India's Governement

India is a "sovereign, socialist, secular, democratic republic." India has a federal form of government, like the United States. However, the central government in India has greater power in relation to its states, and has adopted a British-style parliamentary system. The United States has aimed to strengthen its relationship with India. The two countries are the world's largest democracies and they are both committed to political freedom protected by their government. India is moving gradually toward greater economic freedom as well. The Indian National Congress-led United Progressive Alliance (UPA) coalition government, headed by the Prime Minister, Manmohan Singh, can take credit for India’s strong economic growth performance, although its political standing is being threatened by a lot of corruption scandals and high inflation. For the first time since the UPA won re-election in 2009, there is a sense that the coalition is struggling and may not last its full five-year term, which ends in 2014. Nevertheless, the Economist Intelligence Unit’s forecast is that the government will survive until the end of its term. Mr. Singh’s government will face several tests during the remainder of its second period in office, including tackling corruption, bringing down inflation, delivering more decisively on its promise of economic growth, and managing the uprising in the troubled Kashmir region (Timmons). These and other challenges are political risks that foreign investors must face.

Corruption is widespread in India. However, corruption is not a party specific problem. Corruption will remain an issue for businesses regardless of which political party is leading the country. Transparency International reports in its 2008 study that about 40% of Indians had first-hand experience of paying bribes or using a contact in public office to get a job done (wikipedia.com). In 2011 India was ranked 95th out of 178 countries in Transparency International's Corruption Perceptions Index. Companies should not pay bribes, but should seek legal advice on which kinds of payments may be legitimate.

Another political risk that may impact the business is labor laws. Labor laws remain highly restrictive in India. India’s labor laws have proven a major problem to foreign investment and to the development of the large-scale manufacturing sector. In 2002 the former government approved plans to amend the labor code to give firms greater flexibility in reducing wage bills in times of economic slowdown. Rules allowing firms with 100 employees or fewer to lay off employees were to be extended to firms with up to 1,000 employees (sipa.colombia.edu). However, this proposal was delayed because of political pressure. Unfortunately, there is almost no chance that the current government will push ahead with this issue. This is because of the