Indias Participation in Global Economy - Essay Example

? India’s participation in Global Economy By [Due [Academic of Table of Contents Table of Contents 2 Executive Summary 3 1.Problem Identification and Analysis 4 2. Statement of Major Problems 5 3. Evaluation of Indian Participation in Global Economy 5 3.1 Indian Culture and International Business Expansion 5 3.2 Economic Development and Challenges 6 3.3 Expansion of International Trade 8 4. Recommendations 10 5. Implementation 11 7. Conclusion 12 6. List of References 15 India’s participation in Global Economy Executive Summary The Indian economy has undergone massive economic reforms in the mid 1990s which have restructured the economy on a more profound level, not only liberalizing the globalizing the operational business activity but also changing the very social milieu of the society. The Indian society is now subject to western imperialism and quite a distinct reflection of the western culture, styles, and language and business activity. The economic environment of India, after the reforms has predominantly changed from socialist policies to more liberal policies, facilitating an expansion of international trade. Some cultural values are very strongly established amongst the Indian workforce and may deter further expansion of international trade but Indian culture is one of business orientation because of its historical significance and industrial background and thus strongly supports trade activity. Yet there remain some economic challenges that may deter further growth of the economy. These include an inadequate infrastructure to support a growth rate of 8%. With so much international pressures to quality conformance and timely production, India must invest in up gradation of its ports, rail networks, roads, and power and water supplies. Hence, in order for India to capitalise on its economic benefits, it must overcome these economic challenges and increase its international market presence by developing indigenous brands and thus expanding international trade. 1.Problem Identification and Analysis With the highest population in the world of about 1.1 billion, second largest to China, India has made its way amongst the world’s leading economies in the year 2007. According to the World Bank Report, its economic growth rate was 8%, close to 10.4% of China, despite the high dependence of its economy on the agricultural sector (World Bank 2004). Recently the economy has moved towards massive production orientation in the manufacturing sector and there has been an observable proliferation of information technology and telecommunications. It is the augmentation within this sector, the software companies and call centres that have fuelled the economic growth in India. India has developed the right infrastructure to facilitate this rapid economic growth through development of an educated, English speaking workforce and thus has become a hub for outsourcing for large multinationals and overseas services to US companies (Banik 2007). Many companies like Ford Motors, General Motors and software companies have subcontracted their business services including customer service support, business support and troubleshooting computers, to this sector of Asia. Moreover, the country also has some skilled personnel to conduct customer surveys and research that provides the foundation for its international trade. Many companies are considering outsourcing their most expensive marketing process that is research, to the low cost researchers in India (Suresh 1999). The main reason that has fuelled this structural change is the emergence of a class characterised with young business professionals. It is also the culture of the country that promotes diligence, struggle and goal orientation (Kumar and Agarwal, Liberalization, Outward Orientation and In-house R&D activities of multinationals and local firms 2000). Therefore, the impact of globalization has been tremendous on Indian economy. With more and more companies looking to outsource in attempt to benefit from the cheap and skilled labour in India, to sustain their competitive advantages, the Indian economy is growing internally to facilitate production and services of such advanced multinationals keeping up with the acute quality standards (Kotler 2006). 2. Statement of Major Problems The recent up surge of Indian economy has increased in participation in the global economy, marking India as one of the most important outsourced locations of the world. It has its roots in the economic acumen, cultural determination and factors that promote globalization. Thus India is faced with many challenges of an aging infrastructure. Although it is supporting production and services of some very competitive companies around the world, yet the basic infrastructure for this seems to be debilitating. Roads, power supplies, schools, which are detrimental to support the augmented production and international trade, seem to be missing or utmost outdated. Hence, the economic and cultural environment that offers in numerous economic benefits to the rest of the world may be challenged by its propensity to some basic challenges (Kumar 2000). 3. Evaluation of Indian Participation in Global Economy India has become an emerging economy and has established a foreign presence the international market, capitalizing on its economic benefits and offering the world its skilled, English speaking pool of workforce (Sadler 2003). Some of the reasons for this increased international participation are discussed below. 3.1 Indian Culture and International Business Expansion Indian culture is one of the richest cultures that are recognized in almost all parts of the world. Its rich legacy of music, dances and intricate architecture represent the Indian society through the very strong media. Some of the most important states culturally are Madras, Bombay, and Bangalore (N. a. Kumar 1997). The historical significance of these states is still reflected in their demographic and economic contribution. 40% of the tax revenue comes from Bangalore alone while half of the international trade is passed through the harbours of Bangalore. Bombay was one of the industrial states of India and thus still reflects its cultural heritage. Mumbai is the hub for enterprise (N. Banik 1999). The extent of business activity in this state is phenomenal. The sidewalks are cluttered with all sorts of small businesses. The Indian society’s divide is reflected in the layout for its cities which are divided into suburbs and downtown locations. The cities are densely populated. Mumbai alone is home to thirteen million people and the population is inclusive of the elite film starts, to the poor clerks, something that is too distinctly reflected in Indian media as well (N. a. Kumar 1997). The core values of Indian society are cohesion, which can be seen, in the family structures of its people. The people usually live in large compounds, with their extended families thus the purchasing power in India still has not established to the extent of a consumption society (Kotler 2006). The Indian society is under the very close influence of western cultures and media. Not only does the majority of the English speaking population reflect that but also the material symbols including dressing, cars, styles and fashion trends reflect that. India is undergoing a sexual revolution, which has made companies like Playboy to invest in the economy and launch their magazines (Hoyer 2008). Globalization has greatly influenced the Indian way of living but has not changed its traditional rituals and ethics (N. Banik 1999). The strongly positive attitude towards work and honesty makes India in the forefront for global investment. 3.2 Economic Development and Challenges The major policy reforms in India in the early 1990s were characterised with the LPG Model (liberalization, privatization and globalization) and had tremendous impact on the economic performance of India in the international market as the country moved away from its socialist policies to which resulted in the inward policies that had led India in isolation to the international market despite its historic significance of trade contributions in the subcontinent (Goldstein and Khan 1978). This new era of economic outlook endears India to a rapid economic acceleration. India has faced the pressures to emulate the economic success of various other South Asian countries, most starkly China in order to make its place in the international markets (Chopra 2010). Hence, India has strategically capitalised on its resources of cheap and skilled labour. Majority of the Indian population is educated and English speaking which makes it an ideal country for outsourcing customers support services by many large multinationals (Sadler 2003). The most thriving sectors is information technology whereby software companies are promulgating, and India now exports $2 billion, as per the 1998 statistics in this sector which has increased from $164 million in just six years. Much of wealth is tickled down to the middle classes who are benefitting the most by the economic boom (Goldstein and Khan 1978). The Indian government grants concessions for export financing including tax breaks and reduced interest rates causing an increase of 8% in the manufacturing sector. Finance availability to the buyers are flexible for example in the automobile industry, 90% of the vehicles can be purchased on credit. This has made India a hub for many car manufacturing companies for their components including General Motors which supplies its radiator caps of 300,000 every month from Sundram (N. Kumar, Indian Economy Under Reforms: An Assessment of Economic and Social Impact 2000). However, this overheating of the economy could result in a trouble for the Indian economy because of the critically deficit infrastructure that deters economic development (Laudon 2007). The lack of road networks, power and water supplies continues to not only increase the gap between the elites and the moneyed within India but also are detrimental to the efficient flow of massive production that is taking place in India and is the most critical factor contributing to its 8% of economic growth. According to Jagdish N. Bhagwati, one of the professors at Columbia University has pointed out that the GDP in India could further increase by two points if the country had an adequate infrastructure development (World Bank 2004). Furthermore, because of massive economic growth, inflation in India has increased to 6.7% and most of this accounts for the higher costs incurred because of bottlenecks during transportation (N. Banik 2007). Much of the farm produce goes bad during transportation because of the lousy networks and is sold to consumers in the same stage. Hence, the prices of lentils, onions and other staples have also gone up. Non-food inflation in 2007 peaked at 6.7% which caused the Indian model of cost minimization to be challenged, causing the higher profits of component parts and lower profit rates (Hoyer 2008). 3.3 Expansion of International Trade Because of the aforementioned favourable factors, India has prospered towards economic development and expansion of international trade. The exports constituted to about US$44 billion in financial year 2002 and increased to a whopping US$ 163 billion in the year 2008. And at the same time the imports increased from US$ 52 billion to US$251 billion, an increase of 30.3%. India ranked at the 26th in its share in world merchandise exports. The direction of this export has also changed over the course of time. India now contribute 52% of the exports to Asia as opposed to 39% in the year 2001 and in recent years this has further shifted to the more developing countries like Europe and United States. 20.7% of its exports are to the United States, 15.6% to the UAE and amongst other top exporters of Indian products and services are China, Singapore and UK. On the other hand, India imports 27.1% of its imports from China, which indicates the underlying causes of its low production (World Bank 2004). The most important exports in manufacturing sector are the petroleum products at 28.4% and gems and jewellery, machine and equipment. In service sector, India exports 31.3% of its services and imports only 24.0%, which suggests a surplus account. This shows India’s increased participation in the international market. India’s trade deficit fell to 1.1% in 2005-2006 from 4.6% in 1980-1981. This remarkable progress can be owed to the economic reforms of mid 1990s, which lowered the pressures on Indian currency caused earlier by Persian Gulf in 1990 and the confusing oil prices, which had plunged the country in to an economic crisis. Under this structural adjustment policy of IMF, many reforms took place, which took the economy out of the economic crisis (N. Banik 1999). These reforms were undertaken to reduce the socialist’s policies of India that gave enormous autonomy and power to the government in economic decision-making. The industrial licensing policy of 1991 was formulated for the manufacturing sector and freed the private sector from government discretion, allowing a floating exchange rate and imposing import duties for its internal economy to grow. As a result to this policy, India increased the export base of more valuable items like chemicals, petroleum products and mechanical products and decreased the exports of price sensitive items like textiles and agriculture which contributed to expansion of international trade (Kumar 1997). Moreover, research has shown that trade cycles of Asian countries have historically followed the world trade cycles and that the Asian countries are much faster in changing their exports than the world average would indicate. Research study by Tendulkar (1999) indicated that rapid economic growth in Asian economies was directly correlated to a growth of exports. This correlation became stronger in times when world trade would be thriving (N. Kumar, Indian Economy Under Reforms: An Assessment of Economic and Social Impact 2000). 4. Recommendations The Indian economy has further potential to grow and expand its international trade. However, economist fears that if the economy overheats, it could result in an economic depression much more detrimental than would have occurred in the Indian economic history. But to facilitate optimum growth, India needs to develop its infrastructure including railways, ports, roads and power transmissions. Further, the bureaucratic process of management deters international business expansion to an extent. It is reported that it takes on average 1.420 days for a business to enforce a contract as it undergoes 56 different procedures. To imports goods from abroad it takes 41 days and the process is subject to 15 different reports. To improve the efficiency of international trade, it must eliminate these procedural bottlenecks that will discourage economic activity and revenue generation (Suresh 1999). Furthermore, the corporate sector needs to be more proactive. There needs to be further investment in power and water supplies. According to a World Bank report, the average power supply shortages are as much as 12% of the demand. The shortages have increased over time to about 14% in 2006-2007 from 10.5% in 2005-2006 (World Bank 2004). This is very crucial for the manufacturing sector, which needs to meet the international quality standards and time schedules. At the same time, the major ports including Chennai, Tuticorin and Bombay are heavily over utilised. They are operating beyond their optimum capacity hence suffering in efficiency. Thus strong competition from Singapore, China or Hong Kong is faced which very efficiently operate their ports. In India, a container ship has a turnaround of 3.47 days as compared to just six to eight hours in Singapore. This means there are high detention costs and the reports by World Bank indicate a $70 million loss per year because of container delays (Suresh 1999). 5. Implementation An important aspect of establishing a foreign presence in the international market is to be able to have access to foreign markets through mergers and acquisitions. Indian economy needs to further its marketing strategy and foreign presence though an aggressive use of marketing networks. Tata Tea for example, acquired Tetley in UK, capitalizing its place in the foreign market, as Tata on its own might not have earned the recognition in the market. Further, this integration of Indian production of Tata Tea with the marketing network of Tetley, adds more value addition to the Tata Tea value chain and the Indian tea industry on the whole (Chopra 2010). This signifies the need for India to develop indigenous brands in order to market its products under its own brand name as opposed to the undifferentiated, standardised products they are exporting currently. Since these products are components and not end products, they are cheap and have very low profit margins. In order to be able to do this, India will have to make investments in its brand promotion and development of indigenous brands (Goldstein and Khan 1978). Nonetheless, there has been a significant lack of diversification in the export structure of India despite the economic reforms. The production is focused on less technologically advanced products because of very low investment in research and development. Constant innovation in production methods and marketing strategies is required to sustain international competitiveness. The budget allocation for R&D has fell from 0.98% in 1988 to 0.66% in 1997. In this regard the corporations must in-house the R&D processes in attempt to seek product and process innovation. This will have positive externalities for the economy, which can be used to upgrade the technology for exports. The role of government should only be minimized to consolidation and provision of an incentive structure to promote corporations investing in R&D (Kumar and Agarwal, Liberalization, Outward Orientation and In-house R&D activities of multinationals and local firms 2000). 7. Conclusion The Indian economy has evolved after the mid 1990’s reforms and has become more supportive for international trade. The macro and micro economic factors as well as cultural aspects are supporting this stream of liberalization and globalization. However, at the same time, this can also deter the trade in India thus India needs to make further improvements in developing an infrastructure that will fuel its massive and rapid growth (Kumar 2000). According to the world standard time and the distance, the meeting should be conducted on Monday 23:08. GBP to USD 2012-02-10 Friday, February 10 1.57707 USD 2012-02-13 Monday, February 13 1.58002 USD 2012-02-14 Tuesday, February 14 1.57214 USD 2012-02-15 Wednesday, February 15 1.56828 USD 2012-02-16 Thursday, February 16 1.56702 USD 2012-02-17 Friday, February 17 1.58332 USD 2012-02-20 Monday, February 20 1.58608 USD 2012-02-21 Tuesday, February 21 1.58082 USD 2012-02-22 Wednesday, February 22 1.56716 USD 2012-02-23 Thursday, February 23 1.57192 USD 2012-02-24 Friday, February 24 1.58133 USD 1.60569 1.58923 1.57277 1.5563 1.53984 1.52338 Feb1 Feb9 Feb 17 Feb 27 INR to USD 2012-02-13 Monday, February 13 0.020346 USD 2012-02-14 Tuesday, February 14 0.020241 USD 2012-02-15 Wednesday, February 15 0.0202531 USD 2012-02-16 Thursday, February 16 0.0202448 USD 2012-02-17 Friday, February 17 0.0203087 USD 2012-02-20 Monday, February 20 0.0203523 USD 2012-02-21 Tuesday, February 21 0.0202717 USD 2012-02-22 Wednesday, February 22 0.0203504 USD 2012-02-23 Thursday, February 23 0.0203457 USD 2012-02-24 Friday, February 24 0.0204059 USD 2012-02-27 Monday, February 27 0.0202901 USD 0.0206947 0.0204651 0.0202356 0.0200061 0.0197765 0.019547 Feb1 Feb9 Feb 17 feb27 6. 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Liberalization, Outward Orientation and In-house RandD activities of multinationals and local firms. A Quantitative Exploration for Indian Manufacturing , New Delhi . Laudon, K. C. 2007. Management Information Systems. USA: Pearson Education Inc. Ray, A. S. 2005. “Managing port reforms in India: case study of Jawaharlal Nehru Port Trust JNPT Mumbai”, background paper prepared for World Development Report. New York: Oxford University Press. Sadler, P. 2003. Strategic Management 2nd Edition. London: Library of Congress Cataloguing-in-Publication Data. Suresh, T. D. 1999. Exports in India’s Growth Process. Indian Council for Research on International Economic Relations Vol. 46 . World Bank. 2004. World Development Report 2005: A Better Investment Climate for Everyone. Washington D.C.: World Bank. Read More