1. Executive Summary

The Republic of India, commonly referred to as simply India, is the seventh largest and second most populous country in the world. It is the world’s largest democratic republic. It is a country with a very diverse population, culture, geography and climate. India is a home to over 1 billion people, 1/6 of the world’s population. The Indus Valley civilization is one of the oldest in the world and goes back at least 5,000 years. India was under British political control for about 150 years, until nonviolent resistance to British colonialism under Mohandas Gandhi led to independence in 1947. India was divided into the Hindu state of India and a smaller Muslim state of Pakistan. East Pakistan became later the country of Bangladesh. India is a vibrant parliamentary democracy and has been one since its political independence from British rule more than 50 years ago. There is no serious revolutionary movement in India; hence there is no conceivable possibility of the state collapsing. Sovereign Risk in India is therefore zero for both "foreign direct investment" and "foreign portfolio investment." It is however advisable to avoid investing in the extreme northeastern parts of India because of terrorist threats. Kashmir in the northern tip is also a troubled area, but law anyway restricts investment opportunities in Kashmir. India suffered political instability for a few years due to the failure of any party to win an absolute majority in Parliament. However, political stability has returned since the previous general elections in 1999. This political instability did not change India's economic course though it delayed certain decisions relating to the economy. Political instability in India, in practical terms, posed no risk to foreign direct investors because no policy framed by a past government has been reversed by any successive government so far.

A way of life is changing in India, and changing quite rapidly. A great deal of this change has been fueled by India’s vibrant, secular democracy, the largest in the world, and in recent years also by new economic opportunities. More visible evidence of a rapidly changing India is the emergence of a large “new middle class.” For several decades since independence in 1947 India had a quasi-socialist mixed economy, dominated by the public sector. But in the 1990s, the government changed track and encouraged private enterprise and the entry of multinational corporations into India.