Justin Paul : Business Environment

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Justin Paul : Business Environment

GLOBALISATION ● The process of Globalisation has brought about an open economy and tariff levels have come down to a larger extent. Foreign Investment has witnessed surge in volume. ● Go Global, Grow Global – Strategy of the day and Need of the Hour.

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Justin Paul : Business Environment

Globalisation-Meaning Globalisation of the economy means reduction of import duties, removal of Non-Tariff Barriers on trade such as Exchange control, import licensing etc., 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, in India. 3

Justin Paul : Business Environment

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 4

Justin Paul : Business Environment

GLOBALISATION ● The term BRIC ‘Emerging Markets’ ● Exports play dual role a) Bring income b) Foreign Exchange Earnings from Exports facilitates expansion of imports ● SPECIAL Economic Zones ● FERA has been replaced by FEMA- No Payment Restrictions on Importers

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Justin Paul : Business Environment

GLOBALISE or PERISH ● Secret of Success of many firms. Eg: Software companies get major chunk of revenue from foreign markets, ● Opening up of Markets for Global companies has sent a wave among certain business circles. Many industries have realised that Globalisation brings with it many new technologies and Production structures

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Justin Paul : Business Environment

Reforms for Business ● Exchange Market Reforms (Full current account convertibility etc.) ● Reforms in Foreign Investment Regime (Liberalising rules for FDI and allowing FII) ● Reforms in Infrastructure (PPP) ● Reforms in the form of EXIM policy(Tariff Rate reduction, QR removal, EDI system) ● Allowing Indian Mutual Funds to invest in Foreign companies ● Challenges and Opportunities ● Joint Ventures with Foreign Companies in India and Abroad

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Justin Paul : Business Environment

INDIA - GROWTH RATES in % (1990-91 to 2005-06) ● Industrial Production – 8.2, 0.6, 2.3, 6.0, 8.4, 12.8, 5.6, 6.6, 4.1, 6.6, 5.7, 2.7, 5.7, 7 and 8.4% respectively ● Exports (in USD terms) – 9.2, -1.5, 3.8, 20, 18.4, 20.8, 5.3, 4.6, -5.1, 13.2, 21, -1.6, 20, 21 respectively, 25.6% (04-05), 31% (05 – 06) ● Imports(in USD terms) –13.5, -19.4, 12.7, 6.5, 22.9, 28, 6.7, 6.0, 2.2, 11.4, 14.4, 1.7, 19.4, 27.3 respectively, 34.7% (04-05), 36% (05 – 06) Source: Economic Survey, Ministry of Finance, Govt.of India 8

Justin Paul : Business Environment

QRs: Some Facts (Quantitative Restrictions) Removal of QRs doesn’t 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 be raised by the Govt. upto Bound level, to protect the interests of the Domestic industry including SSIs and agriculture. 9

Justin Paul : Business Environment

AGRICULTURAL SECTOR Agricultural products- Traditional export items of India. Price of many items like 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. 10

Justin Paul : Business Environment

Mining and Petroleum Mining and Petroleum-

Major policy changes

include automatic permission for foreign equity participation

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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Justin Paul : Business Environment

Manufacturing Sector Reforms

have

including

reductions

Tariff

rates,

been removal

widespread in of

average. import

licensing and liberalisation of foreign investment policies. 12

Justin Paul : Business Environment

Service Sector ● Contribute more than 50% to India’s GDP. ● India has a large pool of well-qualified professionals capable of providing services abroad whereas developed countries have surplus capital to invest.

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Justin Paul : Business Environment

BUSINESS ENVIRONMENT – SECTORWISE ANALYSIS 1.

Telecom Sector

2.

Insurance Sector

3.

Banking and Financial Sector

4.

Retail Sector

5.

Automobile Sector

6.

Textiles Sector 14

Justin Paul : Business Environment

SECTORS ● TELECOM- Foreign Investment upto 72% has been allowed. ● INSURANCE – 10 Multinational Insurance companies have established their joint ventures (Allianz, AIG,Prudential, New York Life, Standard Life, Sun Life, ING etc. 26% foreign equity through automatic approval ● RETAIL SECTOR – ● In 2005, The Government announced upto 74% FDI both in the organised retail sector s well on the real estate front (Walmart hve announced JV with Indian company). 15

Justin Paul : Business Environment

AUTOMOBILES & BANKING ● AUTO MATIC APPROVAL FOR FOREIGN EQUITY INVESTMENT UPTO 100% is permitted. INDIA manufactures about 3.8 million two wheelers , 0.6 million passenger cars annually. ● Foreign Investment up 49% permitted in private sector banks

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Justin Paul : Business Environment

TOURISM ● SECTOR with IMMENSE POSSIBILITIES for FOREIGN INVESTMENT ● 100% Foreign Equity Permissible ● Automatic approval for foreign equity upto 51% INFRASTRUCTURE SECTOR: FDI TAX HOLIDAY- 10 YEARS

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Justin Paul : Business Environment

ABOUT INDIA ● More than 1 billion (10 million) people ● Religions = HINDU (65%), MUSLIMS (20%), CHRISTIANS (7-8%) ● SIKHS, JAINS ● Mumbai- commercial capital, Bngalore- IT city ● New Delhi- Capital ● Chennai, Calcutta, Hyderabad, Pune, Cochin etc.other cities

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Justin Paul : Business Environment

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

290

2003

89

80

09

321

Source: WTO International Trade Statistics, 2004 19

Justin Paul : Business Environment

International Scenario: Textiles Sector Removal of quotas (as per WTO ATC agreement) has opened up opportunities for the T & C Sector of India to increase its exports. North America and West Europe together account for nearly 70% of India’s exports of T & C and both had enforced strict quota restrictions until last year. Studies have shown that world trade in T & C is likely to increase substantially in the coming years. 20