE 4: COMPOSITION OF GDP BY INDUSTRIES.........................................................................................21FIGURE 5: GDP GROWTH IN DIFFERENT YEARS............................................................................................22FIGURE 6: GROWTH RATE OF TOTAL GDP (INDIA VS. SOUTH ASIA).............................................................22FIGURE 7: SECTOR-WISE FDI FLOW...............................................................................................................23FIGURE 8: SECTORS ATTRACTING HIGHEST FDI FLOWS (IRS. IN CRORES)....................................................23FIGURE 9: CONTROL ECONOMY VS. MARKET ECONOMY CONTINUUM..........................................................26FIGURE 10: CONSUMPTION PATTERN..............................................................................................................34Figure 11: Rural vs. Urban Monthly per Capita Expenditure........................................................................34
Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya
Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya
Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
1. Overview of Indian Economy
India is developing into an open-market economy, yet traces of its past autarkic policies
remain. Economic liberalization, including reduced controls on foreign trade and
investment, began in the early 1990s and has served to accelerate the country’s growth,
which has averaged more than 7% per year since 1997. India’s diverse economy
encompasses traditional village farming, modern agriculture, handicrafts, a wide range of
modern industries, and a multitude of services. Slightly more than half of the work force
is in agriculture, but services are the major source of economic growth, accounting for
more than half of India’s output, with only one-third of its labor force.
India has capitalized on its large educated English-speaking population to become a
major exporter of information technology services and software workers. An industrial
slowdown early in 2008, followed by the global financial crisis, led annual GDP growth
to slow to 6.5% in 2009, still second highest growth in the world among major
economies. Domestic demand, driven by purchases of consumer durables and
automobiles, has re-emerged as a key driver of growth, as exports have fallen since the
global crisis started. India’s fiscal deficit increased substantially in 2008 due to fuel and
fertilizer subsidies, a debt waiver program for farmers, a job guarantee program for rural
workers, and stimulus expenditures.
The government abandoned its deficit target and allowed the deficit to reach 6.8% of
GDP in FY10. Nevertheless, as shares of GDP, both government spending and taxation
are among the lowest in the world. The government has expressed a commitment to fiscal
stimulus in FY10, and to deficit reduction the following two years. It has increased the
pace of privatization of government-owned companies, partly to offset the deficit. India’s
long term challenges include widespread poverty, inadequate physical and social
infrastructure, limited employment opportunities, and insufficient access to basic and
higher education. Over the long-term, a growing population and changing demographics
will exacerbate social, economic, and environmental problems but possibilities of strong
business growth remains.
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2. Political Environment
Inspired by Mahatma Gandhi and his Satyagraha, a unique non-violent campaign, India
threw off the yoke of British rule on August 15, 1947. Free India’s first Prime Minister,
Pandit Jawaharlal Nehru, described the moment as a “tryst with destiny”.
In less than three years of attaining freedom, India had framed a Constitution and
declared itself a Republic on January 26, 1950. The Constitution was given shape by
some of the finest minds of the country who ensured the trinity of justice, liberty and
equality, for the citizens of India. The Constitution was made flexible enough to adjust to
the demands of social and economic changes within a democratic framework. Adopting
the path of democracy, the country held its first general elections in 1952. Elections to the
Lower House of Parliament, Lok Sabha, have been held regularly every five years.
India is a Union of 28 States and seven centrally administered Union Territories. The
country attained freedom on 15 August 1947. The Constitution of the Republic came into
effect on 26 January 1950. The Constitution provides for single and uniform citizenship
for the whole nation and confers the right to vote on every person who is a citizen of
India and 18 years of age or older.
2.1 Government of India
2.1.1 The Legislature
India has a parliamentary form of government based on universal adult franchise. The
executive authority is responsible to the elected representatives of the people in the
Parliament for all its decisions and actions. Sovereignty rests ultimately with the people.
The Parliament is bi-cameral:
2.1.1.1 Rajya Sabha (Council of States)
The Council of States consists of not more than 250 members, of whom 12 are nominated
by the President of India and the rest elected. It is not subject to dissolution, one-third of
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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
its members retiring at the end of every second year. The elections to the Council are
indirect. The allotted quota of representatives of each State is elected by the members of
the Legislative Assembly of that State, in accordance with the system of proportional
representation by means of a single transferable vote. The nominated members are
persons with special knowledge or practical experience in literature, science, art and
social service. The Rajya Sabha is presided over by the Vice- President of India.
2.1.1.2 Lok Sabha (House of the People)
The House of the People consists of 545 members. Of these, 530 are directly elected from
the 25 States and 13 from the seven Union Territories. Two members are nominated by
the President to represent the Anglo-Indian community.
Unless dissolved sooner, the term of the House is five years from the date appointed for
its first meeting. The Lok Sabha elects its own presiding officer, the Speaker.
2.1.2 The Executive
The President of India is the Head of the State and the Commander-in-Chief of the
Armed Forces. He is elected by an electoral college composed of members of both the
Houses of Parliament (Rajya Sabha and Lok Sabha) and the legislatures of the nations
constituent States. The President holds office for five years and can be re-elected.
The President does not normally exercise any constitutional powers on his own initiative.
These are exercised by the Council of Ministers, headed by the Prime Minister, which is
responsible to the elected Parliament.
The Vice-President is elected jointly by the members of both the Houses of Parliament.
The person enjoying majority support in the Lok Sabha is appointed Prime Minister by
the President. The President then appoints other ministers on the advice of the Prime
Minister. The Prime Minister can remain in office only as long as he or she enjoys
majority support in the Parliament.
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2.1.3 The Judiciary
The judiciary is independent of the executive. It is the guardian and interpreter of the
Constitution. The Supreme Court is the highest judicial tribunal, positioned at the apex of
a single unified system for the whole country. Each State has its own High Court. A
uniform code of civil and criminal laws applies to the whole country.
2.1.4 The States
The States have their own Legislative Assemblies and in certain case a second Chamber.
All members of the Legislative Assemblies are elected by universal adult franchise. The
Head of the States are called Governors. Appointed by the President, they normally
exercise the same powers in the States as the President does at the Union government
level. As in the Central Government, each State has a Cabinet headed by the Chief
Minister responsible to the elected State Legislature.
2.1.5 Election Commission
The electoral machinery is centralized in an independent statutory body called the
Election Commission. The Commission is responsible for the ‘superintendence, direction
and control’ of the electoral rolls for all elections to Parliament and to the State
Legislatures and also for conducting the elections.
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2.2 Political Parties in India
There are seven parties recognized as national parties.
i. Bahujan Samaj Party
ii. Bharatiya Janata Party
iii. Communist Party of India
iv. Communist Party of India (Marxist)
v. Indian National Congress
vi. Nationalist Congress Party
vii. Rashtriya Janata Dal
2.3 Non-State Players: Maoists
Communist Party of India (Maoist) is a Maoist political party in India which aims to
overthrow the government of India. It was founded on September 21, 2004, through the
merger of the Communist Party of India (Marxist–Leninist) People’s War and the Maoist
Communist Centre of India (MCC). The merger was announced to the public on October
14 the same year. In the merger a provisional central committee was constituted, with the
erstwhile People’s War Group leader Muppala Lakshmana Rao alias Ganapathi as
General Secretary.
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2.4 Political influence in Business
A close relationship between business and government had existed for quite sometime in
India. During the British colonial rule, the interest of British companies was naturally
favored over the interest of Indian business houses). As the movement for freedom from
the British Raj gathered momentum in the1920s and 1930s, close relationships developed
between Indian businesses and leaders of the political movement for India’s
independence.
The pragmatic collaboration between the new Indian government and the business
community to build modern India continued in the immediate aftermath of independence
(1947 to 1960). However, relationship with business houses soured in the 1960s as Indian
government, under the leadership of Prime Minister Jawarharlal Nehru, moved the
country’s economic policies toward socialism. This period, often characterized as the
License Raj, began with the government’s desire to curb big business houses, and to
directly intervene in economic activities through public sector corporations.
Several prominent government commissions followed, such as Monopolies and
Restrictive Trade Practices Act (MRTP) and the Foreign Exchange Regulation Act
(FERA), and the nationalization of the largest private sector banks. These policy changes,
spearheaded by the government of Prime Minister Indira Gandhi, imposed strict
government controls on private sector’s ability to pursue growth opportunities, access
domestic finance, or collaborate with foreign technology or business partners. The FERA
act also required that multinational companies operating in India divest their ownership
so that a majority of the ownership in the Indian operations was held by Indian
shareholders.
In the mid-1980s, under the government of Prime Minister Rajiv Gandhi, a gradual move
towards deregulation began. These reforms relaxed some of the MRTP and import
restrictions, and freed up some of the economy from licensing requirements. Despite
these changes, the Indian economy grew at a fairly modest rate during this entire period,
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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
culminating in a foreign exchange payment crisis in the early 1990s. This crisis led to a
dramatic deregulation and liberalization of the Indian economy. Under the Congress
Party government of Prime Minister Narasimha Rao, and then subsequently under the
BJP government of Prime Minister Atal Behari Vajpayee, the MRTP and FERA Acts
were repealed, several sectors of the economy including telecom, commercial aviation,
and banking - previously reserved for the public sector - were opened to private sector,
and import duties were dramatically reduced.
As the contours of business-government relations shifted in India during the past half
century, there were complex shifts in relationships between individual business groups
and the government in power. Different groups occupied different positions of favoritism
at different times. There is evidence that these political connections played an important
role in the rise and fall of different business houses. But it is interesting that the groups
that remained dominant throughout did so despite ebbs and flows in their relationship
with the government. Clearly proximity to government was not the only cause of their
success.
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2.5 Corporate Governance in India
Corporate governance deals with the rights and responsibilities of a company’s
management, its board, shareholders and various stakeholders. Corporate governance in a
developing-country setting takes on additional importance. Good corporate governance is
vital because of its role in attracting foreign investment. The extent of foreign investment,
in turn, shapes the prospects for economic growth for many developing countries.
2.5.1 Pre-liberalization
When India attained independence from British rule in 1947, the country was poor, with
an average per-capita annual income under thirty dollars. However, it still possessed
sophisticated laws regarding “listing, trading, and settlements.” It even had four fully
operational stock exchanges. Subsequent laws, such as the 1956 Companies Act, further
solidified the rights of investors.
In the decades following India’s independence from Great Britain, the country turned
away from its capitalist past and embraced socialism. The 1951 Industries Act was a step
in this direction, requiring “that all industrial units obtain licenses from the central
government.” The 1956 Industrial Policy Resolution “stipulated that the public sector
would dominate the economy.” To put this plan into effect, the Indian government
created enormous state-owned enterprises, and India steadily moved toward a culture of
“corruption, nepotism and inefficiency.” As the government took over floundering
private enterprises and rejuvenated them, it essentially “converted private bankruptcy to
high-cost public debt.” One scholar referred to India’s economic history as “the
institutionalization of inefficiency.”
The absence of a corporate-governance framework exacerbated the situation.
Government accountability was minimal, and the few private companies that remained on
India’s business landscape enjoyed free reign with respect to most laws; the government
rarely initiated punitive action, even for nonconformity with basic governance laws.
Boards of directors invariably were staffed by friends or relatives of management, and
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abuses by dominant shareholders and management were commonplace. India’s equity
markets “were not liquid or sophisticated enough” to punish these abuses.
“Takeover threats act as a disciplining mechanism to poorly performing companies”
because as the stock price of poorly governed-firms decreases, the firms become
susceptible to hostile-takeover attempts. Thus, “the fear of a takeover is supposed to
keep the management honest.” However, until recently, hostile takeovers were almost
entirely non-existent in India, and therefore, the poorly governed Indian firms had little to
worry about in terms of following corporate laws once they had raised capital through
their initial public offering. Thus, corporate governance in India was in a dismal
condition by the early 1990s.
2.5.2 Post-liberalization
In 1999, in a defining moment in India’s corporate-governance history, the Indian
Parliament created the Securities and Exchange Board of India (“SEBI”) to “protect the
interests of investors in securities and to promote the development of, and to regulated
the securities market.” In the years leading up to 2000, as Indian enterprises turned to the
stock market for capital, it became important to ensure good corporate governance
industry-wide. Additionally, an excess of scam shocked the Indian business scene, and
corporate governance emerged as a solution to the problem of unscrupulous corporate
behavior.
In 1998, the Confederation of Indian Industry (“CII”), “India’s premier business
association,” unveiled India’s first code of corporate governance. However, since the
Code’s adoption was voluntary, few firms embraced it. Soon after, SEBI appointed the
Birla Committee to fashion a code of corporate governance. In 2000, SEBI accepted the
recommendations of the Birla Committee and introduced Clause 49 into the Listing
Agreement of Stock Exchanges. Clause 49 outlines requirements vis-à-vis corporate
governance in exchange-traded companies. In 2003, SEBI instituted the Murthy
Committee to scrutinize India’s corporate-governance framework further and to make
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additional recommendations to enhance its effectiveness. SEBI has since incorporated the
recommendations of the Murthy Committee, and the latest revisions to Clause 49 became
law on January 1, 2006.
If we analyze the overall political system and governance of India, we can say that the
Indian legal system provides one of the highest levels of investor protection in the world,
the reality is different with slow, over-burdened courts and significant corruption. Much
of the country’s extensive small and medium enterprises (SME) sector displays
relationship-based informal control and governance mechanisms. Even among large
companies, shareholdings remain relatively concentrated with “promoters” and family
business groups continuing to dominate the corporate sector. There is significant
pyramiding and tunneling among Indian business groups and, not withstanding abundant
reporting requirements, evidence of earnings management. This is not surprising:
concentrated ownership and family control are important in countries where enforceable
legal protection of minority property rights is relatively weak. Family controlled
businesses provide an organizational form that reduces transaction costs and asymmetric
information problems under these conditions.
Despite the above corporate governance shortcomings, the Indian economy and its
financial markets have started attaining impressive growth rates in recent years, and
display an exceptionally high level of optimism. The reason is that India is now clearly
and strongly committed to sustaining and rapidly furthering the major economic reforms
and the liberalization started in the early nineties.
Specifically, the Securities and Exchanges Board of India established as a part of these
reforms, has a rigorous regulatory regime to ensure fairness, transparency and good
practice, and the National Stock Exchange of India, also established as part of the
reforms, functions efficiently and transparently to now trade among the highest number
of trades in the world, just behind NASDAQ and NYSE. The traditional Bombay Stock
Exchange has also reformed effectively. Most importantly, the corporate governance
landscape in the country has been changing very fast over the past decade, particularly
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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
with the enactment of Sarbanes-Oxley type measures in Clause 49 of the listing
agreements, and legal changes to improve the enforceability of creditor’s rights. We are
also seeing the rise of companies like INFOSYS that are free from the influence of a
dominant family or group, and make the individual shareholder their central governance
focus. There is a strong momentum for continuing reforms, and the monumental changes
that have already taken place pave the way for more changes to come. All these positive
developments should arguably help Indian industry ensure that their financial gains reach
their investors fairly and transparently, and enable it to sustain its new-found prosperity
and growth and the political system is India is also stable.
2.6 Dictatorship vs. Democracy
2.6.1 Pre-Independence
During British Raj, India was under British Colonialism. The presence of British in India
dates back to the early 17th century. The East India Company was chartered by Queen
Elizabeth on December 31, 1600 to develop commerce and trade with the East Indies.
The main motive of the English to come to India was to break the monopoly of Dutch in
the spice trade. With time, British Parliament took over the full responsibility for the
governance of India. The governing power was to be exercised by the Secretary of the
state assisted by an Indian council, which only had advisory powers. India was divided
into three presidencies namely Madras, Bengal and the Bombay presidency for
administrative purposes.
Queen Victoria assured that she and her officers would work for the welfare and
upliftment of their subjects. The interest of the British in the governance of India became
obvious. They utilized Indian resources to serve the interests of the British Empire in
costly wars and other parts of the world. The British overthrew many princely states and
formulated laws and policies of their own. Gradually the whole of India came under
British rule. The English introduced railways, telegraph and postal services in India
during the 19th century. This was a step towards establishing themselves permanently in
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India. So we can say that, during British rule, India was under dictatorship and to become
a democratic and independent country Indians revolt against British and finally in 1947,
they became independent country.
2.6.2 Post-Independence
Politics of India take place in a framework of a federal parliamentary multi-party
representative democratic republic modeled after the British Westminster System. India
is the largest democracy in the world. The Prime Minister of India is the head of
government, while the President of India is the formal head of state and holds substantial
reserve powers, placing him or her in approximately the same position as the British
monarch. Executive power is exercised by the government. Federal legislative power is
vested in both the government and the two chambers of the Parliament of India. The
judiciary is independent of the executive and the legislature. According to its constitution,
India is a “sovereign socialist secular democratic republic.” India is the largest state by
population with a democratically-elected government.
But after independence in 1947, there was a period of emergency under the regime of
Indira Gandhi which can be viewed as dictatorship. The state of emergency (1975-1977)
imposed on the country then had suspended political freedoms and given her near
dictatorial powers. Similarly, before liberalization Indian economy was centralized with
lots of government intervention in all the sectors. But with end of emergency period,
dictatorship also ended and today India is democratic market with liberal economy.
Figure 1: Dictatorship vs. Democracy Continuum
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DemocracyDirectionDictatorship
Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
3. Economic Environment
Political ideology has had an influence in Indian economy. Political ideology basically
shaped the economic policy and model which impacted market performance.
3.1 Economic impact of the British rule in India
The chief motive of the British to establish political control in India was mainly
economic and commercial. The sole aim of the British government was to establish a
colonial market for the British goods. However the British impact on the economic life of
India was devastating and harmful. Britain used the most complicated methods to exploit
India’s vast rich economic reserves of India. After a control of two hundred years the
British completely shattered the economic set up of India. India in 1947 presented the
picture of an economically underdeveloped nation with hunger, poverty; low national
income etc.
Indian agricultures received maximum care under the east India Company. This was
primarily because the main sources of state income were lands revenue. Moreover it was
the sole aim of the British government was to establish India as agricultural base. Thus
the agricultural produces in India could provide cheap raw materials to industrial
England. The Company tried various experiments to maximize the land revenue by resort
to the method of oppression and repression to the peasants. The system of farming of land
revenue became obsolete. Cornwallis introduced Permanent Settlement or a system of
Land Revenue in Bengal, Bihar and Orissa in the year 1793. Subsequent administrators
introduced the Ryotwari system in the Bombay Presidency and most of the parts of the
Madras Presidency. The Mahalwari system proved extremely devastating in the part of
Uttar Pradesh. The Zamindary system encouraged absentee landlordism. It eventually
created a host of intermediaries between the state and the cultivator. This complicated
system of land revenue created a group of moneylender, who otherwise oppressed the
poor peasants by lending them at high interests. The poor cultivators could not repay
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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
those high interests and ultimately submitted to those moneylenders. As a result famine
was the regular feature of the time.
Indian industries suffered a maximum under the British domination. The superiority and
extensive sale of the Indian handicraft in Europe was directed to the commercial interests
of the Company. The Whig governments in the early years of the 18th century imposed
heavy duties on Indians textiles imports in Britain. After the Napoleonic wars the Indian
markets were made open to the British for free trades. The same British government now
permitted British machine made goods to be poured in India duty free or at nominal cost
only. The policy of one-way free trade, introduced in India made the Indian handicrafts
losing its market. This caused a great misery to a major section of Indian population.
The impact of British rule created capitalism and bourgeoisie commerce to attain a
thriving prosperity. The capitalist mode of production and bourgeoisie trends in the
commercial transaction destroyed the handicraft industries in the European countries too.
The evil impacts of the industrial revolution in England were suffered in India. The
process of industrial regeneration did not start in India, because of British imperialism.
Hence India was subjected in a continuing economic stagnation.
The imperial rulers were far from planning in the industrial developments in India; rather
they planned to de-industrialize India. Britain’s chief interest was to constitute India as an
agricultural farm for industrialized Britain. Hence the British rulers carried on the policy
of ruralization and peasantization of the Indian Economy. However several cropped up
Indians industries were cropped up from the situation of created by the World War I. The
economic depression of 1930s suffered from economics disability, which was mostly
controlled by the British finance and capital. Due to the development of industries like
iron and steel, heavy industries, metallurgical etc, traditional industries like textile,
cement, jute, paper, sugar, pig iron etc suffered a great deal.
The sole mission of the European in India was the economic exploitation. The burden of
the Europeans was carried on through the economic exploitation in India. The British
rulers created new economic structure belonged to the colonial institutions. The British
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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India
established a colonial economy, colonial society and even colonial ideology. The
institution of landlordism, casteism infested with narrow political consideration,
communalism, regionalism etc were the immediate results of the British economic policy.
Moreover" distorted modernization" created new problems. In 1947, when the British
left, India represented a ruined economy, a sick society and the present danger of the evil
effects of neo-colonialism.
3.2 Politics and Economy (Post-Independence India)
3.2.1 Jawaharlal Nehru (August 15, 1947 - May 27, 1964)
Nehru presided over the introduction of a modified, Indian version of state planning and
control over the economy. Creating the Planning commission of India, Nehru drew up the
first Five-Year Plan in 1951, which charted the government’s investments in industries
and agriculture. Increasing business and income taxes, Nehru envisaged a mixed
economy in which the government would manage strategic industries such as mining,
electricity and heavy industries, serving public interest and a check to private enterprise.
Nehru pursued land redistribution and launched programs to build irrigation canals, dams
and spread the use of fertilizers to increase agricultural production. He also pioneered a
series of community development programs aimed at spreading diverse cottage industries
and increasing efficiency into rural India. While encouraging the construction of large
dams (which Nehru called the “new temples of India”), irrigation works and the
generation of hydroelectricity, Nehru also launched India’s programs to harness nuclear
energy.
For most of Nehru’s term as prime minister, India would continue to face serious food
shortages despite progress and increases in agricultural production. Nehru’s industrial
policies, summarized in the Industrial Policy Resolution of 1956, encouraged the growth
of diverse manufacturing and heavy industries, yet state planning, controls and
regulations began to impair productivity, quality and profitability. Although the Indian
economy enjoyed a steady rate of growth, chronic unemployment amidst widespread
poverty continued to plague the population.
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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India