Running head: THE REAL ECONOMY IN THE LONG-RUN 1

The Real Economy in the Long Run

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The Real Economy in the Long Run

Introduction

XYZ Investment Limited is a company based in the U.S. that specializes in

manufacturing corn flakes. After several years of producing in the U.S., XYZ Investment

Limited now wants to establish a new manufacturing plant abroad in an attempt to take

advantage of varied factors that contribute towards lowered production costs. The selected

overseas location is India, which is a nation situated in the southern part of Asia. In this paper,

the suitability of India as a target location for XYZ Investment Limiteds new manufacturing

plant will be assessed in detail.

The factors determining the country's productivity

One of the main factors that affect productivity in India is the technical influences.

According to Debnath (2017), India has vastly advanced when it comes to technological

integration. Indeed, the country boasts of the strongest Information and Communication

Technology Sector. Apart from this, India is making concerted efforts to launch its satellites into

space. The rich technological profile in India has played a huge role in driving the scope of

production with minimum effort and costs, which has, in turn, promoted a higher level of

productivity. The government is well aware that technological advent usually brings rise to

Intellectual property issues. Therefore, according to Debnath (2017), the regime has put in place

stern measures to safeguard these properties.

Managerial factors have also been influential. According to Cappelli, Singh, Singh, and

Useem (2010), managers in India usually place great value on their core responsibilities. They

perceive themselves as the keepers of the organizational culture, as representatives of investors

and owners interests, and as guides, teachers, and role models for the workers. This portrays that
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the Indian managers are not only progressive but also imaginative, which is the key to tapping

greater output of both human and non-human resources. Natural factors are also worth

mentioning. India is a land of vast natural resources, which include coal, iron ore, mica,

manganese, bauxite, natural gas, limestone, and diamonds among others (Ghani, Kerr, &

Stanton, 2014). The presence of these resources has led to the emergence of numerous key

manufacturing organizations, which has, in turn, promoted the level of productivity.

How the country's policies influence its productivity growth

Reports have shown that the existing policies in India have made the country one of the

fastest-growing economies in the world. For instance, India has a free trade policy meaning that

the flow of goods and services between India and other countries is not under strict restrictions

(Ghani, Kerr, & Stanton, 2014). As a result of this scenario, domestic production, consumption,

along with import has been sparked thus scaling the countrys productivity up. The monetary

policy in India is also critical in promoting productivity.

The government has emphasized on the liberalization of interest rates, development of

alternative monetary controls system, and the entry of foreign and Indian banks (Ghani, Kerr, &

Stanton, 2014). Such a monetary policy system has promoted a greater efficiency in the

production of products and services in India. For example, with liberalized interest rates, pricing

in the Indian credit market has improved tremendously. This has, in turn, allowed for the

availability of capital to investors, which is foundational to economic development.

How the country's financial system is related to key macroeconomic variables

The Indian financial system has also continued to receive immense attention from

economists. For example, in his article, Kumar (2015) explained that the countrys money

market is often regulated by the Reserve Bank of India while the Securities Exchange Board of
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India regulates the capital market. The scholar added that the capital market is often constituted

of both primary and secondary markets. Apparently, all the IPO, which abbreviate Initial Public

Offerings, are categorized under the primary markets while all other secondary market

transactions are classified under secondary market. Such include equity and debt transactions.

The Indian financial system is synonymous with vital macroeconomic variables in the nation.

Just as Kumar (2015) revealed, the transactions that take place in the primary markets in

India allow private and public organizations to generate a greater level of capital, which they use

to expand their operations. Where an organization enlarges its production capacity, it will

contribute more to the countrys overall GDP. Besides, increased production capability

necessarily means new job opportunities for the locals. These very effects are generated as a

result of the prevalence of the Indian secondary market. For example, the Indian government

uses the market to issue treasury bonds among other vital securities. The funds that the regime

acquires are used to increase the scope of economy-driving infrastructure including establishing

roads that connect to natural resources hubs. This, in turn, promotes the rise of rural

industrialization in India.

How your organization can reduce the risk it is likely to face in relocating

By expanding into India, XYZ Investment Limited will be faced with a myriad of risks,

for example financial, regulatory, and political threats. Nonetheless, the firm could adopt a set of

steps to ensure that these risks and the potential costs such as loss of profits are curbed

effectively. For example, if XYZ Investment Limited anticipates hiring local workers, it should

be well conversant with the applicable labor laws. The organization should know that, even

though some aspects are similar to the case of the U.S., India has relatively different labor laws.
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For instance, the payment of Bonus Act of 1965 stipulates that workers employed in an

establishment with at least 20 employees have the right to a bonus, which should be between

8.33 and 20 percent of the aggregate salary (Sigh, 2017). Failing to adhere to such a law could

subject XYZ Investment Limited to incapacitating litigations. Apart from the labor laws, the

XYZ Investment Limited should account for the taxes and regulations that will be imposed on

the firm, given the nature of its operations. Additionally, the company should be well aware that

corruption is a major threat to organizations operating in India (Naz, 2017). Hence, XYZ

Investment Limited should have a strong code of ethics that define the way in which transactions

and interactions between the employees and with partners should be conducted.

The current and projected unemployment over the next five years

According to PTI (2016), the rate of unemployment in India is at a record high

considering the last five years, currently standing at 5 percent. At 8.7 percent, the women

population is the most affected. The unemployment incidence among men is at 4.3 percent. An

additional issue related to unemployment is that 77 percent of the households at all-India level do

not have a regular salaried/wage person. The increase in unemployment in India is said to

prevail, albeit marginally, in the remaining quarter of the 2017/2018 fiscal year, but reform in the

next five years (PTI, 2017). The core reason for the increase is the fact that new policies to curb

the rate are being implemented. It is not until the end of this quarter that the benefits of the laws

will be experienced.
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References

Cappelli, P., Singh, H., Singh, J. v., & Useem, M. (2010). Leadership Lessons from India.

Harvard Business Review. Retrieved from https://hbr.org/2010/03/leadership-lessons-

from-india

Debnath, S. (2017). ICARNational Institute of Research on Jute and Allied Fibre Technology,

Kolkata, India. Sustainable Fibres and Textiles, 12(4), 69.

Ghani, E., Kerr, W. R., & Stanton, C. (2014). Diasporas and Outsourcing: Evidence from oDesk

and India. Management Science, 60(7), 16771697.

Kumar, A. (2015). An Overview of Indian Financial System. Retrieved from

www.indianmba.com/faculty_column/FC177/fc177.html

Naz, G. N. (2017). Corruption in India: Causes and Remedial Measures. World Academy of

Science, Engineering and Technology, International Journal of Social, Behavioral,

Educational, Economic, Business and Industrial Engineering, 11(4), 901-904.

PTI (2016). Indias unemployment rate highest in 5 years in 2015-16. The Indian Express.

Retrieved from indianexpress.com/article/india/india-news-india/unemployment-india-

paints-grim-picture-highest-in-5-years-in-2015-16-3056290/

PTI (2017). Unemployment in India to increase marginally in 2017-18: Report. The Economic

Times. Retrieved from economictimes.indiatimes.com/jobs/unemployment-in-india-to-

increase-marginally-in-2017-18-report/articleshow/56513102.cms

Sigh, P. (2017). Every Indian Employee Needs to Be Aware of These Important Labour Laws.

The Better India. Retrieved from https://www.thebetterindia.com/99413/india-

employees-labour-laws/
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