Economic Environment of India and the UAE: Comparing and Contrasting Report

Introduction

This study will be conducted to determine the best alternative energy company that wishes to supply solar panels and windmills for the production of non-pollution electricity generation. The countries selected are India and UAE, the economic and financial environment of these countries will be assessed to determine the best company to choose as a partner for this endeavor.

Objectives of the Study

The study is basically an analysis of the current and future economic trends of both India and UAE to enable an informed selection of a partner. The study will be directed towards achieving the following information;

1. To find out the various factors influencing these economies, both external and internal factors, and their severity.
2. To identify ways in which these two markets adopt technological changes to meet their energy needs.
3. Identify the necessity and future needs of electricity in these economies.
4. Identify the size of the markets to ensure economies of scale for the company.
5. To identify which market is favorable for business in consideration of both internal and external factors.
6. Find out the electricity production and consumption rates to determine future trends.
7. Transportation and communication costs in the target markets.
8. Government assistance to traders in the trading countries.
9. Recommend on the best country is the best to do business with.

The information on the economic trends of both UAE and India can be obtained in the various economic analysis reports of various organizations and governments. This information is got from;

• Government central banks economic surveys.
• United Nations economic analysis.
• Economic analyst’s reports.
• Stock markets and brokers.
• Government ministries are concerned with trade in the economies.
• Regional trade bodies in which the host countries are signatory.
• Library literature on scholars’ research on economic indicators etc.

Comparing and contrasting the economic environment of India and the UAE

India has a larger GDP of $1.095 trillion as compared to that of UAE with $231.3 billion in 2009 (CIA factbook). This is not an efficient indicator of the economic situation though but its study shows the potential of the market. The factors of productions in these two countries are different, in India, there is abundant labor unlike in UAE.

Both economies were affected by the global economic crisis which was caused by the sharp decline in their aggregate demands, business investment followed suit, job losses increased drastically, and the recession was experienced by almost all economies among them India and UAE. Their exports when consumer spending dropped suddenly. This is evident as above in the table, the consumer price index increased in 2008 (Australian Bureau of Statistics).

These two economies are stable in terms of business, the managers of this company should focus on producing in economies of scale and this needs a large market which India provides, unlike UAE which is a gateway to exports to other countries. India was hard hit by the global financial crisis as compared to UAE due to its expanding economy and its dependence on the US. Its GDP shrunk the greatest. This was due to its exports to the US and Europe, while UAE was less hit due to the nature of the businesses in its economy. UAE has a free port which contributes a lot to its GDP thus due to reduced demand its economy experienced fewer activities (National Bank of Dubai).

The consumption of electricity and communication levels are different in the two countries as seen in the 2007 analysis below;

This shows that there is a need for more energy especially as the economies continue to expand and thus the venture in the energy sector is a viable venture.

Monetary and fiscal policy

Monetary policies in 2009 were focused on basically countering the effects of the recession which caused these economies to shrink. These effects were commonly countered by dropping the interest rates to trigger or increase consumer spending to try to reverse the fall in aggregate demand (Australian Government Treasury). These governments are using the following policies as stabilization instruments; they use the following options (National Bank of Dubai);

Controlling reserve rates

The fluctuations of these rates increase or decrease the deposits and the lending amounts. In the period of recession, these countries reduced the rates to increase the lending amounts thus increasing demand (Cottle, 112).

This is evident in the Indian economy as the commercial banks’ lending rates dropped from 13.31% in 2008 to 11% in 2009. The GDP of the two countries includes $231.3 billion for UAE and $1.095 trillion in 2009 (CIA fact book). These countries experienced different inflation rates in this period;

Inflation Rates.

Bank rates

The rates of interests are decreased to necessitate loans thus increasing the disposable income. In India the bank rates dropped from 13.3% in2008 to 11.1% in 2009 while in UAE bank rates dropped from 15.2% in2008 to 12.5% in 2009 (CIA fact book). This was basically caused by the fall in global demand of commodities which stimulated the fall to try to encourage the consumers borrow more to trigger an increase in amounts in circulation thus increase the aggregate demand (CIA fact book).

Open market operations

These governments were buying and selling government securities to influence the direction of the economy. In this period these governments bought bonds from the public to increase the aggregate demand thus increasing employment levels and output (Cottle, 113).

Fiscal policies applied by both economies were in form of tax cuts and rebates designed at stimulating their economies. Both countries after this move increased their spending thus their budgets were running at a deficit, this move was stimulus in nature; it can be illustrated as follows (CIA fact book);

Budgets.

Works cited

CIA Fact book. 2010. Central Intelligence Agency. Web.

Cottle, Thomas J. Hardest times: the trauma of long term unemployment. Greenwood Publishing group. 2001.

Economic Data. 2010. Australian Government Treasury. Web.

Economic Indicators. 2010. Australian Bureau of Statistics. Web.

Economic reports. 2010. National Bank of Dubai. Web.