Ever since 2003, India has been recording high economic growth rates for three consecutive years, of which the annual average has been over 8%. By maintaining a stable growth basis ever since the economic liberalization of the 1990's, it has been rising as a second China.
Especially due to the improvement of income levels following economic growth, private consumption has been in good condition.
Exports have also been maintaining increasing trends of an annual average of over 20% ever since 2002.
One of the reasons why India's economic growth continues is the fact that it, as an enormous market, possesses a great potential to grow. As of 2005, India ranked 12th in the world, after Korea, in terms of nominal GDP. And it ranked 4th in the world in terms of the size of the economy converted with purchasing parity power (PPP).
Above anything else, the high rate of population increase can be mentioned as the reason why such an economic scale can be maintained in the future, too. As of 2005, the population of India was about 1.02 billion, capturing the second place in the world after China's 1.31 billion people.
It is forecast that, in 2050, India's population will reach about 1.59 billion people, thereby overtaking China at about 1.39 billion people Next, India has world-class competitiveness in terms of its IT industry and excellent labor power. India's IT industry has been growing at a fast speed through overseas outsourcing. The size of the related market had expanded by 7.8 times from US$4.8 billion in 1997 to US$37.4 billion in 2005.
The excellent and cheap human resources have been functioning as an inducement factor for foreign corporations' investments in India. The number of students in specialized fields ranks third in the world after the United States and China. In technological fields, too, India has the third most professional manpower pool in the world after China and Russia (UNCTAD, 2005).
Above anything else, the low employment costs are a factor for foreign enterprises to expand their surplus power for investing in India.
In contrast, elements that can impede the high growth of India still exist, too. The balanced growth among companies in India is rather insufficient. And the competitiveness of state operated companies is relatively inferior. Also, improvement of the investment conditions for foreign corporations is a task for the future. In other words, the rigidity of the labor market and the insufficiency of the infrastructure are obstacles in inducing investments by foreign corporations.
It is, in actuality, impossible for large corporations to dismiss workers because of the laws and regulations related to labor. As a result, multinational corporations have been showing the tendency to be reluctant to invest in India's labor-intensive manufacturing industry.
In order to utilize the benefits resulting from India's high growth in the future, there is a need to seek for the pursuit of an FTA with India. Ever since the 1990's, India has been actively pursuing FTAs with nearby countries in Asia who are capable of securing new growth potential. Presently, the situation is that it has agreed to FTAs with such nearby countries as Sri Lanka, Thailand and Singapore. And it has been proceeding with joint researches with China, Japan and the EU.
Korea has been pursuing a closer economic partnership arrangement (CEPA) with India. It is highly expected that, through this, the investment in India by related Korean corporations will become easy. In addition, in order to enter India, it can be said that thorough market research is the most effective. India's policies on foreign investment corporations must be clearly and accurately analyzed and countermeasure plans must be prepared. Indiscreet investments for utilizing only India's cheap labor force must be avoided.
Understanding these diverse factors, including not only India's economic policies but also the society and culture, can reduce investment risks. The feasibility of an investment after investigating in many angles the special economic zones of India, which have a lot of incentives for investment.
It would be wise to also consider the changes of related policies regarding foreign corporations and investment.