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8/14/2019 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.