Financial Management - Essay Example

GLOBALIZATION Executive Summary Globalisation is a term that means different things to different people. It appears everywhere and is almost taken for granted. For the purpose of this paper we may start with a definition of globalisation with emphasis on its economic dimension. Globalisation is a process of trans-nationalisation of production and capital, and standardisation of consumer tastes and their legitimisation with the help of international institutions like World Bank, International Monetary Fund (IMF) and World Trade Organisation (WTO). Obviously the process is a move towards a borderless regime of free trade and transactions based on competition. For countries of Asia, Africa and Latin America, which sought to undo the colonial past, this means a series of economic reforms towards liberalisation as all of them had resorted to a controlled regime in order to have an autonomous development of their own. Beginning 1980’s, most countries of the world have taken to market mediated economic reforms and liberalisation. India is a latecomer and efforts towards reform and strong liberalisation maybe said to have started only from July 1991. The purpose of this paper is to examine the impact of globalization on poverty in India. The paper is divided into two parts. The first part, which is assorted of backdrop, provides some theoretical insights into the rationale of economic reform. The second part examines the impact of the reforms in reducing poverty in India. Indeed, the issues of reduction of poverty and inequalities, economic, social and regional, had been the prime concern during the struggle for independence and were used to give effect for social mobilization as well. They also found a prominent place in the five-year plan documents of the country. Any regime, be it market mediate, or state o socially mediated has to be judged in terms of its impact on poverty and inequalities. Indeed, people are the means as well as the end of development. The Rationale of Economic Reforms Economic reforms that seek to usher in globalization are not directly addressed to poverty. The acknowledged logic of globalization as rationalized by IMF and World Bank is expressed in the two concepts, stabilization and structural adjustment. Related to that is a rule-based operation of free trade and “trade-related” services, globally promoted and administered by WTO through a series of multi-lateral agreements, known through such acronyms as TRIP (Trade-Related Investment Measure), GAT (General Agreement on Trade-in services), etc. Two IMF theoreticians have defined stabilization program as a package of policies designed to eliminate disequilibria between aggregate demand and supply in the economy, which typically manifests itself in balance of payment deficits and rising prices. Actually, this implies restoring two types of balance viz., external balance of payments and budgetary equilibrium, both of which are assumed to be complementary. These balancing acts are needed to contain prices. IMF’S policy packages such as devaluation (to promote exports and restrict imports) and reducing fiscal deficit by reducing government spending and public sector space are derived form this. While stabilization measures are short-term packages, administered by the Fund, structural adjustment packages are long-term measures towards deregulation, liberalization and privatizations largely supervised by the Bank. The economic logic underlying these measure rests on the assumption (not yet fully tested or proved) that market-mediated growth will ensure efficient allocation of resources. As Bhagwati and Srinivasan who were called upon to put the rationale and strategy of India’s reform in perspective put it: In fact, these structural reforms were necessary because we had evidently failed to generate adequate rates of growth of income and of per capita income. A series of trade, industrial and financial reforms to open up India’s economy by dismantling tariffs, quota restrictions, licensing, capital control, labor market polices, etc., were made in great speed and quick succession from July 1991. Several tax measures reducing and rationalizing the rate structure largely for the benefit of the business community, too have been taken. The reform process continues despite the change of governments in the Center. Two important questions for our purpose are: have the reforms promoted growth? Have they succeeded in reducing poverty? The hallmark of globalization is the integration of the domestic money market with the bourses of the world; India has traveled long in this road. Foreign institutional investors (FII) and pension funds have been permitted to enter the Indian stock-market form 1993 onwards. As on March 9, 2000, the number of FII registered with the Securities and Exchange Board of India (SEBI) has increased to 509. All the big names like Morgan Stanely, Jardine Flemings, Glman Sachs Taurus, etc., are very much on the scene and have their Indian counterparts. Indian companies are now permitted to list their stocks in foreign bourses. The American Depository Receipts (ADR) and Global Depository Receipts (GDR) have become important instruments for raising e-sources for Indian companies. Now India has stepped into the markets of derivatives and optional which essentially are speculative market instruments, although their advocates would ay that they help risk management. The foreign exchange market too has been considerably liberalized and a floating exchange rate regime has been introduced. In short, in less than a decade Indian economy’s financial architecture has been substantially altered. Probably, one of the important beneficiaries of the FSR (Financial Sector Reforms) has been the transnational corporations (TNC) and big business who have started on a game of Mergers and Acquisition a (M&A), which have become a worldwide phenomenon for some time now. The FSR facilitated FII to move funds across the borders and enabled many TNC to acquire Indian firms with resources brought form abroad. Though full convertibility from domestic businesses is not permitted at present, commercial banks exporters and mutual funds have been liberalized to facilitate the integration of the domestic money market with the foreign exchange market. Mergers and Acquisitions of companies (M&A) were a rare phenomenon before 1991. According to one study, as many as 2369 merger announcements have been made during 1991-97. TNC are engaged in a game of oligopolistic control over the world’s market of goods and services in a big way and the opening up of the Indian market has been a big bonanza for them. Role of finance in development In this concluding section we bring home the need for a rethinking on the role of finance in development, an issue that follows from the discussion above. Fro one, there is a mixing up of objectives and instruments. Except for the pathological cases of misers and wild speculators, finance is an instrument to facilitate output, employment and human well-being. There is need to redefine the ends and mans of the FSR s in India. Real and financial resources are complementary factors that should ensure the various balances in the economy. The decoupling for the real and financial sectors has gone to an absurd extent as is well exemplified in the cross border movement of capital that is far removed form the real needs of production and trade. Second, financial intermediation definitely is important in bringing together savers and investors, lenders and borrowers. In this task the division of labor, which the Reserve Bank of India and the early planners of India promoted as between commercial banks, cooperative societies, rural banks, development financial institutions in the country, etc., has been historic and still remains valid. The financial globalization underway has failed to appreciate this. Third, interalia over the years RBI has worked towards the institutionalization of credit (in a country whose country side has bee in the iron grip of money lenders and indigenous bankers) and in helping the flow of credit to productive channels and reducing regional disparities in the allocation of credit. Today RBI appears to choose the laissez faire monetarist approach of aging the money supply on the assumption that price rise is dependent solely on quantity of money. This approach also needs a re-examination A finance manager should have hands on experience in research methodologies because in decision-making they may prove vital. A qualitative and quantitative research is must in developing an Information system. Qualitative research is more of collecting data, conducting interviews, using documents and to understand and explain social phenomenon. Quantitative research involves is of development of natural sciences to study natural phenomenon. Survey methods, formal methods, econometrics, etc., are some of the examples of quantitative research. It’s the research and analysis done by the economists in investments (FDI) yielded fruitful results in the development of different industrial sectors. The main purpose of these industries is to develop products that could be used in everyday life and produce more and more employment opportunities. The research involves finding potential problems in the present products used and resolving them by upgrading them or using new products. The researchers found the flexibility of a product enables it to be used by more clients. Another important factor probably the most important one is the cost. If the final product is expensive there will be only few takers for it. Therefore research has been done to use cost effective applications. Qualitative research methods are more often used as it involves observation of data that helps in finding solutions to the problems. Qualitative research has been categorised into three categories named as positivist, interpretive and critical. Positivist research methods involves attempt to test theory that to understand the predictive element of the phenomena. It involves formal propositions, hypothesis testing, measuring of quantifiable variables, etc. In this type of research it is assumed that the objectives are given in reality and can be measured by their properties. Interpretive research method involves sharing of information and social constructions such as language. Interpretive method is used to understand the meaning of the given information that was assigned to the researchers. Critical research as the name implies concentrates more on the critical view of the subject. It highlights the critical viewpoint of the situation that has to be analysed. Action research and Case study research methods are as important as above-mentioned methods. The action research method describes what problems an organization is facing; what appropriate steps should be taken to resolve these kinds of situations. It is more often action-oriented method. Case study method involves studying the main object of the organization, how the situation is related to the real life context, etc. Case study can be positivist, interpretive and critical. References Mills R. W. and Robertson, J. (2004). Fundamentals of Managerial Accounting and Finance. Oregon: Mars Business Associates Limited. Jay Heizer & Barry Render. (2005). Operations Management – Flexible Version. New York: Pearson Prentice Hall. Wikipedia. (2006). Foreign Direct Investment . Retrieved 29 Nov. 2006, from, http://en.wikipedia.org/wiki/Foreign_direct_investment. Wikipedia. (2006). Finance. Retrieved 29 Nov. 2006, from, http://en.wikipedia.org/wiki/Finance. Wikipedia. (2006). Globalization. Retrieved 29 Nov. 2006, from, http://en.wikipedia.org/wiki/Globalization. Aseem Shrivastava. (2006). Pushing India Toward Dollar Democracy. Retrieved 29 Nov. 2006, from, http://www.countercurrents.org/gl-shrivastava311006.htm. Research Unit for Political Economy. (2003). Globalization. Retrieved 29 Nov. 2006, from, http://www.rupe-india.org/35/globalisation.html. Read More