Executive summary

The essay has discussed the background information about India where it has elaborated on her demographic information, economic status, legal systems and political status. Furthermore, some of the reasons why India is suitable for investing have been discussed. Furthermore, the essay has reviewed the political economy of India, which is the legal, economic and political systems and critically discussed India’s attractiveness for foreign direct investment. Political economy has analyzed the benefits, risks and costs of the legal, economic and political systems before giving some recommendations.

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

  1. Introduction……………………………………………………………………..4
  2. Political Economy Analysis……………………………………………………..4

2.1 Political systems…………………………………………………….5

2.2 Economic systems…………………………………………………..6

2.3 Legal systems……………………………………………………….7

  1. Recommendations……………………………………………………………….8
  2. Conclusion………………………………………………………………………8
  3. References………………………………………………………………………10

 

 

 

 

 

 

 

 

Introduction

India is situated in Asia and is the seventh largest country globally by area. Moreover, there are more than 1.2 billion people in India which makes it the second country that is most populous. The economy of India is ranked at eleventh largest globally by nominal GDP (Demography of India: Part 1, 1998). Furthermore, by purchasing power parity, it is the third largest. The Indian society is multi ethic, multi lingual and pluralist. The Indian republic is governed by federal constitution under a parliamentary system of 28 states (MacDonald, 2009). India is a good investment site because of the maximum benefits, minimal costs and risks in her economy. Furthermore, the country balances her political, economical and legal factors well making it conducive for business. The essay will analyze the political economy of India by comparing the political, legal and economic systems of India. Moreover, it will give recommendations and finally conclude with critical discussion of factors that make India attractive for foreign direct investment.

 

Political Economy Analysis

Political economy is the use of how the economic methods and theory influences the political ideology. It is the interplay between politics, law, economics and how different institutions develop in different economic and social systems, such as communism, socialism and capitalism (Mill & Ashley, 2005).Furthermore, it analyzes how the public policies are created and implemented. Walker (2008) pointed out that since different groups and individuals have different interest in the manner an economy or a country should be developed, political economy covers a broad spectrum of competing interest. Moreover, it involves application of game theory, since competing groups for power and finite resources must decide the course of action will produce the most beneficial outcome.

The significance of using political economy in analyzing India is to evaluate worthiness of India as an investment destination for international businesses and investors.

2.1 Political System

Benefits

Citizens of India are often mobilized in social groups; that are religion, community or caste, during election times to give them collective electoral power (Lee-Warner, 2006). Moreover, until now, subordinate social groups have emerged to be politically relevant at the state level. This is a welcomed expansion of political democracy and equality in India.

Risks

The Indian society is heterogeneous leading to the “collective action” problem. This hampers decisions and actions that need to be taken collectively. Furthermore, the proliferation of regional and small parties in the coalition government have meant catering for particularistic demands, this overrides coordination of the long term goals in the country (Guha & Raghuraman, 2007). Additionally, vital economic issues in India do not get salience in mobilization of the electorate, and this poses as a risk.

Costs

According to Vidyarthi (1997), in India it is difficult and costly to agree on a goal, coordinate and get actions done to achieve a goal because the population is heterogeneous. Moreover, it is costly to the country when specific leaders perceived to be upholding the dignity of a marginalized caste group may be reelected even if their policies has resulted to negative implications to the country.

2.2 Economic System

Benefits

One of the benefits of economic system in India is that businessmen, professionals and salary earners constitute the heads of approximately 22% of households (McClellan, 2010).This is a significant percentage that drives the Indian economy. Furthermore, according to Ghosh (2013), the economy of India is liberated but the government controls assets, production and employment in the majority of the non-agricultural organized sectors.

 

Risks

One of the risks of the economic system of India is unequal wealth distribution. The regional governments are also increasingly becoming fiscal dependent on central government (Banerjee, 2004). The increased regional competition and economic liberalization has increased the disparity between backward and economically advanced states

Costs

Poor infrastructure has hindered economic growth in India and this is costly to the Indian economy. Moreover, substantial investment in public infrastructure takes a long time to fructify (Singh et al, 1998). Another cost to the economic system of India is that some regional governments are catering for different particularistic demands from different parties. This makes them to be near fiscal bankrupt (Ghosh, 2013).

2.3 Legal System

Benefits

One of the benefits of legal systems in India is the fragmentation of the states gives the central state more autonomy. The state over the years has accumulated great power in direct regulation and ownership of the economy. Moreover, India has been powerful in its interventionist and regulatory role (Bhansali, 1992).

Another benefit is the decentralization and federalism of the resources which has made the government more responsive to the needs of the local. Moreover, the 73rd and the subsequent 74th amendment of the constitution in the early 1990s gave some potency to decentralization movement below the state level, up to the gram panchayats (Pandey, 1993)

Risks

One potential risk of the legal systems in India is the astute political leadership of the country which can play off the groups against each other and earn special privileges and powers. Moreover, there are tradeoffs between accountability and credibility in state affairs which is risky

Costs

The fragmentation of different groups in India with each group pulling in different direction means that the state policies are buffeted around and the economic reforms are halted and hesitated (Bhansali, 1992). This is costly to the country. Moreover, inequality and heterogeneity in India has made it difficult and costly in coordinating long term policies.

Major Indian states are large and the governments are distant from the local people. Furthermore, few administrative functions and fewer independent finance sources have been decentralized to the local governments, making the legal systems costly.

 

 

Recommendations

  1. The state government should reorient its functions away from control and ownership of business enterprises towards more on social basic services, education and health for the poor.
  2. As much as the state is the major financier of these services, it should contract private-public partnerships or the private sectors to provide some services. It should not be managed bureaucratically.
  3. Political awareness and land reforms in the states should enhanced to prevent capture and control of the local governments by oligarchic local elites
  4. The regional governments should also be made to be more responsible fiscally and accountable at the panchayat level. This will deepen democracy and weaken local oligarchy powers, expand education and devolve finances
  5. Regular auditing and making media and local NGO’s as local governments watchdogs will also eradicate corruption

Conclusion

The country’s overall attractiveness as a potential investment or potential market site for an international business largely depends on how the country balances the benefits, risks and costs that are associated with doing business in that particular country (Rajan, 2009).  India is attractive and is a good investment and market site. The overall attractiveness of India as direct foreign investments is because of her three key pillars; the benefits, costs and risks of the country.

Kobayashi-Hillary (2005) indicated that the long term monetary benefits of the international businesses in doing business in India make the country attractive. This is because of her large market size, her purchasing power which reflected the wealth of the consumers, and the future consumer’s wealth.

Cost wise, there are number of legal, economic and political factors that determine the running costs of doing business in India. India is politically stable, has a vibrant and improving economy, and has infrastructures and other supporting businesses. This makes India attractive as an investment destination cost wise. For the legal factors, India has local regulations and laws that liberalize the market. There are no strict standards for businesses and in protecting the intellectual property rights (Nagesh et al, 1998).

Risk wise, India has stable political, legal and economic factors that minimize risks of doing businesses. According to Acharya (1998), there are minimal political forces that can cause drastic changes in the business environment of the country and affect adversely the profits of the international investors. Furthermore, India has a growing business environment that cannot hurt the goals and profits of an international business enterprise. The legal factors are also stable to protect firms from stealing intellectual property rights and breaking of contracts.

 

References

Acharya, S. (1998). Investing in India. Basingstoke: Macmillan Business.

Banerjee, K. (2004). Regional political parties in India. Delhi: B.R. Pub. Corp.

Bhansali, S. R. (1992). Legal system in India. Jaipur, India: University Book House.

Demography of India: Part 1. (1998). New Delhi: Library of Congress Office.

Ghosh, M. (2013). Liberalization, growth and regional disparities in India. New Delhi: Springer India.

Guha, T. P., & Raghuraman, S. (2007). Divided we stand: India in a time of coalitions. Los Angeles: SAGE Publications.

Kobayashi-Hillary, M. (2005). Outsourcing to India: The Offshore Advantage. Berlin, Heidelberg: Springer-Verlag Berlin Heidelberg.

Lee-Warner, W. (2006). The citizen of India. London: Macmillan.

MacDonald, J. R. (2009). The government of India. New York: Huebsch.

McClellan, G. S. (2010). India. New York: Wilson.

Mill, J. S., & Ashley, W. J. (2005). Principles of political economy: With some of their applications to social philosophy. New York: A. M. Kelley, bookseller.

Nagesh, K., & Centre for International Management and Development Antwerp. (1998). Liberalization and changing patterns of foreign direct investment: Has India’s relative attractiveness as a host of FDI improved?. Antwerp: CIMDA, University of Antwerp.

Pandey, J. N. (1993). Constitutional law of India: Incorporating the Panchayati Raj and Nagarpalika Constitution 73rd and 74th Amendment Acts, 1992. Allahabad: Central Law Agency.

Rajan, R. S. (2009). Monetary, investment, and trade issues in India. Delhi: Oxford University Press.

Singh, K. P., & National Institute of Management Technology. (1998). Infrastructure in India. Ghaziabad: National Institute of Management Technology in association with Excel Books, New Delhi.

Vidyarthi, L. P., & All India Seminar on Tribal and Rural Leadership in India. (1997). Leadership in India. Bombay: Asia Pub. House.

Walker, F. A. (2008). Political economy. New York: Henry Holt and Co.

 

 

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