Download Globalization and Capital Markets and more Study notes Business Administration in PDF only on Docsity! 2. 11 Role of India in the Global Scenario Like other emerging markets, role of India in the global scenario has expanded far from being a mere supplier of commodities. Now funds are being brought into the country in anticipation of higher returns. This is a good news for the development of India because in the supply of commodities, the nation had to produce first and then to receive payment. On the other hand in the case of investment funds, the money comes in first and the returns have to be paid later. Higher expected returns, inefficiency of capital market and greater scope for diversification due to low correlations of Indian market with other emerging and developed markets, are the main reasons responsible for attraction of Indian to the global investors. Further the attraction of India is also a product of necessity. The shifting paradigm in current Indian economic thought has transferred the main role in the economic development of the nation from the Government to the private sector. Increasingly it will be the markets rather than the Government planners who will decide on critical issues like the allocation of capital. The virtual elimination of industrial licensing, the easing of restrictive provisions of the MRTP and FERA, the gradual dismantling of price controls on both products and equity markets have all given a strong boost to business enterprises. More business implies more funding. Businesses are increasingly topping the capital markets to finance their expansions, modernizations, and new projects. To meet the insatisfiable thirst of business enterprises for funds Government has allowed them to raise funds in foreign capital markets. Some established companies have aggressively set out to tap foreign markets by issuing Foreign Currency Convertible Bonds (FCCBs) and equity shares (through the depository receipt mechanism). Indian companies were first permitted to tap the Euro market in 1992. Since then a number of companies have raised capital in the Euro market through the issue of FCCBs and GDRs. Companies have been drown overseas because the volumes that can be raised are higher. The issuance costs are at 2 to 3 percent being substantially lower than comparable rupee issues. Interest rates in overseas markets are lower as compared to Indian domestic standards India ranks high among the emerging markets in respect of attraction for capital, as world markets are getting increasingly turbulent, India is still fortunately free from the cascading effects of butterfly in Mexico or an earthquake in Argentina. Also foreign investors need not be worry about over- night seismic policy changes brought therein, as it happened in the case of Mexico, devaluation of local currency, paucity of foreign exchange reserves and serious trade deficit have created a flight of capital from what appears to be the most promising emerging market of the decade. In spite of the attractiveness of Indian capital market for foreign investment, the inflow of foreign capital has not been satisfactory. To fortify its chances of attracting foreign funds, both in the portfolio and the direct formats, India should make active efforts to improve the functioning of its financial markets that is allocating capital more efficiently,
