After the globalization, the whole world has become a small village and the economic growth and slow down of one country affects all over the world. A decision taken by the government of one nation affects the business of all over the world.
According to the data, IMF shaved its 2013 forecast for global economic growth to 3.9% from 4.1% it projected in April. As euro zone crisis affected the whole world’s manufacturing and service sector growth.
Now, euro zone nations are trying to come out from this debt crisis and they are also busy in making the reform policy for their country. So that, they would become able to reduce their debt burden and increase the growth of their country. We can take the example of Spain where government is planning to raise 56.4 b Euro from deducing the spending, increase in the tax rate and adding new power and environment tax. As these steps are very much required for the country to take out itself from the burden of debt. But, when the tax rate will be increased and the government will cut the job then the demand for good and services will be reduced by the people and it will affect the whole world. Such as if the US has export goods and services to Spain then the demand of US goods and services will be automatically decreased.
We can take another example i.e. related to India.
As India has allowed 100% FDI investment in single brand retail but it has put a lot of restriction such as the company which will entered into the market has to mandatory sourcing minimum 30% of their goods from local small and medium sized enterprise. Now many companies want to enter into the Indian retail market but they require some liberalization on this law.
This type of decision affects the growth of both countries, firstly from where the FDI is coming and secondly where these investors want to invest. As every FDI investment increase the employment in both foreign and Home country.