Muhamaitibayi Wulan_60517_assignsubmission_file_Group assignment IFM

Esta é uma pré-visualização de arquivo. Entre para ver o arquivo original

Title: 
India
(Times New Roman, Font size 12 pt., Line spacing: 1.5, margin: normal)
Department Name: 
Course Name: International Financial Management
Student ID and Name: Saken Otegen 20170114 
 Ulan Mukhametbay 20162301
Instructors Name: Muhammad Arslan
1.Brief history of India:
 India's independence is a new starting point in its economic history. As a result of Britain's continued deindustrialisation, the country is hopelessly poor. Less than one in six Indians can read. Extreme poverty and sharp social disparities cast doubt on India's ability to survive as a nation. 
· Sowed the seeds for the country's economic growth. In the 1999-2000 federal budget，Yashwant Sinha, then the finance minister, laid out his ideas for cutting investment in public-sector firms and shrinking the government. Through his 1999-2000 budget, Mr Sinha also rationalised interest rates, fuelled a property boom and sparked economic growth.
· Tata Steel bought Corus, a British company, for a whopping $13.1 billion in 2007. Hindalco Industries Ltd., a unit of Aditya Birla group, subsequently bought U.S.-based Novelis for $6 billion in 2007. The following year, Tata Motors bought jaguar land rover for $2.3 billion. Bharti Airtel bought Zain Africa in 2010 for $10.7 billion
· At 8pm on 8 November 2016, Narendra Modi announced that in order to break the corruption and black money,₹500 and₹ 1000 notes, a total of 85% of the currency value in circulation, are no longer valid.
· Rapid expansion of urban and rural gap between the rich and the poor still depends on precipitation, most of the crops only 45% dependent on irrigation, about 55% of people depend on agriculture to survive, because farmers do not have enough money, more than half of the Indian farmers in debt, Indian farmers suicide rate is 47% higher than the average rate, 85% were men, about half an hour to have an Indian farmers commit suicide.
· Business services (information technology, information technology services, commodity outsourcing) is the fastest growing project of 2000, reached a third of the total output of service, the growth of the IT industry, due to high technology, high professional but very low production cost, and hold a fluent English workers, as a supplier, by cooperating with customers in order to enhance for India's service industry's interest, or to increase the chances of outsourcing. India's IT industry grew from 4.8% of GDP in 2005-06 to 7% in 2008. By 2009, India had seven companies in the world's top 15 outsourcing companies. In March 2009, the total revenue of outsourcing companies across India was $60 billion
2. Economic Overview of the Country
As we can see from this pie chart the agriculture sector takes up to 53% of the overall employment in India. Followed by manufacturing and construction which both have 11% of most of the share. For a country with such big GDP growth and being one of the heavily invested countries it might seem surprising, however India is historically famous for its agricultural sector. Agriculture includes crops, horticulture, milk and animal husbandry, aquaculture, fishing, sericulture, aviculture, forestry, and related activities. It is worth noting that nearly 60% of India's GDP is driven by domestic private consumption. (Jurgens, J. & Ingilzian, Z., 2019). This may result in higher sensitivity to economic meltdown reducing it’s GDP heavily in times of economic recession in the world. 
	WorldTopExport in an article written by Daniel Workman (2020) has provided India’s top 10 exports for year 2018. The most valuable export items that we can observe are natural resources such as petroleum oils, steel and other metals, diamonds and etc. This data does not fully coincide with the data provided about employment which indicates that: first, the majority of the production force in India are focused on self-sustenance and, second, the agriculture sector, despite it playing a huge role in the economy of India, is not the most valuable item for export. However, it is worth noting that due to the nature of agricultural products being hard to transfer around the globe due to it being fast to spoil, for example, milk and animal husbandry. Coming back to the chart, these top 10 exporting items collectively represent ⅔ of the whole Indian export. It is stated that the mineral fuels field is the fastest growing sector among others having up to 34.5% increase during 2017. Notably, exports of Indian refined petroleum oils and electrical energy were behind this acceleration (Workman, 2020). Taking into account recent news about financial meltdown and massive drop in prices for oil barrels it would be safe to assume that this might as well affect India's economy. To see the effect of these recent events we have used currency power comparison against USD as an indicator of relative effect on the economy of India. We can observe that the effect on the currency is 5.6% depreciation against USD for less than a month. For a monthly indicator 5.6% is quite a huge amount and thus we concluded that financial meltdown due to the coronavirus had a huge impact on the economy of India at least in the short term. Judging from this assumption, we can say that economic growth of India will also slow down in the near future since mineral fuel is, as was mentioned before, the fastest growing sector of the export. 
Second fastest growing export in India is electrical machinery and equipment summing up to 33.9% increase over a year. Recall that manufacturing and construction are the second and the third biggest employment sectors in India. The depreciation of Indian rupee might have a positive effect on the performance and growth of these sectors in particular due to the competitive advantage of making machinery in India. Such factors as cheap labor, availability of employees due to the high number of people involved in this sectors, bearing in mind that India is rich for natural resources and has a high export of steel, other metals and gems like diamond that are used in high to mid technologies it would make sense also to mention cheaper transportation costs of raw materials, in other words, suppliers are located in India and most likely would be subject to lower taxes. This as well might explain declining export of steel, metals and gems. All these factors might get a positive boost from the recent situations regarding the global economy. In fact, this might be one of the reasons why financial meltdown had a smaller effect on Indian economy compared with Kazakhstan which currency depreciated by 17.6% for the same period of time. If so, Indian economy may be considered as well diversified. 
To further support our assumption, the United States is the biggest importer of goods summing 16% of the global total of Indian export. 
For 2018 India had a total of US$323.1 billion worth of export compared with US$507.6 billion worth of imported goods. Compared with export, import for the most part comes from other Asian countries in the same region totaling for 60.3% of total the import. Second biggest sector is Europe with 15.8%. Daniel Workman (2020) provided the following data for import in India. Interestingly mineral fuels and precious metals total worth outweigh any other import items and represent the biggest imported items. These 10 items shown in the pie chart represent roughly 80% of the total import. The possible explanation for fast growing mineral fuels import of 37% over a year might be due to the increasing demand for indian business as well as other consumers. India is known to be one of the fastest growing economies in the 21st century even surpassing China for the period of 2014-2018 (BBC News, 2019). 
This economic slowdown is the result of political risk eruption due to the recent events in the region. First, is the demonisation drive that caused huge demonstrations, loss of jobs for some and even reported death cases. In an attempt to fight the shadow
economy the prime minister Narendra Modi suggested a demonetisation plan which would wipe out all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series and replace them with new ₹500 and ₹2,000 banknotes. The change came to power in November 2016. “This policy wiped at least 1% from the country’s GDP and cost at least 1.5m jobs, failed to wipe significant hordes of unaccounted wealth from the Indian economy” reports Micheal Safi (2018). The government failed to print out new banknotes fast enough which left millions of Indians cashless. The estimates show that around 1.5 million people lost their jobs during this governmental campaign.
Another reason for the economic slowdown was new Goods and Services Tax or GST introduced 1 July 2017 in India. GST Bill is an indirect tax that was planned to reform the taxation system in India. According to Dipesh Agarwal (n.d.) it is the first major change in the taxation system for the last 25 years in the country. It is a complex system of tracing the manufacturing, sale and consumption of goods and services at a national level and respective taxation. Basically the idea of GST is to bring numerous tax payments into one single payment made by a final consumer. GST is actually implemented in more than 150 countries across the globe and it helps to enhance the economy by avoiding the main problem with indirect taxation - cascading of taxes, or tax on tax. “The current system taxes production, whereas the GST will aim to tax consumption” says Dipesh. Multiple taxes like octroi, central and state sales taxes and entry fees are no longer present and brought under the GST to simplify the life of business in India. However, due to the problems with the implementation of the new taxation system it recoiled damaging the growth of the economy. Multiple cases have been reported of tax refund delays and other technical problems (Verma, 2018). The government faced a huge wave of criticism from businesses over the hazardous introduction of the system. Criticism also touched on aspects such as increased administrative expenses and over the top bureaucracy issues to the extent that the system responsible for GST returns collapsed under the heavy traffic of fillings. Tax being 28% did not help to ease the situation either. Congress Vice President Rahul Gandh noted that poor implementation of the taxing system hurted small and medium businesses the most (Langa, 2017). Another aspect that added complexity to the situation is the policy of protecting the poor. The policy reduced taxes for those product types that are considered in the consumption basket for people who still suffer from poverty in India. So, for example, tax for shampoo was reduced from 28% to 12% or another example where shoes with price mark less than 500 rupees had a 5% tax. Although the policy does well in protecting the vulnerable layers of the society, disparity complicates what is already a complex system. Under the GST system the exporters when importing particles have to pay taxes only these taxes to be refunded later by the government. The government promised that these refunds would take up to 30 days however many companies reported that they did not receive refunds from six to nine month. Concluding the point, the GST system was supposed to remove trade barriers, however it had an opposite effect on the economy. 
Next on our list is stock markets in India. Currently two major stock markets operate in India - the National Stock Exchange of India (NSE) and Bombay Stock Exchange of India (BSE). Bombay Stock Exchange is the first stock exchange in Asia established in 1875 in Mumbai. It is also known to be one of the fastest markets in the world with average trading speed of 6 microseconds. More than 5500 companies are listed in the Bombay Stock Exchange. National Stock Exchange was founded in 1992 and started its operations in 1994. The major difference between these stock exchanges is that the National Stock Exchange is a fully automated screen based electronic exchange. However, the technical differences end there since both share the same mechanisms and working hours. They are 11th and 12th world's largest stock exchanges respectively.
Two main indexes in India are Sensex and Nifty. The Sensex also known as S&P BSE Sensex or S&P Bombay Stock Exchange sensitive Index. Usually for this index an abbreviation BSE 30 is used. As its name suggests it consists of 30 well established companies listed on Bombay Stock Exchange and follow market weighted free-float. Established in 1986, Sensex has been heavily connected with domestic stock in India. Sensex is considered to be one of the oldest indexes totaling for 46% of market capitalization for its type. Over the last 10 years with monthly frequency Sensex has shown itself relatively unstable having low level of return with a mean value of return being 0.57% and standard deviation of 4.79%. Moving to the second index, Nifty or The S&P CNX Nifty or Nifty 50 is index correlated with the National Stock Exchange of India used as a benchmark for Indian equity market. Established in 1996, it is owned by a subsidiary of NSE Strategic Investment Corporation Limited. It includes 50 shares of different companies listed on the National Stock Exchange of India with market capitalization of 62%. Over the last 10 years with monthly frequency the index shows average return of 0.55% and standard deviation of 4.93%. So, if we were to compare two indexes, they are almost identical although Sensex slightly outperforms Nifty. The return deviation for Nifty is shown below, whereas for Sensex is located above. 
Currently there are three types of investments in India: Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), Foreign Institutional Investment (FII). Foreign Direct Investment is a type of investment made by a foriegn entity in the form of controlling ownership in another country. There are many examples of Foreign Direct Investment in India, they come in the form of joint ventures by mergers and acquisitions, building new facilities etc. Foreign Portfolio Investment are investments into shares, bonds, t-bills and other marketable securities by foreigners. This type of investment comes with lower controlling interest than direct investment. Lastly, Foreign Institutional Investment which is similar to the Foreign Portfolio Investment and said to be used interchangeably with these terms, the only difference being type of investors. 
The comparative advantage was discussed in an article Financial Express (2016) where it was compared with China due to them both being rapidly growing economies. Since we are studying comparative advantage there should be a benchmark to compare with. China with its massive human capital and the scope of the country is a near perfect benchmark and because of that their economies are often compared to each other. There it is pinpointed 3 main items: food items, agricultural raw material and ores, metals and precious stones. Clue to the comparative advantage of India also can be examined early in this research by carefully looking at exports, imports and employment sectors. The table below provides and sums useful information on the comparative advantage of India over China for 2014.
	
	China
	India
	Food Items
	0.34
	1.43
	Agricultural raw material 
	0.33
	1.47
	Manufactured goods
	1.45
	0.85
	Fuel
	0.09
	1.17
3. Investment Opportunities: 
 Since economic reforms began in the early 1990s, the government has revised industrial policies, simplified government approval procedures and cut restrictions on foreign investment in an effort to attract foreign investment and introduce advanced technology. In recent years, India has increased efforts to attract investment and received certain results.
First, the direct investment policy
 The government wants to promote foreign direct investment (FDI), NRI and overseas corporate entities (OCB) that are controlled by indo to make up for the shortfall in
domestic investment. The reserve bank of India (RBI) is authorized by the government to review foreign investments that meet the requirements in accordance with the automatic procedures.
· Investing in an existing company to expand, subject to the following conditions :(1) the rights issue must be based on an expansion of the existing company's equity base; (2) foreign shares must be invested in foreign currency; In order to simplify the process of automatic approval of such foreign capital (FDI, NRI or OCB) for examination and approval formalities, allow the reserve bank of India company does not need to obtain the prior approval from the introduction of such foreign capital, but after receiving the remittance 30 days to inform the RBI region branch, domestic demand in issue shares to foreign investors shall within 30 days on the RBI region branch to submit the relevant documents.
· Investments made through American depositary receipts(ADR), global depositary receipts(GDR) and foreign currency convertible bonds(FCCB) are considered foreign direct investment. Indian companies can raise equity by issuing ADR, GDR and FCCB on the international market. There is no cap on such investments. For the government to approve such investments, Indian companies must be in good financial shape for at least three consecutive years. Conditions may be relaxed for infrastructure such as electricity, communications, oil extraction and refining, ports and roads. In addition to can not invest in real estate and stock market, for GDR, ADR financing, no end-use restrictions. The FCCB needs to meet the requirements for the commercial end use of external debt. In addition, 25 percent of FCCB's capital raising could be used for regular corporate restructuring.
Asian markets have resumed their slump after the US stock market circuit breaker. That morning, Korea composite index period and gem period after the trigger circuit breaker, a number of countries joined the stock market "circuit breaker corps."
At noon, India's mumbai stock market opened a flash crash, triggering another circuit breaker. When trading resumed, the drop widened to 12 per cent. Meanwhile, India's other main index, Nifty50, fell 10.6% to 7, 812.30. This is also the Indian stock market two major indexes have triggered the circuit breaker.
First of all, I don't recommend buying stocks directly if it's your first time. Instead, I would recommend investing in a well-diversified stock mutual fund, where the manager will invest on your behalf professionally, making your money safer and potentially more rewarding. As I know, the Sensex is up 40% in the last year, but the average rated mutual fund has returned 58%, 18% more than the index. Best of all, it's much cheaper and much easier. What's more, if you open an l/c, you have to pay the l/c fee, such as 1000-1500. The management fee for a mutual fund is about 1%, and you don't have to worry about anything else.
There are three levels of taxation in India: central government, state government and local government. The main taxes collected by the central government are income tax (not including state income tax on agriculture), customs duties, central consumption tax, sales tax and service tax. The state government is mainly responsible for collecting sales tax (state sales tax on goods), stamp duty (property transfer tax), state excise tax (alcohol production tax), land tax (agricultural and non-agricultural land tax), entertainment excise tax and occupation tax. The local government mainly collects property tax (buildings, etc.), goods into the market tax (goods used and consumed in the local area after entering the market), market tax, water supply and sewage discharge and other public facilities use tax.
If you want to invest in the electronics industry in India, because India has cheap and good technology people. The electronic hardware technology park (EHTP) was established in India to promote the development of the electronics industry, increase export potential and develop an efficient electronic components industry. In order to develop the software industry, India has set up a software technology park (STP). The electronic hardware technology park and the software technology park basically follow the export-oriented unit policy
References
Workman, D. (2020). World’s Top Export. India’s Top 10 Exports. Retrieved from 
http://www.worldstopexports.com/indias-top-10-exports/
Workman, D. (2020). World’s Top Export. India’s Top 10 Imports. Retrieved from 
http://www.worldstopexports.com/indias-top-10-imports/
BBC News. (2019). India loses place as world's fastest-growing economy. Retrieved from 
https://www.bbc.com/news/business-48478028
XE Currency Chart.(2020). USD to INR. Retrieved from 
https://www.xe.com/currencycharts/?from=USD&to=INR&view=1M
Safi, M.(2018). The Guardian. Demonetisation drive that cost India 1.5m jobs fails to uncover 
'black money'. Retrieved from 
https://www.theguardian.com/world/2018/aug/30/india-demonetisation-drive-fails-uncover-black-money
Agarwal, D. (n.d.). Madhav University. Impact of Goods and Service Tax (GST) on Indian 
Economy. Retrieved from 
https://madhavuniversity.edu.in/impact-of-gst-on-indian-economy.html
Langa, M.(2017). The Hindu. Note ban, GST ruined the nation, alleges Rahul. Retrieved from
https://www.thehindu.com/news/national/gst-is-gabbar-singh-tax-says-rahul-gandhi/articl
E19907042.ece
Verma, R.(2018). ACCA Global. India's introduction of GST proves painful. Retrieved from
https://www.accaglobal.com/vn/en/member/member/accounting-business/2018/07/insight
s/indias-introduction.html
Ionescu, I.(2020). Currency live. USD/INR: Indian Rupee Falls to Record Low of 75 to the 
Dollar. Retrieved from 
https://currencylive.com/news/102742-usd-inr-indian-rupee-falls-to-record-low-of-75-to-the-dollar/ 
Yahoo Finance. (2020). NIFTY 50. Retrieved from 
https://in.finance.yahoo.com/quote/%5ENSEI/history?p=^NSEI&.tsrc=fin-srch 
Yahoo Finance. (2020). S&P BSE Sensex. Retrieved from 
https://in.finance.yahoo.com/quote/%5EBSESN/history?p=^BSESN&.tsrc=fin-srch
India Filling. (2020).Types of Foreign Investment in India. Retrieved from 
https://www.indiafilings.com/learn/foreign-investments-in-india/
Jurgens, J. & Ingilzian, Z.(2019). World Economic Forum. Future of Consumption in 
Fast-Growth Consumer Markets:INDIA. Retrieved from 
http://www3.weforum.org/docs/WEF_Future_of_Consumption_Fast-Growth_Consumers_markets_India_report_2019.pdf
Financial Express.(2016). India must focus on areas it has comparative advantage rather than 
fear rise of China. Retrieved from 
https://www.financialexpress.com/india-news/india-must-focus-on-areas-it-has-comparative-advantage-rather-than-fear-rise-of-china/478594/
STA law firm.(2020).India: A Guide To Foreign Direct Investment In India.Retrieved from 
 https://www.mondaq.com/india/Government-Public-Sector/892052/A-Guide-To-Foreign-Direct-Investment-In-India