INDIA VIS-À-VIS GLOBAL REALITIES : BRAND INDIA ECONOMY, AND THE CHALLENGE OF HUMAN DEVELOPMENT Economic Analysis Dr. Rana Singh Associate Professor Accurate Institute of Management and Technology www.ranasingh.org MBA(Gold Medalist), Ph. D. 9811828987 Singh_rana@yahoo.com
Presentation Agenda Part-A • World Population & world GNI • India vis-à-vis Global Realities • Role of WTO in reducing global inequities • Globalisation as a way out to bridge the gap between the Rich and the Poor • Globalisation: Concept & Components • India vis-à-vis Globalisation Index Part-B • India as an Emerging Global Market • Broad contours of Indian Economy • Reform packages • Twenty-Point Policy Initiatives • Global Business Leaders’ opinions about India Part-C • Performance of the Indian Economy in Post-LPG Era Part-D • Limitations of the Economic Development Approach: Paradigm shift in terms of Human Development • Human Developemnt: Concept and Components • HDI and its Trends • Concluding observations
Distribution of World Population and World GNI among various groups of Countries in 2003 (Exchange Rate Basis) Source: Compiled from World Bank, World Development Report (2005)
INDIA vis-à-vis GLOBAL REALITIES GNI (Billion US $)Total Population GNI Per Capita (million) (US $)
INFERENCES BASED ON THE ABOVE TABLES • Gross inequality of incomes between the Rich and the Poor countries • Widening gap in the per capita income of Rich and Poor countries • during 1985-95 • During the past few years, the income growth rate of the poor • countries has shown rising trends, which if sustained over a longer • period ; the gap between the Rich and the Poor will decrease • All high income countries are not necessarily developed countries, such • as, oil-exporting Gulf Countries • Their per capita incomes are high, but they do not fulfill other parameters • of a developed economy
ESTABLISHMENT OF WTO TO FACILITATE FREE FLOW OF TRADE IN GOODS AND SERVICES • The establishment is based on the belief that the World would be • richer and happier if we could ensure the movement of the • Following without any restrictions and hindrances: • - Goods and Services • Investment Flows • Technology Flows • Systems and processes Flows • People Flows • Any aberration or anomaly in the above movements is sought to be corrected • Through the good offices of the WTO.
GLOBALIZATION CONCEIVED AS A WAY OUT TO BRIDGE THE GAP BETWEEN THE RICH AND THE POOR COUNTRIES THE CONCEPT AND THE SCOPE OF GLOBALIZATION There are different connotations and ramifications of the much talked about term “Globalization”. But from the point of view of Economy, Business, Human Development, and Management, the term Globalization connotes the following four basic aspects: • More choices • Lower prices • Blurred national identity for products and services • Career choices and progression
-Fifteen Years of consistent efforts on the part of India in terms of Globalizing its Economy, It has not been in a position to find a place among the top 20 Globalized countries of the world. • The four important components of globalization • are • -ECONOMIC INTEGRATION • PERSONAL CONTACT • TECHNOLOGY • POLITICAL ENGAGEMENT
ECONOMIC INTEGRATION: TRADE, FOREIGN DIRECT INVESTMENT AND PORTFOLIO CAPITAL FLOWS, AND INCOME PAYMENTS AND RECEIPTS (INCLUDING COMPENSATION OF NON RESIDENT EMPLOYESS AND INCOME EARNED AND PAID ON ASSETS HELD ABROAD) PERSONAL CONTACT: INTERNATIONAL TRAVEL AND TOURISM, INTERNATIONAL TELEPHONE TRAFFIC, AND CROSS-BORDER TRANSFERS TECHNOLOGY: NUMBER OF INTERNET USERS, INTERNET HOSTS, AND SECURE SERVERS POLITICAL ENGAGEMENT: NUMBER OF MEMBERSHIPS IN INTERNATIONAL ORGANIZATIONS, U.N. COUNCIL MISSIONS IN WHICH EACH COUNTRY PARTICIPATES, AND FOREIGN EMBASSIES THT EACH COUNTRY HOSTS
There is a common myth that Globalization benefits developed countries at the cost of under-developed countries. For instance, Japan figures at the 2nd largest economy of the world next to U.S.A., but in terms of Globalization Index Rankings (G.I.R.), Japan is at No.38. Similarly, Germany, which is considered as the 3rd largest economy of the world, figures at No.14 in terms of G.I.R.. The more startling contrast is provided by China, which in the year 2005 emerged as the 4th largest economy of the world relegating U.K. to a lower position, figures at 53rd ranking of the Globalization Index. This is so because the G.I.R. are based on parameters, which are not exactly the same, which constitute the size of the economy.
Judged from the globalization index rankings, India figures at Rank No.49 and small countries like Uganda, Tunisia, Senegal, Romania, Ukraine, Sri Lanka etc. have scored higher ranks than India. It’s a great surprise that in this ranking, Ireland is number 1, followed by Switzerland, whereas the great and most powerful economy of the world, namely, U.S.A. figures at Rank No.12. This ranking has been given out of 62 countries and Iran figures at the last rank.
Who Benefits from Globalization? • Allegedly at the cost of poorer nations. • Higher among the G-7, but some (e.g. Japan) are low on globalization • Some emerging economies (Czech Republic) are quite high • Developing countries exceeded the global average in trade growth
Globalization and theEnvironment • Common complaint that globalization hurts the environment • Argued that firms relocate to escape tough pollution rules at home • Many firms adhere to strict codes of environmental protection, and engage in cleanup of locations • Environment is just one factor in location decision
Globalization: The Social Balance • Carries promises and threats at the national, regional, organizational, and individual level. • Makes less regulated, emerging economies vulnerable to volatilities. • Exposes national economies to the uncertainties of the global economy. • Could offer advantages to participating economies.
Globalization: The Social Balance–contd.. • Globalization & Infrastructure – • Institutional frameworks and market efficiency that support fair and transparent transactions of products or services • Streamlines flows of commodities, capital, labour, knowledge, and information.
Globalization: The Social Balance- Contd.. Globalization and happiness
Globalization and International Business • Globalization does not mean the advance of a homogeneous civilization and uniform business system. • Growing interaction makes people more aware of the differences among them.
Concept of International Business • The business activities that involve the transfer of resources, goods, services knowledge, skills or information across national boundaries. • May involve • Individuals • Companies • Government bodies • International institutions
Concept of IB –Contd.. • International transactions • Economic transactions that cross borders • International trade • Occurs when companies import or export across borders • International investment • Occurs when companies invest their resources across national boundaries • International firm • Those engaged in international business
Concept of IB –Contd.. • Multinational Enterprise (MNE) • A firm that has directly invested abroad • Has at least one working affiliate in a foreign country
International versus Domestic Business • International business is the outgrowth of domestic business. • Most major corporations started their operations in the domestic market. • International entrepreneurs • Individuals or companies that invest and operate in another country without a home base
International versus Domestic Business • Significantly different due to differences in: • Environmental Dynamics • Currency, inflation, interest rates, accounting practices, cultures, social customs, laws, political stability • Operational Nature • Communication, coordination, motivation, differences in organizational principles and management philosophies
Why Do Firms Expand Internationally? • Firms expand internationally for various motives: - Market motives - Strategic motives - Economic motives • Motives vary from one business activity to another.
Why Do Firms Expand Internationally? • Market Motives: • Offensive motive – seize market opportunities in foreign countries through trade or investment. • Defensive motive – to protect and hold a firm’s market power or position in the face of threats from domestic rivalry or changes in government policy.
Why Do Firms Expand Internationally? • Strategic Motives • Capitalize on distinctive resources or capabilities already developed at home • Be the first mover in a target foreign market • Benefit from vertical integration involving different countries • Follow the company’s major customers abroad
Why Do Firms Expand Internationally? • Economic Motives • Increase return through higher revenues and/or lower costs. • Enables the company to benefit from the differences in: • Costs of labour • Natural resources • Capital • Differences in regulatory treatment
INDIA AS AN EMERGING GLOBAL MARKET The process of Liberalization, Privatization, and Globalization (L.P.G.) initiated since 1991 have made India a Brand Destination as the 5th largest economy of the world next to U.S.A., Japan, Germany, and China. The macro-economic variables, which have put India in such an enviable global position have been:
Economic Growth Sustained economic performance Average since 1991 6.2% 2004-05 6.9% 2005-06 7.5-8.0 % (estimated) Forecast till 2050 –Goldman Sachs 5 % p.a. Services account for over 50% of GDP Manufacturing sector grew at 9% in 2004-05 Trade (2004-05) Exports growth 24% in 2004-05 reaching US$80 billion Imports growth 35% reaching US$106 billion Investment Foreign Investment - US$16 billion in 2003-04 Mature Capital Markets NSE third largest, BSE fifth largest in terms of number of trades Well developed banking system Broad Contours of Indian Economy
Economic Reforms-contours • Industrial Policy Reforms • Industrial delicensing and deregulation • Licensing limited to only 6 sectors: on security, public health & safety considerations • Liberal policy on technology collaboration • Trade Policy Reforms • Most items on Open General License, Quantitative Restrictions lifted • Progressive reduction in customs duty • Imports grew at 34% in 2004-05 to reach US$105 billion • Foreign Trade Policy • To double India’s share in global merchandise trade in 5 years
Economic Reforms • Rationalisation of direct and indirect tax structure • Peak Custom duty: 15% • Corporate Tax: 30% • Tariff to be aligned with ASEAN levels • Policies on outward investments also liberalised • Rupee made fully convertible on trade account • Fiscal Responsibility & Budget Management Act • Revenue deficit to be brought to zero by 2008 5th among the top reformers in 2003: World Bank
In addition to the above reform packages, the country Has taken the following Twenty-Point policy initiatives to put The Indian Economy on the Global Map • Enhancing Competitiveness of the economy • 2.Liberalization of Foreign Director Investment (FDI) Policy • Foreign Technology Collaborations • Easing of Foreign Exchange Controls • 5. Lowering of Tax Rates both for individuals and corporates
Contd.. • 6. Strengthening of infrastructural support • Revolutionary milestones in IT and • IT enabled services • Virtual revolution in telecommunications • The gigantic quadrangular development of • national highways connecting North to • South and East to West • 10. Strengthening of special economic zones
11. Massive growth in Automobile and Auto component Industry • Impressive performance of Textiles and Garments and their vast potential for future • 13. Impressive strides in Biotechnology and Pharma Industry • 14. Integrated Circuit Technology (ICT) benefits • Bilateral and Multilateral Trade Agreements with leading economies of the world including U.S.A., E.U., ASEAN, NAFTA, GULF COOPERATION COUNCIL (GCC), etc.
16. Developed brain power facilitating knowledge • power outsourcing in several fields, such as, • software development, IT enabled services, • Medical researches and Health care tourism, • consulting etc. • 17. Healthcare, Sports, and Eco-tourism • Indian corporates turning out to be • multinationals • Strong scientific and technological • manpower pool • Sound foundations laid in terms of excellence • in education through IIMs, IITs, Engineering and • Technology Institutions, etc.
JACK WELCH, GE JOHN CHAMBERS, CISCO MICHAEL DELL, DELL BILL GATES, MICROSOFT Global Business Leaders -On India “India is a developed country as far as intellectual capital is concerned” “We are expanding our presence in India to take advantage of the ample R&D talent available” “India is handling the most sophisticated projects in the world.I am impressed with the quality of work” “India can be a major part of Dell’s operations and we are looking to capitalize on India’s human capital”
The echo of the above global leaders’ sentiments has found Expressive Support In the behavior of Foreign Institutional Investments in Asia favouring India Foreign Institutional Investments (FIIs) Destination : Select Asian Countries ($ million) Source : Asian Development Bank (ADB) Report, 2005 Source: Business & Economy, New Delhi, (30.12.2005 – 12.01.2006)
NDP AND GROWTH RATE IN DIFFERENT ACTIVITIES 1993-94 TO 2003-04 At 1993 – 94 prices Rs. Crore and % Note:The NDP figures are at 1993-94 prices and the growth rate is the geometric average growth rate at constant 1993-1994 prices during the period. It is computed from the NAS 2005. Source: National Accounts Statistics [NAS] 2005, Central Statistical Organisation [CSO], GOI, New Delhi. Source: Business Line, New Delhi, 12/01/2006
SHARE OF NATIONAL INCOME AND GROWTH RATES At 1993 – 94 prices Rs. Crore and % Note : We have included construction as part of services. The NDP figures are at 1993-94 prices and the growth rate is the geometric average growth rate at constant 1993-94 prices during the period. It is computed from the NAS 2005. Source: computed from data in National Accounts Statistics [NAS-2005, Central Statistical Organization [CSO], G.O.I New Delhi Source: Business Line, New Delhi, 12/01/2006
LIMITATIONS OF ECONOMIC GROWTH APPROACH: PARADIGM SHIFT IN TERMS OF HUMAN DEVELOPMENT Policy makers assumed that effects of higher economic growth would trickle down to poor. Mahbub ul Haq challenged this conventional wisdom and asserted that there was no automatic link between economic growth & human development. Economic growth is necessary but not a sufficient condition for human progress. Governments need to actively focus on HD goals & direct & use their resources efficiently so that economic growth leads to empowerment of people & poverty alleviation. Peoples’ needs & their aspirations must be at the centre of all development efforts, asserted Haq.
The Birth of Human Development Concept (1990 – UNDP) • Basic assumptions under this concept • The true wealth of a country is its people. • There are not developed and underdeveloped countries, but developed and underdeveloped people. • The best strategy to increase national income is not to accumulate capital, but to develop people. • Exactly Defined as “Process of enlarging peoples choice”
Growth Advocates: Expanding income is an end in itself Growth doestrickle down Therefore HD Advocates: • income is a means; enhancing people’s capabilities the end • Simultaneous expansion of choices in other dimensions – social, cultural, political - and economic • not accept trickle down as automatic
Is Income Enough for Well-being? • Economic growth is needed, but public policy is needed to translate growth into HD. How? • 1. Emphasis on investment in health, education, skills of people • 2. More equitable distribution of assets and income • 3. Well structured public expenditures • 4. Empowerment of people to participate • Otherwise the growth is voiceless, rootless, ruthless, futureless, discriminating, etc.
Human Development Index (HDI) • Introduced in 1990, the HDI measures a country's achievements in three aspects of Human Development: • Longevity: measured by life expectancy at birth; • Knowledge: measured by a combination of the adult literacy rate (2/3) and the combined gross primary, secondary, and tertiary enrolment ratio (1/3); • Standard of living: measured by GDP per capita (Purchasing Power Parity of US$).
Construction of the HDI 1 Fixed minimum and maximum values are established for each of these indicators: 1.) life expectancy at birth: 25 and 85 years; 2.) adult literacy rate (age 15 and above): 0% and 100%; 3.) combined gross enrollment ratio: 0% and 100%; 4.) GDP per capita (PPP$): $100 and $40,000 (PPPUS$). 2 For each component, individual indices are computed according to the general formula: Index=(actual value – minimum value) / (maximum value – minimum value) 3 The Education Index is compiled as 2/3(adult literacy index) + 1/3(gross enrolment index)
Construction of the HDI ( Contd) 4. The GDP index is calculated using adjusted per capita (PPP$). In the HDI income serves as a surrogate for all the dimensions of human development not reflected in a long and healthy life and in knowledge. Income is adjusted because achieving a respectable level of human development does not require unlimited income. Accordingly, the logarithm of the income is used. 5. The HDI is a simple average of the life expectancy index, educational attainment index and adjusted GDP per capita PPP US$ index, and is derived by dividing the sum of these three indices by 3.
Uses of HDI: Focus on human outcomes, not economic data • Comparisons within and between countries of the same level of development, as well as neighbors • If properly disaggregated, to monitor inequalities, recommend targeting, evaluate progress over time • To determine priorities for policy intervention • For lobbying policy makers who make budgetary allocations (needs to be understood and used by civil society) • To question national policy choices - how two countries with the same level of income per person can end up with such different HD outcomes.
HDI trends in 2004 (2002) The top and the bottom of the Index remain unchanged from last year: Norway is on top and Sierra Leone is on the bottom Top 5 countries: Norway (0.956), Sweden (0.946), Australia (0.946), Canada (0.943), Netherlands (0.942) Bottom 5 Countries : Burundi (0.339), Mali (0.326), Burkina Faso (0.302), Niger (0.292), Sierra Leone (0.273) India : 1975 –0.411, 1980 – 0.437, 1990 – 0.514, 1995 – 0.548, 2000 – 0.579 and 2002- 0.595 (Rank 127)