International business is of prime importance in today’s era amongst economies of the world. It holds more significance for the fast-growing economies like the BRICS countries (Brazil, Russia, India, China, and South Africa). The annual rate of growth of India in the international business is above 8%.
India has rich resources that are way above those of other nations. That is why India is seen as the right nation to explore business opportunities. Amongst many of the resources that make India lucrative for business, the top ones are:
Highly and semi-skilled manpower.
Technologies within the country.
Rich natural resources.
Budding middle-class segment.
The willingness of the Indian government to participate in the world trade
Introduction of India’s Role in World Business
India is known to be one of the fastest-growing economies in the world, next only to China. It holds the place of the 10th largest economy in the world. It is predicted that the top three countries that are likely to dominate the 21st-century economy are; the United States, China, and India. Forty percent of the world’s GDP (gross domestic product) comes from these countries. India, which is already using the World Bank’s PPP (Purchasing power parity) exchange rate, has the 3rd largest GDP in the world.
The growth of India’s GDP to 203.39 trillion USD in 2019-20 owes it to the integration of the domestic economy through two channels; trade and capital flow. The per capita income of India has also become three times in these years.
India's Export of Services
In the Indian economy, the services sector holds tremendous value. Almost 55 percent of India's GDP comes from services. India's trade in services has been a significant driver in its exports in the last two decades. India tops the chart as the fastest growing nation in global service trade.
The service sector has been beneficial to India in many ways such as:
Attracting significant foreign investments.
A significant contribution to export
Providing large scale employment.
The service sector of India comprises a wide range of activities such as transport, trade, hotels and restaurants, business services, financing, insurance, etc. From the year 2014-2018, India’s export of services has shown an upward trend.
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The Indian government has come up with SEIS (Service exports from India scheme) which is geared towards promoting the export of services from India. The SEIS provides duty scrip credit for eligible exports. The service providers in India would get rewards under the SEIS scheme for all the eligible exports. Check out the salient points of the SEIS scheme:
Any service provider (company, firm, and partnerships) who has net free foreign exchange earnings of more than 15000 USD in the preceding financial year are eligible for duty credit scrip.
For individual service providers, the minimum net free foreign exchange earning required is 10,000 USD.
The service provider must have an active import-export code (IE code) to be eligible under the SEIS scheme.
The net foreign exchange earning SEIS is calculated, as shown below:
Net Foreign Exchange = Gross Foreign Exchange earnings – Total foreign exchange which has been remitted, spent or paid.
Indian Trade Portal
Successful bilateral and multilateral trade negotiations have boosted world trade in the past decades. There has been a considerable reduction in tariffs on exported goods. India's involvement in world business increased its external trade by getting into trading agreements with numerous different countries.
To facilitate the rate of export and import in India, a web-based Indian Trade Portal has been designed by the department of commerce (government of India). The key features of this Indian Trade Portal are:
Goods are classified as per country-specific disaggregated harmonized system (HS) levels 6,7,8, etc.
The portal has updated tariff data for Indian, ASEAN, and India’s 25 foremost export destinations.
It has the list of SPS (Sanitary and Phytosanitary) and TBT (Technical barriers to Trade) requirements for India and India’s 25 foremost export destinations.
One can search the data based on HS codes and product names.
India's Foreign Trade in Goods
The goods foreign trade by India was 31.4% of the total GDP in the 2019 financial year. India's Foreign Trade in Goods primarily happens with the United States, UAE (United Arab Emirates), China, Saudi Arabia, Hongkong, Singapore, and Iraq.
Recently India signed up for free trade agreements with South Korea and ASEAN. India is also in negotiation with various partners like Australia, the EU, New Zealand, MERCOSUR, and South Africa.
The main goods exported from India are:
Petroleum oils (14.6%)
Diamonds (7.9%)
Medicaments (4%)
Jewellery products (3.8%)
Rice(2.3%)
India imports the following commodities:
Petroleum oils (22.6%)
Diamonds (5.2%)
Coal and similar solid fuels (4.8%)
Petroleum gas and other gaseous hydrocarbons (3.7%)
The table below gives a snapshot of India’s import and exports of goods from 2015 till 2019.
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FAQs on India's Role in Global Business: Opportunities and Challenges
1. What is India's fundamental role in international business today?
India plays a pivotal role in international business as one of the world's fastest-growing major economies. Its position is defined by several key factors:
- It is recognised as a vast and expanding market for global companies.
- It serves as a major hub for information technology and business process outsourcing services.
- India is an increasingly attractive destination for foreign direct investment (FDI) due to policy reforms.
- With its GDP ranking 3rd largest in the world by Purchasing Power Parity (PPP), India is a significant driver of global economic growth.
2. How has India's service sector contributed to its role in global business?
India's service sector is a cornerstone of its global economic integration, contributing over 55% to the nation's GDP. It has propelled India's growth by:
- Making India one of the fastest-growing nations in global services trade.
- Attracting significant foreign investment into sectors like IT, finance, and business services.
- Generating large-scale employment opportunities.
- Boosting export earnings, supported by government initiatives like the Service Exports from India Scheme (SEIS), which rewards eligible service providers.
3. What are the principal goods that India exports and imports?
India's foreign trade involves a diverse range of goods. According to recent trade data, the principal items are:
- Major Exports: Petroleum oils, diamonds, pharmaceutical products, jewellery, rice, and vehicles.
- Major Imports: Crude petroleum oils, diamonds (uncut), coal, petroleum gas, and electronic components.
4. What is the purpose of the Indian Trade Portal, and how does it help businesses?
The Indian Trade Portal is a web-based platform launched by the Department of Commerce to facilitate international trade for Indian businesses. Its primary purpose is to provide a single point of access for crucial trade information. It helps businesses by offering:
- Updated data on tariffs and taxes for India and its key export destinations.
- Information on trade requirements like Sanitary and Phytosanitary (SPS) standards and Technical Barriers to Trade (TBT).
- A user-friendly search function based on product names and HS codes to streamline the export-import process.
5. What are the primary challenges that globalisation poses for businesses in India?
While globalisation offers immense opportunities, it also presents significant challenges for Indian businesses, including:
- Intense Competition: Facing competition from established multinational corporations with vast resources and advanced technology.
- Compliance with International Standards: The need to adhere to stringent quality, environmental, and labour standards of foreign markets.
- Infrastructure Deficits: Inadequate infrastructure in areas like transport and power can hinder competitiveness.
- Navigating Trade Policies: Dealing with complex and often protectionist trade policies of other nations.
6. How does engaging in international trade directly fuel India's economic growth?
International trade is a powerful engine for India's economic growth by creating a virtuous cycle. It boosts the economy by allowing India to specialise in producing goods and services where it has a comparative advantage, leading to greater efficiency. Increased exports bring in valuable foreign exchange, which stabilises the economy and finances essential imports like technology and crude oil. Furthermore, it stimulates domestic demand, creates jobs, and forces local industries to become more competitive, ultimately increasing the national and per capita income.
7. Why are international trade agreements and organisations like the WTO significant for India?
International trade agreements and organisations like the World Trade Organization (WTO) are highly significant for India as they provide a stable and predictable framework for global commerce. Their importance lies in:
- Reducing Trade Barriers: They work to lower tariffs and eliminate non-tariff barriers, giving Indian products better access to global markets.
- Providing a Dispute Mechanism: They offer a formal system for resolving trade disputes between nations, protecting India's interests.
- Ensuring Fair Trade: They establish rules against unfair trade practices like dumping, helping to shield domestic industries.
8. What was the Regional Comprehensive Economic Partnership (RCEP), and what were India's reasons for not joining it?
The Regional Comprehensive Economic Partnership (RCEP) is a major free trade agreement among Asia-Pacific nations. India was an active participant in negotiations but decided not to join in 2019. The primary reason for this strategic decision was to safeguard the interests of its domestic producers. Key concerns included the potential for a flood of cheap imports, particularly from China, which could harm sensitive sectors like agriculture, dairy, and small-scale manufacturing. India felt that the final agreement did not adequately address its core concerns regarding trade deficits and market access.
9. How do issues related to Intellectual Property Rights (IPR) create challenges for India in global trade?
Intellectual Property Rights (IPR) present a complex challenge for India in global trade. While strong IPR protection is needed to encourage innovation, it often clashes with developmental priorities. Key challenges include:
- Access to Medicines: Balancing patent protection for multinational pharmaceutical companies with the need to produce affordable generic drugs, a cornerstone of India's healthcare industry.
- Meeting Global Standards: Aligning India's IPR laws with the stringent standards demanded by developed countries in trade negotiations.
- Enforcement and Counterfeiting: Tackling issues of piracy and counterfeit goods, which can damage the reputation of Indian products and lead to trade disputes.
