SWOT Analysis

Strengths
India is now one of the biggest recipients of foreign direct
investment (FDI) among emerging markets, having
attracted US$36.7bn of inflows in 2008, according to the
United Nations Conference on Trade and Development
(UNCTAD) – a 60% increase from the previous year.
An inexpensive but skilled English-speaking labour force
can do the jobs of Western workers for a fraction of the
wages paid in North America or Europe.
Weaknesses
Despite pockets of excellence, such as the IT sector, overall
literacy rates in India remain far lower than in Asian and
other key emerging market nations.
India’s infrastructure is notoriously inadequate. A 500km
road journey can take as much as 24 hours, owing to poor
road conditions, congestion and toll booths.
The competitiveness of local firms is undermined by reams
of official red tape, from foreign investment restrictions to
inflexible labour laws.
Opportunities
India could enhance the competitiveness of local industry
through further liberalisation and deregulation.
On going infrastructure projects ranging from roads,
railways, and airports should provide opportunities for
foreign investors for many years to come.
Indian Prime Minister Manmohan Singh is eager to reform
the banking sector in order to increase the availability of
long-term financing, particularly for large infrastructure
projects.
Threats
The arrival of Western players, including management
consultants Accenture and technology giant IBM, is
bidding up local wages in the outsourcing sector. India
faces growing challenges from countries such as Vietnam
and potentially Bangladesh in a variety of sectors.
China still remains a major competitor for FDI flows into
India. India has excessive bureaucracy and poor
infrastructure in comparison with China.
The November 2008 Mumbai terror attacks demonstrated
that security issues will increasingly be in investors’
considerations.

BMI Business Environment

Risk Ratings

There are several reasons why India scores a relatively poor

44.1 in our newly revised business environment ranking.
Firstly, India scores just 42.9 in the ‘market orientation’
category due to a high corporate tax rate and the prevalence
of trade barriers aimed at protecting domestic producers,
mainly in the agricultural sector. Secondly, India scores
42.0 in the ‘institutions’ category due to a high degree of
red tape and poor law enforcement holding back private
enterprise. Finally, India scores just 47.4 in the
‘infrastructure’ category due to chronic deficits in its
transport and power capacities.

Business Environment Rank Trend

Hong Kong 82.01 =
Singapore 80.82 -
Malaysia 63.43 +
Thailand 62.24 +
South Korea 60.65 -
Taiwan 60.36 -
China 51.87 -
Philippines 49.98 +
Vietnam 45.29 +
India 44.110 +
Sri Lanka 42.711 +
Indonesia 40.212 =
Pakistan 36.713 -
Bangladesh 36.214 =
Cambodia 35.515 -
Laos 26.416 -
Regional avg. 51.1 / Global avg. 45.8 / Emerging Markets
avg. 41.4

Introduction

The main challenges facing the business environment in India centre around its
poor infrastructure, with infrastructure output continuing to lag behind overall
GDP growth. This will be a key challenge for the new government. The increased
scope for public-private partnerships (PPPs) is a boon, however, which will no
doubt reduce the infrastructure spending burden on the government, as well as
offer attractive investor opportunities. Nevertheless, the business climate is still
dogged by excessive red tape, high levels of corruption and a volatile security
outlook.