Introduction Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Libera Liberaliz lizati ation, on, Privat Privatiza izatio tion n and Global Globaliza izatio tion n (LPG (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of refo reform rms s unde undert rtak aken en with with resp respec ectt to in indu dust stri rial al sect sector or,, trad trade e as well well as fina financ ncia iall sect sector or aime aimed d at maki making ng the the economy more efficient. With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for Indi India a and her bi bill lliion pl plus us popu popula lati tio on. Thi his s per period iod of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy. This This era era of refo reform rms s has has also also us ushe here red d in a rema remark rkab able le change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947, such as self self reli relian ance ce and and soci social alis isti tic c poli polici cies es of econ econom omic ic deve develo lopm pmen ent, t, whic which h main mainly ly due due to the the in inwa ward rd look lookin ing g restrictive form of governance, resulted in the isolation, overal overalll backw backward ardnes ness s and ineffi inefficie ciency ncy of the econom economy, y, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity.
Now Now that that Indi India a is in the the proc proces ess s of rest restru ruct ctur urin ing g her her economy, with aspirations of elevating herself from her present desolate position in the world, the need to speed up her economic development is even more imperative. And And havi having ng witn witnes esse sed d the the posi positi tive ve role role that that Fore Foreig ign n Direct Investment (FDI) has played in the rapid economic grow growth th of most most of the the Sout Southe heas astt As Asia ian n coun countr trie ies s and and most notably China, India has embarked on an ambitious plan to emulate the successes of her neighbors to the east and is trying to sell herself as a safe and profitable destination for FDI. Glob Global aliz izat atio ion n has has many many mean meanin ings gs depe depend ndin ing g on the the context and on the person who is talking about. Though the precise definition of globalization is still unavailable a few definitions are worth viewing, Guy Brainbant: says tha that the the proce roces ss of gl glo obali baliza zati tio on not not onl only in incl clu udes des open openin ing g up of worl world d trad trade, e, deve develo lopm pmen entt of adva advanc nced ed means of communication, internationalization of financial marke arkets ts,, growi rowing ng impo imporrtan tance of MNCs NCs, popul pulati ation migr migrat atio ions ns and and more more gene genera rall lly y in incr crea ease sed d mobi mobili lity ty of persons, goods, capital, data and ideas but also infections, diseases and pollution. The term globalization refe refers rs to the the in inte tegr gra atio tion of econ conomi omies of the the world thro throug ugh h unin uninhi hibi bite ted d trad trade e and and fina financ ncia iall flow flows, s, as also also through mutual exchange of technology and knowledge. Ideally, it also contains free inter-country movement of labo labor. r. In cont contex extt to Indi India, a, this this impl implie ies s open openin ing g up the the econ econo omy to forei reign di dire rect ct inves vestmen tmentt by provi rovidi ding ng facilities to foreign companies to invest in different fields of economic activity in India, removing constraints and
obstacles to the entry of MNCs in India, allowing Indian companies to enter into foreign collaborations and also enco encour ura agi ging ng them them to set up join intt ven venture tures s abroa broad; d; carrying out massive import liberalization programs by switching over from quantitative restrictions to tariffs and import duties, therefore globalization has been identified with the policy reforms of 1991 in Indi The Important Reform Measures (Step Towards liberalization privatization and Globalization) Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to almost $1 billlion bi lion;; Infl Infla ation tion had roare oared d to an annu nnual rate ate of 17 perc percen ent; t; fisc fiscal al defi defici citt was was very very hi high gh and and had had beco become me uns unsus usta tain inab able le;; foreig reign n inve nvestors tors and NRIs RIs had lost confidence in Indian Economy. Capital was flying out of the country and we were close to defaulting on loans. Along with these bottlenecks at home, many unforeseeable changes swept the economies of nations in Western and Eastern Europe, South East Asia, Latin Ameri America ca and and elsewh elsewhere ere,, aroun around d the same same time. time. These These were the economic compulsions at home and abroad that call called ed for a compl omple ete ove overha rhaul ulin ing g of our eco economic omic policies and programs. Major measures initiated as a part of the liberalization and globalization strategy in the early nineties included the following:
Impact of Globalization:
The implications of globalization for a national economy are many. Globalization has intensified interdependence and competition between economies in the world market. These economic reforms have yielded the following significant benefits: Globalization in India had a favorable impa impact ct on the the over overal alll grow growth th rate rate of the the econ econom omy. y.Th This is is majo major r improvement given that India’s growth rate in the 1970’s was very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India. Though India’s average annual growth rate almost doubled in the eighties to 5.9%, it was still lower than the growth rate in China, Korea and Indonesia. The pick up in GD GDP P grow growtth has has hel helped ped impr mprove ove India ndia’’s glob global al posi positi tion on.. Consequently India’s position in the global economy has improved from the 8th position in 1991 to 4th place in 2001; when GDP is calculated on a purchasing power parity basis. During 1991-92 the first year of Rao’s reforms program, The Indian economy grew by 0.9%only. However the Gross Domestic Product (GDP) growth accelerated to 5.3 % in 199293, and 6.2% 1993-94. A growth rate of above 8% was an achievement by the Indian economy during the year 2003-04. India’s GDP growth rate can be seen from the following graph since independence
India - a growing economy
The The Impo Import rtan antt Refor eform m Meas Measur ures es (Step Towards Globalization): Globalization): Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to almost $1 billion; Inflation had roared to an annual rate of 17 percent; fiscal deficit was very high and had become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. Capital was flying out of the country and we were close to defa defaul ulti ting ng on loan loans. s. Alon Along g with with thes thesee bott bottle lene neck ckss at home home,, many many unforeseeable changes swept the economies of nations in Western and Eastern Europe,South East Asia, Latin America and elsewhere, around the same time. These were the economic compulsions at home and abroad that called for a complete overhauling of our economic policies and programs. Major measures initiated as a part of the liberalisation and globalisation strategy in the early.
nineties included the following:
Devaluat Devaluation: ion: The first first step towards globalizatio globalization n was taken with the announcement of the devaluation of Indian currency by 18-19 percent against major currencies in the international foreign exchange market. In fact, this measure was taken in order to resolve the BOP crisis Disinvestment-In order to make the process of globalization smooth, priva privatiz tizati ation on and libera liberalis lisati ation on polici policies es are moving moving along along as well. well. Under the privatization scheme, most of the public sector undertakings have been/ are being sold to private sector. Dismantling of The Industrial Licensing Regime At present, only six indust industrie riess are under under compul compulsor soryy licens licensing ing mainly mainly on accoun accountin ting g of enviro environme nmenta ntall safety safety and strate strategic gic consid considera eratio tions. ns. A signif significa icantl ntlyy amended locational policy in tune with the liberalized licensing policy is in place. No industrial approval is required from the government for locations not falling within 25 kms of the periphery of cities having a population of more than one million. Allowing Foreign Direct Investment (FDI) across a wide spectrum of industries and encouraging non-debt flows. The Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalise the FDI regime, inter alias, include opening up of sectors such as Insurance (upto 26%); development of integrated townships (upto 100%); defence industry (upto 26%); tea plantation (upto 100% subject to divestment of 26% within five years to FDI); enhancement of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for most manufacturing activities in SEZs; opening up B2B e-commerce; Internet Service
Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment subje subject ct to 26% divest divestmen mentt condit condition ion;; etc. etc. The Depart Departmen mentt has also also str stren engt gthe hene ned d inve invest stme ment nt faci facili lita tati tion on me meas asur ures es thro throug ugh h Fore Foreig ign n Investment Implementation Authority (FIIA). Non Non Resid Resident ent Indian Indian Scheme Scheme the genera generall policy policy and facili facilitie tiess for foreign direct investment as available to foreign investors/ Companies are are full fullyy appl applic icab able le to NRIs NRIs as well well.. In addi additi tion on,, Gove Govern rnme ment nt has has extended some concessions specially for NRIs and overseas corporate bodies having more than 60% stake by NRIs Thro Throwi wing ng Open Open Indu Indust stri ries es Rese Reserv rved ed For For The The Publ Public ic Sect Sector or to Private Participation. Now there are only three industries reserved for the public sector Abolitio Abolition n of the (MRTP) Act, which necessit necessitated ated prior approval approval for capacity expansion The removal of quantitative restrictions on imports. The The redu reduct ctio ion n of the the peak peak cust custom omss tari tariff ff from from over over 300 300 per per cent cent pri prior or to the the 30 per per cent cent rate rate that that appl applie iess now. now. 168 168 Inte Intern rnat atio iona nal l Research Journal of Finance and Economics - Issue 5 (2006) Seve Severe re rest restri rict ctio ions ns on shor shortt-te term rm debt debt and and allo allowi wing ng exte extern rnal al commercial borrowings based on external debt sustainability. Wide Wide-r -ran angi ging ng fina financ ncia iall sect sector or refo reform rmss in the the bank bankin ing, g, capi capita tal l markets, and insurance sectors, including the deregulation of interest rates, strong regulation and supervisory systems, and the introduction of foreign/private sector competition.
Strategy of Globalization: Globalization: In the Report (2006) East Asian Renaissance, World Bank Advisor Dr Indermit Gill stated: Cities are at the core of a development strategy based on international integration, investment and innovation. East Asia is witnessing the largest rural-to-urban shift of population in history.
Two million new urban dwellers are expected in East Asian cities every month for the next 20 years. This will mean planning for and building dynamic, connected cities that are linked both domestically and to the outside world so that economic growth continues and social cohesion is strengthened.The market economy seems to be more concerned with the growth of consumerism to attract the high income groups who are mostly in the cities in the developing countries. Rural economy and the agricultural sector were out of focus in the strategy of globalization.
WHAT IS GLOBALISATION? In the past two to three decades, more and more MNCs have been looking for locations around the world which would be cheap for their production. Foreign investment by MNCs MNCs in in these these countr countries ies has been been risi rising. ng. At At the sam same e time, time, forei foreign gn trade trade betwee between n countr countries ies has has been been rising rising rapidly. A large part of the foreign trade is also controlled by MNCs. For instance, the car manufacturing plant of Ford Motors in India not only produces cars for the Indian markets, it also exports cars to other developing countries and exports car components for its many factor factories ies arou around nd the world. world. Likewi Likewise se,ac ,activ tiviti ities es of most most MNCs involve substantial trade in goods and also services.
The The resu result lt of grea greate terr fore foreig ign n in inve vest stme ment nt and and grea greate ter r foreign trade has been greater integration of production and markets Global alis isat atio ion n is this this pro proce cess ss of across across countrie countries. s. Glob rapid integration or inte interc rcon onne nect ctio ion n betw betwee een n coun countr trie ies. s. MNCs are playing a major role in the globalisation process. More and more goods and services, investments and technology are moving between countries. Most regions of the world are in closer contact with each other than a few decades back.Besides the movements of goods, services, investments and technology, there is one more way in which the countries can be connected. This is through the movement of people between countries. People usually move from one country to another in search of better income, better jobs or better education. In the past few decades, however, there has not been much increase in
the the movem ovemen entt of peo peopl ple e betw betwee een n coun countr trie ies s due due to various restrictions.
FACTORS THAT HAVE GLOBALISATION :
ENABLED
Technology Rapid improvement in technology has been one major factor that has stimul sti mulate ated d the global globalis isati ation on proces process. s. For instan instance, ce, the pas pastt fift fifty y year years s have have seen seen seve severa rall impr improv ovem emen ents ts in trans transpor porta tatio tion n techno technolog logy. y. This This has made made much much faster faster delivery of goods across long distances possible at lower costs.
Even more
remarkable have been the developments in information and comm commun unic icat atio ion n tech techno nolo logy gy.. In recent times, technology in the areas of tele teleco comm mmun unic icat atio ions ns,, comp comput uter ers, s, Inte Intern rnet et has has been been changing rapidly. Tele Teleco comm mmun unic icat atio ion n faci facili liti ties es (tel (teleg egra raph ph,, tele teleph phon one e including mobile
phones, fax) are used to contact one another around the world, to access information instantly, and to communicate from remote areas. This has bee been facilitated by satellite communication devices. As you woul would d be awar aware, e, comp comput uter ers s have have now now ente entere red d almo almost st every field of activity.You might have also ventured into the amazing world of internet, where you can obtain and share share informati information on on almost almost anything anything you want to know. know. Internet also allows us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible costs.
Liberalisation of foreign trade and foreign investment policy Let Let us return to the example of imports of Chinese toys in India. Suppose the Indian government puts a tax on import of toys. What would happen? Those who wish to import these toys would have to pay tax on this. Because of the tax, buyers will have to pay a higher price on imported toys. Chinese toys will no longer be as cheap in the Indian markets and
imports from China will automatically reduce. Indian toymakers will prosper. Tax on imports is an example of trade barrier . It is called a barrier because some restriction has been set up. Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide d ecide what kinds of goods and how much of each, should come into the country. The Indian government, after Independence, had put barriers to foreign trade and foreign investment. This was considered necessary to protect the producers within the country from foreign competition. Industries were just coming up in the 1950s and 1960s, and competitionfrom imports imports at that stage would not have allowed these industries to come up. Thus, India allowed imports of only essential items such as machinery, fertilisers, petroleum etc. Note that all developed d eveloped countries, during the early stages of development, of development, have given protection to domestic producers through a variety of means. Starti Starting ng arou around nd 19 1991 91,, some some farr farrea each chin ing g chan change ges s in policy were made in India. The government decided that the time had come for Indian producers to compete with producers around the globe. It felt that competition would improve the performance of producers within the country since they would have to improve their quality. This decision
was supported supported by powerful powerful internati international onal organisa organisation tions. s. Thus, barriers on foreign trade and foreign investment were removed to a large extent. This meant that goods could be imported and exported easily and also foreign companies could set up factories and offices here. Removin ving barr barriiers or rest estrictio ction ns set by the government is what is known known as liberali liberalisati sation. on. With liberali liberalisati sation on of trade, trade, businesses are allowed to make decisions freely about what they wish to import or export. The government imposes much less restrictions than before and is therefore said to be more liberal.
The Bright Side of Globalization: The rate of growth of the Gross Domestic Product of India has been on the increase from 5.6 per cent during 198090 to seven per cent in the 1993-2001 period. In the last fou four year years, s, the the annu nnual grow rowth rate rate of the the GDP GDP was was impressive at 7.5 per cent (2003-04), 8.5 per cent (200405), nine per cent (2005-06) and 9.2 per cent (2006-07). Prime Minister Manmohan Singh is confident of having a 10 per cent growth in the GDP in the Eleventh Five Year Plan period. The The fore foreig ign n exch exchan ange ge rese reserv rves es (as (as at the the end end of the the financial year) were $ 39 billion (2000-01), $ 107 billion (2003-04), $ 145 billion (2005-06) and $ 180 billion (in
February 2007). It is expected that India will cross the $ 200 billion mark soon. The cumulative FDI inflows from 1991 to September 2006 were Rs.1, 81,566 crores (US $ 43.29 billion). The sectors attracting highest FDI inflows are electrical equipments incl in clud udin ing g com compute puterr soft softwa ware re and and elec electr tron onic ics s (18 (18 per per cent), service sector (13 per cent), telecommunications (10 per cent), transportation industry (nine per cent), etc. In the inflow of FDI, India has surpassed South Korea to become the fourth largest recipient. India controls at the present 45 per cent of the global outsourcing market with an estimated income of $ 50 billion. In resp respec ectt of mar market ket capi capita tali liza zati tion on (whi (which ch take takes s in into to acco accou unt the the market val value of a quo quoted ted compa ompany ny by mult multip iply lyin ing g its its curr curren entt sh shar are e pric price e by the the numb number er of shares in issue), India is in the fourth position with $ 894 bill bi llio ion n afte afterr the the US ($ 17 17,0 ,000 00 bi bill llio ion) n),, Japa Japan n ($ 48 4800 00 bill bi llio ion) n) and and Chin China a ($ 10 1000 00). ). Indi India a is expe expect cted ed to soon soon cross the trillion dollar mark. As per the Forbes list for 2007, the number of billionaires of India has risen to 40 (from 36 last year)more than those of Japan (24), China (17), France (14) and Italy (14) this year. A press report was jubilant: This is the richest year for India. The combined wealth of the Indi dia an billionaires marked an increase of 60 per cent from $ 106 billion in 2006 to $ 170 billion in 2007. The 40 Indian billionaires have assets worth about Rs. 7.50 lakh crores wher wherea eas s the the cumu cumula lati tive ve in inve vest stme ment nt in the the 91 Pu Publ blic ic
Sector Undertakings by the Central Government of India is Rs. 3.93 lakh crores only.
The Dark Side of Globalization : On the other side of the medal, there is a long list of the wors worstt of the the time times, s, the the fore foremo most st casu casual alty ty bein being g the the agriculture sector. Agriculture has been and still remains the backbone of the Indian economy. It plays a vital role not only in providing food and nutrition to the people, but also in the supply of raw material to industries and to export trade. In 1951, agriculture provided employment to 72 per cent of the population and contributed 59 per cent of the gross domestic product. However, by 2001 the population depending upon agriculture came to 58 per cent whereas the share of agriculture in the GDP went went down down dras drasti tica call lly y to 24 per per cent cent and and furt furthe herr to 22 per cent in 2006-07. This has resulted in a lowering the per capita income of the farmers and increasing the rural indebtedness.
Growth of Unemployment Poverty: The proportion of the unemployed to the total labor force has been increasing from 2.62 per cent (1993-94) (1993-94) to 2.78 per per cent cent (199 (19999-20 2000 00)) and and 3. 3.06 06 per per cent cent (200 (20044-05 05). ). In absolute figures, the number of unemployed had been in
those years 9.02 million, 10.51 million and 13.10 million respectively. (Economic Survey 2006-07, Table 10.4) In reply to a question, the Minister for Labor and Employment informed the Lok Sabha on March 19, 2007, that the enrolment enrolment of the unemployed in the Employment Employment Exchanges in 2006-07 was 79 lakhs against the average of 58 lakhs in the past ten years. Abo About ut the the impa impact ct of gl glob obal aliz izat atio ion, n, in parti particu cula larr on the the development of India, the ILO Report (2004) stated: In India, there had been winners and losers. The lives of the educated and the rich had been enriched by globalization. The information technology (IT) sector was a part partic icul ular ar bene benefi fici ciar ary. y. Bu Butt the the bene benefi fits ts had had not not yet yet reached the majority, and new risks had cropped up for the the los losersth rsthe e soci ocially lly depr depriv ive ed and the the rural ural poo poor. Sign Si gnif ific ican antt numb number ers s of nonnon-pe pere renn nnia iall poor poor,, who who had had worked hard to escape poverty, were finding their gains reversed. Power was shifting from elected local inst in stit itut utio ions ns to unac unacco coun unta tabl ble e tran transs-na nati tion onal al bodi bodies es.. Western perceptions, which dominated the globe media, were not aligned with local perspectives; they encouraged ged consumerism in the the midst of extreme po povert verty y and and pose posed d a thre threat at to cult cultur ural al and and ling lingui uist stic ic diversity.
Social Services
Abo About ut the the qual qualit ity y of educ educat atio ion n gi give ven n to chil childr dren en,, the the Approach to the Eleventh Five Year Plan stated: A recent study has found that 38 per cent of the children who have completed four years of schooling cannot read a small paragraph with short sentences meant to be read by a stud tudent of Class II. About 55 per per cent of such children cannot divide a three digit number by a one digit number. These are indicators of serious learning problems which must be addressed. The Approa Approach ch paper paper added added furthe further: r: Univer Universal salisa isatio tion n of education will not suffice in the knowledge economy. A person with a mere eight years of schooling will be as disa di sadva dvant ntag aged ed in a know knowle ledg dge e econ econom omy y by ICT ICT as an illiterate person in modern industry an services. The The les less said abou bout the the achie chieve vem ments ents in hea health lth the the better. better. The Approach Approach to the Eleventh Eleventh Plan concedes that prog progre ress ss impl implem emen entin ting g the the obje objecti ctive ves s of heal health th have have been slow. The Report gave the particulars of the rates of infa in fant nt mort mortal alit ity y (per (per 10 1000 00 live live bi birt rths hs)) for for Indi India a as 60 against Sri Lanka (13), China (30) and Vietnam (19). The rate of maternal mortality (per 1, 00,000 deliveries) of Indi India a is 407 agai gains nstt Sri Sri Lanka anka (92 (92), Chi hina na (56 (56) and Vietnam (130).
Growth of Slum Capitals: In his 2007-08 Budget Speech, Finance Minister Chidambaram put forth a proposal to promote Mumbai as
a worl world d clas class s fina financ ncia iall cent centre re and and to make make fina financ ncia iall services the next growth engine of India. Of its 13 million population, Mumbai city has 54 per cent in slums. It is estimated that 100 to 300 new families come to Mumbai every day and most land up in a slum colony. Prof R. N. Sharma of the Tata Institute of Social Science says that Mumbai is disintegrating into slums. From From being being known known as the slum capital capital of India India and the biggest slum of Asia, Mumbai is all set to become the slum capital of the world. The The popu popula lati tion on of Delh Delhii is abou aboutt 14 mill millio ion n of whic which h nearly 45 per cent population lives in slums, unauthorized colonies, JJ clusters and undeveloped rural parts. During dry weather these slum dwellers use open area areas s arou around nd thei theirr unit units s for for defe defeca cati tion on and and the the enti entire re human waste generated from the slums along with the additional wastewater from their households is discharged untreated into the river Yamuna. The cumulative FDI inflows (until September 2006) to the New Delhi region was of Rs. 27,369 crores and to Mumbai Rs. Rs. 24,5 ,54 45 cro crores res. The The two spots pots of New New Delh Delhii and Mumbai received 46 per cent of the total FDI inflows into India. The FDI inflows have in no way assisted in improving the health and environment conditions of the people. On the other hand, the financial capital of India and the political
capital of India are set to become the topmost slum cities of the world.
Victims of Globalization Globalization IN his Making Globalization Work, Nobel Laureate Stiglitz wrote: Trade liberalizationopening up markets to the free flo flow of goods oods and and serv serviices ces was was suppo uppos sed to lead ead to growth. The evidence is at best mixed. Part of the reason tha that inter nterna nati tio onal tra trade agr agreem eements nts have bee been so unsu unsucc cces essf sful ul in prom promot otin ing g grow growth th in poor poor coun countr trie ies s is that they were often unbalanced. The advanced industrial countries were allowed to levy tariffs on goods produced by developing countries that were, on average, four times higher that those on goods produced by other advanced industrial countries. In his foreword to The Dynamics and Impact of Globalization by Dr. M. V. Louis Anthuvan, Justice V. R. Krishna Iyer pointed out pithily: The New World Order is the the produc duct of what is now familiarly des described as globalization, liberalization and privatization. The weaker sectors like the Asian and African countries are victims, whose economic welfare is slavery, at the disposal of the White world. When World War II came to a close, comm commer erci cial al conq conque uest st and and trad trade e triu triump mph h beca became me the the major goal of the United States and the other giant trade powers. Indeed, these mighty countries and companies even even made made worl world d hung hunger er as Bi Big g Bu Busi sine ness ss.. The The poor poorer er
countries with natural resources have been made banana republics and cucumber vassals. The Human Development Report 2006 recorded: Globalization has given rise to a protracted debate over the precise direction of trends in global income distribution. What is sometimes lost sight of is the sheer dept depth h of inequ nequa ality litya and the the associ socia ated ted pote potent ntia iall for greater equity to accelerate poverty reduction. Measured in the 2000 purchasing power parity (PPP) terms, the gap between the incomes of the poorest 20 per cent of the worlds population and the $ 1 a day poverty line amounts to about $ 300 billion. That figure appears large, but it is les less tha than two two per per cen cent of the the incom ncome e of the the world orlds s wealthiest 10 per cent.
To make Globalization Work : Under the phenomenal growth of information technology which has shrunk space and time and reduced the cost of moving information, goods and capital across the globe, the globalization has brought unprecedented opportunities for human development for all, in deve develo lopi ping ng as well well as deve develo lope ped d coun countri tries es.. Unde Underr the the comm commer erci cial al mark market etin ing g forc forces es,, gl glob obal aliz izat atio ion n has has been been used more to promote economic growth to yield profits to some countries and to some groups within a country. Indi India a sh shou ould ld pay pay imme immedi diat ate e atte attent ntio ion n to ensu ensure re rapi rapid d development in education, health, water and sanitation,
labor and employment so that under time-bound programmes the targets are completed without delay. A strong foundation of human development of all people is essential for the social, political and economic development of the country. Though at present India appears to be dominant in some fields of development as in IT-ITES, this prosperity may be challenged by other competing countries which are equipp equipping ing thems themsel elves ves with with better better standa standards rds of hi highe gher r education. As detailed earlier, our progress in education has been slow and superficial, without depth and quality, to compete the international standards. The government should take immediate steps to increase agricultural production and create additional employment opportunities in the rural parts, to reduce the growing inequality between urban and rural areas and to decentralize powers and resources to the panchayati raj institutions for implementing all works of rural development. Steps should be taken for early linking of the rivers, especially in the south-bound ones, for supply of the much-needed water for irrigation. It should be remembered that without a sustainable and produ producti ctive ve growth growth of the agricu agricultu ltural ral secto sector, r, the other other types of development in any sphere will be unstable and illusory. Despite the concerted development in manufacturing and service sectors, despite the rema remark rka abl ble e in infl flow ow and and over overfl flow ow of fore foreig ign n rese reserv rves es,,
agriculture is still the largest industry providing employment to about 60 per cent of the workforce in the country. Mere growth of the GDP and others at the macro level in billions does not solve the chronic poverty and backward level of living norms of the people at the micro level. The growth growth should should be sus sustai tainab nable le with with human human develo developme pment nt and and dece decent nt empl employ oyme ment nt pote potent ntia ial. l. The The welf welfar are e of a country does not percolate from the top, but should be built upon development from the bottom.
Foreign Trade (Export- Import) India’s imports in 2004-05 stood at US$ 107 billion recording Indian econ econom omyy was was in deep deep cris crisis is in July July 1991 1991,, when when fore foreig ign n curr curren ency cy reserves had plummeted to almost $1 billion; Inflation had roared to an annual rate of 17 percent; fiscal deficit was very high andhad become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. Capitalwas flying out of the country and we were close to defa defaul ulti ting ng on loan loans. s. Alon Along g with with thes thesee bott bottle lene neck ckss atho athome me,, many many unforeseeable changes swept the economies of nations in Western and Eastern Europe,South East Asia, Latin America and elsewhere, around the the same same time time.. Thes Thesee were were the the econ econom omic icco comp mpul ulsi sion onss at home home and and abroad that called for a complete overhauling of our economic policies and programs. Major measures initiated as a part of the liberalisation and globalisation strategy in the earlynineties included the following: Devaluation: The first step towards globalization was taken with the uncement of the devaluation of Indian currency by 18-19 percent against major currencies in the international •
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for forei eign gn exch exchan ange ge mark market et.. In fact fact,, this this me meas asur uree was was take taken n in order to resolve the BOP crisis Disinvestment -In -In order to make the process of globalization smooth, privatization and libe libera rali lisa sati tion on poli polici cies es are are movi moving ng alon along g as well well.. Unde Underr the the privatization scheme, most of the public sector undertakings have been/ are being sold to private sector Dismantling of The Industrial Licensing Regime At present, only six industries are under compul compulsor soryy licens licensing ing mainly mainly on accoun accounti ting ng of enviro environme nmenta ntal l safety and strategic considerations. A significantly amended locational policy in tune with the liberalized licensing policy is in place. No industrial approval is required from the government for locations not fal fallling ing with withiin 25 kms of the peri periph pheery of citie itiess havi having ng a population of more than one million. Allow Allowing ing Foreig Foreign n Direct Direct Invest Investmen ment t (FDI (FDI)) acro across ss a wide wide spectrum of industries and encouraging encouraging non-debt non-debt flows. flows. The Department Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalise the FDI regime, inter alias, include opening up of sectors such as Insurance (upto 26%); development of integrated townships (upto 100%); defence industry (upto 26%); tea plantation (upto 100% subject to divestment of 26% within five years to FDI); enhancement
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of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for most most manu manufa fact ctur urin ing g acti activi viti ties es in SEZs SEZs;; open openin ing g up B2B B2B ecommerce; Internet Service Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition; etc. The Department has also strengthened investment facilitation measures through Foreign Investment Implementation Implementation Authority (FIIA). Non Resident Indian Scheme the general policy and facilities for foreign direct investment as available to foreign investors/ Companies are fully applicable to NRIs as well. In addition, Government has extended some concessions specially for NRIs and overseas corporate bodies having more than 60% stake by NRIs Throwing Open Industries Reserved For The Public Sector to Private Participation. Now 1. ther theree are are only only thre threee indu indust stri ries es rese reserv rved ed for for the the publ public ic sector Abolition of the (MRTP) Act, whic which h nece necess ssit itat ated ed prio prior r approval for capacity expansion The removal of quantitative restrictions on imports. The reduction of the peak customs tariff from over 300 per cent prior to the 30 per cent rate that applies now. Severe restrictions on short-term debt and allowing external commercial borrowings based on external debt sustainability. Wide-ranging financial sector reforms in the banking, capital markets, and insurance sectors,
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includ including ing the deregu deregulat lation ion of intere interest st rates, rates, strong strong regula regulatio tion n and supervisory systems, and the introduction of foreign/private sector competition.
Indian Economy: Challenges
Future
Sustaining the growth momentum and achieving an annual average growth of 9-10 % in the next five years. Simpli Simplifyi fying ng proced procedure uress and relaxi relaxing ng entry entry barrie barriers rs for busine business ss activities and Providing investor friendly laws and tax system. Chec Checki king ng the the grow growth th of popu popula lati tion on;; Indi India a is the the seco second nd high highes est t populated country in the world after China. However in terms of density India exceeds China as India's land area is almost half of China's total land. Due to a high population growth, GNI per capita remains very poor. It was only $ 2880 in 2003 (World Bank figures). Boo Boost stiing agri agricu culltur tural grow growth th thr through ough dive divers rsif ific icat atiion and and development of agro processing. Expanding industry fast, by at least 10% per year to integrate not only only the the surp surplu luss labo labour ur in agri agricu cult ltur uree but but also also the the unpr unprec eced eden ente ted d number of women and teenagers joining the labour force every year. Developing world-class infrastructure for sustaining growth in all the sectors of the economy Allowing foreign investment in more areas. Effecti Effecting ng fiscal fiscal consolidat consolidation ion and eliminati eliminating ng the revenue revenue deficit deficit through revenue enhancement and expenditure management. Some regard globalization as the spread of western culture and influence at the expense of local culture. Protecting domestic culture is also a challenge.
Glob Global al corp corpor orat atio ions ns are are resp respon onsi sibl blee for for glob global al warm warmin ing, g, the the depletion of natural resources, and the production of harmful chemicals and the destruction of organic agriculture. The government should reduce its budget deficit through proper pricing mechanisms and better direction of subsidies. It should develop infrastructure with what Finance Minister P Chidambaram International Research Journal of Finance and Economics - Issue 5 (2006) 171 of India called “ruthless efficiency” and reduce bureaucracy by streamlining government procedures to make them more transparent and effective. effective. Empowering the population through universal education and health care, India must maximize the benefits of its youthful demographics and turn itself into the knowledge hub of the world through the application of information and communications technology (ICT) in all aspects of Indian life although, the government is committed to furthering economic reforms and developing basic infrastructure to improve lives of the rural poor and boost economic performance. Government had reduced its controls on foreign trade and investment in some areas and has indicated more libera liberaliz lizati ation on in civil civil aviati aviation, on, teleco telecom m and insura insurance nce sector sector in the future.
Conclusion: The lesson of recent experience is that a country must care carefu full lly y choo choose se a comb combin inat atio ion n of poli polici cies es that that best best enables it to take the opportunity - while avoiding the pitfalls. For over a century the United States has been the largest economy in the world but major developments have have take taken n pl plac ace e in the the worl world d econ econom omy y si sinc nce e then then,,
leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants- India and China. Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century. India, which is now the fourth larges largestt econom economy y in terms terms of purcha purchasin sing g power power parity parity,, may overtake Japan and become third major economic power within 10 years.
Acknowledgement: I would like to express profound gratitude to prof.Nair and and Head Head Prof Prof.. bane bane for for gi givi ving ng enco encour urag agem emen entt and and guidance to work on Impact of Globalization on Indian Eco Economy omy An Over vervi vie ew. Als lso o I wou would like to expr xpress ess thanks to Mr. Balwant Salunke, Mr. Keshav Anand, Mr. Dashrath Sharma, Mr. Rahul Joshi and Mr. Ankur Jain.
References: Glo Global balis isa ation tion and and Pove overty: rty: Cent Centre re for Inte nternat rnatio ion nal Economics, Australia. Globalisation Trend and Issues T.K.Velayudham, T.K.Velayudham, Global balisatio tion and Indi dia a Lectur ture: Prof .Sag Sagar Jain, University of N.Carolina. N.Carolina. Repo Reposi siti tion onin ing g Indi India a in the the Glob Global alis ised ed Worl World d Lect Lectur ure: e: V.N.Rai.
Globalization of Indian economy by Era Sezhiyan Global Globalisa isatio tion n and Indias Indias Bus Busine iness ss prospe prospecti ctives ves Lectur Lecture e Ravi Kastia. Globalisation and Liberalisation Prospects of New World Order Dr.A.K.Ojha, Third Concept An International Journal of Ideas, Aug 2002. Globalisation: Imperatives, Challenges and the Strategies.
Structure of the Economy: Due to globalization not only the GDP has increased but also the direction of growth in the sectors has also been changed. Earlier the maximum part of the GDP in the economy was generated from the primary sector but now the service industry is devoting the the maxi maximu mum m part part of the the GDP. GDP. The The serv servic ices es sect sector or remains the growth driver of the economy with a contribution of more than 57 per cent of GDP. India is ranked 18th among the world’s leading exporters of services services with a share share of 1.3 per cent in world world exports. exports. The The servic rvices es sector ctor is expec xpecte ted d to ben benefit from rom the the ongoing liberalization of the foreign inve in vest stme ment nt regi regime me in into to the the sect sector or.. Soft Softwa ware re and and the the ITES-BPO sectors have recorded an exponential growth in recent recent years. years. Growth rate in the GDP from major major sectors sectors of the economy can be seen from the following Table.
International Research Journal of Finance and Economics - Issue 5 (2006) Table-: Structure of the Economy (Percentage) (% Of GDP) 1984-85
Agricultur 35.2 e 26.1 Industry 38.7 Services
2002-3
2003-4
2004-5
26.5 22.5 51.4
21.7 21.6 56.7
20.5 21.9 57.6
ECON ECONOM OMIC IC GLOBA LOBALI LIS SATIO ATION N VERS ERSUS TECHNOLOGY: Glo Global balis isa ation tion has pl pla aced ced chal challe leng nge es on the the hum human lifestyle and economic development all over the world. As pointed out by Badran, human development will be esse essent ntia iall to acce accele lera rate te
sci cie ence nce and tech techno nolo logy gy for for
sustai sus tainab nable le develo developme pment nt [2]. [2]. Tech echnolo ology is the the key variable in the economic development of any country. Technological progress and economic development are inter terdependent.
The
contra trast
lies
in
the
different
standa standards rds of living living betwe between en highly highly devel develope oped d nation nations, s,
such as the USA, and underdeveloped nations, such as Haiti or Zaire, and is a reflectio tion of the levels of different tech techno nolo logi gies es and and the the effe effecti ctive vene ness ss and and the the esse essent ntia iall services provided by engineers to society.
GLOBALIZATION ECONOMY :
ON
INDIAN
3Most regions of the world are getting increasinglyinterconnected. While this interconnectednessacross countries has many dimens dimension ions s —cult —cultura ural, l, politi political cal,, socia sociall and econom economic ic — thischapter looks at globalisation in a more limitedsense. It definesgl glo obalisation as the integ tegratio tionbetwe tween countries through foreign trade andforeign investments by multinationalcorporations (MNCs). As you will notice, the the more moreco comp mple lex x issu issues es of port portfo foli lio o in inve vest stme ment nt have have beenleft out. If we look at the past thirty years or so, we find that MNCs MNCs have have been been a majo majorr forc force e in the the gl glob obal alis isat atio ion n process connecting distant regions of the world. Why are the MNCs spreading their production to other countries and what are the ways in which they are doing so? The first part of the chapter disc di scus usse ses s this this.. Rath Rather er than than rely relyin ing g on quan quanti tita tati tive ve estimates, the rapid rise and influence of the MNCs has been shown
through a variety of examples, mainly drawn from the Indi Indian an cont contex ext. t. Note Note that that the the exam exampl ples es are are an aid aid to expl explai ain n a more ore gen general eral poin int. t. Whi While teac teach hing, ng, the the emphasis should be on the ideas and examples are to be use us ed as illus llustr tra atio tions ns.. You can also crea creati tive velly use comprehension passages like the one given after Section II to test and reinf reinforc orce e new new concep concepts. ts. Integr Integrati ation on of produc productio tion n and integration of markets is a key idea behind unde unders rsta tand ndin ing g the the proc proces ess s of gl glob obal alis isat atio ion n and and its its impact. This has been dealt with at length in this chapter, highlighting the role of MNCs in the process. You have to ensure that the students grasp this idea with sufficient clarity, before moving on to the next topic. Globalisation has been facilitated by several factors. Three of these have been highlighted: rapid improvements in technology, liberalisation.
Abstract : The growing integration of economies and societies arou around nd the the worl world d – has has been been one one of the the most most hotl hotlyydebated topics in international economics over the past few years. Rapid growth and poverty reduction in China, India, and other countries that were poor 20 years ago, has been a positive aspect of Liberalization Privatiza Privatization tion and Globaliza Globalization tion (LPG). (LPG). But Globaliz Globalization ation has also also genera generated ted sig signif nifica icant nt inter internat natio ional nal opposi oppositio tion n
over over conc concer erns ns that that it has has in incr crea ease sed d in ineq equa uali lity ty and and environmental environmental degradation. There is a need to study the impact of globalization on developing countries from the viewpoint of inward foreign direct investment. Attention should also be focused on the role which some developing countries, particularly from parts of Asia and Latin America, are playing as initiators of globalization through their own MNCs. India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defa defaul ulti ting ng on loan loans. s. The The resp respon onse se was was a sl slew ew of Dome Domest stic ic and and exte extern rnal al sect sector or poli policy cy meas measur ures es part partly ly prom prompt pted ed by the the imme immedi diat ate e need needs s and and part partly ly by the the demand of the multilateral organisations. The new policy regime radically pushed forward in favour of a more open and market oriented economy. This paper explores the contours of the on-going process of globalization Liberaliza Liberalization tion and privatizati privatization. on. Througho Throughout ut this paper, paper, there is an underlying focus on the impact of LPG on Indian economy. It also comments on impact of LPG on Developing countries.
