Business in India: Political Environment

Topic: Business Controversies
Words: 1492 Pages: 5

The relationship between government and business is one of the key areas of socio-political communications, which are aimed at harmonizing the interests of organizations with the interests of state authorities at various levels to reduce risks and ensure sustainable development of all parties. Coordination, expressed primarily in lobbying the interests of business actors in power, depends on many factors: the specific goals and resources of the business itself, the political and social environment, the real capabilities of one or another government, depending on the institutional environment. Over the last few decades, India has demonstrated notable positive shifts in this regard. Below, the country’s political climate for companies will be discussed.

India is known for its lack of “strategic culture” in the Western sense of this term: the concepts that determine the country’s policy in one direction or another are extremely few in number. The main documents that allow us to draw a conclusion about the goals and vectors of Indian development are the five-year plans, which until recently were formulated by the Planning Commission established in 1950, and since 2015 it has been replaced by the National Institute for Transformation of India, NITI Aayog, a center of excellence under the government.

The most important areas of policy were proclaimed health care, education, agriculture, urban development and backward regions of the country (in particular, issues of infrastructure and access to water), as well as energy. At the same time, the engine of innovative progress was supposed to be the so-called “Indian innovation model” based on five parameters (platform, inclusiveness, ecosystem, drivers and discourse), and the key actor was the National Innovation Council.

Today, the key document in the field of science, technology and innovation is the so-called Science Technology Innovation Policy, STIP, which is approved approximately once a decade with the participation of a wide community of stakeholders – from the scientific community and business structures to politicians (Government of India, 2021). De jure subordinate, but de facto independent in relation to STIP are government framework plans and budget programs related to scientific and technical progress. Among the most important ones since 2014 should be highlighted Make in India, as well as the Startup India Action Plan and Technology Vision 2035.

The most famous project of the Narendra Modi government was the Make in India initiative, launched by the Prime Minister in September 2014 with the aim of transforming India into a global manufacturing and design center (Make in India, n.d.). To promote the new idea, a website was created where you can find information on the general state of the country’s economy, its 25 main sectors, the country’s investment policy and intellectual property protection, as well as opportunities for starting a business in India and promising areas for investment.

A significant aspect of the state’s innovation policy is its impact on socio-economic indicators. That is why the phenomenon of niche innovations has begun to actively develop in India, contributing to the involvement of the most socially unprotected segments of the population in economic activity. In the same vein, “frugal innovations” have spread, designed to improve the lives of most people. Although there are different interpretations of this term, the most relevant might be the following: it is the development of high-quality, but less costly in terms of resources and money, solutions than existing analogs (Herstatt & Tiwari, 2017). In other words, the necessary high-tech inventions are made available to a wider range of consumers, while the main functionality of this device is preserved as much as possible.

India’s robust economic growth is placing high pressure on the country’s infrastructure. The need for infrastructure improvements is evident in many of India’s large cities and rural centers, with power shortages, poor road quality and inadequate port capacity. Infrastructure demand in India has been driven by past underfunding. India today needs roads, telecommunications networks and electricity. In addition to the need for capital investment, India needs foreign players to improve competition, technology and governance, and introduce best benchmarking practices. In order to attract private businesses to infrastructure investment projects, a regulatory program has been developed to help attract foreign direct investment, which is a significant achievement of the government (Gaur & Padiya, 2017).

By providing tax incentives and regulating reforms, the Indian government encourages private capital participation in infrastructure projects. Public-private partnerships, combined with opening up key sectors to private investment, will drive growth for private business participation.

Industries that will benefit from major infrastructure investments in India include logistics and storage services, construction and construction equipment, hospitality business, infrastructure financing. Infrastructure development has many challenges such as land acquisition, short equipment life, lack of coordination between the center and the states. Despite these challenges, the private sector has demonstrated the ability to seize this opportunity.

India consists of more than 30 states and union territories. Doing business in India is like doing business in 30 different countries. Each state has its own legislature and is divided into districts that are governed by municipalities. Certain sectors such as water, electricity, education, and alcohol fall under the jurisdiction of state governments. There are three levels of the tax system in the country. Central and union governments collect income tax, capital transaction tax, sales tax, service tax, customs and excise taxes, while state governments collect sales tax on intra-state sales, entertainment and certain occupations, excise taxes on alcohol production, stamp duties on the transfer of property and income from land use. Municipalities charge consumers for utility bills such as water, electricity, sewerage, and property taxes.

Consolidating data from all states becomes challenging as each state uses a different method of providing data. Also, in each state, there may be a need to go through different regulatory and bureaucratic levels to access the required data. For example, a factoring company looking to start a business in India found that factoring was taxed at the state level and that the state duty rates were not the same. Thus, collecting regulatory information across 30 states and then aligning service prices became a challenge.

In the process of internationalization of MNEs in India, the following crucial competitive advantages, characteristic of most corporations in developing countries, play an important role. First, these are priority conditions for investment activities due to the size or monopolistic status of the corporation, in particular when it achieves a dominant position in the national market. Second, it is access to raw materials and production resources. Third, it is the availability of a cheap and at the same time sufficiently qualified labor force and human resources – for example, Indian scientists and engineers in the field of information technology and communications (Gaur & Padiya, 2017).

As India’s economy becomes more open to international competition, Indian MNEs are faced with the need to compete more and more with other MNEs, both domestically and internationally. Such competition contributes to a qualitative increase in the level of their activities and the formation of corporate competitive advantages with the expansion of opportunities for competition in foreign markets. A distinctive feature of the structure of the Indian economy is the dominant position of large “houses” or conglomerates (Sewak & Sharma, 2020). The predominance of such organizations refutes the traditional principle of Western management, according to which companies should focus on key areas of their activities and cut off non-key activities. Such organizations can, in fact, be effective because they are more successful than narrow-profile companies in confronting market and institutional obstacles.

The development of Indian MNEs is associated with the high efficiency of the Indian capital market. The standard Indian MNE, unlike, for instance, the Chinese one, is private and traded on stock exchanges, including Western ones. In addition, operating under sound financial regulations and corporate governance, Indian companies, generally have strong balance sheets and reliable credit ratings. As a result, MNEs in India managed to involve international banks in their activities and acquire their assets. An important factor was also a significant increase in the capitalization of publicly-traded MNEs in the middle of the first decade of the twentieth century, which allowed them to attract a substantial amount of capital and increase the availability of both domestic and foreign loans (Sewak & Sharma, 2020). This attracted capital was also directed to external investments.

To conclude, it seems reasonable to state that within the political scope for the business environment, India has achieved a number of notable attainments – starting from the mentioned attracted capital due to MNE’s activities and ending with appropriate regulatory provisions for businesses, as well as infrastructure development. However, there are still challenges, such as the presence of 30 different states in which legal regulations may considerably vary – this hinders the smooth and coherent functioning of companies of various sizes and scopes. Finally, it might be assumed that India can be considered as an option for launching a business – both local and transnational – if the expedient and thorough exploration of the political environment will be conducted.


Gaur, A. D., & Padiya, J. (2017). Ease of doing business in India: challenges & road ahead. International Conference on Technology and Business Management, April 10–12, 77–84. Web.

Government of India. (2021). Science, Technology and Innovation Policy, 2020. Web.

Herstatt, C., & Tiwari, R. (2017). India’s emergence as a lead market for frugal innovations: an introduction to the theme and to the contributed volume. In C. Herstatt & R. Tiwari (Eds.), Lead market India. India studies in business and economics (pp. 1–10). Springer.

Make in India. (n.d.). Home. Web.

Sewak, M., & Sharma, A. (2020). Performance implications of MNE subsidiary federation: Evidence from India. Journal of International Management, 26(1), 1–16. Web.

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