Open Systems - I

In the open systems-I basically I am going to deal with the open economy system.

Simply put, open systems are rather less restrictive types; the rules are rather flexible. I would not go on to say that there are no rules because such a statement is rather perfectionistic while in reality nothing is perfect. It is upto the analyst to decide how close to perfection is the real system and decide the proper model accordingly.

An open economy is an economy in which low taxes allow companies to indulge in international trade; foreign investments are encouraged. The wave of globalization roots in benefits of open economy. An open economy is beneficial for developed countries, with established companies who shall saturate if they don't get foreign clients to expand. However, for developing nations where industries are new and growing an open system can imply flow of wealth from the nation to the developed nations.

Then question arises whether closed systems should be preferred. Well in a democracy as ours, it is difficult to implement a closed system compared to autocratic nations. Moreover, in today's age, too restrictive systems shall fail because the world is flattening. The key to development shall then be simply applying brakes when necessary. The government has a role to play. However, a more essential role is ours as individuals and as a society at large to understand the economy and invest accordingly. Lets see a few instances and statistics showing India's run in open economy till date.

#1 India's software industry abounds in solution based companies. (Yeah, I started with software not only because it is my current field but also to stress that most of your part is just finding a relevant case in your field itself; you need not look beyond.) Now, solution based companies are dependent. The stress should be on product based industries. Solution based companies are a consequence of the fact that providing solutions is an easy way to get into market but the downside it is less safe as a career. On othe other hand, product based companies take longer to establish but provide more stability. So, in the long run, product based companies are more beneficial.

#2  India's domestic tea market has increased over the past few years and is a great oppurtunity for tea producers to exploit. Read more here.



In 2004 our exports stood at a little over US $ 63 billion. In 2007-08, they have exceeded US $ 155 billion; our exports are not just double what they were 4 years ago, but 2½ times that. We have managed an average cumulative annual growth rate (CAGR) of 23%, year on year, way ahead of the average growth rate of international trade. Our total merchandise trade – exports and imports together – will be almost US $ 400 billion this past year, accounting for 1.2% of world trade. If the trade in services is added to this, our commercial engagement with the world would be in the region of US $ 525 billion.

The second objective has also been delivered: that of fashioning trade into an instrument of economic growth and employment generation. Our total trade in goods and services is now equivalent to almost 50% of our GDP. This is unprecedented in India’s modern economic history. Some changes that have been made for the year 2008-2009 are as follows:-

• DEPB scheme has been extended till May 2009.
• Refund of service tax on almost all the services.
• Income tax benefit to 100% EOUs has been extended by Government.
• Coverage of FMS has been increased and additional 10 countries have been included. These are Mongolia, Bosnia-Herzegovina, Albania, Macedonia, Croatia, Honduras, Djibouti, Sudan, Ghana and Colombia.
• Split-up facility under DFIA Scheme introduced.
• Duty free import of samples has been increased from Rs.75, 000 to Rs.1, 00,000.
• Value of jeweler parcels, through Foreign Post Office is raised to US$ 75,000. Earlier it was from US$ 50,000.
• EOUs shall be allowed to pay excise duty on monthly basis, instead of the present system of paying duty on consignment basis.
• Customs duty payable under EPCG Scheme has been reduced from 5% to 3%.
• Setting up a new Export Promotion Council for Telecom Sector.
  

Statistics GDP $1.209 trillion (2008 est.)[1] GDP growth 6.7% (2009)[2] GDP per capita $1016 [3] GDP by sector agriculture: 17.2%, industry: 29.1%, services: 53.7% (2008 est.) Inflation (CPI) 7.8% (CPI) (2008) Population below poverty line 22% (2008)[4] Labour force 523.5 million (2008 est.) Labour force by occupation agriculture: 60%, industry: 12%, services: 28% (2003) Unemployment 6.8% (2008 est.) Main industries textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software External Exports $175.7 billion f.o.b (2008 est.) Export goods petroleum products, textile goods, gems and jewelry, engineering goods, chemicals, leather manufactures Main export partners US 15%, the People's Republic of China 8.7%, UAE 8.7%, UK 4.4% (2007) Imports $287.5 billion f.o.b. (2008 est.) Import goods crude oil, machinery, gems, fertilizer, chemicals Main import partners People's Republic of China 10.6%, US 7.8%, Germany 4.4%, Singapore 4.4% Public finances Public debt $163.8 billion (2008) Revenues $153.5 billion (2008 est.) Expenses $205.3 billion (2008 est.)