Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

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]

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 valueadded 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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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

Table of Contents EXECUTIVE SUMMARY.............................................................................................................................I 1. OVERVIEW OF INDIAN ECONOMY...................................................................................................1 2. POLITICAL ENVIRONMENT................................................................................................................2 2.1 GOVERNMENT OF INDIA...............................................................................................................................2 2.1.1 The Legislature..............................................................................................................................2 2.1.2 The Executive.................................................................................................................................3 2.1.3 The Judiciary.................................................................................................................................4 2.1.4 The States.......................................................................................................................................4 2.1.5 Election Commission.....................................................................................................................4 2.2 POLITICAL PARTIES IN INDIA........................................................................................................................5 2.3 NON-STATE PLAYERS: MAOISTS..................................................................................................................5 2.4 POLITICAL INFLUENCE IN BUSINESS...............................................................................................................6 2.5 CORPORATE GOVERNANCE IN INDIA..............................................................................................................8 2.5.1 Pre-liberalization...........................................................................................................................8 2.5.2 Post-liberalization ........................................................................................................................9 2.6 DICTATORSHIP VS. DEMOCRACY.................................................................................................................11 2.6.1 Pre-Independence........................................................................................................................11 2.6.2 Post-Independence.......................................................................................................................12 3. ECONOMIC ENVIRONMENT..............................................................................................................13 3.1 ECONOMIC IMPACT OF THE BRITISH RULE IN INDIA........................................................................................13 3.2 POLITICS AND ECONOMY (POST-INDEPENDENCE INDIA)..................................................................................15 3.2.1 Jawaharlal Nehru (August 15, 1947 - May 27, 1964).................................................................15 3.2.2 Lal Bahadur Shastri (June 9, 1964 - January 11, 1966).............................................................16 3.2.3 Indira Gandhi (January 24, 1966 - March 24, 1977)..................................................................16 3.2.4 Rajiv Gandhi (October 31, 1984 - December 1, 1989)...............................................................17 3.2.5 P.V Narasimha Rao (June 1991 – May 1996).............................................................................17 3.3 GDP Growth Rates under various governments............................................................................18 3.4 KEY ECONOMIC INDICATORS......................................................................................................................19 3.4.1 Gross Domestic Product..............................................................................................................19 3.4.2 PER CAPITA INCOME AND CONSUMPTION..................................................................................................19 3.4.3 Market Size..................................................................................................................................20 3.4.4 Growth Rate.................................................................................................................................22 3.4.5 Foreign Direct Investment...........................................................................................................23 3.5 CONTROL ECONOMY VS. MARKET ECONOMY...............................................................................................24 3.5.1 Pre-liberalization (Phase of control economy)...........................................................................24 3.5.2 Post-liberalization (Move towards market economy)..................................................................25 4. SOCIO-CULTURAL ENVIRONMENT................................................................................................27 4.2 DEMOGRAPHY OF INEQUALITY....................................................................................................................27 4.2.1 Old Age Dependency Ratio with Gini Coefficient.......................................................................27 4.2.2 Relationship between percentage of public sector employees and inequality.............................28 4.2.3 Relationship between urbanization and inequality......................................................................28 4.2.4 Relationship of Corruption and Inequality..................................................................................29 4.3 POPULATION............................................................................................................................................29 4.3.1 Rural and Urban Population ......................................................................................................30 4.4 RELIGION................................................................................................................................................30 4.5 LANGUAGE..............................................................................................................................................30 4.6 LITERACY RATE.......................................................................................................................................30 4.7 CASTE SYSTEM........................................................................................................................................31 4.8 WOMEN EMPOWERMENT...........................................................................................................................32

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India 4.9 CONSUMPTION PATTERN............................................................................................................................33 5. TECHNOLOGICAL ENVIRONMENT................................................................................................37 5.1 TRANSPORTATION SECTOR.........................................................................................................................37 5.1.1 Railways.......................................................................................................................................38 5.1.2 Roads...........................................................................................................................................38 5.1.3 Ports.............................................................................................................................................38 5.1.4 Aviation........................................................................................................................................38 5.2 COMMUNICATION......................................................................................................................................39 5.3 POWER....................................................................................................................................................39 5.4 R&D IN INDIAN INDUSTRY.......................................................................................................................41 6. ECOLOGICAL ENVIRONMENT.........................................................................................................42 6.1 POLLUTION..............................................................................................................................................43 6.2 UNCONTROLLED POPULATION GROWTH.......................................................................................................43 6.3 ENVIRONMENTAL ISSUES............................................................................................................................44 6.4 EFFECT OF GLOBAL WARMING...................................................................................................................45 6.5 INDUSTRIAL POLLUTION AND THE ENVIRONMENT............................................................................................45 6.6 INITIATIVES BY THE GOVERNMENT..............................................................................................................46 7. OPPORTUNITIES AND THREATS IN INDIA...................................................................................47 7.1 OPPORTUNITIES........................................................................................................................................47 7.1.1 Political Environment..................................................................................................................47 7.1.2 Economic Environment................................................................................................................48 7.1.3 Social Environment......................................................................................................................49 7.1.4 Technological Environment.........................................................................................................49 7.1.5 Ecological Environment..............................................................................................................49 7.2 THREATS.................................................................................................................................................50 7.2.1 Political Environment..................................................................................................................50 7.2.2 Economic Environment................................................................................................................50 7.2.3 Social Environment......................................................................................................................52 7.2.4 Technological Environment.........................................................................................................52 7.2.5 Ecological Environment..............................................................................................................53 8. INFORMATION TECHNOLOGY INDUSTRY...................................................................................54 8.1 WHY INFORMATION TECHNOLOGY INDUSTRY?..............................................................................................54 8.2 STRENGTHS..............................................................................................................................................55 8.3 WEAKNESSES...........................................................................................................................................55 8.4 COMPARATIVE ADVANTAGES......................................................................................................................57 8.5 GROWTH TREND OF SOFTWARE INDUSTRY...................................................................................................58 9. PHARMACEUTICAL INDUSTRY.......................................................................................................60 9.1 WHY PHARMACEUTICAL INDUSTRY?...........................................................................................................60 9.2 STRENGTHS..............................................................................................................................................61 9.3 WEAKNESSES...........................................................................................................................................62 9.4 COMPARATIVE ADVANTAGE.......................................................................................................................64 9.5 GROWTH TREND OF PHARMACEUTICAL INDUSTRY.........................................................................................65 10. TEXTILE INDUSTRY...........................................................................................................................67 10.1 WHY TEXTILE INDUSTRY?.......................................................................................................................67 10.2 STRENGTHS............................................................................................................................................68 10.3 WEAKNESSES.........................................................................................................................................68 10.4 GROWTH TREND OF TEXTILE INDUSTRY....................................................................................................70 10.5 FDI INFLOWS TO TEXTILES INDUSTRY AND GOVERNMENT INITIATIVE............................................................71 REFERENCES.............................................................................................................................................72

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List of Tables TABLE 1: IMPACT OF EMERGENCY BY INDIRA GANDHI ON ECONOMY..............................16 TABLE 2: ECONOMY DURING RAJIV GANDHI’S TIME.................................................................17 TABLE 3: GROWTH OF TOTAL GDP AT FACTOR COST AND CONTRIBUTION OF SECTORS......................................................................................................................................................19 TABLE 4: OLD AGE DEPENDENCY RATIO (1961-1991)...................................................................27 TABLE 5: EMPLOYMENTS IN ORGANIZED SECTOR: PRIVATE AND PUBLIC.......................28 TABLE 6: PERCENTAGE OF URBAN POPULATION AND GINI....................................................28 TABLE 7: POPULATION GROWTH TREND IN INDIA, 1901-1991..................................................29 TABLE 8: PROGRESS OF LITERACY RATE IN INDIA (1901 - 2001)..............................................31 TABLE 9: MAN-DAY LOST DUE TO LOCK-OUTS.............................................................................51 TABLE 10: VALUE OF PRODUCTION OF BULK DRUGS AND FORMULATION (IRS. IN CRORE).........................................................................................................................................................65 TABLE 11: EXPORT TREND IN TEXTILE PRODUCTS.....................................................................70

List of Figures FIGURE 1: DICTATORSHIP VS. DEMOCRACY CONTINUUM.......................................................12 FIGURE 2: GDP GROWTH RATES UNDER VARIOUS GOVERNMENTS.....................................18 FIGURE 3: GROWTH IN PER CAPITA GDP AND CONSUMPTION...............................................20 FIGURE 4: COMPOSITION OF GDP BY INDUSTRIES......................................................................21 FIGURE 5: GDP GROWTH IN DIFFERENT YEARS...........................................................................22 FIGURE 6: GROWTH RATE OF TOTAL GDP (INDIA VS. SOUTH ASIA).....................................22 FIGURE 7: SECTOR-WISE FDI FLOW..................................................................................................23 FIGURE 8: SECTORS ATTRACTING HIGHEST FDI FLOWS (IRS. IN CRORES).......................23 FIGURE 9: CONTROL ECONOMY VS. MARKET ECONOMY CONTINUUM..............................26 FIGURE 10: CONSUMPTION PATTERN...............................................................................................34 FIGURE 11: RURAL VS. URBAN MONTHLY PER CAPITA EXPENDITURE...............................35

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. Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

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 Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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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. Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

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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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

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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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

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 Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India 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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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India 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 Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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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 Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India 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.

Dictatorship

Direction

Democracy

Figure 1: Dictatorship vs. Democracy Continuum

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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 Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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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. Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

3.2.2 Lal Bahadur Shastri (June 9, 1964 - January 11, 1966) In his first broadcast as Prime Minister, on 11 June 1964, Shastri stated: “There comes a time in the life of every nation when it stands at the cross-roads of history and must choose which way to go. But for us there need be no difficulty or hesitation, no looking to right or left. Our way is straight and clear – the building up of a socialist democracy at home with freedom and prosperity for all, and the maintenance of world peace and friendship with all nations.” So, he just continued with the Nehru’s socialist economic policies.

3.2.3 Indira Gandhi (January 24, 1966 - March 24, 1977) India’s military defeat in the war with China in 1962 undermined the credibility of Nehru’s foreign policy and ultimately led to Indira Gandhi signing a treaty with the USSR in 1971 that, according to one analyst, “finally buried the idea of non-alignment.” This act of Indira Gandhi brought about the influence of socialist forces in the economic environment. Table 1: Impact of emergency by Indira Gandhi on economy

Year 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78

GDP at Factor Cost 10.0 22.6 17.7 6.2 7.5 14.1

Annual Growth Rate (%) NDP GNP NNP at at at Per Capita Factor Factor Factor NNP Cost Cost Cost 9.7 10.0 9.7 7.2 22.6 22.6 22.7 20.0 16.8 17.9 17.0 14.4 5.5 6.3 5.6 3.1 7.5 7.5 7.5 5.3 14.5 14.2 14.5 12.0

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

3.2.4 Rajiv Gandhi (October 31, 1984 - December 1, 1989) Rajiv Gandhi increased government support for science and technology and associated industries, and reduced import quotas, taxes and tariffs on technology-based industries, especially computers, airlines, defense and telecommunications. He introduced measures significantly reducing the License Raj, allowing businesses and individuals to purchase capital, consumer goods and import without bureaucratic restrictions. In 1986, he announced a National Policy on Education to modernize and expand higher education programs across India. He founded the Jawahar Navodaya Vidyalaya System in 1986 which is a Central government based institution that concentrates on the upliftment of the rural section of the society providing them free residential education from 6th till 12th grade. His efforts created MTNL in 1986, and his public call offices, better known as PCOs, helped spread telephones in rural areas. Table 2: Economy during Rajiv Gandhi’s Time

Year 1984-85 1985-86 1986-87 1987-88 1988-89

GDP at Factor Cost 12.3 11.7 11.5 13.4 19.3

Annual Growth Rate NDP GNP NNP at at at Factor Factor Factor Cost Cost Cost 12.0 12.1 11.8 11.1 11.8 11.1 11.2 11.4 11.1 13.3 13.2 13.1 19.6 18.9 19.1

Per Capita NNP 9.4 8.8 8.8 10.6 16.6

3.2.5 P.V Narasimha Rao (June 1991 – May 1996) P.V Narasimha Rao led one of the most important administrations in India’s modern history, overseeing a major economic transformation and several incidents affecting national security. Rao accelerated the dismantling of the Licence Raj. Rao, also called the “Father of Indian Economic Reforms,” is best remembered for launching India’s free market reforms that rescued the almost bankrupt nation from economic collapse. He was also commonly referred to as the Chanakya of modern India for his ability to steer tough

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India economic and political legislation through the parliament at a time when he headed a minority government. Rao’s major achievement is generally considered to be the liberalization of the Indian economy. The reforms were adopted to avert impending international default in 1991. The reforms progressed furthest in the areas of opening up to foreign investment, reforming markets, deregulating domestic business, and reforming the trade regime. Rao’s government’s goals were reducing the fiscal deficit, privatization of the public sector, and increasing investment in infrastructure. Trade reforms and changes in the regulation of foreign direct investment were introduced to open India to foreign trade while stabilizing external loans. Manmohan Singh, an acclaimed economist and current prime minister of India, played a central role in implementing these reforms.

3.3 GDP Growth Rates under various governments

Figure 2: GDP Growth Rates under various governments

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

3.4 Key Economic Indicators 3.4.1 Gross Domestic Product The overall growth of GDP at factor cost at constant prices in 2008-09, as per revised estimates released by the Indian Central Statistical Organization (CSO) (May 29, 2009) was 6.7 per cent. This is lower than the 7 per cent projection in the Mid-Year Review 2008-09.The growth of GDP at factor cost (at constant 1999-2000 prices) at 6.7 per cent in 2008-09 nevertheless represents a deceleration from high growth of 9.0 per cent and 9.7 per cent in 2007-08 and 2006-07 respectively. Table 3: Growth of total GDP at Factor Cost and Contribution of Sectors

(Source: Economic Survey 2008-09)

3.4.2 Per Capita Income and Consumption The per capita income in 2008-09, measured in terms of gross domestic product at constant 1999-2000 market prices, was Rs. 31,278. In 2007- 08 this stood at Rs. 29,901. Per capita consumption in 2008-09 was Rs. 17,344 as against a level of Rs. 17,097 in 2007-08. While there has been an increase in levels of per capita income and consumption, there has been a perceptible slowdown in their growth rate. The growth in per capita GDP decelerated from 8.1 per cent in 2006-07 to 4.6 per cent in 2008-09, while the per capita consumption growth declined from 6.9 per cent in 2007-08 to 1.4 per cent in 2008-09.

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

Figure 3: Growth in per capita GDP and Consumption (Source: Economic Survey 2008-09) (Note: The top line is per cap GDP and the bottom line is per cap Consumption)

3.4.3 Market Size The economy of India is the eleventh largest economy in the world by nominal GDP and the fourth largest by purchasing power parity (PPP).In the 1990s, following economic reform from the socialist-inspired economy of post-independence India, the country began to experience rapid economic growth, as markets opened for international competition and investment. In the 21st century, India is an emerging economic power with vast human and natural resources, and a huge knowledge base. Economists predict that by 2020, India will be among the leading economies of the world. India’s large service industry accounts for 62.6% of the country’s GDP while the industrial and agricultural sector contributes 20% and 17.5% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34% and industrial sector around 14%.The labor force totals half a billion workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep goats, poultry and fish. Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology enabled services and software. Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

India’s per capita income (nominal) is $1,030, while its per capita (PPP) is US$2,940. Previously a closed economy, India’s trade has grown fast. India currently accounts for 1.5% of World trade as of 2007 according to the WTO. According to the World Trade Statistics of the WTO in 2006, India’s total merchandise trade (counting exports and imports) was valued at $294 billion in 2006 and India’s services trade inclusive of export and import was $143 billion. Thus, India’s global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India’s trade has reached a still relatively moderate share 24% of GDP in 2006, up from 6% in 1985. India has 300 million strong middle-class population and is growing at an annual rate of 5%. This presents a huge opportunity for business.

Figure 4: Composition of GDP by Industries

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

3.4.4 Growth Rate While developed economies are not able to grow at a significant pace, India is able to.

Figure 5: GDP Growth in Different Years

India

South Asia

Figure 6: Growth rate of Total GDP (India vs. South Asia)

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

3.4.5 Foreign Direct Investment During 2008-09, the total FDI equity inflows stood at IRs. 1,22,919 crore (US$ 27,309 million) against IRs. 98,664 crore (US$ 24,579 million) during 2007-08 signifying a growth of 25 per cent in terms of rupee and 11 per cent in terms of US dollar. The distribution of FDI within the industrial sector between mining, manufacturing, electricity and construction was as follows.

Figure 7: Sector-wise FDI Flow

Figure 8: Sectors attracting highest FDI Flows (IRs. In Crores)

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

3.5 Control Economy vs. Market Economy India possesses the most complexly mixed economic system in the world, with all three elements of tradition, market, and command strongly present. India was under social democratic-based policies from 1947 to 1991. The economy was characterized by extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth. Since 1991, continuing economic liberalization has moved the economy towards a market-based system. A revival of economic reforms and better economic policy in 2000s accelerated India's economic growth rate. By 2008, India had established itself as the world's second-fastest growing major economy. However, the year 2009 saw a significant slowdown in India's official GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 6.8% of GDP which would be among the highest in the world. In the 1990s, following economic reform from the socialist-inspired economy of post-independence India, the country began to experience rapid economic growth, as markets opened for international competition and investment.

3.5.1 Pre-liberalization (Phase of control economy) When India attained independence from British rule in 1947, the country was poor, with an average per-capita annual income under thirty dollars. In the decades following India's independence from Great Britain, the country turned away from its capitalist past and embraced socialism. The first concern of its policy makers was to invest and create capacity in heavy industries such as power, iron and steel, machinery production and chemicals. In other words, the need of the hour was to develop the capital goods industry that would form the foundation of industrialization. The private sector was left to cater to the demand for consumer durables and non-durables. However, the government helped create industrial competence in two ways. It invested in the creation of a network of public universities and institutes for advanced research to supply qualified labor to the private sector and public sector enterprises.

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India At the same time, Indian industry grew under severe regulatory constraints in order to maximize poverty alleviation and access facilitation of essentials to the poor. The Indian government presided over what was in many respects a ‘closed command economy’ as distinct from an ‘open market economy’. Many industrial policies were put in place that discouraged foreign direct investment and permitted the emergence of Indian industry, while channeling the business vision of Indian firms towards very short run profits with the least R&D investment.

3.5.2 Post-liberalization (Move towards market economy) India embraced economic reform and started introducing 10 liberalization policies from 1991. Industrial licenses for expansion of the manufacturing base were abolished. Government regulation via manufacturing and marketing licenses only served to monitor the quality and safety of the final products arriving in the market. Price control was eased in many cases, including drugs. Procedures to obtain foreign technology agreement (FTA), imports and exports were greatly streamlined and 100 per cent foreign ownership was permitted in most sectors. Excise duty was slashed on imports, while a value added tax was added on domestic product. In order to maximize the gains from globalization and promote its exports, India signed the Uruguay round of GATT, which concluded in 1994, to become a member of the World Trade Organization (WTO). India was thereby obliged to meet all provisions of the Trade Related Aspects of Intellectual Property Rights (TRIPs) by 2005 including a return to a uniform product patent regime in all manufacturing sectors. Though at the time of initiation, the New Industrial Policy invited a lot of criticism; production, exports and imports have increased greatly in many sectors. Between 1991 and 1999, the proportion of the population under the poverty line decreased from 37.5 per cent (using headcount of consumption poverty) to 26.1 per cent when the population itself was growing at 1.5 per cent and the gross domestic product has grown at 4 percent or more since 2000. TRIPS have also been viewed with a jaundiced eye by many in India and other developing countries. Its protagonists claim that it will stimulate foreign direct

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India investment, investment in R&D and lower prices through increasing market supply. Others point out that foreign direct investment is not increasing much because of infrastructural problems, shortcomings of the Indian business environment and low market prices needed to ensure accessibility. Indian pharmaceutical and software firms continue to boost national pride as they venture more into international markets and establish production and R&D bases in the US and Europe.

Direction

Control Economy

Market Economy

Figure 9: Control Economy vs. Market Economy Continuum

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

4. Socio-Cultural Environment Social section enables understanding of customer demographics through income distribution, rural-urban segmentation and centers of affluence, healthcare and educational scenario. Changes in social trends can impact on the demand for a firm’s products and the availability and willingness of individuals to work.

4.2 Demography of Inequality Scientific study of human population, their size, their structure, their development is regarded as Demography. According to Van Mayer, sociologist, Demography can be defined as ‘the numerical analysis of the state and movement of human population inclusive of census enumeration and registration of vital processes and of whatever quantitative statistical analysis can be made of the state and movement of population on the fundamental census and registration data. Census is the process of collecting, compiling, evaluating analyzing and publishing demographic, social and economic data pertaining to specific point of time to all persons in a country. This process was first of all started by British in 1871, since then it is conducted every 10 years. The last census in India was conducted in 2001.

4.2.1 Old Age Dependency Ratio with Gini Coefficient Old age dependency ratio is defined as the number of people in the age group 60+ years per 100 people in the age group 15-59. Table 4: Old Age Dependency Ratio (1961-1991) Source: Census India, 1991

Year 1961 1971 1981 1991

Total Total 10.93 11.47 12.04 12.19

Males 10.91 11.39 11.84 12.16

Rural Females 10.94 11.57 12.24 12.23

Total 11.45 12.18 12.99 13.16

Males 11.64 12.33 13.06 13.34

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Urban Females 11.24 12.02 12.93 12.97

Total 8.71 8.89 9.24 9.66

Males 8.1 8.2 8.53 9.21

Females 9.5 9.74 10.08 10.19

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Gini Ratio 33.08 31.12 31.82 32.53

Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India The correlation coefficient between old age dependency ratio and Gini coefficient was found to be -0.27677. So, as old age dependency ratio increases inequality decreases.

4.2.2 Relationship between percentage of public sector employees and inequality Table 5: Employments in Organized Sector: Private and Public

Year

Gini Coefficient

Public Sector

Private Sector

1991 1999 2002 2004

32.53 29.95 42.00 35.5

190.58 194.15 187.73 181.97

76.76 86.98 84.32 82.46

Percentage Public Sector 0.71287499 0.69060577 0.69005697 0.68815944 (Lakh persons)

Source: NSSO survey, 62nd Round

The correlation coefficient between Gini Coefficient and Percentage Public Sector Employees in Organized Sector came out to be (-0.32966).

4.2.3 Relationship between urbanization and inequality As employment is moving from agriculture-manufacturing-services sector, there is increase in urban population. The inequality in the urban population has been found by most researchers to be more prominent. We compare percentage urban population with Gini coefficient. Table 6: Percentage of Urban Population and Gini

Year

Gini coefficient

1951 1961 1971 1981 1991 2001

35.56 33.08 31.12 31.82 32.53 42.00

Percentage urban population 17.29 10.29 11.18 23.34 25.71 27.8

Source: Selected Socio-Economic Statistics, 2002

The correlation coefficient was found to be 0.51, which validates the assumption. Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

4.2.4 Relationship of Corruption and Inequality Government aid plays an essential role in poverty alleviation and reduction of inequality. Corruption in the system does not allow redistribution of wealth and hence may result in augmentation of inequality. According to India Corruption study (2005) carried out by Centre of Media Studies, need based services in India are more corrupt than basic services with Rural Financial Institutes and Tax system found to be the most corrupt ones. It was also found poverty and the level of corruption faced as directly correlated with each other.

4.3 Population India, whose land occupies 2.4% of total area of world, has the second largest nation in terms of population size. India has population of 1.1 billion, which is 16% of total world population. With current rate of population growth (2.11% approx.), India will soon replace China as a most populous nation of the world. According to the Census conducted in 2001, India had total population of 1,028,610,328 out of which population of males was 532,156,772 as against 496,453,556 number of females with overall sex ratio of 933 i.e. 933 females per 1000 males. Table 7: Population Growth Trend in India, 1901-1991

Census Year 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991

Population (in millions) 236.7 238.4 252.09 251.32 278.98 318.66 361.09 439.23 548.16 683.33 843.93

Absolute Change Average Annual (in millions) Exponential Growth Rate 1.69 14.7 -6.77 27.66 36.68 42.43 78.14 108.93 135.17 160.6

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0.56 -0.03 1.04 1.33 1.25 1.96 2.2 2.22 2.11

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

4.3.1 Rural and Urban Population It is said that India lies in villages. Around 70% population of India lives in villages and is employed in primary sector. But in recent times this ratio of Rural/Urban population is changing fast. There are many factors of which the most important is migration. Due to unemployment and lack of facilities in rural set up people are immigrating into the cities in search of work and better living conditions. This migration has put a lot of strain on basic infrastructure of cities. The increasing population pressure on cities has resulted in coming up of slums. According to 2001 Census Delhi alone has slum population of 1,851,231, which is 18.7% of total population of Delhi.

4.4 Religion India is a secular democracy; almost all the religions of world find representation in this country. If on one hand majority of its population (approx. 80%) is Hindu, then on the other it also boasts of having the third largest Muslim population in the world. As per the last census conducted, out of the total population of 1028,610,328 – 8,275,879 are Hindus; 138,188 (13%) Muslims; 24,080 (2.34%) Christians; 19,216 (1.8%) Sikhs; 7,955 (0.7%) Buddhist; 4,225(0.4%) Jains; and 6,640 (0.6%) others.

4.5 Language India is home to approximately 1,652 languages among them 350 are major ones. There are 22 officially recognized languages. It includes Assamese, Bengali, Bodo, Dogri, Gujarati, Hindi, Kannad, Kashmiri, Konkani, Maithili, Malayalam, Manipuri, Marathi, Oriya, Punjabi, Santhali, Sanskrit, Sindhi, Telugu, Tamil, Nepali and Urdu. Hindi is the most widely spoken language closely followed by English, which is the second official language of the nation.

4.6 Literacy Rate Literacy can be defined as the ability to read and write with understanding in any one language. The percentage of literate people out of the total population of the country is Ajay, Dipika, Minesh, Richa R., Sudhir, Swakiya

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India known as the literacy rate of that nation. In India literacy rate is 65.38% as per 2001 census. But this rate is not uniform and may vary according to region, religion and gender. Urban literacy rate is much more than rural, male literacy rate is higher than the female literacy rate. Table 8: Progress of Literacy Rate in India (1901 - 2001)

Census Year 1901 1911 1921 1931 1951 1961 1971 1981 1991 2001

Percent Literate In Population Total Male 5.53 9.83 5.92 10.56 7.16 12.21 9.5 15.59 18.33 27.16 28.3 40.4 34.45 45.96 42.57 56.38 52.21 64.13 65.38 75.85

Female 0.69 1.05 1.81 2.93 8.86 15.35 21.98 29.76 39.29 54.16

India government spends about 4.1% of GDP (2010, most recent) on education; however, India still ranks 81st position out of 132 countries surveyed. Although the government spending has been increased than the previous years, India still lags behind other countries in terms of spending on education.

4.7 Caste System India has a hierarchical caste system in the society. Within Indian culture, whether in the north or the south, Hindu or Muslim, urban or village, virtually all things, people, and groups of people are ranked according to various essential qualities. If one is attuned to the theme of hierarchy in India, one can discern it everywhere. Although India is a political democracy, in daily life there is little advocacy of or adherence to notions of equality. India’s complex caste system includes 3,000 castes and 25,000 sub-castes, all traditionally related to occupation and they fall under four broad categories: Brahmin priests, Kshatriya warriors, Vaisya merchants, and Sudra workers and farmers.

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

4.8 Women Empowerment Women empowerment is the ability of women to exercise full control over one’s actions. In the past, women were treated as mere house-makers. They were expected to be bound to the house, while men went out and worked. This division of labor was and is still in a few parts of the country one of the major reason because of which certain evils took birth in our society child marriage, female infanticide, women trafficking. The government has passed many laws so as to empower the women. These rules have empowered them socially, economically, legally and politically. Not only the government but various non-governmental organizations have done a lot so as to improve the status of woman in our society. Child marriages have also been stopped. A study by the Centre for Economic and Social Studies in Hyderabad found that child marriage has declined among project participants. Groups have also started campaigns against the trafficking of women and girl children with the support of police, the revenue administration and NGOs. In recent years many steps have been taken so as to increase the participation of women in the political system. The Women’s reservation policy bill is however a very sad story as it is repeatedly being scuttled in parliament. Further, there is the Panchayat Raj System where women have been given representation as a sign of political empowerment. There are many elected women representatives at the village council level. However their power is restricted, as the men wield all authority. Their decisions are often over-ruled by the government machinery. All this shows that the process of gender equality and women's empowerment still has a long way to go and may even have become more difficult in the recent years. Empowerment would become more relevant when women are actually treated as equal to men. This division of labor that a woman is supposed to do only household chores and the men are the only one who can earn a living for the family has to be removed.

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

4.9 Consumption Pattern The liberalization of the economy in 1991 has had a significant impact on the nature of spending among consumers in India. The portfolio of spending categories for the average Indian has increased from 1991 to 2007. In 1991, the average Indian spent on 8 product categories, where as in 2007 the number of categories increased to 17, and included mobile handsets, gifts, and durables, among others. Major factors influencing the increase in spending categories include rise in disposable incomes, increasing number of dual-income nuclear families and changing attitudes toward consumption. The attitude of people toward shopping has changed from it being a regular chore to one that provides an enriching experience. The Indian consumer market is set to undergo a major transformation. By 2025, India is estimated to climb from its current position as the world’s 12th largest consumer market to become the world’s 5th largest consumer market. More than 291 million people are expected to move out of abject poverty to a more sustainable lifestyle and the size of the middle class is expected to swell by over ten times from its current size of 50 million to 583 million people. Moreover, more than 23 million Indians will get added to the group of the country’s wealthiest citizens by 2025. This well-being is expected to spread across the rural areas as well, with annual real rural income growth per household expected to accelerate from 2.8 percent (since the past 2 decades) to 3.6 percent over the next 2 decades. As the incomes in India continue to grow on the back of strong overall economic growth, income dynamics in India are expected to set in. According to MGI, in 2005, the Indian middle class was still relatively small comprising 5 percent of the population or 13 million households (50 million people). By 2025, the Indian middle class is expected to reach 41 percent of the population or 128 million households (583 million people). This would come along with households with real earnings of more than 1,000,000 Indian

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Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India rupees a year (that is about more than global $21,890 or $117,650 at PPP) comprising approximately 2 percent of the population but earning almost a quarter of its income. No. of households (Millions) 100% >$10940

3.6 10.9

42.6

80%

Aggregate Disposable Income (USD Billion)

Aggregate Consumption (USD Billion) 48.1

78.8 67.8

932.2

367.6

669.6

46

669.6

275.7

538.3

94.9

2

48.1 46 $4380 670 276 538 313 - $10940