Indian economy and globalization

The term globalization means International Integration. It is a process through which the diverse world is unified into a single society. Opening up of world trade, development of advanced means of communication, internationalisation of financial markets, growing importance of MNC's, population migrations and more generally increased mobility of persons, goods, capital, data and ideas

Globalization is caused by four fundamental forms of capital movement throughout the global economy. The four important capital flows are: Human Capital Financial Capital Resource Capital Power Capital

The 19th century is sometimes called The First Era of Globalization. It was a period characterized by rapid growth in international trade and investment. The First Era of Globalization began to break down at the end of the 20th century with the first World War and later collapsed during the gold standard crisis in the late 1920s and early 1930s

It is the actual period in which globalization took another phase, it worked towards promotion of free trade Globalization has been facilitated by advances in technology which have reduced the costs of trade and trade negotiation rounds, originally under the auspices of the General Agreement on Tariffs and Trade (GATT) Barriers to international trade have been considerably lowered through international agreements such as GATT

Globalization leads to lower prices, more employment, higher output and higher standard of living for those in developing countries
1.Income equality 2.Life expectancy 3.Feminism 4.Decreased percentage of children in labour force 5.Increasing use of electric powers, cars, radios and telephones per capita

Skeptics believe globalization leads to

Poorer countries Exploitation Outsourcing Weak labour unions

Globalization has had an impact on different cultures around the world. Economic globalization, demonstrates that it can be measured in different ways. These centers around the four main economic flows that characterize globalization: The index measures the three main dimensions of globalization:
Economic Social Political

Industrial Financial Economic Political Informational Language Competition

Competition Cultural Ecological Social Technical Legal

1.
2. 3. 4. 5.

Goods and people are transported with more easiness and speed The possibility of war between the developed countries decreases Free trade between countries increases Global mass media connects all the people in the world The global village dream becomes more realistic

6.
7. 8. 9.

10.

There is a propagation of democratic ideals The interdependence of the nation-states increases As the liquidity of capital increases, developed countries can invest in developing ones The flexibility of corporations to operate across borders increases The communication between the individuals and corporations in the world increases

1.
2. 3.

4.

Increased flow of skilled and non skilled jobs from developed to developing countries Increased likelihood of economic disruptions in one nation affecting all nations Corporate influence of nation-states far exceed of civil society organization and average individuals Threat that control the world media by a handful of corporation that limit cultural expression

5.

6. 7. 8.

Greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage. Greater risk of diseases being transported unintentionally between nations Spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity International bodies like the World Trade Organization infringe on national and individual sovereignty

Accountability of Global businesses? Increased gap between rich and poor fuels potential terrorist reaction Ethical responsibility of business? Efforts to remove trade barriers.

Nike

Marketing Branding Advertising

Dell

Cost down Outsourcing

 New

trade pattern: developing countries

don't just have to trade their raw materials to the West and get finished products in return; can become big-time producers as well.
New

production pattern: global product network

companies can locate different parts of their production, research and marketing in different countries

Growing global markets in services

people can now offer and trade services globally -- from medical advice to software writing to data processing -that could never really be traded before.

W-2, W-4, 1099 bonuses & stock statements

US tax payers

Indian accountant

Market economic policies spreading around the world, with greater privatization and liberalization than in earlier decades. ex: BRIC Widespread adoption of democracy as the choice of political regime.

Multilateral agreements in trade, taking on such new agendas as environmental and social conditions. New multilateral agreements for services, intellectual property , communications more binding on national governments than any previous agreements.

India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans Thus, Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.

Indian economy was in deep crisis in July 1991 foreign currency reserves had plummeted inflation had roared fiscal deficit was very high and had become unsustainable foreign investors and NRIs had lost confidence in Indian economy. So major measures were initiated as a part of the liberalization and globalization strategy in the early nineties included the following:-

Growth
Customer Survey

Growing Indian Economy

*

2010

GDP USD 1.36 trillion GDP growth rate 9%

Services contribution 60-65%

Balance of Trade Negative balance should increase with surging imports versus exports Investment goal USD 370 billion

2008

GDP USD 1.16 trillion GDP growth rate 9.5% Services contribution 60% Balance of Trade Negative balance should increase with surging imports versus exports Investment goal USD 305 billion 2006 GDP USD 590 billion GDP growth rate 9% Services contribution 54% Balance of Trade USD (-)46.2 billion Investment goal USD 250 billion

*: Projected
Source: Economic Times & India Brand Equity Foundation (IBEF)

Growing GDP
1,200 1,000
Contribution of Services increased from 48% to 62% and is estimated to contribute 60% by 2010

USD Billion

800 600 400 191 200 0 103 105 453

682

398 237 125 105 204 135 2005-06 Industry

231 145 2006-07 Services

287 167 2010*

1999-00 2002-03 Agriculture

*: Projected Source: India Brand Equity Foundation (IBEF)

Growing Exports

210 170 126.3 103.1 83.5 90 50 2004-05 2005-06 2006-07 2007-08* 130 155

200

USD Billion

2008-09*

*: Projected Source: Ministry of Commerce & IBEF

Growing Imports
250

210.8 185.7

200

USD Billion

149.1
150

111.5

100

50 2004-05 2005-06 2006-07 2007-08 (AprFeb)

Source: Ministry of Commerce & IBEF

Increasing Forex Reserves

India's Forex Reserves: 2001-08 (Till 14 March 2008) 350 300 306

USD Billion

250 200 150 100 50 0 2001-02 2002-03 2003-04 2004-05 2005-06 54 75 141 112 152

199

2006-07

2007-08 (Till 14 March 08)

Steadily increasing Forex reserves offer adequate security against any possible currency crisis or monetary instability

Source: Reserve Bank of India & India Brand Equity Foundation (IBEF)

Growing FDI Inflows

35 30 25
USD Billion

30 22

20 15 10 5 0 2003-04 2004-05 2005-06

8.9 4.3 6
2006-07* 2007-08*

India is ranked second in AT Kearneys FDI confidence index (2007)

Electronic equipment, manufacturing and telecom have witnessed significant FDI inflow

* Provisional Source: Department of Commerce

Increasing Per Capita Income

4000 4000 3500 3000 2500
USD

2000

2000 1500 1000 500 0 2000-01 2006-07 2007-08 2016-17 2025 797 460 1021

Source: India Brand Equity Foundation (IBEF) & Economic Survey 2007-08

Major M&A and Investments Announcements in India

POSCO to invest in building steel manufacturing plants and facilities in India by 2016

USD 12 billion

Plans to establish three manufacturing plants to produce photo-voltaic units

USD 2 billion

Plans to spend on its development operations in India over the next four years

USD 1.7 billion

Source: India Brand Equity Foundation (IBEF)

India Inc. Investing Overseas

Main sectors:
Auto Components Beverages Cosmetics IT Metals Mobile Communications

Energy
Financial Services Industrial Goods

Pharmaceuticals
Software

Main Destinations:

China, UAE, UK North America is emerging as a destination.

Additional economic indicators:

India has a consumer base of 1.14 billion people India is the 4th largest economy in the world when measured by PPP Indias has a growing middle class of over 300 million people - 30% of Indias population and larger than the population of the US India is the 3rd largest global telecom market. The mobile subscriber base has grown from 0.3 Million in 1996 to over 250 million currently. India is likely to add over 200 shopping malls by 2010 and 715 malls by 2015 The number of billionaires in the country were 3 in 1999; 23 in 2006; and are 48 currently.

Indias Trade with USA

20.0 13.7 11.4 9.4 10.0 5 5.0 7 11.7 18.8 17.3

USD Billion

15.0

0.0 2003 - 04 2004 - 05 2005 - 06 2006 - 07

Exports to US

Imports from US

Source: Department of Commerce, Govt of India

Major Items Exported to USA (2006)

Organic Chemicals 6% Engineering Goods & Machinery 15%

Iron & Steel 5%

Cut and polished diamond & jew ellery 38%

Textiles 36%

Source: US Department of Commerce

Major Items Imported from USA (2006)

Precious stones & Metals 14% Aircraft, Aviation Machinery & parts 25% Optical & Medical Instruments Fertilizers 11% 9% Engineering Goods & Machinery 41%

Source: US Department of Commerce

Buyer

Acquisition

Price

Reliance Industries
Tata Motors

Flag Telecom, Bermuda

Daewoo, Korea

US$ 212m
US$ 118m

Infosys Technologies

Expert Information Services, Australia

Carl Dan Peddinghaus, Germany RPG (Aventis) Laboratories, France CP Pharmaceuticals, UK Alpharma SAS, France Straits Ply, Australia NerveWire Inc, USA Dashiqiao Chem, China Oryzalin Herbicide, USA

US$ 3.1m
N/A N/A US$ 18m US$ 5.7m US$ 56.4m US$ 18.5m US$ 8.5m US$ 21.3m

"Toyota Motor has chosen to source from India due to its competitive cost of manufacture, availability of abundant engineering talent, and strong indigenous machine tool."

Bharat Forge Ranbaxy Wockhardt Cadila Health Hindalco Wipro Aditya Birla United Phosphorus

Automotive Sector - Overview

India is the worlds: 2nd largest two-wheeler market,

4th largest commercial vehicle market

11th largest passenger car market.

Expected to be the 7th largest automobile market by 2016

India has become an attractive destination for global American, European, Japanese and Korean OEMs.

Source: IBEF, Economic Times

1990 FDI $ 234 Million 1998-2003 FDI $ 2.5 Billion Per Year Target FDI $ 10 Billion Per Year Over 620 FIIs Compared to 500 in 2003 and Earlier

China FDI & FII FDI $ 50 Billion Per Year FII $ 20 Billion Per Year

Agriculture acquired 17% of Indias GDP in 2008. 60% of population still depends on agriculture for their livelihood. Occupied 43% of Indias geographical areas. All other sectors are growing at much faster.

Year 1991 2007

Industry(%) 25 28

Service(%) 31 55

Agriculture(%) 44 17

Current Literacy rate is 64.84%

Year Literacy Rate Male Female Female
29.8 39.3 54.2

Person
1981 1991 2001 43.6 52.2 65.4

Male
56.4 64.1 75.8

Gap
26.6 24.8 21.6

What are people talking about India?

"India has a fantastic pool of software professionals. The world needs to benefit from this. This market (India) is critical to our plans for building a Ford Motor Co. for the 21st century Bill Ford, Chairman and CEO The dynamism shown by India in the last 15 years is phenomenal

Bill Gates, Microsoft Chairman

India on its way to becoming IT, manufacturing kingdom of the world Mr Yasukuni Enoki, Japanese Ambassador to India

Paul Wolfowitz, President, World Bank

High growth but problem of unemployment. Need to generate 10 million jobs per year. Multi party rule, hence need to accommodate political ideology with economic reality (reservation, labour law reforms).

Companies in India That Have Successfully Met Competition by Multinationals & Domestic Companies Had A Spirit Of Innovation Not Only In Their Products And Services But Also With Reference To All Their Resources And Effectively Restructured Them In A Time And Cost Frame And Met Customer Needs And Improved Their Top And Bottom Line.

The lesson is that a country must carefully choose a combination of policies that best enables it to take the opportunity while avoiding the pitfalls and utilizing globalization to the fullest extent possible

Thank You