Justin Paul : Business Environment

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2 GLOBALISATION The process of Globalisation has brought about an open economy and tariff levels have come down to a larger extent. Foreign Investment has witnessed surge in volume. Go Global, Grow Global Strategy of the day and Need of the Hour. 2

3 Globalisation-Meaning Globalisation of the economy means reduction of import duties, removal of Non-Tariff Barriers on trade such as Exchange control, import licensing etc., allowing FDI and FPI, allowing companies to raise capital abroad and grow beyond national boundaries and encourage exports. Both Foreign Trade and Foreign investment volume have grown rapidly over the last few years, in India. 3

4 2 VIEWS on Globalisation Those stress the Virtues of Import Substitution and limited openness ie, View against Free Trade and Globalisation Those emphasise the importance of Free Trade. Arguments a) Achieve International Competitiveness b) Reduce the price level c)more choice for consumers 4

5 GLOBALISATION The term BRIC Emerging Markets Exports play dual role a) Bring income b) Foreign Exchange Earnings from Exports facilitates expansion of imports SPECIAL Economic Zones FERA has been replaced by FEMA- No Payment Restrictions on Importers 5

6 GLOBALISE or PERISH Secret of Success of many firms. Eg: Software companies get major chunk of revenue from foreign markets, Opening up of Markets for Global companies has sent a wave among certain business circles. Many industries have realised that Globalisation brings with it many new technologies and Production structures 6

7 Reforms for Business Exchange Market Reforms (Full current account convertibility etc.) Reforms in Foreign Investment Regime (Liberalising rules for FDI and allowing FII) Reforms in Infrastructure (PPP) Reforms in the form of EXIM policy(tariff Rate reduction, QR removal, EDI system) Allowing Indian Mutual Funds to invest in Foreign companies Challenges and Opportunities Joint Ventures with Foreign Companies in India and Abroad 7

8 INDIA - GROWTH RATES in % ( to ) Industrial Production 8.2, 0.6, 2.3, 6.0, 8.4, 12.8, 5.6, 6.6, 4.1, 6.6, 5.7, 2.7, 5.7, 7 and 8.4% respectively Exports (in USD terms) 9.2, -1.5, 3.8, 20, 18.4, 20.8, 5.3, 4.6, -5.1, 13.2, 21, -1.6, 20, 21 respectively, 25.6% (04-05), 31% (05 06) Imports(in USD terms) 13.5, -19.4, 12.7, 6.5, 22.9, 28, 6.7, 6.0, 2.2, 11.4, 14.4, 1.7, 19.4, 27.3 respectively, 34.7% (04-05), 36% (05 06) Source: Economic Survey, Ministry of Finance, Govt.of India 8

9 QRs: Some Facts (Quantitative Restrictions) Removal of QRs doesn t mean duty free imports. It means that an item can be imported without license/restriction. Goods are subject to payment of Customs Duty (tariffs). Applied Duties can be raised by the Govt. upto Bound level, to protect the interests of the Domestic industry including SSIs and agriculture. 9

10 AGRICULTURAL SECTOR Agricultural products- Traditional export items of India. Price of many items like coconut etc. have fallen due to import liberalisation. Therefore, farmers suffer from low income. Thrust is given to the export of agricultural items in the Exim policy/foreign Trade policy. 10

11 Mining and Petroleum Mining and Petroleum- Major policy changes include automatic permission for foreign equity participation in the mining of 13 minerals. The Govt.of India has emphasised on oil exploration to reduce import dependence and offers tax holidays to companies to invest in India. 11

12 Manufacturing Sector Reforms have been widespread including reductions in average. Tariff rates, removal of import licensing and liberalisation of foreign investment policies. 12

13 Service Sector Contribute more than 50% to India s GDP. India has a large pool of well-qualified professionals capable of providing services abroad whereas developed countries have surplus capital to invest. 13

14 BUSINESS ENVIRONMENT SECTORWISE ANALYSIS 1. Telecom Sector 2. Insurance Sector 3. Banking and Financial Sector 4. Retail Sector 5. Automobile Sector 6. Textiles Sector 14

15 SECTORS TELECOM- Foreign Investment upto 72% has been allowed. INSURANCE 10 Multinational Insurance companies have established their joint ventures (Allianz, AIG,Prudential, New York Life, Standard Life, Sun Life, ING etc. 26% foreign equity through automatic approval RETAIL SECTOR In 2005, The Government announced upto 74% FDI both in the organised retail sector s well on the real estate front (Walmart hve announced JV with Indian company). 15

16 AUTOMOBILES & BANKING AUTO MATIC APPROVAL FOR FOREIGN EQUITY INVESTMENT UPTO 100% is permitted. INDIA manufactures about 3.8 million two wheelers, 0.6 million passenger cars annually. Foreign Investment up 49% permitted in private sector banks 16

17 TOURISM SECTOR with IMMENSE POSSIBILITIES for FOREIGN INVESTMENT 100% Foreign Equity Permissible Automatic approval for foreign equity upto 51% INFRASTRUCTURE SECTOR: FDI TAX HOLIDAY- 10 YEARS 17

18 ABOUT INDIA More than 1 billion (10 million) people Religions = HINDU (65%), MUSLIMS (20%), CHRISTIANS (7-8%) SIKHS, JAINS Mumbai- commercial capital, Bngalore- IT city New Delhi- Capital Chennai, Calcutta, Hyderabad, Pune, Cochin etc.other cities 18

19 TEXTILES SECTOR TRENDS IN IMPORT OF TEXTILES AND CLOTHING (in US$ billion) Year US EU-15 Canada World Source: WTO International Trade Statistics,

20 International Scenario: Textiles Sector Removal of quotas (as per WTO ATC agreement) has opened up opportunities for the T & C Sector of India to increase its exports. North America and West Europe together account for nearly 70% of India s exports of T & C and both had enforced strict quota restrictions until last year. Studies have shown that world trade in T & C is likely to increase substantially in the coming years. 20