BE GlobalisatIon

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Chapter Four


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GLOBALISATION

Irreversible Phenomenon, which involves removingrestrictions on foreign trade and foreign investmentto leverage the benefits of comparative advantage

Restructuring of industries and companies in theform of privatisation and globalisation

Based on the concepts comparative advantage,unity in diversity and global village


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TRADE LIBERALISATION

Driving Force of Globalisation

The process of Globalisation has brought about an

open economy and tariff levels have come down to alarger extent. Foreign Investment has witnessedsurge in volume.

Go Global, Grow Global Strategy of the day andNeed of the Hour.


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GLOBALISATION-MEANING

Globalisation of the economy means reduction of

import duties, removal of Non-Tariff Barriers on

trade such as Exchange control, import licensingetc., allowing FDI and FPI, allowing companies to

raise capital abroad and grow beyond national

boundaries and encourage exports. Both Foreign

Trade and Foreign investment volume have

grown rapidly over the last few years.


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TRADE LIBERALISATION ANDGLOBALISATION

First, When Tariffs are lowered and QRs areremoved, relative prices change and resourcesare reallocated to production activities that mayraise output. However, increased import of

manufactured products will have adverse impacton domestic production.Second, larger long run benefits due to the freeflow of technology and new production

structures.Exports and Imports - most dynamic factors inthe process of economic growth after 1995.


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2 VIEWS on Globalisation

Those stress the Virtues of Import Substitution and

limited openness ie, View against Free Trade and

Globalisation

Those emphasise the importance of Free Trade.

Arguments a) Achieve International Competitiveness b)

Reduce the price level c)More choice for consumers


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GLOBALISATION - PHASES

1870-1914 : First Wave

1914-1945 : Retreat to Nationalism

1945-1980 : Second wave of Globalisation

1980 onwards : Third wave of Globalisation


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GLOBALISATION

The term Emerging Markets (See The Data)

Exports play dual role a) Bring income b) ForeignExchange Earnings from Exports facilitatesexpansion of imports

SPECIAL Economic Zones

EXCHANGE EARNERS FOREIGN CURRENCY

ACCOUNT LiberalisationFERA has been replaced by FEMA


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GLOBALISE or PERISH

Secret of Success of many firms. Eg: Softwarecompanies get major chunk of revenue fromforeign markets,

Opening up of Markets for Global companies hassent a shock wave among certain businesscircles. Many Industrial Units are trying to catchup with the words Globalise or Perish. Many

industries have realised that Globalisation bringswith it many new technologies and Productionstructures


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ECONOMIC ENVIRONMENT

Free Flow of Imports

Heavy Competition and Influx of New Technology

Theoretical Foundation for the link between Open

Economy and Higher Economic Growth is notsolid, imports of raw materials, intermediate andcapital goods are not perfectly substitutable bydomestically produced goods.

Economic Reforms has been transformed into theprocess of globalisation


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BUSINESS ENVIRONMENT

Indian industry (secondary sector) has notperformed very well over the post-reform period.Though the average Annual real GDP growth

accelerated from 5.4% (1981-82 to 1991-92) to6.4% (1992-93 to 2000-01), Industrial growthslowed down to 6.0% during the post-reformperiod(1992-93 to 2000-01) as against 7.8% in the

pre-reform period(1981-82 to 1991-92).GDP andIIP growth(%)- 5.8, 2.7(2001-02), 4, 5.7(02-03), 8.5,7%(03-04) and 7, 8.4% (2004-05) respectively.


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REFORMS FOR ECONOMIC GROWTH

Exchange Market Reforms (Full current accountconvertibility etc.)Reforms in Foreign Investment Regime (Liberalisingrules for FDI and allowing FII)

Reforms in Infrastructure (PPP)Reforms in the form of EXIM policy(Tariff Ratereduction, QR removal, EDI system)Allowing Indian Mutual Funds to invest in Foreign

companiesChallenges and Opportunities (Threat to SSIs?)Joint Ventures with Foreign Companies in India andAbroad


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WTO-Main Agreements

TRIPS(Trade Related Intellectual Property Rights)

Bound Rates(Tariff Bindings) and QR removal

GATS (Services)TBT(Technical Barriers to Trade)

ATC(Agreement on Textiles and Clothing)

TRIMS (Trade Related Investment Measures)Agreement on Agriculture


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QRs: Some Facts

Removal of QRs doesnt mean duty free imports. It

means that an item can be imported without

license/restriction. Goods are subject to payment

of Customs Duty (tariffs). Applied Duties can beraised by the Govt. upto Bound level, to protect the

interests of the Domestic industry including SSIs

and agriculture.


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AGRICULTURAL SECTOR

Agricultural products- Traditional export items of

India. Price of many items like Rubber, coconut

etc. have fallen due to import liberalisation.

Therefore, farmers suffer from low income. Thrust

is given to the export of agricultural items in the

Exim policy/Foreign Trade policy.


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MINING AND PETROLEUM

Mining and Petroleum- Major policy changes

include automatic permission for foreign equity

participation of upto 50% in the mining of 13

minerals. The Govt.of India has emphasised on

oil exploration to reduce import dependence and

offers tax holidays to companies to invest in

India.


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MANUFACTURING SECTOR

Reforms have been widespread including

reductions in average. Tariff rates, removal of

import licensing and liberalisation of foreigninvestment policies. Sector responded positively

in the Mid 1990s, however, the growth slipped

down after 1996-97 due to constraints like

infrastructure bottleneck, low FDI flow etc.


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SERVICE SECTOR

Contribute more than 5% to Indias GDP.

India has a large pool of well-qualifiedprofessionals capable of providing servicesabroad whereas developed countries have

surplus capital to invest.


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BUSINESS ENVIRONMENT SECTORWISEANALYSIS

1. Telecom Sector

2. Insurance Sector

3. Banking and Financial Sector 4. Retail Sector

5. Automobile Sector

6. Textiles Sector


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TEXTILES SECTOR TRENDS IN IMPORT OF TEXTILES AND CLOTHING

(in US$ billion)

Year US EU-15 Canada World

1995 51 58 06 237

2000 83 64 08 287

2001 81 65 08 278

2002 84 68 08 2902003 89 80 09 321

Source: WTO International Trade Statistics, 2004


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INTERNATIONAL SCENARIO: TEXTILESSECTOR

Removal of quotas (as per WTO ATC agreement) hasopened up opportunities for the T & C Sector of India to

increase its exports. North America and West Europe

together account for nearly 70% of Indias exports of T& C and both had enforced strict quota restrictions until

last year. There is scope for increasing exports to

countries like Japan, Australia, Hong Kong an Latin

American countries. Studies have shown that world

trade in T & C is likely to increase substantially in the

coming years.

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