Mobile Phone Industry in India - Research Paper Example

 Mobile Phone Industry in India TABLE OF CONTENTS Introduction 1 Geography and Culture of India 2 Legal and Political Risks 3 Economic and Financial Risks 4 Overall Recommendation 5 Works Cited 7 INTRODUCTION The paper aims to explore the investment environment for mobile telephoning in India and the risks associated with such an investment. It will be appropriate to know some recent history of India so that a well-informed decision can be made. India was a British colony a few decades back and got its independence on August 15, 1947. Since then India is a vibrant democracy and owes its current political set up to the British legacy. The country was a close-door economy until 1991 and languishing at the low GDP growth rate ever since independence. The country faced severe balance of payments problem in the beginning of 1990s and that forced the then newly elected Prime Minister P. V. Narasimha Rao to initiate the liberalization and globalization process in full swing to put the country in high growth trajectory. That was indeed a turning point of the country. The state behemoth BSNL was the only service provider in the public sector and landline was the only available way of communication to the people. The people of the country had to wait several years to get BSNL landline connection as wait-list was fairly long and state resources were not enough to meet the investment needs of the country. (An Economic History of India) In the wake of economic liberalization process, India suddenly became lucrative and telecommunication was earmarked as one of the thrust area. The government introduced National Telecom Policy in 1994 that defined certain objectives and also recognized the fact that the government does not have enough resources to meet the desired objectives. In 1995, the government of India decided to setup an independent regulatory body called TRAI (Telecom Regulatory Authority of India). The purpose was to regulate and spearhead the growth and investment in the field of telecommunication and formulate all policy matters striking a balance between users and industry. GEOGRAPHY AND CULTURE OF INDIA India is a second largest country in the world in terms of population. As per the latest census, population of the country has crossed 121 billion marks and that offers huge telecom market in the making. Administratively, the country is divided into 28 states and seven union territories. On religious composition, 80.5 percent of the population follows Hindu religion. Muslims constitute almost 13.4 percent of the population as the largest minority community. Christians constitute almost 2.3% of the population. India is also a land of many languages; however, Hindi is understood and spoken by a large section of the society. Most of the educated classes of the people understand English and majority of them prefer to do their official work in English. Southern states do not follow Hindi language and prefer their own languages such as Tamil, Malayalam or Telugu; however, they too use English in their formal communications. In a way, it can be said that due to British legacy English has become fairly common as a second language of India and widely used as a formal way of communication in all parts of the country. Indian constitution is unique in the sense that in spite of its large section of population is Hindu, India has established itself as a secular state. Every citizen of the country regardless of their faith, language, or origin enjoys equal rights. The current literacy rate as per census 2011 is estimated at 74 percent, which shows a 10 percent improvement from the previous census done in 2001. This is attributable to the free education provided in the villages by the government. (Census Data Summary) The customs in India are different than what is observed in US. It is always advisable to learn and use Indian business customs in India. Hierarchy is given a great respect in India. While dealing in groups, one should always be aware about the senior most people in the group and it is customary to greet him first. People like if they are addressed as Sir or Madam at least in the beginning before any friendly relations are developed. A kiss on the cheek or male-male hug as in the west is not recommended. (Business etiquette for India) LEGAL AND POLITICAL RISKS Since the time of British rule, India has a fairly well-established legal system that is essentially a 3-tier court system. At the lowest level, District Courts take up the hearing and then on further appeal cases move to the High Court which deliver justice as the highest body within the state. The judgments from High Courts can be challenged at Supreme Court which is located at the New Delhi, a capital city of India. India also has provision of tribunals to redress the grievances in short period of time; however, it is a common complaint that justice deliverance is quite slow and nearly three million cases are pending in India's 21 high courts and more than 26 million cases are pending in lower courts; however, judiciary is quite independent of ruling government. (Indian Courts) In a recent landmark judgment Supreme Court cancelled all 122 2G telecom licenses issued by the UPA government due to large scale corruption allegations. This is the first time that court has overruled the government's policy decision in wake of the public interest petition filed alleging large scale underhand dealings in the allotment of these licenses. This amply proves the strength and independence of Indian judiciary system which function in the line of true democratic setup. (Supreme Court Cancels 2G License) Nevertheless, Corruption is said to be rampant in India. Transparency International has put India at 95th place in the corruption index. The index is worked out on a scale of 1 to 10 with the most corrupt country having lowest score. They take into account factors such as enforcement of anti-corruption laws, right to information etc. and on these counts India has achieved the score of 3.1, which is a matter of great concern. (Corruption Perception Index, 2011) ECONOMIC AND FINANCIAL RISK India's “economic freedom score” is estimated at 54.6. On this count India ranks at 123rd spot. Though its score on labor freedom has improved but its score on other counts such as business freedom, government spending, freedom from corruption, and monetary freedom has declined. Its overall score is few points lower than the world average (59.5). The “Index of Economic Freedom” has its assessment based on ten areas of economic freedom. Those areas are Business Freedom: 35.5 %, getting a business started in India is not considered easy. Usually, it takes more than couple of month to start a business. Trade Freedom: 64.1 %, the tariffs in India are moderate; however, there are several added costs and taxes that impede the growth in trade. Fiscal Freedom: 76.1 %, the overall tax burden is estimated at 16.8 percent of total domestic income which shows some improvement over previous years. Freedom from Corruption: 33.0%, this has been the most critical issue under discussion in the media last year that erodes confidence in business particularly in government contracts. Government spending: 74.8%. The score on this count has reduced due to reduced spending in percentage terms of GDP. Monetary Freedom: 62.9 %, the state exercises price control on several products reducing monetary stability notably. Investment Freedom: 35.0 %, the low score on this count is due to bureaucratic investment regime causing an unfavorable investment environment. Financial Freedom: 40.0%, despite some liberalization the low score is due to state-owned institutions that dominate the capital market and banking sector industry. Property Rights: 50.0%, intellectual rights are not protected adequately. Labor Freedom: 74.2%, score on this aspect has improved due to improved regulatory framework. (Economic Freedom Score) Currently, Total wireless subscriber base has reached to 840 million at the end of May 2011. Of this, private operators hold 88.3% of the wireless market. In past 10 years many foreign investors such as Vodafone, SingTel, Maxis, Telenor, Sistema, Etistalt have entered the Indian telecom market successfully. (Telecom Subscription Data) OVERALL RECOMMENDATION Though there are many hurdles in doing the business in India yet investors are queuing up for the investment in mobile telephony business. In fact, huge untapped market is attracting international investors. Global financial services major Barclays Capital has forecast that India will continue to register an annual growth rate of 7-8 percent in next 3-5 years (The Economic Times). Moreover, India's growth pattern is likely to be skewed towards the services sector and will largely depend upon the domestic consumption. At this juncture, it is pertinent to note that services sector contribute more than 55 percent of the country's GDP. The growth in the service sector in India has been spearheaded by IT-ITES sector. Indian IT exports is likely to touch almost $62 billion this financial year. Moreover, the Planning Commission of India is targeting 9 percent GDP growth rate for the next 5 years. All this augurs well for the Indian mobile telephony industry. High risks always go with high rewards and that could be the reason why several international players, in spite of difficult business conditions, are ready to invest in Indian mobile telephony market. Moreover, India is changing rapidly on many fronts such as literacy rate, in dealing with corruption issues, independent and powerful judicial system at least at the top level (High Courts and Supreme Court), increasing public awareness, and strong democratic setup. Vibrant and strong Civil Society is now fully geared up and alert to keep checks on government functioning and that is likely to improve the situation substantially in coming years. Those who are risk averse can certainly avoid investment in India but those who look for high growth potential coupled with slightly more risk can certainly go for investment in Indian mobile telephone industry to carve a suitable niche for themselves. After cancellation of 2G licenses by Supreme Court, TRAI will come out with new policy guidelines soon to issue fresh licenses and spectrum allocation and that is likely to be a more transparent and fair beginning for all potential aspirants. Works Cited 1. An Economic History of India from 1947-2011, online February 19, 2012, http://eternian.wordpress.com/2010/02/20/failed-state-india/ 2. Business etiquette for India, online February 19, 2012 http://indiahorizonz.com/business-etiquette-for-india-a-primer-2/ 3. Census Data Summary, online February 19, 2012, http://www.censusindia.gov.in/Census_Data_2001/India_at_glance/glance.aspx 4. Corruption Perception Index, online February 19, 2012, http://cpi.transparency.org/cpi2011/results/ 5. ‘Economic Freedom Score’, online February 19, 2012, http://www.heritage.org/index/country/india 6. The Economic Times, online February 19, 2012, http://articles.economictimes.indiatimes.com/2011-11-07/news/30369514_1_growth-path-global-growth-growth-rate 7. Indian Courts, online February 19, 2012, http://indiancourts.nic.in/ 8. Supreme Court cancels 2G License, online February 19, 2012, http://www.newschilli.com/business-news/telecom/supreme-court-cancels-2g-license-72.html 9. Telecom Subscription Data, online February 19, 2012, http://www.trai.gov.in/WriteReadData/trai/upload/PressReleases/830/Press_Release_May-11.pdf Read More