The Risk of Investing in India

India is a fast rising Asian country. Its economy grew tremendously in the past two decades. However, the 2008 global economic turmoil took a major hit on the country’s performance (Aloui et al. 133). Since then, the path to recovery has been painfully gradual. As such, India’s exposure to economic shocks presents multiple investment risks to new market entrants. The state boasts of large and cheap labor force that lowers business operation cost, but the Western investors face a myriad of hard-to-overcome investment challenges.

Business Risks

Most Western companies seeking to enter Indian market fail to prepare. India has a rich business culture that demands respect and understanding. Business executives and firms that take an adequate time to study India’s market are rewarded accordingly (Migliore 44). India’s business environment is not similar to those of other Asian giants like China.  In business terms, India is more of a continent than a country. For example, there is a strong diversity of official languages which complicates the adaptation process.

Patience is imperative for a business to achieve success in India. Given the local firm’s competitive nature, a foreign investor will face multiple hurdles to penetrate the market. Therefore, adequate preparation is not enough: total commitment to success is required. Loss of talent is another potential business risk as the country’s status as a growing economy implies that there is intense competition for top talent (McKenzie and Woodruff 7).

Legal and Regulatory Risks

India has extensive and strict legal procedures applicable in conducting businesses. Corrupt activities are intolerable and can lead to revocation of business operation license not to mention heavy fines. Moreover, India’s business policies and regulations are unpredictable due to frequent abrupt changes. It is possible for federal of local authorities to dredge up arcane law portions as an unexpected challenge to foreign or local firms. While this rarely happens, it often renders the company operations obsolete thus resulting in a significant setback.

Despite the legislators’ effort to curb corruption, corporate frauds and bribery is one of the major risks that affect business operations in India. In the last few years, scandals and mega frauds have rocked the business sector (Marquette 14). Particularly, there is a rise in physical assets theft, information theft, and internal finance frauds. The nature and magnitude of these risks wields a major impact on India’s Foreign Direct Investment (FDI).  Resultantly, investors that wish to explore Indian market in the short-run are advised consider this development.

Economic Risks

India’s stock market is the oldest in Asia. The country’s regulatory system for debt and equities is fairly vigorous. With such a vibrant and modern economic regulation system, it is worrying that the state still has to battle surging inflation rates and lack of government fiscal discipline (Gay 72). Most economists believe that inflation problems arise due to government’s  inability to regulate the circulation of rupee as the population booms. 

India’s rural population is extremely poor. The government has tried several means to create social equality, but all have collapsed. The measures include substantial transfer payment to the poverty-stricken rural settlers, large food and fuel subsidies and disproportionate wage increment for state employees. In the long-run, these economic policies have resulted in a chaotic and bleeding economic system that multiplies risks to businesses.  In fact, foreign firms should watch the stock market closely for signs interest and exchange rate risks.

From the discussion, it is clear that India has a long way to go to ensure proper business risk regulators are in place. Currently, the country is a risky environment for investors to take a gamble. Though a new and promising government is in place, it should work on the promises to instill confidence on investors.

Works Cited

Aloui, Riadh, Mohamed Safouane Ben Aïssa, and Duc Khuong Nguyen. "Global financial crisis, extreme interdependencies, and contagion effects: The role of economic structure?." Journal of Banking & Finance 35.1 (2011): 130-141.Print.

Gay Jr, Robert D. "Effect of macroeconomic variables on stock market returns for four emerging economies: Brazil, Russia, India, and China." International Business & Economics Research Journal (IBER) 7.3 (2011): 53-96.Print.

Marquette, Heather. "‘Finding God’or ‘Moral Disengagement’in the Fight against Corruption in Developing Countries? Evidence from India and Nigeria." Public Administration and Development 32.1 (2012): 11-26.Print.

McKenzie, David, and Christopher Woodruff. "What are we learning from business training and entrepreneurship evaluations around the developing world?." The World Bank Research Observer (2013):7-12.

Migliore, Laura Ann. "Relation between big five personality traits and Hofstede's cultural dimensions: Samples from the USA and India." Cross Cultural Management: An International Journal 18.1 (2011): 38-54.Print.