C hapter Four 1

Chapter Four
1
GLOBALISATION

Irreversible Phenomenon, which involves removing
restrictions on foreign trade and foreign investment
to leverage the benefits of comparative advantage

Restructuring of industries and companies in the
form of privatisation and globalisation

Based on the concepts ‘comparative advantage’,
‘unity in diversity’ and ‘global village’
2
GLOBALISATION-MEANING
Globalisation of the economy means reduction of
import duties, removal of Non-Tariff Barriers on
trade such as Exchange control, import licensing
etc., 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.
4
TRADE LIBERALISATION AND
GLOBALISATION

First, When Tariffs are lowered and QRs are
removed, relative prices change and resources
are reallocated to production activities that may
raise output. However, increased import of
manufactured products will have adverse impact
on domestic production.
 Second, larger long run benefits due to the free
flow of technology and new production
structures.
 Exports and Imports - most dynamic factors in
the 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
Globalisation
: Second wave of

1980 onwards
Globalisation
: Third wave of
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GLOBALISE or PERISH

Secret of Success of many firms. Eg: Software
companies get major chunk of revenue from
foreign markets,

Opening up of Markets for Global companies has
sent a shock wave among certain business
circles. Many Industrial Units are trying to catch
up with the words ‘Globalise or Perish’. Many
industries have realised that Globalisation brings
with it many new technologies and Production
structures
9
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 not
solid, imports of raw materials, intermediate and
capital goods are not perfectly substitutable by
domestically produced goods.

Economic Reforms has been transformed into the
process of globalisation
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BUSINESS ENVIRONMENT
Indian industry (secondary sector) has not
performed very well over the post-reform period.
Though the average Annual real GDP growth
accelerated from 5.4% (1981-82 to 1991-92) to
6.4% (1992-93 to 2000-01), Industrial growth
slowed down to 6.0% during the post-reform
period(1992-93 to 2000-01) as against 7.8% in the
pre-reform period(1981-82 to 1991-92).GDP and
IIP 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 account
convertibility etc.)
 Reforms in Foreign Investment Regime (Liberalising
rules for FDI and allowing FII)
 Reforms in Infrastructure (PPP)
 Reforms in the form of EXIM policy(Tariff Rate
reduction, QR removal, EDI system)
 Allowing Indian Mutual Funds to invest in Foreign
companies
 Challenges and Opportunities (Threat to SSIs?)
 Joint Ventures with Foreign Companies in India and
Abroad
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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
13
INDIA - GROWTH RATES in %
(1990-91 to 2004-05)

Industrial Production – 8.2, 0.6, 2.3, 6.0, 8.4, 12.8,
5.6, 6.6, 4.1, 6.6, 5.7, 2.7, 5.7, 7 and 8.4% respectively

Exports (in USD terms) – 9.2, -1.5, 3.8, 20, 18.4, 20.8,
5.3, 4.6, -5.1, 13.2, 21, -1.6, 20, 21 respectively, 25.6%
(04-05)

Imports(in USD terms) –13.5, -19.4, 12.7, 6.5, 22.9,
28, 6.7, 6.0, 2.2, 11.4, 14.4, 1.7, 19.4, 27.3
respectively, 34.7% (04-05)
Source: Economic Survey, Ministry of Finance,
Govt.of India
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QRs: Some Facts
Removal of QRs doesn’t 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 be raised
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.
17
MANUFACTURING SECTOR
Reforms
have
been
widespread
including
reductions in average. Tariff rates, removal of
import licensing and liberalisation of foreign
investment 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.
18
SERVICE SECTOR

Contribute more than 5% to India’s GDP.

India has a large pool of well-qualified
professionals
capable
of
providing
services abroad whereas developed
countries have surplus capital to invest.
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BUSINESS ENVIRONMENT – SECTORWISE
ANALYSIS
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 Canad World
a
58
06
237
1995
51
2000
83
64
08
287
2001
81
65
08
278
2002
84
68
08
290
2003
89
80
09
321
Source: WTO International Trade Statistics, 2004
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INTERNATIONAL SCENARIO: TEXTILES
SECTOR
Removal of quotas (as per WTO ATC agreement) has
opened up opportunities for the T & C Sector of India to
increase its exports. North America and West Europe
together account for nearly 70% of India’s 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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