Sunday, September 5, 2010

The Rise of Nations

The global economy is not a static picture but a movie where the actors in the story change over time and take up new roles. Like a movie, the picture of global economy is also shaped by both sudden events and slow long term changes in the different nations of the world. Events like the Great Depression in the US in 1929, the First & Second World War to the recent Financial Crisis of the developed economies. Slow changes includes the rise of the industrialized countries at the start of the 20th century, the rise of Japan, China and now India. The world keeps changing, things keep moving and economic power changes hands over decades. Its an interesting movie and now the emerging giants of China and India are now among the leading actors in the global economy.
Factors affecting the rise of nations in global arena:
Internal economic drivers:
This factor is the core element without which no country can dream to emerge as powerful. History has shown that rise in the global economy was driven first by internal economic boom. In the early 20th century it was the rise of the industrialized countries, then the South East Asian Economies and now with the Asian giants of China & India. Though the models of growth may differ from the China & East Asian Economies driven largely by exports to the Indian growth story driven largely by internal consumption. A high growth rate of GDP sustained over few decades can propel an economy in the global skies.
Political factors:
The global political relations of a country can play a major role in enabling the growth of a nation. History shows that countries having stronger political relations with powerful, big nations have prospered and those who have not have stagnated. Examples, abound with Russia, North Korea, Libya, Zimbabwe, etc. on one side and with Saudi Arabia, South Korea, Pakistan, etc. on the other had.
Trade relations:
Stronger trade relations have traditionally helped countries to benefit from each other the most. International trade associations, have a very important role to play in this arena. European countries present a classic example of how trade relations can help a country or a group of countries to emerge powerful. Better trade relations would mean greater integration with other nations and would help in the areas of exports, imports, FDIs, labour movement, technology sharing, etc.
Environmental factors:
Environmental factors and natural wealth coupled with geographical location too play an important role in the rise of the nations. It is though interesting to note these factors alone do not determine the growth, but is determined by the extent of the use / productivity of same. E.g., being the Saudi Arabia which has managed to transform the economy better than anyone else with optimum use of its oil reserves coupled with progressive business environment.
Law & order:
A simple fact is that countries, and even states/provinces within a country, having a stable law and order situation have prospered more. One can easily see this with countries like Afghanistan, Pakistan, African countries, Cambodia, Iraq, etc. have suffered because of their internal, volatile law & order situation.

Globalization Trends:
In aftermath of World War II, countries started rebuilding their economies. The size of US economy had doubled during World War II and the United States started dominating the world politically, economically and militarily. Technological development and product design remained the focus area for US companies and US Multinationals viewed rest of the world as source of raw material.
In mid 1950s, American giants started expanding overseas which resulted in increased purchasing power abroad specially in Europe and Japan arrived on world manufacturing stage. During 1970s and 1980s Japanese manufacturing companies started giving head on competition to US giants. As a result both international trade and integration intensified in last two decades of 20th century.
The modern day globalization is supported and encouraged by institutions like IMF, World Bank and ADB. World trade forums like GATT – General Agreement on Tariff & Trade and WTO- World Trade Organization remained pioneered in taking globalization to next level in 21st century.
Globalization is the door that opens up an otherwise resource starves country to the international market. This allows countries to focus on their core competencies.

Where does Asia & India stand today in globalize economy?
The wave of globalization opened door for Asian economies to the developed world and market. It allows them to access their market as well as technology. This has given new opportunities to emerging Asian markets. If the decade of 70’s was dominated by Japan, 1980’s and 90’s saw emergence of China on global map.
India opened its economy only in 1992 on back of severe foreign exchange crisis that dragged the economy close to defaulting on foreign exchange loans. The process of globalization and liberalization that had started as a compulsion has continued over a period of past 17 years now. Due to initial policy changes and by opening of economy, we managed to grow at little over 6% in a decade between 1992-2002 and we managed to take this rate to higher level of 8.8% in last five years. This has put India on a global map along with China as two Asian giants to take world economic growth forward. If India can manage to grow at this rate, it could transform the way China has in 1990’s. India’s $1 trillion economy would double in size in eight and half years.
At the start of 21st century, the process of shifting of world economic power has started as Asia due to its two economic giants (India and China) now commending higher stake at world economic stage. At any international trade forum no trade discussion can be ended without consent of these two nations. If China has risen as world manufacturing hub, India is going strong in terms of services. Today the world is looking at these two Asian giants to revive economic activities due to sheer size of their domestic economies. Savings rate in India are at record highs of around 35-40% and the country is poised to reap the benefits of the demographic advantage of young generation. India is estimated to be the third largest economy in the world by 2050 and will be home to great multi-national companies.

The world has been talking about decoupling few years back. Now we are experiencing the new phenomenon of reverse coupling in which Asia especially India and China will pull USA forward rather than the opposite. As Indian citizens we are now experiencing the rise of our nation globally and this will only grow in future as has been experienced in other economies. As citizens of India and as investors too, we now have a great opportunity before us to gain the maximum from this rise and growth. The decisions we take today, will determine our prosperity in the years to come in a prosperous India.

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