-GLOBALISATION OF INDIAN ECONOMY-

Lakshmi Mittal has become the biggest steel producer in the world
bids to take over Arcelor, Europe’s largest steel company. Vijay
Mallya’s bid for Taittinagar, France’s prestigious wine producers in
Europe, has produced shrieks of wounded pride in France. Anil
Aggarwal of Vedanta/Sterlite has taken over Konkola, Zambia’s
biggest copper mine, from Anglo American.

Jindal Steel and Power Ltd.(JSPL) has won a contract to mine

Bolivia’s huge El Mutun iron ore deposit, and convert part of it into
steel. Hindalco has taken over two copper mines in Australia.

Over the last five years Indian companies have made acquisitions
abroad totaling approximately US $ 10 billion. Now the Tata Steel’s
takeover of Corus in the UK---in one shot---doubles the tally, which is
the largest overseas buyout by an Indian company. It also breaks the
US $ 1 billion barrier for Indian companies. This single takeover
pushes Indian acquisitions abroad up 21% over the previous year’s
value, at over $ 10.8 billion.

It is a journey of Indian economy from the mammoth 1991

economic crisis to an economy of billions cum billionaires traversing
more or less the periphery of the globe. Indian economy is
globalising. But what is globalisation? Globalisation means free
movement of capital, goods, technology, idea and, yes, people
according to the principle of comparatively advantage. It means
integration of home market with the world market for promoting
international competitiveness. In this process nations become
interdependent at international level. A nation can buy from other
nation and sell to other nation. Globalisation allowed the
multinational corporations to produce and sell their goods and
services in India and our producers are also allowed to expand their
business in the world market. It is not a new concept. In the past
good days, our sadhaba puos (so called business sons) went across
seven seas and thirteen rivers to sell our spices, silks, handicrafts
and other hand-made things which owned a golden name in Europe
and by selling these, they brought a plenty of gold, jewelry to our
country. Boita Bandhana Utsava on the occasion of Kartika Purnima
still symbolizes the rich maritime history of our country.

India is an emerging world in twenty-first century and by

2020, India is a developed country. Its GDP is growing at 9% per
year. Recently, our PM Manmohan Singh has declared that India will
achieve 10% growth in the eleventh five-year plan. In the last three
years, the economy has grown a phenomenal 19% per annum in
current dollars. In 1990-91, the GDP in current dollars was $ 317
billion. During the last three years, GDP has increased by $ 327
billion. If this momentum can be sustained---a virtual impossibility---
the Indian GDP would rise from its current level of $ 800 billion to
cross the current US GDP of $ 12.5 trillion in just 20 years! India’s
merchandise exports is standing at $ 18.1 billion in current dollars.
Services exports tell much the same story. From a low level, they
were multiplied by a factor of 3.5 during 10 years between 1990-91
and 2000-01.
But starting from a much higher level, they were multiplied by 3.7 in
just five years between 2000-01 and 2005-06. The ratio of goods and
services exports to GDP rose from 11.6% in 1999-00 to 20.5% in
2005-06. FDI outflow touched $ 4.5 bn in 2005-06.

What’s driving our economic growth? Is it the unstoppable

and ever increasing demand for goods and services? Or is the
relentless creation of capacities alongside increasing productivity? It
is a bit of both. There are both demand and supply side explanations.
Domestic demand is supported by India’s demography and rising per
capita incomes. Foreign demand is sustained because of our low
cost advantage. It is further enhanced, thanks to the dismantling of
the textile quotas, emergence of engineering hubs, popularity of
outsourcing, and increasing support for international trade in
services.

Tata Steel may be much smaller than Corus in terms of capacity, but
in terms of EBITDA it is almost the same size as Corus. This
highlights the cost competitiveness of Indian firms in this buoyant
sector and many other sectors. Part of this competitiveness comes
from the abundant availability of raw materials and human
resources. Therefore, rather than being a exporter of raw material
(iron ore, for example), many Indian firms now aspire to capture as
much of the value chain as possible and be closer to the consumer.
Indeed, acquisitions made by Indian firms have been to integrate
forward and access consumers in the foreign markets.

The other significant advantage Indian firms have is the

management capability. Over the last fifteen years---since the
economic liberalization---Indian firms have had to become efficient to
withstand global competition on their home turf. The process was
tough---as witnessed during the hardship years of 1995-2002, but
having faced foreign competition in India, firms in India are now
ready to take the next step and compete in global markets. Indian
companies have seen and managed scale and are now getting ready
for larger plays. This is forcing them to look outwards---beyond the
Indian market. Globalisation of Indian economy has become more
transparent now as there is abundant availability of global capital---
especially for Indian players. The outbound FDI flow has become
easier with several amendments to RBI guidelines, although India
Inc’s enhanced brand equity along with its capacity to raise funds
abroad have also played a crucial role in this FDI saga.

The role of FDI in India’s growth can hardly be ruled out.

During 2005-06, the FDI outflow from India reached as high as $ 4.5
billion, against an inflow of $ 5.6 billion in equity. The FDI outflow
from India means Indian companies have either the capital or
capacity to raise money to invest overseas. With entrepreneurial
skills and management abilities, our companies are in a position to
turn around loss-making companies abroad. What’s more, with
mega-deals like Tata-Corus and Videocon-Daewoo Electronics being
struck this fiscal, India’s FDI outflow is bound to grow further.

Emerging economies like India with their price-sensitive

consumers and challenging distribution environments provide
organisations the opportunity to develop distinctive capabilities that
they can use to compete elsewhere. However, such a springboard
alone is not sufficient to succeed. As Indian companies globalize it is
wise for them to learn from the experience of their global peers.

Looking at the composition of overseas acquisitions and

globalization, one sees a great depth and breadth to India’s forays
abroad. Pharmeceuticals, banking, software, hardware, metals,
energy, telecommunications, beverages, automobiles and ancillaries,
fertilizers, petrochemicals and hotels are just some of the sectors
which Indian companies have invested overseas and they have
moved away from Mauritius and Singapore to the US, Europe, Latin
America and Australia.