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Essay: PEST analysis for India

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  • PEST analysis for India
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Before entering any new market, it is crucial to conduct sufficient market research in order to prevent a failure. When considering entering a new country, it may be useful to conduct a PESTEL analysis in order to gain further knowledge of this market. This analysis involves looking at the political, economic, social, technological environments.

When conducting a PESTEL analysis of India, we established the following insights of the Indian market:

Political Environment of India

With a population of 1.3 Billion people and 800-900 Million who are eligible to vote, India calls itself the largest democracy in the world (“National Interest”). India runs a federal form of government and proclaims that they can transfer power peacefully every five years since 1951, except for Ghandi’s experiment of autocracy in 1975 (“National Interest”). The political environment is greatly influenced by factors such as government’s policies, politician’s interests, and the ideologies of several political parties (“PESTLE-ANALYSIS”) The democratic will of the people is reflected in the local and national elections and is mostly accepted and also respected by the people and their politicians. The political culture of tolerance is a very dominant factor when it comes to maintaining a stable political climate. This is very important in order to attract FDI. However, sporadic political unrest is not very uncommon. For example at the moment India is preparing for its mammoth general elections, which are held every five years. One political unrest which has been around for the past year is the increasing violence against minorities since the pro hindu sentiment five years ago. (“lowyinstitute”)

One major area of political concern in India is corruption. Currently India is ranked 78/180 with a score of 41 on the corruption index (“Transparency”) Although India does not show the best results it shows a steady increase and less corruption every year. The Indian government created initiatives to combat the challenges of corruption. In 2018 Parliament passed the Prevention of Corruption (Amendment) Act introducing changes to the existing anti-corruption law (“Lexology”). India does this to be more democratic and also to be more interesting for other countries. Often companies do not consider FDI is because of corruption rankings in the desired country.

Economic Environment of India

According to the Economic Complexity Index (ECI), India is the 17th largest export economy in the world and the 45th most complex economy. In 2017, India exported $292B and imported $417B, resulting in a negative trade balance of $125B. In 2017 the GDP of India was $2.6T and its GDP per capita was $7.06k (“OEC”). In 2012 India exported $ 273 B. This means that India has increase at an annualized rate of 1.2% from 2012 to 2017. (“OEC”) When it comes to imports India imported $ 449 Bn 2012. India therefore has an annualized rate of -1.6 % from 2012 to 2017. (“OEC”)

India Main Exports 2017 (OEC)

• Refined Petroleum ($ 30.2 B)

• Diamonds ($ 26.5 B)

• Packaged Medicaments ($ 13.2 B)

• Jewellery ($ 8.66 B)

• Rice ($ 7.05 B)

India Main Imports 2017 (OEC)

• Crude Petroleum ($ 74.7 B)

• Gold ($ 39 B)

• Diamonds ($ 20.7 B)

• Coal Briquettes ($ 19.4 B)

• Petroleum Gas ($ 12.2 B)

In 2017, India’s main export destinations were the United States ($44.3B), the United Arab Emirates ($28B), China ($14.8B), Hong Kong ($12.7B) and Germany ($9.9B). The main import countries are China ($68.8B), the United States ($22.8B), the United Arab Emirates ($22.1B), Switzerland ($20.9B) and Saudi Arabia($19.4B). There is no official information, if numbers have changed in 2018.

India has had a negative trade balance since 1995. This means that the import more goods than they export. In 1995 they had a positive trade balance of $ 340 M. As mentioned earlier, 2017 India had a negative trade imbalance of $ 125 USD Billion.

India Trade Balance 1995-2017 (http://atlas.media.mit.edu/en/visualize/line/hs92/show/ind/all/all/1995.2017/)

India is not only among the top 10 most improving economies at the moment (“Doing Business 2019 Report”) according to the IMF 2017, India’s GDP is worth $2.4 trillion, making it the 7th largest economy in the world by GDP. The GDP is expected to grow by 7.4% by 2020. (The World Bank Group, 2018)

Currently there are multiple tax income groups. The main 4 different income groups are taxed at 0%, 5%, 20%, and 30%. Plus a general fee that applies depending on your tax group. The tax rate depends on your income. The highest income group is taxed at 30% plus the general fee and the 4% cess in India. Cess tax is basically a tax on tax. For example a cess of 4% means 4% of the basic tax rate.There are special tax rates for seniors. To be considered a senior, an individual has to be at least 60 years old. It changes again when a senior reaches at least 80 years of age.

India Income Tax Rates and Tax Groups:

(https://m.economictimes.com/wealth/tax/latest-income-tax-slabs/amp_articleshow/62751981.cms)

India is among the main producers and exporters of a select good. Like coffee, India is the 7th largest exporter of coffee in the world. (“Worldatlas”) India’s coffee exports rose 13% in first the 2 months of 2019. India mainly exports both robusta and Arabica varieties.

• As per the Board’s latest data, the shipment of Robusta coffee jumped 28.42 per cent to 34,090 tonnes during January-February 2019, from 26,545 metric tonnes in the same period last year.
(“Economic times”)

• Similarly, the export of Arabica coffee increased by 14.39 per cent to 11,156 tonnes, from 9,752 tonnes in the said period. (“Economic times”)

• Italy, Germany and Russia were the major export destinations for Indian coffee during the period. (“Economic Times”)

Social Environment of India

India offers an incredible variety of social life, as well as diversities of ethnic, linguistic, regional, economic, religious, class, and caste groups crosscut Indian society. Often there is also a difference in gender respect between urban and rural areas. The difference between the North and the South of the country are vast, especially when it comes to marriage and kinship.

When it comes to themes in the Indian society there are three things we mainly need to focus on. One being hierarchy and the other being purity and pollution. In a social aspect India is still a hierarchical society, no matter if north or south, hindu or muslim, urban or village, virtually all things, people, and social groups are ranked according to various essential qualities. This leads to certain difficulties in the society and on a political level. Although india is a democratic country there rarely is a complete equality between people, simply because of their social level. (“Asiasociety”).

In India it can happen that individuals are officially ranked according to their wealth and power. This means that successful or rich people are more important or have a higher say than people who are not successful. This does not happen all the time but it certainly can. (“Asiasociety”) Now even in countries such as Germany, USA, France, UK, etc. you can tell that individuals who are very successful often have a higher input simply through lobbying or contacts. The big difference is that it is not officially accepted by society, like it is in India.
Some status differences in India are expressed by their laws of purity and pollution. This includes different castes, religions, and regions around the country. In general a high status is associated with purity and a low status as polluted. Some rankings of purity are inherited as for example in the caste system. An Individual is born into a caste and cannot change it or rank up into another caste. Individuals might be born into a caste with a higher title than others in the same caste. Usually it is not permitted to marry outside of their caste, but it has been happening increasingly.

Although the standard of living in India is growing steadily as well as their middle class, in March of 2019 compared to the US the cost of living in India is 65.31% lower (aggregate date for all cities, except rent)(numbeo). According to “numbeo” rent in India is 84.99% lower than in the US.

As it can be observed the highest cost of living in India is 31.27 on the Index. The most expensive city to live in on average in India is Gurgaon. The cheapest one is Nagpur with a cost of living score of 22.73. An interesting observation is that the most expensive city “Gurgaon” and the cheapest city “Nagpur,” have the two highest “Local Purchasing Power Index” rankings.
Cost of Living by Location of City:

(“https://www.numbeo.com/cost-of-living/country_result.jsp?country=India”)

The above illustration should demonstrate the visual demonstration of the cost of living in India, as well as the location of the cities in the North and the South.

Expenses of Individuals in India:

(“https://www.numbeo.com/cost-of-living/country_result.jsp?country=India”)

The above displayed chart illustrates what the population as a whole mainly spends their income on.

Although India is improving their Standard of Living as a whole and the middle class is emerging, India expects a middle class of 200 million by 2020 and 475 Million by 2030 (“Emerging India”). One must not forget that there is still great poverty in India. There are two main categories; extreme poverty in India and poverty. According to the “World Poverty Clock” India currently has over 47 million people living in extreme poverty (March 30th, Worldpoverty). Extreme poverty is defined by living on less than $ 1.90 per day.

India has a consumer market of approximately 1.339 billion people (March 2019). India being the second most populated country. It is an estimation of it will be the most populated country by 2024. (“United Nations”). Because of India’s rising middle class and standard of living the market is emerging market is growing rapidly and therefore offers great obdurate opportunities for multinational companies. Companies have to move in before the market is being flooded and prices rise. Currently India still offers accessible and affordable labour force. This has already encouraged many multinational companies to outsource some of their business operations to India.

The table above shows the change in population statistics in India since 1955.

According to the “India Economy Equity Foundation” India’s GDP is estimated to have increased 6.6 per cent in 2017-18 and is expected to grow 7.3 per cent in 2018-19. During the first half of 2018-19, GDP (at constant 2011-12 prices) grew by 7.6 per cent. (“IEEF”). In 2017 India reportedly had a GDP of 2.597 trillion USD. The National Institute for Transforming India (NITI) published a strategic document called “Strategy for New India @75” to help India become a US$ 4 trillion economy by 2023.

Technological Environment of India

India belongs to the most technologically advanced countries in the world. With an advanced IT infrastructure and very highly skilled IT workforce, there is still a large niche in which opportunities to embark upon technological projects such as software development and upgrades, mobile apps, e-commerce, and business solutions (just to name a few) are created. Many technology companies have moved to India or see it as a potential market. “India has retained its position as the third largest startup base in the world with over 4,750 technology startups, with about 1,400 new start-ups being founded in 2016”, according to a report by NASSCOM. Tech giants such as Facebook, Microsoft, and Apple have already invested into India.

India IT Sector Statistics 1980-2015 (Currently there is no official information on the exact change and growth rate from 2015-2019)

24.10.2019

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