GLOBALISATION

 Is the economic interdependence of countries worldwide

through increasing volume and variety of cross border
transactions

 It involves international capital flows and also through

the rapid and widespread diffusion of technology

 Globalisation of world economy is by globalising the

national economies
GLOBALISATION OF WORLD ECONOMY

 The world economy is emerging as a global or

transnational economy

 A transanational economy is one which transcends the

national borders unhindered by artificial restrictions

 Globalisation is a process of development of the world in

to single integrated economic unit
 The international economy is charecterised by the
existence of different national economies

 The economic relations between them is being regulated

by the national govts.

 The transnational economy is borderless world economy

charecterised by free flow of trade

 There is also a free flow of factors of production across

the national borders
DRIVERS OF GLOBALISATION

 Globalisation represents the increasing integration of

world economy based on 5 interrelated drivers of change

 1.international trade- advocating for lower trade

barriers and thereby more competition

 2.financial flows which includes foreign direct

investment,technology transfers, licensing,portfolio
investment&debt
 3.communications(traditional media and the internet)

 4.technological advances in transportation, electronics,

bioengineering and related fields

 5.population mobility ,especially of labour

 Each of these drivers of change has accelerated in recent

years and each reinforces the other
FEATURES OF CURRENT GLOBALISATION

 1.New markets-
 Growing global markets in services

 New financial markets- degegulated,globally linked

 Deregulation of antitrust laws and proliferation of

mergers and acquisitions
 Global consumer markets with global brands

 2. New actors
 MNCs integrating their production and marketing
 The WTO, the first multilateral organisation with
authority to enforce national governments

 An international criminal court is in the making

 A booming international network of NGOs

 Regional blocs gaining importance(EU,SAARC)

 More policy coordination groups(G-7)

 3.New rules and norms- Market economic policies

spreading around
 Widespread adoption of democracy
 Human rights conventions and awareness building

 Consensus goals and action agenda for development

 Coventions and agreement on the global environment

 Multilateral agreements in trade focussing on

environmental and social conditions

 New multilateral agreements for services , intellectual

property,communication etc

 The multilateral agreement on investment

 4,New tools of communication-

 Internet and electronic communications linking many

people simultaneously

 Cellular phones

 Fax machines

 Faster and cheaper transport air,rail and road

 Computer aided design

STAGES OF GLOBALISATION
 Normally a firm passes through different stages of
development before it becomes a truly global corporation

 Typically a domestic firm starts its international

business by exporting

 Later it may establish joint ventures or subsidiaries

abroad

 From an international firm it may then develop in to a

multinational firm and finally in to a global one
 There are 5 stages in the development of firm to a global
corporation

 In the first stage the arms length service activity of

essentially domestic company which moves in to new
markets overseas

 They do it by linking it with local dealers and

distributors

 In the second stage the company takes over these

activities on its own
 In the third stage the domestic based company begin to
carry out its own manuafcturing,marketing and sales

 In stage 4 the company the company moves to a full

insider position in these markets,supported by a
complete business system,R&D and engineering

 This stage calls on the managers to replicate in a new

environment the hardware,systems and operational
approaches which worked well at home
 It forces them to expand the reach of domestic HQ which
now has to provide support functions such as personal
and finance overseas also

 In the fifth stage the company moves toward a genuinely

global mode of operation

 It has ability to serve local customers in markets around

the globe in ways that are truly responsive to their needs
 To make this organisational transition a co must
denationalise their operations and create a system of
values around the globe

 Todays global corportions are nationalityless because

the customers have become less nationalistic

 True global corportions serve the interests of customers,

not governments
 MERITS AND DEMERITS OF GLOBALISATION

 Merits of globalisation as follows

 1.Global competition and imports keep a lid on prices,so

inflation is likely to derail economic growth

 2.An open economy spurs innovation with fresh ideas

from abroad

 3.Export jobs often pay more than other jobs

 4.unfettered capital flows give the US access to foreign
investment and keep interest rates low

 The adverse effects of globalisation are

 1.millions of americans have lost their jobs due to imports

or production shifts abroad

 2.Most find a job that pay less

 3. millions of others fear losing their jobs especially at

those companies operating under competitive pressure
 4.workers face pay cut demands from employers who
often threaten to export jobs

 5.Service and white collar jobs are incresingly vulnerable

to operations moving offshore

 6.US employees can lose their comparitive advantage

when companies build advanced factories in low wage
countries,making them productive as those at home
 It is true that globalisation can benefit the developing
countries in several ways

 unregulated globalisation also cause serious problems for

the developing economies

 A number of countries allow foreign stake even in

industries where that is not required

 This could affect domestic enterprsie of developing

countries
 ECONOMIC ENVIRONMENT

 Economic environment refers to all the economic factors

which have a bearing on the functioning of the business
unit

 Business depends on economic env.for all the needed

inputs and also to sell the finished goods

 The dependence of business on economic environment is

total as business is one unit of the total economy
 CHARECTERISTICS OF INDIAN ECONOMY

 1.low per capita income- India's percapita income is one of

the lowest in the world

 2.Low standard of living and high poverty- these are due to

the low percapita income and this can be gauged from the
poor facilities

 3.Inequal income distribution- is another charecteristic

feature of indian economy

 a large portion of income(33.51%) is received by 10% of the

population and low portion of income (3.5%) is received by
10% of poorest population
 4.Dominance of agriculture- the agricultural sector
provides employment to 2/3 of the total employement

 5.Existence of rich resources- renewable like water and

forests and non-renewable like minerals

 6.inadequate capital formation- lack of capital leads to

the non utilisation of resources,less technical know how
and low rate of production
 7.Unemployment and underemployement- mainly due to
high population and surplus labour

 Only 10 to 11% find job in the organised sector while the

rest finds part time employement in rural areas or in the
informal sector

 8.technological backwardness- the rate of technological

growth and the percapita R&D expenditure in india has
been always low compared to developed economies
 9.Infrastructural inadequacies- indias insfrastructure has
changed but still inadequate for economic growth

 10.Dualistic economy- india has largest number of

illiterates as well as well as large number of IT
professionals

 Partiying and dowry deaths in the same family,cycle

richshaws and jets
NON-ECONOMIC FACTORS

 These are factors that are not related to production and

cost of production, the following are the factors

 1.Ability to develop and apply science in the activities

that will affect economic development

 2.to accept innovations that help economic development

 3.inclination to consume less income and have more for
investment to help economic development

 4.inclination to work beyond the expected target income

which helps to society

 5.the propensity to have less children

 Apart from the above discussed economic and non

economic factors, the others are

 a,Political system- the main prerequisite of economic

development is the prevalance of political stability
 b,social system- social and religious institutions
cooperation is very much needed for the rapid economic
development

 C, luck- luck also matter a lot in economic growth

ECONOMIC RESOURCES
 Natural resources are the resources which cannot be
created by human beings
 India is in a better position to identify the information of
natural resources due to the existence of certain agencies
 Survey of india and the geological survey

 The central water and power commission

 The india bureau of mines,ONGC

 The soil land use survey and

 The national laboratories and institutes for scientific

research
NATURAL RESOURCES

 1.Land and soils

 2.Water resources

 3.Forest resources

 4.Mineral resources

 National forestry action plan(NFAP) 1999-is launched to

encourage afforestation
 New mineral policy 1993- was formed to strike a balance
between conservation and development,develop mineral
resources etc
GOVERNMENT POLICIES

 Monetary policy- refers to the use of instruments within

the control of the central bank

 This is done to influence the level of aggregate demand

for goods and services or to influence trends in certain
sectors of the economy

 The modern economy is regarded as a credit economy as

credit forms the basis of most economic activities
 Monetary policy and money supply- the budgetary
operations of the govt considerably affect the money
supply

 Another source of variation in money supply is the

countrys international payments position

 Demand deposits are a very important determinant in

money supply
 INSTRUMENTS OF MONETARY POLICY

 The instruments of monetary policy may be general or

specific methods

 The general methods affect the total quantity of credit

whereas selective methods affect certain select sectors
 General credit controls

 1.Bank rate policy- bank rate is the minimum rate at

which the central bank provides financial accommodation
to commercial banks
 2.Open market operations- refers broadly to the purchase
and sale by the central bank of a variety of assets

 To increase the money supply the central bank buys

securities from commercial banks and public

 3.Variable reserve ratios- is the percentage of the

deposits commercial banks maintain with the central
bank.
 Fiscal policy- is that part of govt policy concerned with
raising revenue through taxation and other means

 The fiscal policy operates through the budget, which is

an estimate of govt expenditure and revenue for the year

 The union budget-

 The constitution of india provides that-

 1.No tax can be levied other than by authorities

 2.No expenditure can be incurred for public funds except

in the manner provided in the constitution

 3.The executive authorities must spend public money

only in the manner sanctioned by the parliament

 The structure of the budget- is divided vertically in to

revenue and expenditure

 The budgets are by the union as well as states

 Industrial policy resolution of 1948-

3.Role of small and cottage industries:- the 1948 resolution

accepted the importance of small and cottage industries in
industrial development

 These industries are particularly suited for the utilization

of local resources and for the creation of employment
opportunities

4.Other important features of industrial policy – the role of

foreign capital in industrial development was recognized
 But the need for regulating and controlling it according
the needs of the domestic economy was deemed essential

 The industrial policy, 1956-the parliament accepted the

socialist pattern of the society as the objective of social
and economic policy

 The governments drive was in expanding the public

sector as a means for rapid economic development ,
avoid economic concentration and regional disparities
 These changes and developments necissitated a policy
which was announced on 30th april, 1956

 Objectives of 1956 policy

1.To accelerate economic growth&industrialisation

2.To expand the public sector,develop heavy and machine

making industry

3.To increase employment opportunities and improve the

standard of living and working conditions
4.To prevent creation of monopolies and concentration of
economic power

5.To reduce disparities of income and wealth

6.To build up large and growing private sector

7.To expand the cottage,village and small-scale industries

8.To achieve balanced industrial development and other

socio-economic objectives
 INDUSTRIAL POLICY 1991
 Objectives:-

1.Self reliance to build on the many sided gains

2.Encouragement to indian entrepreneurship, promotion of

productivity and employment

3.Development of indigeneous technology through greater

investment in R&D and bringing in new technology to
world class standards

4.Removing the regulatory system and other weaknesses

5.Increasing the competitiveness of industries for the
benefit of common man

6.Incentives for industrialisation of backward areas

7.Enhanced support to the small-scale sector

8.PSUs running on business lines without losses

9.Protect the interests of workers

10.Abolish monopoly other than strategy grounds

11.link economy to the global market,to acquire ability to

pay for imports and to be less dependent on aid