You are on page 1of 10

Running head: INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE

India, The New Investment For Global Trade

National University ECO 631 Savinder Lal September 23, 2011

INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE India, The New Investment For Global Trade

Introduction India has become the new investment home for global trade. India is a democratic society unlike its neighbor China, this gives India the added advantage and appeal from foreign investors and traders. India has become the new center for American-based companies to invest within, whether the company be a coffee shop, fast food restaurant, a pizzeria, IT centers, or call centers for American banks.

Investing Jain (2011) indicates that foreign investors especially, the Indian expatriate community (NRI non-resident Indians) are a significant economic source of investing within the Indian stock market, because of this the domestic regulations have been amended for preferential treatment for non-resident Indians. The Indian government has changed their policy for allowing trade into secondary markets directly and place orders with limits on stop loss ceilings allowing non-resident Indians to access the market from different time zones (United States, United Kingdom, Australia, etc...). The Reserve Bank of India has placed the overall non-resident Indian participation in any given

INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE company to a maximum of 10% or 20% by specific and general

body resolution; however, the non-resident Indian or person of Indian origin (PIO) can only own up to 5% of the total company. Foreign direct investment is highly encouraged and is generally permitted under sectors of manufacturing and service, there are restrictions permitted for shareholding in certain sectors such as defense, telecom finance, and insurance. Foreign direct investment has led to the start up of several franchise companies which originated in United States, such as Domino's pizza and Kentucky fried chicken (p.54-55). The Indian government (Jain, 2011) has made the recent changes for investors particularly for non-resident Indians (NRI) and Persons of Indian Origin (PIO), these changes include the possession of property as long-term capital asset where the tax rate is now set at 20.6%, this was previously set a tax rate of 30.9%. The Reserve Bank of India has also allowed for Indian banks to open special accounts (NRE/ NRO accounts) for foreign direct investors these accounts are maintained by authorized banks in India and they allow for investable funds to be deposited and remitted through normal banking channels from overseas. The Reserve Bank of India feels it is important for the creation of accounts such as these because NRI investors are

INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE

suggested to and being directed to invest in activities such as development of townships, retail, commercial premises, along with roads and bridges (p.54-55).

Foreign Direct Investment Aggarwal (2011) who recently interviewed Ajay Kaul of Jubilant Foodworks, this is the parent company which

oversees franchisee outlets for hundreds of companies whose origins are based in the United States. In recent years

there has been 378 Domino's pizza chains opened, 60 Kentucky Fried Coffee Chicken chains, chains, 280 170 Pizza Hut chains, 200 Barista Caf

McDonald's

restaurant

chain,

1000

Coffee Day chains, and by the end of 2011 Jubilant Foodworks will be opening 100 Dunkin' Donut chains. One the most

exciting things for Jubilant Foodworks is the launching of the hundred has Dunkin' the right Donut to chains, boast that allowing the West Jubilant Coast of

Foodworks

America does not have nearly as many stores compared to what is about to be launched in India. India is an ideal place for Dunkin' Donut and stores their to with the exponentially for coffee growing and the

middle-class, association of

tastes lifestyle

coffee

advancements

Jubilant

Foodworks believes there could potentially be a need for a few hundred more stores after the test of the initial

INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE

hundred. According to the CEO of Jubilant Foodworks, they will makes this franchisees is because able the to afford is and start brand on the

stores,

royalty

determined

rupee basis so it is not impacted on currency fluctuations, the franchisee already knows that their 10% of royalty to be paid will be and Jubilant Foodworks hopes the franchisee

work this into managing their stores and financial outlook for the fiscal year and the fiscal year to come (P. 32-35). Jubilant Foodworks (Aggarwal, 2011) over the past five years has seen sales of 678 crore (A crore in the Indian number system is equal to ten million, or 100 lakhs; A lakh is equal to one hundred thousand) Rupees, heading into fiscal year 2012 Jubilant Foodworks has a target of 644 crore Rupees, and 300 core Rupees is the cash flow expected to be generated by the company during fiscal year 2011 through 2013; it is important to note that Jubilant Foodworks has zero debt on its balance sheet, this is important because 50% of market shares for pizzas belong to Jubilant Food works; the pizza industry only accounts for 2% of the $13 billion (USD) Indian food industry and therefore by default 50% of that 2% is owned by Jubilant Foodworks, with an expected growth of 32% over the coming years. The total fast food service business in India is worth about 60,000 crore Rupees, the burger joints account for roughly

INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE 3000 crore Rupees, and the Caf industry accounts for roughly around 1300 crore Rupees (P. 32-35).

Off shoring Vogiatzoglou reported that in (2011) the of 20 Athens, years Greece India has recently

last

has

accelerated

steps in simplifying trade relations among countries. This intense globalization has created a global production supply chain throughout the world better known as off shoring and international production sharing. This strategic option for American firms to offshore in India has yielded minimizing overall costs which was aided by lowering tariffs, opening trade relations, in for a decrease wages, in and transportation new or costs, a

difference facilitate

worker a

technologies service of

which goods.

faster

production

Through collecting data from the OECD international trade it is determined that more source countries are investing in India and exporting at the intermediate production stages in order to subsequent production stages in the host country, the off shoring of intermediate goods has given India a

significant rise within the last decade. Many of the host countries the are the European the Union, China, offshore Switzerland, services and

United

States;

largest

occurs

mainly from the European Union and the United States. From

INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE

2000 to 2010 the off shoring phenomenon has helped create tens of thousands the of jobs in India in a wide in the variety of

industries, automobile,

most

importantly sector,

being

clothing, service

electronics

manufacturing,

centers (such as call centers), and information technology centers. for India is widely becoming related is a an international and result is center

information

technology

research direct this

creative of off

development shoring in

activities, Indian business

which

service and has

sector had a

increased development

intermediate

positive

within the service sector and its export performance (P.3841). In 2011) India has led the to off shoring phenomenon in the (Vogiatzoglou ,

improvement

country's

innovation

capabilities, research and development efforts in technology transfer from foreign own forms, positive effect on local firms and Indian exports. Revision in recent policies have also yielded to more extensive involvement in IT related off shoring activities particularly beneficial to the financial industries in the software technology development industries (P.38-41).

INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE Conclusion In conclusion, further research is needed to examine

what the timeline and the economical benefits for investing and India will become. According to data collected by The Economist (2011) indicators identify that the employment outlook for India is one the highest in the world and is expected to increase for Q3. The Economist (2011) indicates that of the 39 countries which is covered in the research India has one of the lowest unemployment rates. The Economist (2011) also reports that for the second quarter of 2011 India had a 7.8% increase in their GDP, with a overall projection for a 8.6% GDP for all of 2011. The CPI has changed from 13.7% to 9.1% as of April of 2011 and is expected to be at 8.1% for fiscal year 2011. The Economist (2011) reports the unemployment rate ending 2010 was at 10.8% and is expected to be at 5.2% ending fiscal year 2011 (P.97-99). In the short term it is visible that investing in India is economically viable and can yield high results with the growing middle-class yearning for Western tastes, whether it is the taste for wines, American cuisine, the association of the affluent with cafs, or other American (and Western) goods it is safe to say the middle-class will continue to grow in the near future giving investors an opportunity to

INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE

jump in into one of the new nation's staged for global trade and investment security. It would also behoove investors to take a closer look at Indian investment and trade policies and determine for themselves the risks involved.

INDIA, THE NEW INVESTMENT FOR GLOBAL TRADE References Aggarwal, S. (2011, June). Jubilant Foodworks. Outlook Profit, 32-35.

Jain, R. (2011, June 29). Investing in stocks on home turf. Outlook Money, 54-55. The Economist. (2011, June 18). Economic and financial indicators. The Economist, 97-99. Vogiatzoglou, K. (2011, June). Offshoring and India's export development in services. The Great Indian Dream, 38-41.

You might also like