Discuss About The Trade Pattern In Process Of Globalization.
A strong potential for competitive returns is offered by the emerging markets over a long term, across a number of industries and countries and signify an essential diversifier for investor portfolio. Various attractive attributes are possessed by the emerging markets that contribute towards strong future growth. Growth in the GDP of a country is used as a primary indicator to measure the health of the economy. Rapid growth in the GDP creates attractive investment opportunities for the investors.
This assignment focuses on the analysis of India as a new emerging market where rapid GDP growth has created attractive investment opportunities. The assignment provides general overview of India, political, economic, socio- cultural and technological influences, national resource and factor endowments that create competitive advantage, foreign currency and exchange influences, existing trade policies, systems, barriers and incentives and existing levels of foreign direct investment.
India is a country located in South Asia and is also called Republic of India. It is the 7th largest country in terms of area, most populous democracy and second most populous country in the world (Statista, 2018). India is governed by National Democratic Alliance led by Bharatiya Janta Party (BJP) following its victory in the year 2014 national elections. Since its independence in the year 1947, India has significantly upheld relations with majority of the nations. Agriculture is the largest livelihood provider in India.
A large proportion of the Gross Domestic Product (GDP) in India is contributed by agriculture. The constant growth in the industrial sector in India also contributes vital figures to the GDP. The information and broadcasting sector of India is also well- developed. Mass media communication such as television, radio, print publications, films and advertising play an important part in providing the people in India with free flow of information (Government of India, 2018). However, it continues to face the challenges of malnutrition, corruption, poverty and inadequate public healthcare.
India has emerged as one of the fastest growing economies in the world and is further expected to become one of the top three economic powers of the world in the upcoming 10- 15 years as per the International Monetary Fund (IMF) and Central Statistics Organization (CSO). The estimated increase in the India’s GDP is 6.6 % in 2017- 18 and is anticipated to grow 7.3% in 2018- 19 (India Brand Equity Foundation, 2018).
There appears to be attractive investment opportunities in India. In Financial Year 2018 -19, corporate earnings are also expected to increase by 15- 20 % sustained by recovery in capital expenditure. India has significantly maintained its ranking as the third largest startup base across the world with more than 4,750 technology startups (India Brand Equity Foundation, 2018). The booming emerging market in India is facilitated by perfect competition market and economic liberalization, development of infrastructure and medical facilities, increased foreign investments, increased per capita income and standard of living. The significant growth in the GDP of India over the years has subsequently resulted in the increase in foreign investment to a great extent.
Political Influences
India is considered to be one of the largest democracies of the world. India’s political situation is characterized to be stable. Political interference has been reduced to a great extent in the management of enterprises which in turn has resulted in the improved productivity and efficiency of businesses. The government has facilitated the development of infrastructure and transportation which facilitates the distribution network in India.
Economic Influences
India has the potential to become like China. The GDP level of India is constantly growing continuously leading to the creation of investment opportunities (Agrawal, Gokarn, Mishra, Parikh & Sen, 2016). Also, Indian economy is growing at a fast pace due to the efforts of its skilled employees. Moreover, the country has big potential owing to its abundant and cheap labor, natural resources and good knowledge in engineering. In other words, the economy of India is stable.
Socio- Cultural Influences
The culture and lifestyle in India is changing and the new generations in India are significantly adopting the western culture. Moreover, it is the second most populous country in the world which in turn creates significant opportunities for investment. The labor force in India is also inexpensive. The growing education level among the population in India signifies greater development of country in future.
Technological Influences
High level of technology development is being witnessed in India. Moreover, India has a developed telecom and IT sector along with a large and fast growing aviation sector. Technology sector in India is simplified and is available for all the industries. The IT sector of India is one of the strongest IT sectors in the world which in turn promotes software upgrades, constant IT development and various other technological advancements.
Therefore, a number of advantages are offered by the political, economic, socio- cultural and technological factors which influence investment to be made in India. All these factors highlights that India is an excellent and advantageous option for making investment.
National resources are resources that exist in the environment of India without any human activity including water, soil and other related resources. India is endowed with a variety of natural resources such as forests, fertile soil, water and minerals. However, the distribution of such resources is uneven. Following are the different types of natural resources found in India.
Soil Resource-
India possesses well- watered fertile lands in large proportions. Wheat, maize, rice, cotton, sugarcane, jute, mustard, rapeseed, linseed, sesumum, etc. are grown in abundance in the alluvial soil of Northern Great Plains. Moreover, sugarcane and cotton are grown in the black soil of Andhra Pradesh, Maharashtra, Gujarat and Tamil Nadu (Malhotra, 2014).
Mineral resource-
India is rich in minerals such as coal, iron, mineral oil, bauxite, copper, chromite, manganese, mica, gypsum, tungsten, limestone, etc. The exploration and development of India’s mineral resources is undertaken by various organizations such as Indian Bureau of Mine, Geological Survey of India, etc.
Livestock Resource-
Mountains, less fertile lands and hills and are put under pasture. The adoption of scientific methods is preferred for the rearing of cattle. Rich domestic animal diversity is maintained by India. India also has a good population of sheep, goat, cattle, poultry, buffalo, etc. (Kumar, Kumar, Baredar & Shukla, 2015)
Horticulture-
Cultivation of a various horticulture crops is facilitated by the India’s diverse agro- climatic conditions. Such crops include flower, fruits, vegetables, mushroom, coffee, rubber, tea, etc. This provides opportunities for the growth of spices (Lal, 2016).
Fisheries-
India is considered to be one of the leading fish producers and is showing an increasing trend in fish production.
Forest Resources-
Diverse natural vegetation is produced by India as the climate of the country is also diverse. India also has a great variety of national parks, fauna and wild life centuries. Forest resources contribute to the Indian economy by providing domestic fuel, animal habitats, etc. However, the forest cover of India is diminishing at an alarming rate.
As far as the factor endowment is concerned, India is the seventh largest country in terms of land size (Malik, et. al., 2016). A large land mass is available in India for making investment. The unemployment rate in India is also as low as 3.5% (The World Bank, 2017). Being the second most populous country in the world, there is a large number of work forces available in India. The people in India are highly qualified in comparison with the people belonging to rest of the world. Therefore, the necessary skills are available in India with respect to all the sectors. Capital is available in India due to free access to foreign capital. The availability of capital is the result of large domestic savings and various subsidies provided by the government. For the establishment of enterprise in India, the requirements are less in comparison to the requirements specified by rest of the world. Such natural resources and factor endowment create competitive advantage for India.
The imbalance between the demand and supply has resulted in the depreciation of Indian Rupee against Dollar in the foreign exchange market. An appreciation has been witnessed by dollar in the international markets. The depreciation of Rupee against other currencies allows the Non- Resident Indians to make investment in India or purchase property in India at significantly lower prices. The unpredictable fluctuations in the currency market create investment opportunities by way of allowing the investors to take the advantage of falling Rupee. Such depreciation of the Indian Rupee is positively correlated with the Foreign Direct Investment. This means that every year with the increase in Foreign Direct Investment, The value of Indian Rupee is depreciated against the dollar. This further influences investment in India as investors benefit from such fall in Rupee.
Moreover, the norms made by the Government of India are user friendly which further attracts investment in India. The regulations related to foreign exchange have also been liberalized over a period of time for the purpose of facilitating the remittance of funds in and out of India. With the economic liberalization policy of government, various changes have been introduced on constant basis. In India, Foreign Exchange Management Act, 1999 governs the foreign exchange regulations.
The currency is subject to influence investment in India as it will allow the investors to increase the diversification of portfolio. Such diversification will lead to the decreased correlation between assets. Investors will get well- documented benefits of diversification with empirical evidence and the exposure to foreign exchange rate will not compulsory result in higher investment risk (Chandra, 2017).
Foreign Trade Policy (FTP) 2015-20 has significantly enhanced the scope of Service Exports from India Scheme (SEIS) and Merchandise Exports from India (MEIS) scheme. MEIS incentives has been increased for ready- made garments and made- ups by 2% and increased SEIS incentives by 2%. The validity for Duty Credit Scrips increased from 18 months to 24 months (India Brand Equity Foundation, 2018). As FTP strategy of expansion of market, a Comprehensive Economic Partnership Agreement has been signed by India with South Korea for the purpose of providing enhanced market access to the Indian exports.
The existing trade system of India has made it the 18th largest export economy across the globe. In the year 2016, the total exports amounted to $256 billion and the total imports amounted to $344 billion thereby resulting in the negative trade balance of $88.1 billion (Arora & Mohajeri, 2017). Foreign trade in India is regulated by Foreign Trade Policy 2015- 20 and requires a bank account, Permanent Account Number (PAN), Importer- Exporter Code (IEC) number, etc.
Trade barriers have been reduced to a great extent in India by way of eliminating the requirements related to import licensing for majority of the consumer goods. There are only a few products left that face trade barriers related to licensing. For entry requirements, distinction has been made by India between goods that are new and those that are remanufactured, secondhand, reconditioned or refurbished. Boric acid is subject to stringent restrictions in India and cannot be imported for resale. WTO agreements have permitted countervailing and anti- dumping measures in certain situations for protecting domestic industry from injuries arising out of subsidized or dumped imports. Support is offered to various industries in the form of export subsidies for making them internationally competitive. 109 commodities have been identified by the government of India for certification by the Bureau of India Standards (International Trade Administration, 2017).
Several schemes have been framed by the Government of India for promoting exports and obtaining foreign exchange (Yadav, 2012). Incentives and various other benefits are granted by these schemes. The important export incentives include Free Trade Zones (FTZ), Software Technology Parks/ Electronic Hardware Technology Park, Duty Exemption Entitlement Scheme (DEEC), Export Promotion Capital Goods Scheme (EPCG), Deemed Export, Duty Drawback and Manufacture under Bond.
In India, foreign direct investment (FDI) is considered to be the main monetary source for the economic development in India (Malhotra, 2014). Investment is made in the Indian businesses by the foreign companies in order to take the advantage of changing business environment and cheaper wages of India. India gets FDI through two routes i.e. Automatic route and Government route (Singhal, 2016).
After easing of the rules for attracting the global conglomerates for setting up shops in railways and defence sectors, the inflow of foreign direct investment attained an all- time high of $ 60.1 billion in 2016- 17 (Ray, 2017). In the preceding three years, 87 FDI rules have been eased by the government across 21 sectors for boosting jobs and accelerating economic growth. This has resulted in making India the topmost attractive destination for the purpose of foreign investment. Since 2014, the government of Indi opened up sectors that were earlier conservative such as defence and rail infrastructure (Ray, 2017).
100% FDI has been permitted by the government for trading of food products with an unqualified condition that the manufacturing or production of such food products should be done in India. Rule related to FDI were overhauled across sectors including retail trading, broadcasting and air transport. The legislation has also been amended by the government of India for bringing a hike in the foreign investment cap from 26% to 49% in insurance and pension (Ray, 2017).
Also, a number of initiatives have been undertaken such as the introduction of composite caps in the policy related to FDI along with bringing an increase in the Foreign Investment Promotion Board (FIPB) approval limit for the purpose of promoting ease of doing business in India. Up to 100% FDI is allowed under automatic route in specified activities in agriculture and allied sector and plantation sector namely coffee, tea, cardamom, rubber, olive oil tree and palm oil tree (Government of India, 2018).
The above report provided the analysis of India and highlighted that the growth in the GDP has created attractive investment opportunities and has made it a new emerging market. The GDP growth has helped India to become one of the fastest growing economies of the world. The stable political and economic factors, development of technology, adoption of western culture and factor endowment have made India an attractive investment option. India is also rich in variety of natural resources. The depreciation of Indian Rupee against Dollar in the foreign exchange market has resulted in significant benefits to the investors. Moreover, the liberal trade policies, few barriers and a number of incentives influence investment in India. The existing levels of FDI is the main monetary source of economic development in India and is increasing for taking the advantage of changing business environment and cheaper wages. All these factors have been significantly influenced as a result of rapid GDP growth.
On the basis of the above report, it is recommended that investment should be made in the India as it has number of competitive advantages in comparison to other countries. It is being counted as one of the fastest growing economies of the world and its GDP is further expected to increase in future. Investment made at this timing will bring positive results for the investors. The real estate sector of India offers various opportunities due to the depreciation of Indian Rupee against Dollar in the foreign exchange market. Investments in properties in India is considered to be a gold mine for investors. However, the investors should keep in mind that it is an unpredictable class asset which means that prices of the properties may remain stagnant or even fall due to the influence of various economic factors and liquidity is not guaranteed in real estate sector. Therefore, care must be taken at the time of making investment.
References
Agrawal, P., Gokarn, S., Mishra, V., Parikh, K. and Sen, K., 2016. Economic Restructuring in East Asia and India: Perspectives on Policy Reform. Springer.
Arora, N. and Mohajeri, P., 2017. Gains from the India–GCC Free Trade Agreement: A General Equilibrium Analysis. In Theorizing International Trade (pp. 221-242). Palgrave Macmillan, Singapore.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Government of India. 2018. Information & Broadcasting, [Online]. Available at: https://www.india.gov.in/topics/information-broadcasting [Accessed on: 27 April 2018].
India Brand Equity Foundation. 2018. About Indian economy growth rate & statistics, [Online]. Available at: https://www.ibef.org/economy/indian-economy-overview [Accessed on: 27 April 2018].
International Trade Administration. 2017. India – Trade Barriers), [Online]. Available at: https://www.export.gov/article?id=India-Trade-Barriers [Accessed on: 27 April 2018].
Lal, R., 2016. Natural Resources of India. Food Security and Environmental Quality in the Developing World, p.13.
Malhotra, B., 2014. Foreign Direct Investment: Impact on Indian Economy. Global Journal of Business Management and Information Technology, 4(1), pp.17-23.
Malhotra, K. 2014. Natural Resources: Types of Natural Resources in India, [Online]. Available at: https://www.importantindia.com/12331/types-of-natural-resources-in-india/ [Accessed on: 27 April 2018].
Malik, M., Bhatt, D., Khullar, D. R., Jha, S. K., Jain, A. and Aggrawal, M. 2016. Social Science-Term-1. Saraswati House Pvt Ltd.
Ray, R. K. 2017. India’s FDI inflows at a record $60.1 billion in 2016-17, [Online]. Available at: https://www.hindustantimes.com/business-news/india-s-fdi-inflows-at-a-record-60-1-billion-in-2016-17/story-7a8pt2u7e8IJttptDQcwhO.html [Accessed on: 27 April 2018].
Singhal, J., 2016. Role of Foreign Direct Investment in Accelerating Economic Growth of India. Siddhant-A Journal of Decision Making, 16(2), pp.110-117.
Statista. 2018. India: Total population from 2010 to 2022 (in millions), [Online]. Available at: https://www.statista.com/statistics/263766/total-population-of-india/ [Accessed on: 27 April 2018].
The World Bank. 2017. Unemployment, total (% of total labor force) (modeled ILO estimate), [Online]. Available at: https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?locations=IN&page=5 [Accessed on: 27 April 2018].
Yadav, P., 2012. India’s Changing Trade Pattern in the Process of Globalization. Procedia-Social and Behavioral Sciences, 37, pp.157-166.
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