CSEET · Economic and Business Environment

Global Environment: formula sheet

Full chapter guide

Key formulas

Definition in one line: Globalisation = integration of national economies through flows of goods, services, capital, technology and people; Use this as your opening sentence in any definition question.
Drivers (remember as L-T-I-C): Liberalisation + Technology + Institutions/agreements + Corporate strategy; Add examples: reduced tariffs, internet, WTO, multinational companies.
Four flows of globalisation: Trade flows + Capital flows + Technology flows + Labour/people flows; Useful for features and for structuring a longer answer.
Impact structure: Impact = Advantages (business and economy) − Disadvantages (business and economy); Not a numerical formula. It reminds you to give both sides with Indian context.
Definition of FDI: FDI = non-resident investment in an Indian business with a lasting interest and control; Long-term and control-oriented. Use these words in any definition.
Automatic route: Automatic route = no prior approval; post-investment reporting to the RBI; Applies up to the sectoral cap in permitted sectors.
Government route: Government route = prior approval of the Government before investing; Applications go to the concerned administrative ministry or department.
Sectoral cap: Foreign holding ≤ cap set for that sector; Cap can be 100% or lower. Some sectors are prohibited.
FDI vs FPI: FDI: long term, control, hard to withdraw | FPI: short term, no control, easy to withdraw; Gives a quick comparison for 'differentiate' questions.
Legal framework: FEMA 1999 + DPIIT FDI policy + RBI regulations; FEMA governs foreign exchange; DPIIT issues the policy.
FPI in one line: FPI = foreign investment in financial securities for returns, without control; Use this as the definition opening in a written answer.
FII and FPI link: FIIs (older term) → now registered as FPIs with SEBI; Do not treat them as two unrelated groups in India today.
FPI vs FDI test: FPI: returns, short-term, liquid, no control | FDI: lasting interest, long-term, illiquid, control; Write each point as a comparison pair.
Net FPI flow: Net FPI flow = FPI inflows (purchases) − FPI outflows (sales); A positive value means net buying by foreign investors; negative means net selling.
Origin timeline: GATT (1947) → Uruguay Round (1986-94) → WTO (1 January 1995); Write all three links. GATT was a agreement, WTO is an organisation.
Core principles of WTO: MFN + National Treatment + Freer trade + Predictability + Fair competition + Special treatment for developing countries; MFN and National Treatment are the most asked. Do not mix them up.
Main functions of WTO: Administer agreements + Negotiation forum + Settle disputes + Review trade policies + Help developing countries + Cooperate with IMF and World Bank; Use these six as headings in a written answer.
Key agreements: GATT (goods) | GATS (services) | TRIPS (intellectual property) | TRIMS (investment measures) | Agreement on Agriculture | SPS and TBT; Learn the full form and the subject each one covers.
IMF in one line: IMF = monetary cooperation + exchange rate stability + short-term help for balance of payments; Use this as your opening line for any IMF question.
World Bank in one line: World Bank = long-term development finance + poverty reduction; Lends for projects and reforms, not for fixing short-term payment gaps.
World Bank Group: IBRD + IDA + IFC + MIGA + ICSID; Five institutions. Remember the full forms and one job each.
Who gets IDA support: IDA → poorest countries; IBRD → middle-income countries; IFC → private sector; A common one-mark match-the-pair idea.
Quota rule: Larger quota → larger voting power and borrowing access in the IMF; Quotas are the IMF's main financial resource from members.
Order of integration: PTA → FTA → Customs union → Common market → Economic union → Political union; Each stage includes everything in the previous stage and adds one more feature.
Free trade area: FTA = no tariffs among members + own tariff on non-members; Example: SAFTA. Members keep independent trade policy towards outsiders.
Customs union: Customs union = FTA + common external tariff; The common tariff is what separates it from an FTA.
Common market: Common market = Customs union + free movement of labour and capital; Factors of production move freely, not just goods.
Economic union: Economic union = Common market + common economic policies (often a common currency); The EU is the usual example, with the euro shared by many members.
Balance of trade: BoT = Value of exports of goods − Value of imports of goods; Positive is a trade surplus. Negative is a trade deficit. Services are not included.
Current account balance: CAB = Trade balance (goods) + Net services + Net primary income + Net secondary income; Net means receipts minus payments. A negative result is a current account deficit.
Overall balance (simple): Overall BoP = Current account balance + Capital and financial account balance (+ errors and omissions); A surplus adds to reserves. A deficit is met by drawing down reserves or borrowing.
Accounting rule: Credit (+) = receipt from abroad; Debit (−) = payment to abroad; In theory, total credits equal total debits, so the BoP always balances in accounting terms.
Exchange rate movement: More demand for foreign currency → domestic currency depreciates; more supply → it appreciates; Rule holds when other factors stay unchanged.

Quick revision

Globalisation means growing integration of economies through trade, investment, technology and movement of people.
FDI brings in capital along with lasting interest and control in an enterprise; it is long-term.
FPI is investment in financial assets such as shares and bonds, without control; it can leave quickly.
FDI is generally more stable than FPI, which is often called hot money.
The WTO sets and monitors rules of global trade and provides a forum to settle trade disputes.
The IMF focuses on monetary cooperation, exchange rate stability and support for countries with payment problems.
The World Bank focuses on long-term development finance for projects and reforms.
Trade blocs range from preferential trade areas and free trade areas to customs unions, common markets and economic unions.
Balance of payments is a record of all economic transactions between residents of a country and the rest of the world over a period.
The current account covers trade in goods and services, income and transfers; the capital account covers investment and borrowing flows.
The exchange rate is the price of one currency in terms of another; a fall in the rupee's value makes imports costlier.

Common mistakes

Writing only advantages or only disadvantages in an 'impact' question. Fix: Always draw two columns in rough work. Fill both before writing the answer.
Treating globalisation as the same thing as liberalisation. Fix: Liberalisation means easing government controls. Globalisation is the resulting integration with the world economy. Liberalisation is one driver of globalisation.
Saying the automatic route means no rules or no reporting. Fix: Write that no prior approval is needed, but the investment must follow caps and conditions and be reported to the RBI.
Mixing up FDI and FPI. Fix: Remember FDI means control and long term; FPI means financial investment, short term, no control.
Treating FII and FPI as completely different groups in India. Fix: Write that FIIs were folded into the FPI category under SEBI regulation, so FPI is the present term.
Saying FPI gives management control. Fix: Remember that FPI is a passive financial stake. Control belongs to FDI.
Saying GATT and WTO are the same thing. Fix: Remember GATT was an agreement of 1947 mainly on goods, while the WTO is a permanent organisation from 1995 covering goods, services and intellectual property.
Mixing up MFN and National Treatment. Fix: MFN is about treating all trading partners equally. National Treatment is about treating imports like domestic goods after entry.
Saying the IMF gives long-term development loans for projects. Fix: Link the IMF to balance of payments and monetary stability. Link project and development lending to the World Bank.
Treating the World Bank as a single institution. Fix: Write that the World Bank Group has five institutions and name IBRD, IDA, IFC, MIGA and ICSID.

Exam tips

Open every answer with a one-line definition. It is the easiest mark to secure.
Organise answers as numbered points with bold headings. Examiners scan for them.
Always add one Indian example per section, such as the 1991 reforms, IT exports or FDI.
For 'discuss' or 'impact' questions, give both advantages and disadvantages, then a short conclusion.
Learn the link between globalisation and LPG, since questions often combine them.
Expect 'differentiate between FDI and FPI' often. Prepare a five-point comparison and write it in two columns of points.
For route questions, always state who approves and what is reported. This is where marks are won.
For benefits questions, give 5 to 6 explained points and add one line on risks to show balance.