View Point


The Changing Scenario of Management Education in India
Prof. C. S. Venkataratnam, Member, FICCI Higher Education Committee & Director, IMI, New Delhi
&
Ms Shobha Mishra,
Joint Director & Team Leader, Education & Health Services Division, FICCI
AcademiaArticle: Towards a successful career
path: MBA in Retail Management
Article: Art & ManagementPersonality Development Current AffairsCampus NewsGD Topics

Book Launch:

By Neha Sardana

Gerardo della Paolera, President, Global Development Network has welcomed all the members- Luis Alberto Moreno, President, Inter-American Development Bank ; Anwarul Hoda, Acting Director, ICRIER, former Planning Commission Member & WTO, Deputy Director General; Mauricio Mesquita Moreria, Research Coordinator, Integration and Trade Sector, Inter- American Development Bank; Suman Bery, Director General, National Council for Applied Economic Research ; Saumitra Chaudhuri, Member- Planning Commission and Economic Advisory Council to the Prime Minister; H.E.Juan Alfredo Pinto Saavedra, Ambassador of Colombia in India; Rajesh Chadha, Senior Fellow, National Council for Applied Economic Research and participants present at the Book Launch: "India: Latin America's Next Big Thing?" at The Claridges, New Delhi, held on Tuesday, 16 November, 2010. He said that "India :Latin America's Next Big Thing?" is the product of a collaborative research effort within the Trade and Integration Sector (INT) of the Inter-American Development Bank under the general supervision of Antoni Estevadeoral, Sector Manager. The report was coordinated and written by Mauricio Mesquita Moreira, INT Research Coordinator, based on research done within and outside the Bank. Then he invited Luis Alberto Moreno, President, Inter-American Development Bank to give his opening remarks and addressed the participants at the Book Launch :"India: Latin America's Next Big Thing?".

Luis Alberto Moreno, President, Inter-American Development Bank started his opening remarks by saying that economic historians when looking back at the 21st century will be probably talking about a seismic change in the world's economic geography led by Asia. They will not be just talking about Japan, Korea or China. It is very likely that India will be among the protagonists because of its extraordinary resources-most precious of all, the size and skills of its labor force-its resilient democracy and because of the impressive growth record the country has achieved in the last few decades.

India is not yet on the radar of most Latin American and Caribbean policymakers and businessmen, at least not to the same extent as China, the region cannot afford to continue to ignore the implications of its emergence. True, bilateral trade and investment have yet to acquire a critical mass and India has yet to become a major competitor in world markets for goods. It is with these facts in mind, and with the aim to better inform the Bank's and its stakeholders' policies, that the Integration and Trade Sector of the Inter-American Development Bank has prepared this report. The focus is on trade and investment between Latin America and the Caribbean and India. The motivation is to better understand and promote the potential for greater trade and integration between the two economies, while singling out the main obstacles that have so far blocked its realization. But that is not all. In its search for useful policy lessons, the report also looks at the strikingly similarities in the development strategies pursued by both economies and their frequently divergent results. It also delves into the competitive implications for LAC producers of the emergence of another one-billion-plus-people economy.

Lead Speaker: Mauricio Mesquita Moreria, Research Coordinator, Integration and Trade Sector, Inter- American Development Bank
had given a power point presentation to address the participants attending the Book Launch "India :Latin America's Next Big Thing?". The presentation was comprised of five sections- (i) India's Growth Story: A Latin American Perspective (ii)The Bilateral Relationship: Trade, Investment and Cooperation (iii) Big Opportunities, Small Trade: Why so

(i) India's Growth Story: A Latin American Perspective

The background is needed for the analysis and present major highlights of India's growth over the last two decades. It is seen that both LAC and India followed a long and winding road back to world markets and ended-up paying a high price in term of growth forgone. It has been argued that whereas market-oriented reforms seem to be clearly behind India's take-off, their pace was slower and their scope was much more limited than similar reforms in LAC.

Figure 1 shows that from the mid-1950s to the early 1980s,-a period in which the inward-looking strategy was in full swing in India and most of LAC, India's growth performance was disappointing, even if we ignore East Asia for the moment and compare that country's performance with LAC. True, its growth was similar to the average for LAC, but it clearly lagged behind Brazil's and Mexico's, whose economies more closely approximate the size of India's. Why did India's economy lag behind those LAC "giants"? Short of a more sophisticated analysis, an important part of the answer may lie in the more intrusive nature of India's policy regime, epitomized by the "license raj," and in the partial reforms carried out by Brazil's and Mexico's trade regimes in the mid-60s and early '70s.


These reforms reduced the bias against exports by using heavy export subsidies, exchange rate devaluations, "drawback" regimes, and export-processing zones.6 If they did not change the inward-looking character of the strategy, they mitigated its worst side effects, putting prices more in line with the countries' comparative advantages, increasing local firms' exposure to the international market, and alleviating balance of payment constraints.

(ii)The Bilateral Relationship: Trade, Investment and Cooperation

The analysis of LAC-India bilateral trade, investment and cooperation is being made and assess its determinants, potential, and constraints. If trade theory is any guide, there seems to be a large potential for LAC to trade with India, and largely for the same reasons that its trade with China has taken off: India is, by any measure, a country that is relatively scarce in natural resources and abundant in labor, whereas most of LAC is the opposite. Moreover, size and the similarity of consumer preferences between the two economies can also provide powerful incentives to trade.

However, it is evident that both the volume and diversification of bilateral trade fall short of what is suggested by theory. This is particularly evident when China-whose endowments complement LAC's to the same extent as India's-is used as a benchmark. The high tariffs and transport costs and, to a lesser extent, the mismatch between India's exports and LAC's imports seem to be the main explanation behind this "missing trade."

India's average tariff on LAC's agricultural exports runs as high as 65.1 percent. These tariff barriers are considerably higher than those imposed by LAC on India's and China's imports . However, LAC's tariffs can also be considered important obstacles to trade since they remain well above the 4 to 6 percent OECD range and vary significantly across products. Moreover, these tariffs might understate the actual rate of protection, particularly against China, since a number of Latin American countries have recently been imposing non-tariff barriers against Chinese imports, mostly in the form of antidumping and special safeguards.

It has been argued that the benefits of actions to reduce these trade costs likely extend beyond trade. They will also provide firmer ground for boosting still limited bilateral investments. In addition, they will strengthen and consolidate the growing number of India-LAC cooperation initiatives in areas that include education, poverty alleviation, and joint action in international fora.

(iii) Big Opportunities, Small Trade: Why so Small?

For LAC, opportunities so far have taken the form of a vast new market for natural resources, largely mineral and agricultural. Demand has been driven not only by China's direct and massive needs, but also, and at least until recently, by China's contribution to a fast growing world economy. These two trends alone have helped to turn a low-growth region, with low savings and high budget and current account deficits, into a more dynamic economy driven by better fundamentals. On the import side, China has given LAC the opportunity to tap into a new and reliable source of cheaper manufacturing goods for producers and consumers.

For decades after its independence in 1947, India remained a relative backwater of international economic activity, with a large, but underutilized workforce and an economy that was all but closed to trade and investment. The population was predominantly rural and agrarian and most industries were heavily controlled-if not outright owned-by the national government. Severe import restrictions and heavy trade tariffs closed off the market to foreign products, and entrepreneurism on any scale beyond "mom-and-pop shops" was strangled by red tape. Hundreds of thousands of the best educated Indians left their country to seek better rewards for their talents.

Then, in the mid 1980s, India began to change course. First it made modest, "business-oriented" reforms. These were soon followed by an all-out attempt in the early 1990s to open up and deregulate the economy. In the less than 20 years since then, India has exploded into a regional, and even global, economic powerhouse, growing at between 6.5 percent and 8 percent over the last decade.2 This surge in growth put India among the ranks of the world's fastest growing economies. India's economic growth has been fueled by-and in turn, contributed to-its integration into the global marketplace. Trade in goods and services, which accounted for only a fraction of India's economy two decades ago, in 2007 comprised 46 percent of the country's GDP. Inward foreign investment has risen equally dramatically, from less than $100 million in 1990-91 to $32.5 billion in 2007-08, while portfolio investment shot up from $6 million to $29.4 billion during the same period. This report is focused on the main channel through which India's emergence is likely to be felt: trade and investment in goods and services.

(iv) The Competitive Challenges

The two main areas in which India poses, or is perceived to pose, a competitive challenge: Information Technology (IT) and Business, Professional and Technical (BPT) services and manufacturing. The contexts of these sectors are radically different. India is already a leading exporter of IT and BPT services, whereas LAC has yet to move into this area on an economically relevant scale. As such, this is not a situation in which LAC's position is being threatened by a powerful newcomer. Rather, LAC's chances to exploit a new income-generating opportunity-often mentioned as a safe haven from the Chinese manufacturing onslaught-hinge on its abilities to grow and compete under the shadow of a powerful incumbent.

India has yet to become a major exporter of manufactured goods, whereas LAC has already established players in an activity that accounts for a substantial share of the region's jobs and income and whose somewhat limited success in world markets is threatened by Chinese competition. The prospect of India's emergence raises the question of how the region's manufacturers can cope with the competition posed by yet another large labor-abundant country, whose pool of workers is nearly as large as China's, but which has yet to realize its undisputed potential, seems to have no other good option for generating jobs and eradicating poverty.

(v) Summary and Conclusions

The discussion ends on a note that the fundamentals exist for a strong trade relationship between the two regions. LAC has the natural resources that India needs to grow and thrive. As was the case with China, this "natural resource pull" should be strong enough to send bilateral trade soaring. Aside from this factor, similarity in demand patterns provides another good reason to trade, particularly in manufactured goods aimed at these two economies' vast low- and middle-income populations. The puzzle, then, is why has it not yet happened? In IT and BPT services, India cannot be seen as the new kid on the block. India is already a leading player, whereas LAC is still trying to become a significant member of the club. India's presence in high tech and labor-intensive goods has been increasing rapidly, both in the U.S. and world markets. There are also strong signs not yet captured by the trade data, but visible in outward FDI flows, that India is likely to play a more important role in the so-called medium technology industries, particularly in the automobile sector.