50996557 analysis of macro business environment and swot analysis of key industries in india

7/29/2019 50996557 Analysis of Macro Business Environment and SWOT Analysis of Key Industries in India

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A Report on

Analysis of Macro Business Environments,

Business Opportunities-Threats,

and

Strengths-Weaknesses

Of

IT, Pharmaceutical, and Textile Industry

in India

Submitted toMr. Saroj Misra,

Faculty, Business Development in South Asia,

South Asian Institute of Management

Submitted byAjay Shrestha [#1301]

Dipika Silwal [#1306]

Minesh Rajbhandari [#1311]

Richa Rungta [#1311]

Sudhir Dhungel [#1327]

Swakiya Shrestha [#1330]

Fifth Term, SAIM


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Date: May 24, 2010


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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 value-

added 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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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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Table of Contents

EXECUTIVE SUMMARY ............. .............. .............. .............. .............. .............. ............... .............. ........... ..I

1. OVERVIEW OF INDIAN ECONOMY ............. .............. .............. ............... .............. .............. ..... ..... .....1

2. POLITICAL ENVIRONMENT .............. .............. .............. .............. .............. ............... .............. ..... ...... ..2

2.1 GOVERNMENTOF INDIA............................................................................................................................... 22.1.1 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 ................................................................................................... ...... ...... ......42.2 POLITICAL PARTIESIN INDIA........................................................................................................................ 52.3 NON-STATE PLAYERS: MAOISTS..................................................................................................................52.4 POLITICALINFLUENCEIN BUSINESS...............................................................................................................62.5 CORPORATE GOVERNANCEIN INDIA..............................................................................................................8

2.5.1 Pre-liberalization ...........................................................................................................................8

2.5.2 Post-liberalization ........................................................................................................................9

2.6 DICTATORSHIPVS. DEMOCRACY.................................................................................................................112.6.1 Pre-Independence ........................................................................................................................11

2.6.2 Post-Independence .......................................................................................................................12

3. ECONOMIC ENVIRONMENT ............. ............... .............. .............. .............. .............. ............... ...........13

3.1 ECONOMICIMPACTOFTHE BRITISHRULEIN INDIA........................................................................................133.2 POLITICSAND 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) ...............................................................173.2.5 P.V Narasimha Rao (June 1991 May 1996) .............................................................................17

3.3 GDP Growth Rates under various governments ............................................................... ...... ...... .18

3.4 KEY ECONOMIC INDICATORS...................................................................................................................... 193.4.1 Gross Domestic Product ..............................................................................................................19

3.4.2 PERCAPITA INCOMEAND CONSUMPTION.................................................................................................. 193.4.3 Market Size ..................................................................................................................................20

3.4.4 Growth Rate .................................................................................................................................22

3.4.5 Foreign Direct Investment ...........................................................................................................233.5 CONTROL ECONOMYVS. MARKET ECONOMY...............................................................................................24

3.5.1 Pre-liberalization (Phase of control economy) ...........................................................................243.5.2 Post-liberalization (Move towards market economy) ..................................................................25

4. SOCIO-CULTURAL ENVIRONMENT ............... .............. .............. .............. .............. ............... ....... ...27

4.2 DEMOGRAPHYOF 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 .............................284.2.3 Relationship between urbanization and inequality ..................................................................... .28

4.2.4 Relationship of Corruption and Inequality ..................................................................................294.3 POPULATION............................................................................................................................................29

4.3.1 Rural and Urban Population ......................................................................................................30

4.4 RELIGION................................................................................................................................................304.5 LANGUAGE.............................................................................................................................................. 304.6 LITERACY RATE....................................................................................................................................... 304.7 CASTE SYSTEM........................................................................................................................................314.8 WOMEN EMPOWERMENT...........................................................................................................................32

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4.9 CONSUMPTION PATTERN............................................................................................................................ 33

5. TECHNOLOGICAL ENVIRONMENT ............. .............. .............. .............. .............. ........... ..... ...... .....37

5.1 TRANSPORTATION SECTOR.........................................................................................................................375.1.1 Railways .......................................................................................................................................38

5.1.2 Roads .................................................................................................................................... ...... .38

5.1.3 Ports .............................................................................................................................................385.1.4 Aviation ........................................................................................................................................385.2 COMMUNICATION...................................................................................................................................... 395.3 POWER.................................................................................................................................................... 395.4 R&D IN INDIAN INDUSTRY.......................................................................................................................41

6. ECOLOGICAL ENVIRONMENT ............... .............. .............. .............. .............. ............... ........... ..... ...42

6.1 POLLUTION.............................................................................................................................................. 436.2 UNCONTROLLED POPULATION GROWTH.......................................................................................................436.3 ENVIRONMENTAL ISSUES............................................................................................................................ 446.4 EFFECTOF GLOBAL WARMING................................................................................................................... 456.5 INDUSTRIALPOLLUTIONANDTHEENVIRONMENT............................................................................................456.6 INITIATIVESBYTHE GOVERNMENT..............................................................................................................46

7. OPPORTUNITIES AND THREATS IN INDIA .............. .............. .............. .............. ........... ..... ...... .....47

7.1 OPPORTUNITIES........................................................................................................................................477.1.1 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................................................................................................................................................. 507.2.1 Political Environment ........................................................................................................... ...... .50

7.2.2 Economic Environment ................................................................................................................50

7.2.3 Social Environment ......................................................................................................................52

7.2.4 Technological Environment .................................................................................................. ...... .527.2.5 Ecological Environment ....................................................................................................... ...... .53

8. INFORMATION TECHNOLOGY INDUSTRY ............ ............... .............. .............. .............. ............. .54

8.1 WHY INFORMATION TECHNOLOGY INDUSTRY? ..............................................................................................548.2 STRENGTHS.............................................................................................................................................. 558.3 WEAKNESSES........................................................................................................................................... 558.4 COMPARATIVE ADVANTAGES...................................................................................................................... 578.5 GROWTH TRENDOF SOFTWARE INDUSTRY...................................................................................................58

9. PHARMACEUTICAL INDUSTRY .............. .............. .............. .............. .............. ............. ..... ...... ...... ...60

9.1 WHY PHARMACEUTICAL INDUSTRY? ...........................................................................................................609.2 STRENGTHS.............................................................................................................................................. 619.3 WEAKNESSES........................................................................................................................................... 629.4 COMPARATIVE ADVANTAGE.......................................................................................................................64

9.5 GROWTH TRENDOF PHARMACEUTICAL INDUSTRY.........................................................................................65

10. TEXTILE INDUSTRY ............. .............. .............. .............. .............. ............... .............. .............. .......... .67

10.1 WHY TEXTILE INDUSTRY? .......................................................................................................................6710.2 STRENGTHS............................................................................................................................................ 6810.3 WEAKNESSES......................................................................................................................................... 6810.4 GROWTH TRENDOF TEXTILE INDUSTRY....................................................................................................7010.5 FDI INFLOWSTO TEXTILES INDUSTRYAND 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 GANDHIS 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



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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 countrys growth,

which has averaged more than 7% per year since 1997. Indias 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 Indias 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. Indias 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. Indias

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.

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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 Indias 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



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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.



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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. Auniform 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 governmentlevel. 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 StateLegislatures and also for conducting the elections.



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2.2 Political Parties in India

There are seven parties recognized as national parties.

i. Bahujan Samaj Party

ii. Bharatiya Janata Partyiii. 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 (MarxistLeninist) Peoples 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 Peoples 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 fromthe British Raj gathered momentum in the1920s and 1930s, close relationships developed

between Indian businesses and leaders of the political movement for Indias

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

countrys economic policies toward socialism. This period, often characterized as the

License Raj, began with the governments 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 sectors 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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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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2.5 Corporate Governance in India

Corporate governance deals with the rights and responsibilities of a companys

management, its board, shareholders and various stakeholders. Corporate governance in a

developing-country setting takes on additional importance. Good corporate governance isvital 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 fullyoperational stock exchanges. Subsequent laws, such as the 1956 Companies Act, further

solidified the rights of investors.

In the decades following Indias 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 Indias 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

Indias 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



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abuses by dominant shareholders and management were commonplace. Indias 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 Indias 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), Indias premier business

association, unveiled Indias first code of corporate governance. However, since the

Codes 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--vis corporate

governance in exchange-traded companies. In 2003, SEBI instituted the Murthy

Committee to scrutinize Indias corporate-governance framework further and to make



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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 countrys 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 StockExchange 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



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with the enactment of Sarbanes-Oxley type measures in Clause 49 of the listing

agreements, and legal changes to improve the enforceability of creditors 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



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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.

Figure 1: Dictatorship vs. Democracy Continuum


DemocracyDirection

Dictatorship


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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

Indias 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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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. Britains 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



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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 thefirst Five-Year Plan in 1951, which charted the governments 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 Indias programs to harness nuclear

energy.

For most of Nehrus term as prime minister, India would continue to face serious food

shortages despite progress and increases in agricultural production. Nehrus 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.



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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 ofhistory 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 Nehrus socialist economic policies.

3.2.3 Indira Gandhi (January 24, 1966 - March 24, 1977)

Indias military defeat in the war with China in 1962 undermined the credibility of

Nehrus 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

Annual Growth Rate (%)GDP

at

Factor

Cost

NDP

at

Factor

Cost

GNP

at

Factor

Cost

NNP

at

Factor

Cost

Per Capita

NNP

1972-73 10.0 9.7 10.0 9.7 7.2

1973-74 22.6 22.6 22.6 22.7 20.0

1974-75 17.7 16.8 17.9 17.0 14.4

1975-76 6.2 5.5 6.3 5.6 3.1

1976-77 7.5 7.5 7.5 7.5 5.3

1977-78 14.1 14.5 14.2 14.5 12.0



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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 measuressignificantly 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 12 th

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 Gandhis Time

Year

Annual Growth Rate

GDP

at

Factor

Cost

NDP

at

Factor

Cost

GNP

at

Factor

Cost

NNP

at

Factor

Cost

Per Capita

NNP

1984-85 12.3 12.0 12.1 11.8 9.4

1985-86 11.7 11.1 11.8 11.1 8.81986-87 11.5 11.2 11.4 11.1 8.8

1987-88 13.4 13.3 13.2 13.1 10.6

1988-89 19.3 19.6 18.9 19.1 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 Indias 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 Indias 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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economic and political legislation through the parliament at a time when he headed a

minority government.

Raos 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.

Raos governments 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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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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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.

Indias large service industry accounts for 62.6% of the countrys 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.



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Indias per capita income (nominal) is $1,030, while its per capita (PPP) is

US$2,940. Previously a closed economy, Indias 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, Indias total merchandise trade (counting

exports and imports) was valued at $294 billion in 2006 and Indias services trade

inclusive of export and import was $143 billion. Thus, Indias 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. Indias 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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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 AsiaFigure 6: Growth rate of Total GDP (India vs. South Asia)



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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. Thedistribution 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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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 byextensive 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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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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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.

Figure 9: Control Economy vs. Market Economy Continuum


Market

Economy

DirectionControl

Economy


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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 firms

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

Total Rural Urban Gini

RatioTotal Males Females Total Males Females Total Males Females

1961 10.93 10.91 10.94 11.45 11.64 11.24 8.71 8.1 9.5 33.08

1971 11.47 11.39 11.57 12.18 12.33 12.02 8.89 8.2 9.74 31.12

1981 12.04 11.84 12.24 12.99 13.06 12.93 9.24 8.53 10.08 31.82

1991 12.19 12.16 12.23 13.16 13.34 12.97 9.66 9.21 10.19 32.53


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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

YearGini

Coefficient

Public

Sector

Private

Sector

Percentage

Public

Sector

1991 32.53 190.58 76.76 0.71287499

1999 29.95 194.15 86.98 0.69060577

2002 42.00 187.73 84.32 0.69005697

2004 35.5 181.97 82.46 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 bymost researchers to be more prominent. We compare percentage urban population with

Gini coefficient.

Table 6: Percentage of Urban Population and Gini

YearGini

coefficient

Percentage

urban

population

1951 35.56 17.29

1961 33.08 10.291971 31.12 11.18

1981 31.82 23.34

1991 32.53 25.71

2001 42.00 27.8Source: Selected Socio-Economic Statistics, 2002

The correlation coefficient was found to be 0.51, which validates the assumption.



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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 byCentre 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 YearPopulation

(in millions)

Absolute Change

(in millions)

Average Annual

Exponential Growth Rate

1891 236.71901 238.4 1.691911 252.09 14.7 0.561921 251.32 -6.77 -0.031931 278.98 27.66 1.041941 318.66 36.68 1.33

1951 361.09 42.43 1.251961 439.23 78.14 1.961971 548.16 108.93 2.21981 683.33 135.17 2.221991 843.93 160.6 2.11



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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 tounemployment 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



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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)

Percent Literate In Population

Census Year Total Male Female

1901 5.53 9.83 0.691911 5.92 10.56 1.051921 7.16 12.21 1.811931 9.5 15.59 2.931951 18.33 27.16 8.861961 28.3 40.4 15.35

1971 34.45 45.96 21.981981 42.57 56.38 29.761991 52.21 64.13 39.292001 65.38 75.85 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. Indias 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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4.8 Women Empowerment

Women empowerment is the ability of women to exercise full control over ones 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 afew 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 Womens 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 along 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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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 productcategories, 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 cur

50996557 analysis of macro business environment and swot analysis of key industries in india

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