India and Commodity Sample Commodity Production, in Essay

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India and Commodity Sample

Commodity production, in many countries, provides both economic and financial stability for its constitutions. In many instances, commodity production can determine overall prosperity of a particular nation, heavily dependent on its production. Many emerging countries, for example, depend heavily on exporting commodities to other more developed nations. Examples include oil from South America, oranges from Brazil, sugar from Costa Rica, and manufacturing from China. As the articles indicate, India is dependent on the textile industry with respect to the production of clothing. As such, government policies and societal norms designed to help this industry flourish are very important to the overall prosperity of the nation. In addition, globalization provides added financial incentive in which to specialize in a particular trade. Being a low-cost producer in the textile industry for instance, provides India with a competitive advantage relative to its rival Asian countries. As such, it can better position itself to prosper through commodity production. However, as will soon be illustrated in this document, many factors determine the extents to which commodity production can help the country flourish. Aspects such as communism, inequality, political unrest, and more, can help abate the economic influences of commodity production.

To begin, the article entitled, "Creating Fame and Fortune from the Ruins of Handloom in Korala, Southern India," explains the relationship to governmental policies and overall economic prosperity. As mentioned in the introduction, India is particularly reliant on the textile related manufacturing. This due primarily to its low cost of labor, combined with its burgeoning middle class. As India is the second most populous country in the world, it naturally has the ability to use a large force within its commodity industries. This labor force has the ability and willingness to produce commodity related products at relatively low costs. As the article alludes to, labor, in regards to commodity production is often the highest expense in which a business must pay. By dramatically lowering this cost, India is in essence, creating a competitive advantage relative to its peers in the industry. However, government intervention an action is needed to create more fortune for the inhabitants of India. Infrastructure for instance, is important in regards to commodity production. The ability to seamless and effortlessly transport finished goods is important in regards to overall productivity within the region. The article speaks of the region of Kannur, with its international reputation of producing heavy, well made, cotton fabrics. The fabrics themselves are produced well; however, transporting the heavy material is costly. Many freight companies charge not only by the distance they travel, but also by the weight of its products as well. Infrastructure therefore, plays an integral role within the context of commodity production. India is a low cost producer, therefore, it most be cognizant of the increase costs incurred by manufacturers due primarily to infrastructure related reason. Kannur, as the article illustrates, is not unique in regards to this occurrence. There, both private and public partnerships are needed to help maintain infrastructure as means of keeping commodity costs low.

Government intervention is paramount in regards to commodity production. As such there are many risks that the government is often solely responsible for. The article, "Creating Fame and Fortune from the Riches of the Handloom," illustrates how government intervention can help create wealth for commodity producers within the country. The first and most common method in regards to wealth is currency devaluation. Devaluing a currency can help expand commodity production relative to other, stronger currencies. The most common offenders are Asian nations, who tend to artificially keep the exchange rate high to encourage cheap exports (Papaioannou, 1989: 37). China in particular has manipulated its currency in order to export cheaper products to America. India is no different in this regard as it keeps its currency weak to help create demand for textile exports. American society is pleased as it now has access to cheaper products, ultimately allowing more money to be spent on discretionary items, such as clothes or purses. American business however, is not pleased as its India competitors can price their products very cheaper. As such American businesses will be unable to compete effectively. This government intervention however, allows the textile industry within India to remain prosperous and competitive. Much of the clothing worn in America, Europe and Japan was manufactured in either India or China. Is it by coincidence that both countries manipulate their currency to remain competitive in the market? This concept has notoriously occurred in the automobile and TV manufacturing business as well. However, as middle class consumers in India begin to earn more money, they may consequently demand higher wages.

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This ultimately will create a cycle of price inflation as consumer's demand more money and commodity prices must reflect the higher wages paid to workers.

Another risk in regards to currency is that of inflation. This risk is very pertinent to India as it relies on commodity products. Cotton, steel, coal, and aluminum, are all commodities as there is very little differentiation between the products produced by India group and that of its rival competitors. As such, as in the case with commodity based industries, companies must now compete almost exclusively on price. The same concepts occur in the steel, aluminum, and iron ore industry, all of which are commodities. Inflation therefore posses a large currency risk to India. However, the price increases may not be enough to offset the increase in inflation within the India. As such, the exchange rate between the Rupee and the dollar will also change as it will now take more Rupees to purchase one dollar (with all other factors remaining constant). This could ultimately cause a negative impact on the companies operating income as inflation erodes margins. In addition, Companies typically generate capital by borrowing debt or issuing equity, and then use this to invest in assets to further expand the operations of the business. The investments however, may be in assets that are located in overseas markets and financed in foreign currencies. In addition, the company's products might be sold to customers overseas who pay in their local currencies. As such, inflation in one area would adversely affect Indian commodity manufacturers as the customer is using depreciated currency to purchase the product or asset. This is positive for the purchaser, but overall, it's a negative for India in regards to its prosperity (Jacque, 1996: 98).

The article also illustrates the competitive forces that can destroy wealth within a commodity industry. Page 286 within the document highlights the competitive dynamics of a commodity industry. Aspects such as increased efficiency, use of more equipment rather than human labor, and rising labor costs have all changed the overall industry. As such, workers are now being replaced with machines who are often more efficient and more productive. The article illustrates for example, that products produced on a handloom can not compete on price with those produced on a power loom. As the article further illustrates the number of factories and handloom workers has fallen by two thirds in the past 15 years. Almost half of the 60 private manufacturers within the handloom market have shut down or gone bankrupt. As such handlooms in the region of Tamil Nadu have become prominent within the Indian culture.

Finally, the in regards to commodity production, the article illustrates how technology can alter the overall dynamic of an industry. Handlooms have now become obsolete in regards to their ability to produce quality items. Instead, they have now been replaced by power looms in which little labor is needed. As such, power looms are more efficient and have been known to be more productive. Therefore, through innovation, commodity production has increased exponentially. This has allowed those who demand textile products to take advantage of better pricing and more selection. India however suffers somewhat as it now must compete with machinery costs rather than labor costs. Machines and innovation tend to drive down costs through a concept called "Economies of scale." In short, as machines produce more and more product, the unit cost per product declines. As such companies have incentive to produce as much product as society demands in order to bring the cost per unit down. A machine that produces 10 shirts may do so at a unit cost of $5 per shirt. However a machine that produces 1000 shirts may do so at a unit cost of $1 a shirt. As such, although the total cost is higher in the second example, the per unit cost is lower, allowing the company using the machine to lower its price overall for a shirt. This increased efficiency creates lower costs items in which society can purchase and consume. It also allows more commodity-based products to enter the market and thus satisfy demand. As is often the case however, the textile industry tends to oversupply the market with clothing, jeans, shirts, and other textile related products. As such, the price will lower due to the oversupply.

To counteract this occurrence, the….....

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