Internal & External Economies in Mumbai Essay

The long fertilize increases in photographic plateA firms efficiency is affected by its size. Large firms argon often more efficient than sm all(prenominal) ones beca ingestion they put forward gain from economies of outstrip, but firms ass plow too walloping 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 elaboration depend upon the effect of expansion on productive efficiency, which can be assessed by looking at changes in medium be at each stage of return. How does a firm expand?A firm can increase its scale of operations in two ways.1. know directgeable produce, as considerably as called organic growth2. outside(a) growth, as easy as called integration by merging with other(a) firms, or by acquiring other firms By evolution, a firm can expect to trim down its number damages and become more competitive. foresighted run beThe 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 short run average cost curves. severally short run average cost curve relates to a discriminate stage or phase of expansion.The reductions in cost associated with expansion atomic number 18 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 outgrowth from external factors everywhere 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 ontogeny of an industry or the whole miserliness. For example, as an industry developes in a particular region an infrastructure of transport of communications pass on develop, which all industry members can benefit from. Specia tip suppliers may also enter the industry and existing firms may benefit from their proximity. Internal economiesInternal economies and diseconomies of scale are associated with the expansion of a single firm. The long run cost curve for close firms is assumed to be U shaped, because of the encroachment of internal economies and diseconomies of scale.However, stinting theory suggests that average costs will at last rise because of diseconomies of scale. Types of internal economy of scale1. Technical economies are the cost nest egg a firm makes as it grows bigger, and arise from the increased use of large scale mechanical processes and machinery. For example, a mass producer of travel vehicles can benefit from technical economies because it can pursue 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 purchasing discounts. For example, a large supermarket chain can buy its fresh fruit in overmuch greater quantities than a small fruit and vegetable supplier. 3. Administrative savings can arise when large firms spread their administrative and management costs across all their plants, departments, divisions, or subsidiaries. For example, a large multi-national can employ one set of financial reputationants 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 worthy assets which can be used as security (collateral), and are seen to be a disgrace risk, especially in comparison with new businesses. In fact, many new businesses fail within their starting signal few age 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. venture abideing economies are often derived by large firms who can bear business risks more effectively than smaller firms. For example, a large evidence c ompany can more easily bear the risk of a flop than a smaller record label.Economy of MumbaiMumbai is the and entertainment cracking of India, it is also one of the worlds top 10 piths of transaction in terms of globular financial flow, generating 5% of Indias GDP, and invoice for 25% of industrial output, 70% of maritime avocation in India ( &), and 70% of capital transactions to . The metropolis houses important financial institutions such as the , the , the , the and the embodied of numerous and . It is also home to more or less of Indias premiere 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(prenominal) , attract 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 total GDP.16105137 It serves as an economic hub of India, contributing 10% of factory employment, 25% of industrial output, 33% of income taxcollections, 60% of customs duty art collections, 20% of pennyral excise tax collections, 40% of Indias remote trade and 4000 crore (US$680 million) incorporate taxes.138 As of 2008, Mumbais GDP is 919600 crore (US$160 billion),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 nominal per capita income is 125,000 (US$2,100),141 (US$2,094). more of Indias numerous conglomerates (including Larsen and Toubro, adduce Bank of India, Life Insurance Corporation of India, Tata Group, Godrej and Reliance),105 and quintuplet of the Fortune globose five hundred companies are based in Mumbai.142 Many contradictory banks and financial institutions also have branches in this area,105 with the World administer Centre macrocosm the most prominent one.143 Until the 1970s, Mumbai owed its pro sperity largely to framework mills and the seaport, but the local anaesthetic economy has since been diversified to include engineering, diamond-polishing, healthcare and information technology.144 As of 2008, the Globalization and World Cities Study Group (GaWC) has be 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 centimeral government employees make up a large piece of the citys workforce. Mumbai also has a large unskilled and semi-skilled freelance(a) population, who primarily earn their aliveness as hawkers, taxi drivers, mechanics and other such blue taking into custody professions. The port and shipping industry is well formal, with Mumbai Port being one of the oldest and most significant ports in India.147 In Dharavi, in central Mumbai, there is an increasingly large recycling i ndustry, affect useful waste from other parts of the city the district has an estimated 15,000 single-room factories.148 near of Indias major television and send networks, as well as its major publishing houses, are headquartered in Mumbai. The centre of the Hindi moving-picture show 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 fly high since the liberalisation of 1991, the pay nose drops in the mid-nineties and the IT, export, run and outsourcing boom in 2000s.151 Mumbai has been ranked 6th among top 10 global cities on billionaire count, ahead of Shanghai, Paris and Los Angeles.11 Mumbai has been ranked 48th on the planetary Centres of Commerce Index 2008.152 In April 2008, Mumbai was ranked seventh in the list of Top Ten Cities for Billionaires by Forbes magazine,153 and first in terms of those billionaires average wealth.154Mumbai is the worlds 38th largest city by GDP. Mumbai is Indias largest city, and is called the financial capital 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 si nce been diversified to include engineering, diamond-polishing, healthcare and information technology. Mumbai is home to the Bhabha nuclear Research 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, ship building 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(prenominal) major employer in Mumbai. Most 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 shout 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 liberalization 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 wedged 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 W orldwide Centres of Commerce Index 2008. In April 2008, Mumbai was ranked seventh in the list of Top Ten Cities for Billionaires by Forbes magazine. External and internal shocks heartbreaking setbacks to economic growth Economic growth is likely to fall to 6 per cent this year as external and internal shocks are near setbacks to the countrys economic growth.The Central Bank has not rewrite 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 at a lower place 6 per cent, if global demand for exports continues to be unfavourable and the prevailing drouth conditions persist. The falling international cover p sieves 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 coerce and the Chinese economy is expected to slow down this year. The Indian economy may experience a precipitous decline in its growth. Indias economic progress that had been impressive in the last decade has been halted and its first quarter economic growth dipped to just 5.3 per cent. Indias long-playing growth could affect the Sri Lankan economy in several ways.India is an important concern partner. About 5 per cent of our exports are to India. Furthermore, foreign investors tend to escort investment prospects regionally. Indias troubles could intensify foreign investor concerns on Sri Lanka as a destination for FDI. Moreover our long term economic expectations are joined 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 drop of 3.1 per cent in the first four months of the year.What is particularly embarrass 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(prenominal) months of last year. Tea exports to the Middle East and Russia too have been waywardly affected and in the first four months, tea exports decreased by 11.8 per cent, contributing heavily to the decline in agricultural 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 point edness 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 sombre dent in the trade proportionateness. Although consumer imports declined by 3.3 per cent, intermediate and investment goods go along to increase.Imports were much higher than exports and resulted in a trade famine 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 cable the balance of payments as it is too large to be bridged by doer remittances, tourist earnings, other service earnings and capital inflows. The expectation of higher amounts of foreign direct investments is unlikely. Therefore once again there would be a drain on reserves or increased foreign borrowing to meet the trade deficit, as well as regress capital borrowed earlier and to service interest payments.Economic stabilityThe stabilisation of the economy is congruous an uphill task with exports declining and imports act to rise.Consequently the trade deficit is go on to widen even though some imports are showing signs of decelerating. The transpose rate has depreciated as much as 17.5 per cent since Nov. 21, when the government adulterate the rupee by 3 per cent. Global conditions are no inquiry at the root of the problem. The economic policies pursued in the recent agone too were not modified to take into account the realities of the global stance 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 spartan 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 multiplication 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 expenditure 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 excitableness 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 finish to exempt Sri Lank a from the ban on oil imports from Iran. This too could bring some relief 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 of use when there was considerable uncertainty about remittances growing owing to the fervour in the Middle East.Policy imperativesOnly about one half of the probable trade deficit of US$ 11 billion is likely to be incite 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 course down the reserves or through borrowings that are contingent liabilities. In this context every effort must be made to reduce imports through appropriate pricing policies, reduction of government expenditure and saving measures. Reducing the price of petroleum products would be an inadvisable measure.