INDIA VIS--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--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--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) GNI (Billion US $) Total Population (million) 2,310 2990 (36.8) (47.7) GNI Per Capita (US $) 450 1,920

1. Low Income Economies 2. Middle Income Economics 3. High Income Economics World China India

1,038 5,732

(3.0) (16.6)

27,732

(80.4)

971

(15.5)

28,550

34,502 1,417 568

(100.0) (4.1) (1.6)

6271 1,288 1,064

(100.0) (20.5) (17.0)

5,500 1,100 530

Source: Compiled from World Bank, World Development Report (2005)

INDIA vis--vis GLOBAL REALITIES

GNI (Billion US $)

Total Population

GNI Per Capita

(million)

(US $)

World

34,502

(100.0)

6271

(100.0)

5,500

China

1,417

(4.1)

1,288

(20.5)

1,100

India

568

(1.6)

1,064

(17.0)

530

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

THE ABOVE PHENOMENON HAS BEEN SHOWN IN THE FOLLOWING GRAPH

Globalization index rankings

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. Its 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 the Environment

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

 Significantly different due to differences in:

Environmental Dynamics

International versus Domestic Business

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 firms market power or position in the face of threats from domestic rivalry or changes in government policy.

 Strategic Motives

Why Do Firms Expand Internationally?

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 companys 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:

Broad Contours of Indian Economy

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

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 Indias 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 5th among Rupee made fully convertible the top on trade account reformers in Fiscal Responsibility & Budget 2003: World Bank Management Act
Revenue deficit to be brought to zero by 2008

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

1.Enhancing Competitiveness of the economy 2.Liberalization of Foreign Director Investment (FDI) Policy 3.Foreign Technology Collaborations 4.Easing of Foreign Exchange Controls 5.Lowering of Tax Rates both for individuals and corporates

Contd..
6. Strengthening of infrastructural support 7. Revolutionary milestones in IT and IT enabled services 8.Virtual revolution in telecommunications 9. 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 12.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 15.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 18. Indian corporates turning out to be multinationals 19. Strong scientific and technological manpower pool 20. Sound foundations laid in terms of excellence in education through IIMs, IITs, Engineering and Technology Institutions, etc.

Global Business Leaders -On India

India is a developed country as far as intellectual capital is concerned JACK WELCH, GE We are expanding our presence in India to take advantage of the ample R&D talent available JOHN CHAMBERS, CISCO

India can be a major part of Dells operations and we are looking to capitalize on Indias human capital MICHAEL DELL, DELL

India is handling the most sophisticated projects in the world.I am impressed with the quality of work BILL GATES, MICROSOFT

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)
2000 Malaysia Thailand China Indonesia India 2001 2002 2003 2004

-2,472 -649 -1,712 1,097 -712 -881 -1,606 -73 -3,991 -19,406 -10,342 11,427 -1,911 -244 1,222 2,251 2,346 2,853 1,023 8,216

8,902 1,308 196 2,793 8,833

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
Category 1993-94 (Rs. in Crores) 2,29,829 1,03,739 65,774 37,965 38,749 98,627 91,324 5,303 22,888 40,431 48,275 6,97,992

Rs. Crore and %

2003-2004 (Rs.in crores) 2,93,033 1,88,817 1,18,282 72,535 70,962 2,18,985 2,04,438 14,547 50,090 72,001 1,02,156 12,74,074 Growth Rate in % 2.46 6.17 6.04 6.39 6.24 8.53 8.39 10.62 8.15 5.94 7.78 6.2

Agriculture and allied activities Manufacturing Of which Organised Unorganised [Non-Corporate] Construction Trade, Hotels and Restaurant On which Trade Hotels and Restaurant Non-Railway transport Real Estate, ownership of Dwellings and Business Services Other Services Total NP [including other Activities]
Note: Source: Source:

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. National Accounts Statistics [NAS] 2005, Central Statistical Organisation [CSO], GOI, New Delhi. Business Line, New Delhi, 12/01/2006

SHARE OF NATIONAL INCOME AND GROWTH RATES At 1993 94 prices Rs. Crore and %

Category

Agriculture and forestry, fishing Mining, Manufacturing Electricity Services

Sector Share 1993-94 2,29,829 [32.9] 1,27,490 [18.3] 3,40,673 [48.8]

Sector Share 2003-04 2,93,033 [23.0] 2,32,040 [18.2] 7,49,001 [58.9]

Growth Rate [1993-94 to 2003-04] 2.46

6.17

8.2

Note : Source:

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. 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

Therefore
Growth Advocates: Expanding income is an end in itself Growth does trickle down HD Advocates: income is a means; enhancing peoples 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.

HOW TO MEASURE HUMAN DEVELOPMENT?

Index HDI

What it measures Average achievements in a country in three basic dimensions of HD Adjusts the average achievement of the HDI to reflect the inequalities between men and women Focuses on women s opportunities rather than their

GDI

GEM

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.) 2.) 3.) 4.) 2 life expectancy at birth: 25 and 85 years; adult literacy rate (age 15 and above): 0% and 100%; combined gross enrollment ratio: 0% and 100%; GDP per capita (PPP$): $100 and $40,000 (PPPUS$).

For each component, individual indices are computed according to the general formula: Index=(actual value minimum value) / (maximum value minimum value) 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)

HDI trends in 2005 (2003)

The top and the bottom of the Index (177 ): Norway is on top and Niger is on the bottom Top 5 countries: Norway, Iceland, Australia, Luxemburg, Canada Bottom 5 Countries : Chad, Mali, Burkina Faso, Sierra Leone, Niger India : 0.602 (Rank 127)

HDI trends
The CIS is the only region to witness an overall decline in its HDI. Nearly all the countries saw a sizeable deterioration in their income indicator, with the notable exception of Poland. Roughly half of the countries in Latin America and the Caribbean recorded either a decline or stagnation in income during the 1990s. East Asia and the Pacific region continues to forge ahead, with virtually every country making progress compared with 1990. Laos, China, Thailand and Malaysia all moved ahead in the HDI rankings. In South Asia, too, there were HDI improvements across the board.

Science & Engineering (S&E) Job Growth Projected to Exceed Overall Job Growth Rate
Projected Increase in Employment, Percent Change from 2000 to 2010
100 90 80 70 60 50 40 30 20 10 0 All Occupations All S&E Occupations

47

15

SOURCE: National Science Foundation, Science and Engineering Indicators 2004.

Number of S&E Doctoral Degrees Awarded Growing Faster Worldwide Than in US Compounded Annual Growth Rate of S&E Doctoral Degrees
Awarded, 1991-2001
China Taiwan South Korea Japan United Kingdom France India Germany United States 0 0.05 0.1 0.15 0.2 0.25

SOURCE: National Science Foundation, Science and Engineering Indicators 2004.

TO CONCLUDE
What should we do ? Reduction in economic and social inequalities of macro and microeconomic variables Promotion of Equality of opportunities for all people across the nations, regions, people societies, cultures and genders Focus on contributing to the overall GDP of the Indian Economy Emphasis on crystallizing and outperforming international benchmarks in all sectors of the economy Aim at achieving excellence in all spheres of operations

Earnest endeavours on Invention, Innovation, R& D, and patents of state of the art technology, products, systems and processes

- Nurture high ambition and aspiration levels in Individual, organizational and international domains
-

Focus on Technology related areas and its overall contributions to Quality of life so as to maximize Indias Ranking on HDI Frontier Adherence to Sterling Benchmarks of behaviors based on universal ethics and values Commitment to preserve the environmental sustainability in the long run

Thank You!