This presentation deals about changing global macroeconomic environment and its implications for corporates having transnational presence

1. Nov 7, 2014

2. Contents
Key macroeconomic trends
Increasing external exposure of Indian Economy
Emergence of emerging economies
Trade policy now includes more than trade

3. Increasing external exposure of Indian Economy
As reflected by
High trade/GDP ratio: over 50%
Growing role of FDI, MNCs and Production Networks in the economy
Currency volatility and import parity pricing
Implications
Trade and trade policy has become important whether one exports/imports or not
for sourcing inputs, pushing sales and protecting market share from competition either in
domestic markets or in third country export markets
Or, even for restoring macroeconomic stability i.e. managing inflation or current a/c
deficit to manage exchange rate

4. Emergence of Emerging Economies
The share of Emerging & Developing Economies (EMs&DEs) in Global GDP remained
stagnant at 20% between 1990-2000, but it almost doubled to 40% between 2000-2013
because of the overall faster growth in EMs&DEs vis-à-vis developed economies (please
refer the chart in next slide)
Growing assertiveness of EMs
Weakening of rule based and equitable WTO framework as manifested by
India’s refusal to ratify the Bali Package on Trade Facilitation
Shift towards bilateral, regional and trans-regional trade pacts that are being
negotiated on commercial terms
But it also means – more growth opportunities to come from EMs of Asia, Africa, CIS &
LATAM – at present 55% of India’s trade happening with Asia, this ratio expected to go
up to 70% in the next 5 years
This means growing regulatory risks from increasing exposure to relatively unstable
(politically & macroeconomic fundamentals wise) EMs

5. Share of Economies in Global GDP (%)
5

6. Trade policy now includes more than trade
Trade policy now include polices related to
Trade in merchandize and commercial services
Investment Protection and remedial measures
Competition regulation
IPR
Regulation of natural resources
Why trade and trade policy are important?
Linkage between trade and GDP growth
How trade policy affects businesses?
Limitations imposed by trade policy on policy formulation

7. Trade & GDP: Growth in World Merchandise Trade and GDP (2005-12)
Source: WTO
(Annual % change)

8. Trade and GDP growth
• World trade in merchandize v/s world GDP: 5.3%* versus 2.8% over the last 20 years
(1992-2012); pre-crisis growth of trade in merchandize (1999-2008) was 6%
• This explains why countries with high proportion of export in their GDP have grown
faster than others e.g. China, Taiwan, Korea and of late India
• India’s merchandize export/GDP ratio increased from 6.3% in 1990-91 to 15% in 2012-
13; this ratio would become 23% if services export of US$ 150 billion included
• This has also pushed up India’s GDP growth rate from sub-5% in pre-reform era to 7 -
9% in the post reform era more so after 2003-04
• Again fall in India’s export has been followed by fall in its GDP growth in the last two-three
years
*this figure does not include trade in commercial services that has growing by 8% on an average in the
last 30 years (1980-2011); slowed down to 2% in 2012

9. How trade policy affects businesses?
Trade Policy as a tool for market expansion and sourcing of inputs at cheaper
prices
Trade Policy as a tool for protection of domestic market from low priced imports
from say China or South Korea – trade remedial measures
Trade policy as a tool for promoting domestic businesses over foreign
competitors, e.g. by use of export taxes on industrial inputs, export credit and
easy finance, or simply by currency manipulation
By imposing limitations on domestic policy making
Domestic regulations must confirm WTO commitments even if hurts domestic
businesses e.g. phasing out of export incentives, changing IPR laws in accordance with
TRIPS
Any request for govt. help to India Inc. will only succeed if such request is not against
any WTO commitment

10. Key macroeconomic challenges from JSW point of view - Internal
Policy induced high cost of capital
Risks of inflation, current a/c woes and currency volatility
Poor transport infrastructure from roads to ports and other regulatory impediments
including allocation/mining of coal/other natural resources
Govt. thinking of scrapping BIPAs because of the complications arising out of
provisions related to Investor State Relation –will make companies with outward FDIs
vulnerable
Two relevant examples in this context: GMR Airport Project in Maldives & JSPL in
Bolivia…India doesn’t have BIPAs with these countries
Badly coordinated trade negotiations that may hurt manufacturing sector in future
RCEP – India’s most ambitious FTA with 16 countries including China, Japan and South
Korea…all key players in steel production

11. Key macroeconomic challenges from JSW point of view - External
Continuing violation of WTO Commitments by China and the US
Misuse of export taxes, export credit and other export promoting instruments
Potential trouble in Middle East
Russian misadventures in Ukraine
Protracted recovery in Europe

12. However, the opportunities arise from
Demand side: Untapped potential and immense possibilities of growth in housing &
infrastructure , and automobile sectors in India and other parts of Asia, Africa, CIS and
LATAM
Cost & Supply side: improving transport and logistics infrastructure going forward

13. References/Readings
Emerging markets and the world
http://www.business-standard.com/article/opinion/arvind-subramanian-emerging-markets-and-the-world-
113101101147_1.html
India needs to refocus its trade policy
http://asia.nikkei.com/Viewpoints/Economeister/Ritesh-Kumar-Singh-India-needs-to-refocus-its-trade-policy
India considering to scrap BIPAs
http://www.financialexpress.com/news/ministries-for-scrapping-of-bilateral-investment-pacts/1269646
Beggar thy neighbor banking: how export credit being used by China, Japan & others
to push exports
ttp://www.economist.com/news/finance-and-economics/21606324-export-credit-agencies-are-enduring-instrument
‘We manufactured our trade deficit’
http://www.thehindubusinessline.com/opinion/article3610127.ece
Down with subsidies
http://prestowitz.foreignpolicy.com/posts/2013/05/16/down_with_subsidies

14. References
The curious case of diplomacy deficit
http://www.financialexpress.com/news/column-the-curious-case-of-diplomacy-deficit/1234296
Speeding up trade
http://www.business-standard.com/article/opinion/jayanta-roy-speeding-up-trade-114071200808_1.html
Unintended consequences
http://www.business-standard.com/article/opinion/alok-sheel-st-petersburg-g20-summit-unintended-
consequences-113091001092_1.html
Killing WTO Softly
http://www.thehindubusinessline.com/todays-paper/tp-opinion/killing-wto-softly/
article4712578.ece
Local responses to global standards, BS 27th March
http://www.business-standard.com/article/opinion/t-s-vishwanath-local-responses-to-global-
standards-114032601284_1.html

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Disclaimer: the material contained herein has been obtained from various sources believed to be reliable but not necessary
complete and cannot be guaranteed.