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CASE
1
Globalization
and Indian Industry
Globalization has been one of the most hotly debated
topics in international economics over the past few years.
There are three
familiar responses to globalization. First, that its novelty is grossly
exaggerated. Globalization, the argument runs, has been around for a long time.
The current phase is merely an intensification of a well-entrenched process,
the basic features of which are much the same as before.
The second response is
that globalization is not only novel but also extensive, touching everything,
transforming everything within its reach. Therefore, it must be treated as the
central organizing category of contemporary discourse. When evaluated, this
response branches into two further sub-responses: either globalization
(over-optimistically) is a universal remedy for all the problems of the world,
or (over-pessimistically) it is the cause of all its maladies. The concern is
that it has increased inequality and environmental degradation. However, the
meaning of globalization is growing integration of economies and societies
around the world, Poor and third word countries consider globalization as
economical and cultural colonization and to some extent greed of developed
nations is responsible to this.
The third response is an intermediate one, which
sees globalization as introducing new structures without altogether displacing
older patterns. From this point of view, globalization is a dynamic, open-ended
and contradictory process that generates forces working in different, often
opposite directions. Nevertheless, India has achieved a lot from Globalization.
Using flows of goods and services, capital, people, and ideas, countries like
India and china to grow rapidly with reduction in the poverty.
According to economist
John Dunning, Multinational enterprises invest abroad for there reasons. First,
they try to capture ownership-specific advantages (O) for instance patent
rights, process and other strengths not available to competitors. Then they
exploit location advantages (L): examples of this are presence of natural resources,
cheap labor or cheap inputs. Lastly, they exploit internalization
advantages
(I) this is because some assets are better owned or employed by the firm
instead of being bought from the market for instance an R & d outfit or a
management structure.
From this building
block, Dunning developed his theory of investment development path. Each
country passes through five stages. The poorest countries that have nothing to
draw foreign investment other than L advantage i.e. location of natural
resources. As they get wealthier, a domestic market develops; it can be used as
the magnet to attract foreign investment from multinational enterprises with O
advantage. Eventually domestic firms come forward that can exploit domestic
market just as well as foreign firms, and start using O advantage to invest
abroad. In the fourth stage, outward investment comes to exceed foreign
investment. In the last stage reached by the countries with highest incomes,
both inward and outward investments are substantially balanced. Now where does
India fit in this?
In the seventies, India
was just emerging from the first stage. After 30 years from then, it has
crossed second stage and going into the third one. Year 2003 was pivotal as it
saw manifestation of India’s global aspiration. The number as well as size of
the foreign targets showed steep rise. Close to 50 overseas acquisitions,
amounting $1.8billion took place last year, which was only $0.21 billion in
2002. The increase in average deal size is from $7.5 million in 2002 to $36.5
million in 2003.
India has adopted
domestic policies and institutions that have enabled people to take advantage
of global markets and have thus sharply increased the share of trade in their
GDP. India has been catching up with the rich ones – our annual growth rates
increased from 1 percent in the 1960s to 5 percent in the 1990s. Now it is
above 8%. Indians saw their wages rise, and the number of people in poverty
declined.
Industry wise, the
software and services sector lead the mergers and acquisitions charge overseas
but now this list includes both old and new economy industries like auto
ancillaries, pharmaceuticals, telecom, agro-chemicals and steel. There are thus
no stereotypes that only new economy companies are invited to the mergers and acquisitions
ball or that only the blue chip companies are partaking of the action. It is
more democratic as smaller auto ancillary companies are also in the fray.
Thanks to the easier
external profile, at this time, India clearly is tasting the fruits of globalization
and the current liberal overseas investment regime will take the process
forward. However, a far more important use of our reserves is for higher
domestic investments. There are no prizes for guessing that it is only with
higher investments that there can be faster GDP growth. In next two-three
years, India must also work on improving delivery of education and health
services. Indian government must provide social protection to a changing labor
market. In addition, that the changes in climate due to industrializations will
be especially burdensome for developing countries and poor people. There is
broad agreement among scientists that human activity is leading to potentially
disastrous global warming. India must demand effective international cooperation
to address this problem.
I am sure in the next decade we should see our
investment outflow increasing and our best companies going multinational.
Questions
1. Are the Indian companies getting impacted by the
globalization? To what an extent international policies have influenced
globalization?
CASE -2
The
General Agreement on Tariffs and Trade (typically abbreviated 'GATT') was the
outcome of the failure of negotiating governments to create the International
Trade Organization (ITO). GATT was formed in 1947 and lasted until 1994, when
it was replaced by the World Trade Organization. The Bretton Woods Conference
had introduced the idea for an organization to regulate trade as part of a
larger plan for economic recovery after World War II. As governments negotiated
the ITO, 15 negotiating states began parallel negotiations for the GATT as a
way to attain early tariff reductions. Once the ITO failed in 1950, only the
GATT agreement was left. The GATT's main objective was the reduction of
barriers to international trade. This was achieved through the reduction of
tariff barriers, quantitative restrictions and subsidies on trade through a
series of agreements. The GATT was a treaty, not an organization. The functions
of the GATT were taken over by the World Trade Organization which was
established during the final round of negotiations in early 1990s.
The
history of the GATT can be divided into three phases: the first, from 1947
until the Torquay Round, largely concerned which commodities would be covered
by the agreement and freezing existing tariff levels. A second phase,
encompassing three rounds, from 1959 to 1979, focused on reducing tariffs. The
third phase, consisting only of the Uruguay Round from 1986 to 1994, extended
the agreement fully to new areas such as intellectual property, services,
capital, and agriculture. Out of this round the WTO was born.
GATT
signatories occasionally negotiated new trade agreements that all countries
would enter into. Each set of agreements was called a round. In general, each
agreement bound members to reduce certain tariffs. Usually this would include
many special-case treatments of individual products, with exceptions or
modifications for each country.
Questions
What were the advantages and disadvantages
of GATT ?
CASE 3
WTO-GATS
Regime and Future of Higher Education In India
Education plays a very
important role in framing the economic and social setup of any nation. Though
Education is largely a governmental activity in India, things are changing
under the WTO - GATS regime. India signed the World Trade Organization (WTO)
Agreement including General Agreement on Trade in Services (GATS) in 1994 as
part of a single undertaking, which came into force in 1995. GATS established a
multilateral framework of principles and rules for trade in services with the
objective of expansion and progressive liberalization of such trade as a means
of promoting economic growth of all trading partners and for further
development of developing countries. It provides for disciplines on
transparency, Most Favored Nations (MFN) treatment, market access and national
treatment for all the member nations. Education is one of the twelve services
included in the Uruguay Round. Under GATS, education services are classified
into five main categories, which include: Primary Education Services, Secondary
Education Services, Higher Education Services, Adult and continuing Education
Services and Other Education Services.
India has the second
largest higher education sector in the world with 8.8 million students, who
constitute seven percent of the total population. The number of universities in
India has increased from 18 (at the time of independence) to 306 (including 18
central universities, 186 other universities, 5 institutions established under
State Legislature Act, 84 deemed universities and 13 institutes of
national
importance) government ones and about 150 private ones. Open universities are
nine in number while women universities are five. They employ a total force of
more than four hundred thousand teachers. Every year 66,000 Indian students are
going abroad (mainly to US and UK), termed as import of services; in contrast
to this, only 6000 foreign students are coming to India to pursue higher
education (and that too from other developing countries or least developed
countries) termed as export of services. With such imbalance in import and
export of higher education services, the question arises ‘is India really ready
for free trade regime in higher education?’
Questions
1. To what an extent WTO-GATS Regime has
influenced higher education in India?
CASE
4
Impact
of FDI on Indian Retail Trade: Good, Bad or a Mix
Liberalization of trade
policies during the last one and half decade has led India to become an
investment friendly country. Foreign direct investment (FDI) in this country
assumed critical importance in the context of this liberalization. Though India
is the tenth most industrialized country in the world, it is well known that it
is mainly agro-based with around 70% population engaged in the farm sector.
However, in the initial stage of liberalization, FDI was centered on the urban
manufacturing sectors because of its civic infrastructure, labour availability,
flexible taxation mechanism etc. The success story of FDI in these sectors is
known to us.
For a long time there
were efforts for FDI in the retail sector so that the trader can reap the
benefit of FDI. Retail trade contributes around 10-11% of India’s GDP and
currently employs over 4 crores of people. Recently, a great debate has cropped
up against the government plans for FDI in the Indian retail sector. FDI in
retail is fundamentally different from that in manufacturing. FDI in
manufacturing basically enhances the productive employment in most cases; but
FDI in retail trade may create job losses and displacement of traditional
supply chain. One of the main features of rural India is disguised
unemployment. Farmers, evicted from the agricultural sector, engage in small
retail trades for livelihood. The main fear of FDI in retail trade is that it
will certainly disrupt the livelihood of the poor people engaged in this trade.
The opening of big markets or foreign-sponsored departmental outlets will not
necessarily absorb them; rather they may try to establish the monopoly power in
the country. However, so many positive factors are also there in favour of FDI
in Indian retail service.
Questions
Explain as to
why FDI’S in manufacturing increases employment but in retail might have
adverse effect on the jobs of many?
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