Internal & External Economies in Mumbai Essay

The long run increases in cuticleA theatres efficiency is affected by its size. prominent firms are often more than efficient than small ones because they potentiometer gain from economies of plate, but firms can become too spectacular and suffer from diseconomies of scale. As a firm expands its scale of operations, it is said to move into its long run. The benefits arising from expansion depend upon the effect of expansion on productive efficiency, which can be assessed by flavor at changes in average be at each stage of production. How does a firm expand?A firm can increase its scale of operations in two ways.1. Internal offshoot, as tumefy called organic growth2. External growth, also called integration by merging with opposite firms, or by acquiring other firms By growing, a firm can expect to reduce its average costs and become more competitive. Long run costsThe firms long run average cost shows what is happening to average cost when the firm expands, and is at a tangent to the series of minuscule run average cost curves. Each trivial run average cost curve relates to a separate stage or phase of expansion.The reductions in cost associated with expansion are called economies of scale. Internal and external economiesExternal economiesExternal economies and diseconomies of scale are the benefits and costs associated with the expansion of a whole industry and effect from external factors over which a single firm has little or no control. External economies of scale include the benefits of positive externalities enjoyed by firms as a result of the culture of an industry or the whole thrift. For example, as an industry developes in a particular region an infrastructure of trans port of communications depart develop, which all industry members can benefit from. Specialist suppliers whitethorn also enter the industry and existing firms may benefit from their proximity. Internal economiesInternal economies and diseconomies of scale are associ ated with the expansion of a single firm. The long run cost curve for close firms is assumed to be U shaped, because of the impact of internal economies and diseconomies of scale.However, economical theory suggests that average costs will thus fartually rise because of diseconomies of scale. Types of internal economy of scale1. Technical economies are the cost savings a firm makes as it grows larger, and arise from the increased use of large scale mechanical processes and machinery. For example, a mass producer of motor vehicles can benefit from technical economies because it can mesh mass production techniques and benefit from specialisation and a division of labour. 2. Purchasing economies are gained when larger firms buy in bulk and achieve acquire discounts. For example, a large supermarket chain can buy its fresh fruit in much greater quantities than a small fruit and vegetable supplier. 3. administrative savings can arise when large firms spread their administrative and m anagement costs across all their plants, departments, divisions, or subsidiaries. For example, a large multi-national can employ one set of financial accountants for all its separate businesses.4. Large firms can gain financial savings because they can usually borrow money more cheaply than small firms. This is because they usually have more valuable assets which can be used as security (collateral), and are seen to be a write down risk, especially in comparison with new businesses. In fact, many new businesses fail within their offset few course of studys because of cash-flow inadequacies. For example, for having a bank overdraft facility, a supermarket may be charged 2 or 3 % less than a small independent retailer. 5. Risk confronting economies are often derived by large firms who can bear business risks more effectively than smaller firms. For example, a large record company can more easily bear the risk of a flop than a smaller record label.Economy of MumbaiMumbai is the and entertainment capital of India, it is also one of the worlds top 10 centres of commerce in terms of worldwide financial flow, generating 5% of Indias GDP, and accounting for 25% of industrial output, 70% of maritime trade in India ( &), and 70% of capital transactions to . The city houses important financial institutions such as the , the , the , the and the corporate of numerous and . It is also home to somewhat of Indias premier scientific and nuclear institutes like , , ,, , , and the . The city also houses Indias () and . Mumbais business opportunities, as well as its potential to offer a higher , pull in migrants from all over India and, in turn, make the city a of many communities and .Mumbai is Indias largest city (by population) and is the financial and commercial capital of the country as it generates 6.16% of the come up GDP.16105137 It serves as an economic hub of India, contributing 10% of factory employment, 25% of industrial output, 33% of income evaluatecollecti ons, 60% of customs duty collections, 20% of central excise task collections, 40% of Indias abroad trade and 4000 crore (US$680 million) incorporate taxes.138 As of 2008, Mumbais GDP is 919600 crore (US$160 jillion),139 and its per-capita (PPP) income in 2009 was 486,000 (US$8,200),10140 which is almost three times the national average.80 Its noun phrase per capita income is 125,000 (US$2,100),141 (US$2,094). Many of Indias numerous conglomerates (including Larsen and Toubro, State slang of India, Life Insurance Corporation of India, Tata Group, Godrej and Reliance),105 and five of the Fortune world-wide 500 companies are based in Mumbai.142 Many foreign banks and financial institutions also have branches in this area,105 with the World Trade Centre being the most prominent one.143 Until the 1970s, Mumbai owed its prosperity largely to framework mills and the seaport, but the local economy has since been diversified to include engineering, diamond-polishing, healthcare and inf ormation technology.144 As of 2008, the Globalization and World Cities Study Group (GaWC) has ranked Mumbai as an Alpha world city, third in its categories of Global cities.145 Mumbai is the 3rd most expensive office market in the world. Mumbai was ranked among the fastest cities in the country for business startup in 2009.146 State and central government employees make up a large ploughshare of the citys workforce. Mumbai also has a large unskilled and semi-skilled self-employed population, who primarily earn their livelihood as hawkers, taxi drivers, mechanics and other such blue collar professions. The port and shipping industry is well established, with Mumbai Port being one of the oldest and most significant ports in India.147 In Dharavi, in central Mumbai, in that location is an increasingly large recycle industry, processing recyclable waste from other parts of the city the district has an estimated 15,000 single-room factories.148 Most of Indias major telecasting and sate llite networks, as well as its major publishing houses, are headquartered in Mumbai. The centre of the Hindi movie industry, Bollywood, is the largest film producer in India and one of the largest in the world as well as centre of Marathi Film Industry.149150Along with the rest of India, Mumbai, its commercial capital, has witnessed an economic roar since the liberalisation of 1991, the finance boom in the mid-nineties and the IT, export, avails and outsourcing boom in 2000s.151 Mumbai has been ranked 6th among top 10 global cities on one thousand millionaire count, ahead of Shanghai, Paris and Los Angeles.11 Mumbai has been ranked 48th on the Worldwide Centres of Commerce baron 2008.152 In April 2008, Mumbai was ranked seventh in the list of Top Ten Cities for Billionaires by Forbes magazine,153 and kickoff base in terms of those billionaires average wealth.154Mumbai is the worlds thirty-eighth largest city by GDP. Mumbai is Indias largest city, and is called the financial c apital of the country. It serves as an important economic hub of the India, contributing 10% of all factory employment, 40% of all income tax collections, 60% of all customs duty collections, 20% of all central excise tax collections, 40% of Indias foreign trade and Rs. 40 billion (US$ 800 million) in corporate taxes. Mumbais per-capita income is Rs. 48,954 (US$ 980) which is almost three times the national average. Many of Indias numerous conglomerates (including State Bank of India, LIC, Tata Group, Godrej and Reliance), and five of the Fortune Global 500 companies are based in Mumbai. Many foreign banks and financial institutions also have branches in this area, the World Trade Centre (Mumbai) being the most prominent one. Until the 1980s, Mumbai owed its prosperity largely to textile mills and the seaport, but the local economy has since been diversified to include engineering, diamond-polishing, healthcare and information technology. Mumbai is home to the Bhabha Atomic inquir y Centre, and most of Indias specialized, technical industries, having a modern industrial infrastructure and vast, skilled human resources. Rising venture capital firms, start-ups and established brands work in aerospace, optical engineering, medical research, computers and electronic equipment of all varieties, shipbuilding and salvaging, and renewable energy and power. State and central government employees make up a large percentage of the citys workforce. Mumbai also has a large unskilled and semi-skilled self employed population, who primarily earn their livelihood as hawkers, taxi drivers, mechanics and other such blue collar professions. The port and shipping industry, too, employs many residents, directly or indirectly. In Dharavi, in central Mumbai, there is an increasingly large recycling industry, processing recyclable waste from other parts of the city the district has an estimated 15,000 single-room factories. The media industry is another major employer in Mumbai. Mos t of Indias major television and satellite networks, as well as its major publishing houses, are headquartered here. The centre of the Hindi movie industry, Bollywood produces the largest number of films per year in the world and the give away Bollywood is a portmanteau of Bombay and Hollywood. Marathi television and Marathi film industry are also based in Mumbai. Along with the rest of India, Mumbai, its commercial capital, has witnessed an economic boom since the rest of 1991, the finance boom in the mid-nineties and the IT, export, services and outsourcing boom in this decade. The middle class in Mumbai is the segment most impacted by this boom and is the driver behind the consequent consumer boom. Upward mobility among Mumbaikars has led to a direct increase in consumer spending. Mumbai has been ranked 48th on the Worldwide Centres of Commerce proponent 2008. In April 2008, Mumbai was ranked seventh in the list of Top Ten Cities for Billionaires by Forbes magazine. External and internal shocks serious setbacks to economic growth Economic growth is likely to fall to 6 per cent this year as external and internal shocks are serious setbacks to the countrys economic growth.The Central Bank has not revised its economic growth forecast for the year, but current conditions suggest that economic growth would slip from 7.2 per cent that it estimated earlier this year to even below 6 per cent, if global demand for exports continues to be unfavourable and the prevailing drought conditions persist. The falling international oil prices are the one favourable development that could mitigate the economic slide.Global conditionsThe international economic downturn is widespread. Even Chinas state capitalism has been unable to weather the global storm and the Chinese economy is expected to slow down this year. The Indian economy may experience a precipitous decline in its growth. Indias economic ramp up that had been impressive in the last decade has been halted and it s first quarter economic growth dipped to just 5.3 per cent. Indias slower growth could affect the Sri Lankan economy in several ways.India is an important trading partner. About 5 per cent of our exports are to India. Furthermore, foreign investors tend to view enthronisation prospects regionally. Indias troubles could intensify foreign investor concerns on Sri Lanka as a destination for FDI. Moreover our long term economic expectations are linked to the fortunes of India.The most pertinent global developments for Sri Lanka in the short run is the instability of European economies that have slowed down and reduced their purchasing power of commodities exported by us. European countries and the US that accounted for 54 per cent of our exports last year is a sizeable one for industrial exports. The decrease in exports to Europe is being felt in the trade statistics this year. The American economy too has not recovered adequately, and this being an election year, is not expected to regain a growth momentum. With these two main markets affected, our industrial exports have faced a swan of 3.1 per cent in the first four months of the year.What is particularly disconcerting is that there is a trend of decreasing industrial exports, especially of garments.In March industrial exports declined by 10.2 per cent and in April it declined by 8.7 per cent, compared to the respective months of last year. Tea exports to the Middle East and Russia too have been adversely affected and in the first four months, tea exports decreased by 11.8 per cent, contributing heavily to the decline in uncouth exports by 11.7 per cent compared to the previous years first four months. Total exports declined by 3.1 per cent in the first four months of this year compared to the same period last year. Indications are that both industrial and agricultural exports would face adverse conditions and are not likely to recover.ImportsImports continue to make a serious dent in the trade balance. Al though consumer imports declined by 3.3 per cent, intermediate and investment goods continued to increase.Imports were much higher than exports and resulted in a trade shortage of US$ 3.3 billion in the first four months. If this trend continues the trade deficit could be as much as US$ 10-11 billion. This would certainly strain the balance of payments as it is too large to be bridged by worker remittances, tourer earnings, other service earnings and capital inflows. The expectation of higher amounts of foreign direct investments is unlikely. thereof once again there would be a enfeeble on reserves or increased foreign borrowing to meet the trade deficit, as well as repay capital borrowed earlier and to service interest payments.Economic stabilityThe stabilisation of the economy is becoming an uphill task with exports declining and imports continuing to rise.Consequently the trade deficit is continuing to widen even though some imports are showing signs of decelerating. The exch ange rate has depreciated as much as 17.5 per cent since Nov. 21, when the government devalued the rupee by 3 per cent. Global conditions are no doubt at the root of the problem. The economic policies pursued in the recent past too were not modified to take into account the realities of the global situation and the unrealistic path of development that was pursued, without consideration of resource availability and balance of payments implications of the consumption-investment pattern.Internal shockAs if the external shocks are not enough, the country is in the throes of a onerous drought. While the hopes are that the monsoon is a delayed one, the current expectations are that a severe drought is likely.This is likely to reduce paddy as well as other crop outputs in the main paddy growing areas. It is estimated that the Yala 2012 crop will decline by about 30 to 40 per cent. There may be a need to importing rice this year. If international rice prices increase then it would result in a further strain on the balance of payments.The impact of a drought on the capacity for hydro electricity generation is serious.Increased thermal generation would necessitate higher petroleum imports. The gains by the reduction of oil prices could be wiped out by increases in the amount of oil imports. Meanwhile in the first four months of this year import disbursement on oil increased by 34 per cent.Silver liningsThere are a few silver linings amidst these dark clouds. International oil prices are falling. Though, as usual, there is volatility in oil prices, they are hovering at a much lower level that in the early part of the year. Oil prices of around US$ 90 per barrel could be a significant boon. Complementing this is the US decision to exempt Sri Lanka from the ban on oil imports from Iran. This too could bring some succour with the possibility of importing Iran crude on concessional and differed payment terms.Worker remittances that are an important source of funding the trade deficit are continuing to increase. In the first four months remittances increased by 16 per cent compared to that of the comparable period last.This is good news in a context when there was considerable uncertainness about remittances growing owing to the turmoil in the Middle East.Policy imperativesOnly about one half of the probable trade deficit of US$ 11 billion is likely to be offset by remittances. Tourist earnings that are increasing may finance about 10 per cent of the trade deficit. Therefore the current account deficit would have to be financed largely by either running down the reserves or through borrowings that are dependant upon(p) liabilities. In this context every effort must be made to reduce imports through appropriate pricing policies, reduction of government expenditure and conservation measures. Reducing the price of petroleum products would be an inadvisable measure.