2- Factors Changing Ibe, Economic Growth Impact

LEGAL • copyright • patents • consumer protection • forex management

ECONOMICS  technology  education  inflation  exchange rate  infrastructure

CULTURAL  language  family  religion  customs  traditions  food

POLITICAL FACTORS  government system  political stability  trade barriers

Factors that change IBE

Other Factors  Demographic factors- population, age, sex,

fertility, mortality ratios.  Public relations factors- suppliers, customers, distribution channel members, rivals, welfare groups etc.  Internal factors- work & productivity standards, team spirit, compensation systems, employee standards, employee motivation, job design etc.  Competitive factors- price-fixing, dumping, discrimination, acquisitions, takeovers etc.

Determinants of IBE  World economy & distribution of world output  International economic cooperation  Economic institutions, laws, treaties, agreements, norms, practices and codes            

( WTO, WHO, World Bank etc.) Political systems & cultural factors in different countries. Growth and spread of MNCs Technology growth and transfer , the way we communicate and exchange information Ethical practices International market structure and competition Globalization Rise of new markets, powers Trade Blocs and agreements Forex rates, reserves Supply chains & routes Changes in the work force- multicultural, empowered women etc. Changes in consumer needs & wants

International Economic Growth  Economic growth is the increase in value of

the goods and services produced by an economy. It is conventionally measured as the percent rate of increase in real gross domestic product, or GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced.  Japan's economy grew at a much faster than expected 3.7 in the fourth quarter of 2007, helped by solid exports and business investment.

Relationship between BE & Economic Growth?

 After Independence, Indian Economic policy was influenced by the

colonial experience (which was seen by Indian leaders. Policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention in labour and financial markets, a large public sector, business regulation, and central planning.

 Jawaharlal Nehru, the first prime minister along with the statistician

Prasanta Chandra, carried on by Indira Gandhi formulated and oversaw economic policy. They expected favorable outcomes from this strategy, because it involved both public and private sectors and was based on direct and indirect state intervention, rather than the more extreme Soviet style central command system. The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidising manual, low-skill cottage industries was criticized by economist Milton Friedman, who thought it would waste capital and labour, and retard the development of small manufacturers.

 India's low average growth rate from was derisively referred to as the

Hindu rate of growth, because of the unfavorable comparison with growth rates in other Asian countries, especially the “East Asian Tigers”

After the economic policy change of 1991…….  In the late 80s, the government led by Rajiv Gandhi eased

restrictions, removed price controls and reduced corporate taxes. While this increased the rate of growth, it also led to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the first Gulf War, which caused a spike in oil prices, caused a major balance-ofpayments crisis for India, which found itself facing the prospect of defaulting on its loans. In response, Prime Minister Narasimha Rao along with his finance minister ______________ initiated the economic liberalization of 1991.  The reforms did away with the License Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of FDI in many sectors. Since then, the overall direction of liberalization has remained the same, irrespective of the ruling party, although no party has tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies.

 Since 1990 India has emerged as one of the wealthiest

economies in the developing world; during this period, the economy has grown constantly, but with a few major setbacks. This has been accompanied by increases in life expectancy, literacy rates and food security.

 While the credit rating of India was hit by its nuclear tests in

1998, it has been raised to investment level in 2007. In 2003, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and China.

International trade trends  India whose share was 2.2% of world exports during independence

currently stands at 0.7%. This means that Indian exports have not kept pace with other countries.

 India’s Trade Turnover increased from $95 bn in FY02 to $245 bn in

FY06. India’s Exports increased from $44 bn in FY02 to $103 bn in FY06.

 India’s Imports increased from $51 bn to $142 bn.  The world economy expanded by 3.3 per cent, slightly faster than the

decade average. Only Europe’s economy continued to record low GDP growth.

 In contrast to Europe, Japan experienced a strengthening of economic

activity. The trade deceleration was most pronounced in the developed, oil-importing regions.

 Regional breakdown of the present world economy

reveals that the sluggishness of the European economy constituted the major drag on world trade and output growth as Europe continued to report the weakest trade and output expansion of all regions.

 Although the depreciation of the euro, the British pound

and the Swiss franc improved somewhat the price competitiveness of European exporters in markets outside Europe.. However, as three-quarters of Europe’s exports are destined to European countries, trade growth can only recover with stronger intra-European trade flows.

 The major net-oil exporting regions – the Middle East,

Africa and the Commonwealth of Independent States – all recorded a very strong expansion of their real merchandise imports by far exceeding world trade growth.  Asia’s merchandise exports and imports expanded by

9.5 per cent and 7.5 per cent respectively. Asia’s trade developments are prominently shaped by China’s performance.

 

     

India is emerging as one of the stronger players in the world market of the next decade. Indian overseas direct investments (ODI) have shown a rising trend – both in terms of approvals as also in terms of actual outflows. USA – India’s largest trading partner; but Asian countries gaining significance China – increasingly becoming an important partner (has become the largest source of imports) Direction of exports moving towards the Southern countries, particularly Asia. IT & ITES exports rose from $4.0 bn in FY 2000 to $17.9 bn in FY 2005. Projected growth – US$ 60 bn by 2010. USA – largest destination of India’s IT exports with a share of 68%.