India Risk Analysis

Global investors, markets, and foreign governments are often held responsible by their citizens or shareholders to ensure the potential is measured against the risks when investing. In recent years the strength of India on the global market has continued to show signs of political and economical growth that makes regions in India attractive investments by various markets. India has taken steps to recognize these opportunities to gain Foreign Direct Investment by realigning government policy towards new business potential. Such potential is often marked by "it's too good to be true" as global investors determine the risk through in depth analysis of regions around the world and much like team A has outlined for Kerala, India.

Foreign Trade and Investment

Investment in India has increased significantly since the 2001 Indian Government's approval of Foreign Direct Investment (FDI) reform. In mid-year meetings of 2001, the Government liberalized the restrictions on FDI into India in select industries. The infrastructure of the Indian Government is increasingly interested and actively pursuing FDI from countries such as the United States. India is currently offering automatic business approvals for new businesses that have an initial investment of 100% foreign capital in industries that are considered tourism based. (Indian Embassy, 2001) According to the 2001 guidelines issued under section 4 (iv.), Businesses that are considered to be "commercial premises, hotels, resorts, city and regional level urban infrastructure facilities..." which qualify for up to100% FDI.

Foreign Direct Investment (FDI) inflows to India amounting to US$4.06 billion were received during the financial year 2001-2002, with $2.46 billion (USD) received from the U.S. just in 2000-01 alone. This marked a 66% increase from the previous year. According to FDI Magazine, India was the number 3 recipient of FDI from January of 2002 to June of 2004. India had a total of 41 Foreign Direct Investment projects, beaten only by the United Kingdom with 53 and China with 54. FDI Magazine shares this observation: "Noticeable among the results for the second quarter is the rise of China to become the number one destination for foreign investment by number of projects. However, perhaps more significant is the increase in the number of projects heading for India, up over 77% year on year while the jobs created rocketed by a massive 241% to over 90,000."

Basic Need Potential

Kerala has had a significant arts program and industry for many years. Kerala has taken the initiative for establishing the technical benchmark for the rest of India. Private investment in the infrastructure of Kerala has resulted in a unique and progressive society that is adopting a western taste for entertainment and leisure. Tourism is increasingly becoming a mainstay industry of Kerala. Besides bringing in large investments from international financial contributors, the tourism is also contributing much to the State's annual revenue. The State has launched several events like the India International Boat Show to promote the State in the Indian and international markets. These types of shows and the need for a venue to host these gatherings is becoming clear, as those conventions become more frequent in such a progressive area. There are limited structures that can support the types of meetings and presentations that are becoming more common place in the expanding economy.

With expanding economic growth, tourism and leisure also increase. The Government of Kerala has identified this future need and is actively pursuing FDI in the building of a new International Convention Center, as well as the surrounding businesses and support industries that are required. This investment has been targeted primarily to Foreign Direct Investment as well as local capital investment.

Economic and Financial Forces

India has a stable financial foundation that is currently showing growth. The economic indicators reviewed for this project were the balance of payments, budget deficits, and degree of inflation, exchange controls, currency convertibility, and finally the Gross Domestic Product of India (GDP) along with the county's growth rate.

The balance of payments is a record of one country's trade dealings with the rest of the world. Dealings that result in money entering the country are reflected by a credit while transactions that lead to money leaving the country are reflected by a debit. Year-end of 2003 found India with an overage of $8,160m dollars. While India is considered a developing country, its annual rate of inflation thus far in 2005 is 6.5% based on the Wholesale Price Index (WPI). Based on the Consumer Price Index, India saw inflation rise by 3.6% over the past year. This has been fairly consistent over the past ten years and these results are more positive than other Asian countries.

According to the International Trade Reporter, India uses the Harmonized Commodity Description and Coding System for classification of tariff items. Basic duty on imported goods can range from 5 -40% with additional duties for such items as tobacco and alcohol reaching the 100% mark. Nepal and India have an agreement that the largest duties imposed between each other be 20%. India cooperates with European Union (EU) trade agreements as well as partnering with the South Asian Association for Regional Cooperation (SAARC) and signing a preferential trade agreement with the six other SAARC members. India has few non-tariff controls but has banned the importation of tallow, fat, and oils of animal origin, animal rennet and raw ivory. There are products such as raw clothing materials, ammunition, animal products, seeds and certain modes of transportation that are restricted as these items are dominant in India. Import licenses can be obtained for these items and the Indian government it committed to removing all restrictions in the future.

The Foreign Exchange Regulation Act governs India's foreign exchange control regime. The Rupee has been convertible on the trade account since 1994. As it now stands, there is convertibility for capital accounts and for current accounts only. India's Reserve Bank in consultation with the Union Government will specify the types of capital account transactions that are permissible and the limit to which foreign exchange is admissible for such transactions. Capital Accounts Transactions are those transactions, which alter the assets or liabilities outside India of persons resident in India or assets or liabilities in India of person's resident outside India. Current accounts are payments due in connection with foreign trade, other current business, services, and short-term banking

...