Source: E-mail dt. 28.10.2012
Rousing enterprises in a declining global economy: Opportunities and Challenges
MBA - Finance
DR. Ambedkar Institute of Technology
“Again, launching Pre-existing Mercantilist Doctrine, in a collaborative way.”
Mercantilism is a pre- classical theory of international trade, that placed great faith in the ability of a government , to improve the well-being of its residents, using a system of centralized controls. First, being acquiring gold / precious wealth , but it being outdated and replaced through a series of developments to the present stock market, that has come into prominence.
We will concentrate on its second policy, i.e. , to extract trade gains from abroad through regulations and controls, to achieve success in the balance of trade, through maximizing exports and minimizing imports and also Absolute Advantage Theory, aimed at efficiency to result cost-reduction in developing a new concept of Collaboration.
But , can we develop a new system of dependency that has nominal impact, almost nullifying the effects of other trade partner’s environment is the question we have to ponder about….
If India’s limits its import trade only with border-line countries - like Bhutan, Myanmar, Bangladesh, Maldives and Nepal and water restricted Sri Lanka , as they being developing countries, the impact of the fluctuations there, is affected to a very minimal extent in India.
For Instance, Trading with America, the Superpower, moves Indian capital indiscriminately abroad due larger number of US Companies in India and thus such inflows into America can cause boom and following inflation and its repercussions are felt world over.
In collaboration with neighborhoods, India can have a more stable rupee value and combat rising interest rates and the like.
India can develop a strong base for its rural India where 72 % of the population live, through efficient use of land and giving more opportunities for women entrepreneurs and agriculturists to set up small-scale processing plants to the eligible, along with intensifying production in villages, thus contributing to self- sufficiency to combat falling levels of food production measured in correlation with disproportionate population growth.
Options can be established for village entrepreneurs ….
Agricultural activities----à Processing Industries--à Processed food market
Agricultural activities----With/Without Middlemen-----à Market sale, As to the rising trend in population, these help in balancing demand and supply conditions for food consumption, thus stronger application of these on an intensified level would make India self-sufficient in food sector, both in production and processed/canned food sectors.
Other sectors also may be benefited by this collaborative approach.
For instance, Jute may be imported from Bangladesh and processed into products in India, if feasible. So, prior importance must be attributed to self- production by importing raw- materials and deploying them in Indian Industries than importing the finished products from the neighboring countries.
Such an integrated approach with neighborhood in unison, mutual benefits can be obtained and though, initially, the results may be small/meager in strong contrast with global returns, in the long run though, it can bring mounting profits along with accelerated growth.
In consideration with existing global impact in India, the technology brought to India from abroad is mostly outdated, and doesn’t really help India in gaining a competitive-edge in global arena.
If the government adopts to limit purchases to only unavailable technology until otherwise available or that cannot be forgone, only that must be imported through franchising/licensing that inhibits outflows from India . In cases rare of few foreign companies in such a situation, the limit of 50% FDI could be brought down drastically, by different restrictions/limits by imposing heavy duties and tax laws formulated to discourage too much of indiscriminate return- seeking investments of foreign companies.
When doing these, we are to a large extent, curtailing imports from developed nations, and at the same time gaining from maximizing exports, mainly because of efficiency of production from most productive resources in India and thus bringing inflows into our country, thus restricting unreasonable outflows from India.
Production ---Increases---àVariable cost---Decreases
By importing unavailable raw materials by collaboration, keeping huge population base of India, at the same time restricting import of finished goods and foreign control, the public and private players in India can benefit from exceedingly large scale production thus, leading to efficiency and subsequent variable cost reduction and thus give competitive pricing for global sales. This will bring huge inflows into India.
Such an initiative is not without challenges. Going against WTO rules of globalization, will affect India, but temporarily, it would involve sacrifice of lucrative opportunities but in the long-run it will favor India by more internal development of domestic industries and vast external growth.
“To immune india and its entrepreneurs from Global ramifications”
India will become a thriving place for entrepreneurship , due to inflow of inputs from neighborhood coupled with effective utilization of Indian resources together leading to promotion of entrepreneurship in India.
By, having more of entrepreneurial capacities, the imports become insignificant.
Prioritizing Agriculture for self-sufficiency and exports and processing industries, along with Industrialization, motivates entrepreneurship in India, due to opportunity gained from earning more foreign exchange and the resulting inflows into India.
Thus, when entrepreneurship in India, is a separate entity from its Global players ( although, a faint line of dependency is omnipresent in this case such as franchising/licensing of technology not forgo able and alike), the stability of entrepreneur’s returns are more secure, and the society is assured of availability of jobs and positions.
Opportunity cost advantage to India
Trading with countries for import of finished products will incur large negative outflows and the resultant cost incurred by purchase of those finished goods. It is an opportunity cost advantage to India by self-production, that is on employing this alternative it is feasible in reduction of costs, by channelizing the money on Indian enterprises.
Collaborative approach is mutually beneficial and may in future lead to a new collaborative power of nations.
To Immune India
India is immune from Global ramifications---due to a more stable rupee value, unaffected by global players, but to a very minimal extent by its neighborhood.
Analysis: Part I: Business Cycle effects
Adverse Business cycles stages of developed countries influences rupee rates in India. For Instance, The most common business cycle stages of America and Europe ( the leaders of bipolar world if America wasn’t taken to be unipolar, which means Europe in second strong position in world economy), being boom and resultant recession heading towards depression, are common standpoints affecting Indian trade and thus resultant unstable rupee rate.
Part II : The Neighborhood, being developing countries, the after-effects/ repercussions, are affected in India in comparatively insignificant levels in strong contrasts with globally developed nations. Again, India in this situation being a mainly a major importer of raw materials, as compared to colonization, where raw materials cheaper were imported and produced in advantageous positions, here in this collaborative approach raw materials are imported and gains are made favorable considering India a populous country with variety of opportunities for cost reductions, by large scale production.
Zero-Sum Game Vs Positive Sum Game Theory in Practice
Zero sum game, was propounded by David Hume, in 1952, which was an identified drawback of Mercantilist Doctrine, in relation to gold and silver which were the currency then. It states that, a gain by one country, results in a loss by another.But, in the long run, no country could sustain a surplus in the balance of trade.
If analyzed in present scenario of money,
Indian Entrepreneurs Vs Global Competition
If India has to employ collaborative approach, it has to resist the element of globalization, i.e, opening the doors for imports of goods, at the same time, it has to promote exports in strong contrast with very minimal imports from foreign countries, not considering the imports of raw-materials from its immediate neighborhood.
In such a situation, Technology Franchised/Licensed, is brought into India. But due to potentially well-developed agriculture, industrial, and processing industries, India can produce quality products with minimum outflows than when foreign based companies are set up in India. The outdated technology bought into India is no longer implemented. India will become self-sufficient in all major areas.
Imports are substitutes for inability to produce/ low quality production in a country. It can be combated with more efficient utilization of mass resources gathered and produced for Indian and global standards, keeping in mind the Indian Purchasing Power, Global Purchasing Power, etc.
There are Lot of Customization Challenges for entrepreneurs, keeping local and global demands and standards in mind.
Stage 1: Current situation is deficit in Balance Of Trade.
Stage 2: By collaborative approach, we have to reduce imports and use the necessary exports for self- consumption rather going for foreign goods for the same product.
For example, Using Indian wheat than importing foreign brands, using Indian manufactured electronics like computers, software’s, etc., to the maximum extent possible, thus the situation of self- sufficiency is made possible.
Stage 3: Importing technology by franchising/licensing and maximizing exports through Indian inputs, technology and imported technology where feasible to create medium surplus.
Stage 4: Through funds generated from medium surplus, money for industrial development and related activities for all kinds of raw materials imported can be intensified, thus creating a situation of very large scale production which can be consumed and large remaining surplus can be exported with customization or according to global standards. Thus generating large Surplus for India in the long run from its position in stage 4.
The Country can be more positioned in a challenging global competitive market from stage 4.
Through such a procedure, from achieving self-sufficiency, to being enormously self-sufficient, and as a massive exporter, it can withstand the constraints of investment, technology, productivity and innovation in the long-run, due to more availability of funds in the long-run, and thus, delegating the funds to R & D, Subsidies to Industrialists, Grants to agriculturists, more mechanized farming facilities to even the remotest villages in India and many such aids.
Along with industrialization, the country is encouraged to promote agro-industries and agriculture. Increasing Industrialization is also going to give impetus to service sector also, considering the requirements for distribution channels, middlemen, and facilities favored by them. Agro industries, agriculture are also indirect players in promoting service sector.
Thus, there is a wholesome development of all sectors in the economy.
The more inflows of money into the economy as in stage 4 as above, it will favour development of commuting infrastructure, housing( incomes, loan availability), healthcare , Clinics and many facilities for the downtrodden people in India, thus bridging the gap between rich and poor to a certain extent.
It is definitely an opportunity for India to improve financially as well as socially. But, it is not without constraints.
· There are no Temporary benefits to India, as it requires huge initial investment for setting up plants and planning and production expenditures.
· Need to set up lot of infrastructure depending on inputs imported from neighborhood and apt technology required.
It is indeed a herculean task, but not unachievable, with the help of entrepreneurial skills.
Rousing Enterprises/ Entrepreneurs
How to stimulate entrepreneurial talent in India, and how channelize potential and existing talent available towards transforming the country from negative BOT to positive BOT , along with generating exceedingly surplus funds utilized for self-utilization and stocking up reserves for future requirements.
· Promoting entrepreneurship by entrepreneurial training in India, so that efficiency in discharge of responsibilities becomes a possibility and honing the skill base of current and potential entrepreneurs to withstand the dynamic and challenging environment.
· Giving special incentives or monetary support for initiative effort for deploying imported raw materials unavailable in India.
· By achieving more efficiency in agriculture, in undeveloped areas where production is low compared to demand, and all agricultural produce affecting agro- industries, leading to a collated efficiency in both the sectors à agriculture and agro-industries, by planning and controlling.
Planningà The quality seeds, genetic varieties to be planted and machinery requirements for processing the produce.
Controllingà Removing the barriers/ inefficiencies in these areas.
· Proper Deployment/allocation of land for Industries, Processing Industries, and Agriculture, so that each sector is positively benefited in its own sphere, along with optimum deployment of land for service sector.
· By promoting agencies and middlemen facilities, which lubricates or smoothens the flow of activities between industrialists and ultimate consumers both nationally and internationally.
· Giving special advantages to the entrepreneur and his dependents, especially special privileges to women entrepreneurs, to accelerate entrepreneurial development in India.
· Launching tailor- made courses for variety of entrepreneurial capacities based on sector chosen, whether industrial, agro/service sector.
By collaboration, we are basically reducing global collaboration into neighborhood restricted collaboration with a thin line of dependency on developed countries for technology/resources not forgo able in circumstances sustainable. It is indeed joining hands with neighborhood that gives a sort of collaborative power to India - on friendly terms with immediate neighborhood, thus creating a long-lasting relationship for mutual support and benefits of trade.
Thus, Rousing entrepreneurs and thus the potential enterprises formed by them to garner more support for the collaborative approach by their initiative and launching the Absolute Advantage theory of efficiency and Mercantilist Doctrine once-again.
A time in which Indian processing industries, manufacturing and service sector are self-sufficient, that when the entrepreneur in India links up with the efficient resources of the neighboring countries, along with deployment of nation’s efficient resources in production, the global impact is subsidized by steady growth rate, unaffected by the major global players.