INDEX

Sr No. Particular Page No.

1 History of Globalization 2

2 Impact of Globalization on 5
Developing Countries and India

3 Impact of globalization on Indian 8

economy- An overview

4 12
Gains from Globalization

5 20
Bibliography

S.V. Institute of Management Page 1

 History of Globalization
Globalization is mainly a socio-economic term which is nowadays synonymous with the
economic development of a country. In simple terms, it is a continuous process through
which different societies, economies, traditions and culture integrate with each other on a
global scale through the means of communication and interchange of ideas. By having an
idea of the history of globalization, one will be able to properly understand the causes which
led to such social and economic change.

Alexander the Great forges eastward link with Chandragupta Maurya for overland routes
between the Mediterranean, Persia, India, and Central Asia. During the 1st century CE the
trans-world trade makes its first major appearance in China under the Han dynasty and
successfully established trade relations with Asian and European countries. The period from
650-850 AD records the expansion of Islam and trade relations with the west Mediterranean
region with the Indian sub-continent. The Rise of Genghis Khan during 1100 AD gave rise to
the integration of overland routes across Eurasia. The 1650s marks the expansion of the slave
trade and it sustained the expansion of Atlantic Economy, giving birth to integrated economic
and industrial systems across the Ocean. The period from 1776 to 1789 AD marks the US and
French Revolutions and the creation of modern state as a fall-out of military and business
interests. These integrated empires expand during the industrial revolution. The eighteenth
century marks the merging of the modernity with globalization and it also marks the
foundation for the creation of international trade law.

Early history of globalization

According to most scholars and researchers, it is the modern age which led to the origin of
globalization. In this age, wide spread development took place in the field of infrastructure
and connectivity. This led to more interaction between the nations and sharing of ideas,
culture and tradition took place. All these put a direct impact on the process of globalization.
In the economic scenario, more trade links started taking place between countries on a global
scale which influenced global as well as domestic economies to a great extent.

However, there are some scholars who point out that the origins of the history of
globalization can be traced back to the ancient civilizations. Scholars who advocate this
theory say that the example of the earliest forms of globalization is the trade links between
the Sumerian civilization and the Indus Valley Civilization in third millennium B.C. In fact,
after this age, there are numerous instances where trade links were established between
various countries like India, Egypt, Greece, and Roman Empire and so on. There were regular
business links between the Parthian Empire, Roman Empire and Han Dynasty. The popularity
of the trade relations led to the development of various trade routes like Silk Road and so on.

S.V. Institute of Management Page 2

Globalization in the medieval age

The Islamic period in the medieval era is an important epoch in the history of globalization.
This was when the Jewish and the Muslim traders started going to various parts of the world
to sell various items. This led to a blend of ideas, traditions and customs.

In China, the first postal service was introduced and paper was invented. This led to better
knowledge sharing. As more and more people started traveling to various countries across the
world, it led to more communication between people and intermingling of languages.
Explorers like Columbus and Vasco Da Gama sailed through the oceans in search of new
countries and establish trade links with them or to make other countries their colonies. All
these factors were a major cause for the development of the pre-globalization era.

The medieval period was the age of discovery. It was in this period that Africa and Eurasia
engaged in cultural and economic exchange between them. Gradually, this led to the growth
of colonies in various parts of Africa, Asia and Latin America. As a result, there was constant
blend of the ideas, languages, rituals and customs between the natives and the foreign
inhabitants. In fact, this system of colonization put a deep impact on agriculture, trade,
ecology and culture on a global scale.

Globalization between the pre modern periods to modern period

The industrial revolution in the 19th century was one of the major periods in the history of
globalization. Due to the industrial revolution, there was a significant increase in the quantity
and quality of the products. This led to higher exports and better trade and business relations.
Due to better products and colonization, lots of countries across the world became the
consumers of the European market.

The phase of pre globalization perhaps came to an end after the First World War was fought.
The war put a significant adverse effect on the economic scenario and it led to the Great
Depression and gold standard crisis in the later part of the 1920s and early 1930s.

S.V. Institute of Management Page 3

Globalization in the modern era

Globalization, in the modern sense of the term, came into existence after the Second World
War. One of the main factors for this was the plan by the world leaders to break down the
borders for fostering trade relations between nations. It was also in this period that major
countries like India, Sri Lanka, Indonesia and some countries in South America gained
independence. As a result, these countries too started having their own economic systems and
made established trade relations with the rest of the world. The establishment of the United
Nations Organization (UNO) was also a major step in this regard.

Gradually, the economic scenario of the world strengthened and it led to better trade relations
and communication. Some other factors which have put a positive impact on globalization
are:

Promotion of free commerce and trade

Abolition of various double taxes, tariffs, and capital controls
Reduction of transport cost and development of infrastructure
Creation of global corporations
Blend of culture and tradition across the countries

Another milestone in the history of globalization is the creation of the World Trade
Organization which led to the growth of a uniform platform to settle trade and commercial
disputes. According to economic surveys, the world exports improved significantly from
8.5% to around 16.2% due to globalization.

India and globalization

The wake of globalization was first felt in the 1990s in India when the then finance minister,
Dr Manmohan Singh initiated the economic liberalization plan. Since then, India has
gradually become one of the economic giants in the world. Today, it has become one of the
fastest growing economies in the world with an average growth rate of around 6-7 %. There
has also been a significant rise in the per capita income and the standard of living. Poverty
has also reduced by around 10 %.

The service industry has a share of around 54% of the annual Gross Domestic Product while
the industrial and agricultural sectors share around 29% and 17% respectively. Due to the
process of globalization, the exports have also improved significantly.

Globalization has really out a positive impact on today's economy and it is expected to
develop in the years to come.

S.V. Institute of Management Page 4

Impact of Globalisation on Developing Countries and India
Introduction:

Globalisation is the new buzzword that has come to dominate the world since the nineties of
the last century with the end of the cold war and the break-up of the former Soviet Union and
the global trend towards the rolling ball. The frontiers of the state with increased reliance on
the market economy and renewed faith in the private capital and resources, a process of
structural adjustment spurred by the studies and influences of the World Bank and other
International organisations have started in many of the developing countries. Also
Globalisation has brought in new opportunities to developing countries. Greater access to
developed country markets and technology transfer hold out promise improved productivity
and higher living standard. But globalisation has also thrown up new challenges like growing
inequality across and within nations, volatility in financial market and environmental
deteriorations. Another negative aspect of globalisation is that a great majority of developing
countries remain removed from the process. Till the nineties the process of globalisation of
the Indian economy was constrained by the barriers to trade and investment liberalisation of
trade, investment and financial flows initiated in the nineties has progressively lowered the
barriers to competition and hastened the pace of globalisation

Impact on India:

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 defaulting on loans. The response
was a slew of Domestic and external sector policy measures partly prompted by the
immediate needs and partly by the demand of the multilateral organisations. The new policy
regime radically pushed forward in favour of a more open and market oriented economy.

Major measures initiated as a part of the liberalisation and globalisation strategy in the early
nineties included scrapping of the industrial licensing regime, reduction in the number of
areas reserved for the public sector, amendment of the monopolies and the restrictive trade
practices act, start of the privatisation programme, reduction in tariff rates and change over to
market determined exchange rates.

Over the years there has been a steady liberalisation of the current account transactions, more
and more sectors opened up for foreign direct investments and portfolio investments
facilitating entry of foreign investors in telecom, roads, ports, airports, insurance and other
major sectors.

The Indian tariff rates reduced sharply over the decade from a weighted average of
72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late nineties it
touched 35.1% in 2001-02. India is committed to reduced tariff rates. Peak tariff rates are to
be reduced to be reduced to the minimum with a peak rate of 20%, in another 2 years most
non-tariff barriers have been dismantled by March 2002, including almost all quantitative
restrictions.

S.V. Institute of Management Page 5

India is Global:

The liberalisation of the domestic economy and the increasing integration of India with the
global economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-
91 to a peak level of 77.8% in 1996-97. Growth rates have slowed down since the country
has still been able to achieve 5-6% growth rate in three of the last six years. Though growth
rates has slumped to the lowest level 4.3% in 2002-03 mainly because of the worst droughts
in two decades the growth rates are expected to go up close to 70% in 2003-04. A Global
comparison shows that India is now the fastest growing just after China.

This is major improvement given that India is 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 pickup in
GDP growth has helped improve India's global position. 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.

Globalisation and Poverty:

Globalisation in the form of increased integration though trade and investment is an

important reason why much progress has been made in reducing poverty and global
inequality over recent decades. But it is not the only reason for this often unrecognised
progress, good national polices, sound institutions and domestic political stability also matter.

Despite this progress, poverty remains one of the most serious international challenges we
face up to 1.2 billion of the developing world 4.8 billion people still live in extreme poverty.

But the proportion of the world population living in poverty has been steadily declining and
since 1980 the absolute number of poor people has stopped rising and appears to have fallen
in recent years despite strong population growth in poor countries. If the proportion living in
poverty had not fallen since 1987 alone a further 215million people would be living in
extreme poverty today.

India has to concentrate on five important areas or things to follow to achieve this goal. The
areas like technological entrepreneurship, new business openings for small and medium
enterprises, importance of quality management, new prospects in rural areas and privatisation
of financial institutions. The manufacturing of technology and management of technology are
two different significant areas in the country.

There will be new prospects in rural India. The growth of Indian economy very much
depends upon rural participation in the global race. After implementing the new economic
policy the role of villages got its own significance because of its unique outlook and branding
methods.

S.V. Institute of Management Page 6

For example food processing and packaging are the one of the area where new entrepreneurs
can enter into a big way. It may be organised in a collective way with the help of co-
operatives to meet the global demand.

Understanding the current status of globalisation is necessary for setting course for future.
For all nations to reap the full benefits of globalisation it is essential to create a level playing
field. President Bush's recent proposal to eliminate all tariffs on all manufactured goods by
2015 will do it. In fact it may exacerbate the prevalent inequalities. According to this
proposal, tariffs of 5% or less on all manufactured goods will be eliminated by 2005 and
higher than 5% will be lowered to 8%. Starting 2010 the 8% tariffs will be lowered each year
until they are eliminated by 2015.

GDP Growth rate:

The Indian economy is passing through a difficult phase caused by several unfavourable
domestic and external developments; Domestic output and Demand conditions were
adversely affected by poor performance in agriculture in the past two years. The global
economy experienced an overall deceleration and recorded an output growth of 2.4% during
the past year growth in real GDP in 2001-02 was 5.4% as per the Economic Survey in 2000-
01. The performance in the first quarter of the financial year is5.8% and second quarter is
6.1%.

Export and Import:

India's Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362
million respectively. Many Indian companies have started becoming respectable players in
the International scene. Agriculture exports account for about 13 to 18% of total annual of
annual export of the country. In 2000-01 Agricultural products valued at more than US $
6million were exported from the country 23% of which was contributed by the marine
products alone. Marine products in recent years have emerged as the single largest
contributor to the total agricultural export from the country accounting for over one fifth of
the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds,
tea and coffee are the other prominent products each of which accounts for nearly 5 to 10%
of the country‟s total agricultural exports.

S.V. Institute of Management Page 7

Where does Indian stand in terms of Global Integration?

India clearly lags in globalisation. Number of countries has a clear lead among them China, large part
of east and far east Asia and Eastern Europe. Let‟s look at a few indicators how much we lag.

Over the past decade FDI flows into India have averaged around 0.5% of GDP against
5% for China 5.5% for Brazil. Whereas FDI inflows into China now exceeds US $ 50
billion annually. It is only US $ 4billion in the case of India

Consider global trade - India's share of world merchandise exports increased from .05%
to .07% over the past 20 years. Over the same period China's share has tripled to
almost 4%.

India's share of global trade is similar to that of the Philippines an economy 6 times
smaller according to IMF estimates. India under trades by 70-80% given its size,
proximity to markets and labour cost advantages.

It is interesting to note the remark made last year by Mr. Bimal Jalan, Governor of RBI.
Despite all the talk, we are now where ever close being globalised in terms of any
commonly used indicator of globalisation. In fact we are one of the least globalised
among the major countries - however we look at it.

As Amartya Sen and many other have pointed out that India, as a geographical,
politico-cultural entity has been interacting with the outside world throughout history
and still continue to do so. It has to adapt, assimilate and contribute. This goes
without saying even as we move into what is called a globalised world which is
distinguished from previous eras from by faster travel and communication, greater
trade linkages, denting of political and economic sovereignty and greater acceptance
of democracy as a way of life.

S.V. Institute of Management Page 8

Impact of globalization on Indian economy- An overview
Introduction

Indian economy had experienced major policy changes in early 1990s. The new economic
reform, popularly known as, Liberalization, Privatization and Globalization (LPG model)
aimed at making the Indian economy as fastest growing economy and globally competitive.
The series of reforms undertaken with respect to industrial sector, trade as well as financial
sector aimed at making the economy more efficient.

With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has
dawned for India and her billion plus population. This period 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 era of reforms has also ushered in a remarkable change in the Indian mindset, as it
deviates from the traditional values held since Independence in 1947, such as self reliance
and socialistic policies of economic development, which mainly due to the inward looking
restrictive form of governance, resulted in the isolation, overall backwardness and
inefficiency of the economy, 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 that India is in the process of restructuring 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 having witnessed the positive role that Foreign
Direct Investment (FDI) has played in the rapid economic growth of most of the Southeast
Asian countries 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.

Globalization has many meanings depending on 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 that the process of globalization not only includes
opening up of world trade, development of advanced means of communication,
internationalization of financial markets, growing importance of MNCs, population
migrations and more generally increased mobility of persons, goods, capital, data and ideas
but also infections, diseases and pollution. The term globalization refers to the integration of
economies of the world through uninhibited trade and financial flows, as also through mutual
exchange of technology and knowledge. Ideally, it also contains free inter-country movement
of labor. In context to India, this implies opening up the economy to foreign direct investment
by providing 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 encouraging them to set up joint
ventures abroad; 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 India.

S.V. Institute of Management Page 9

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 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
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
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 liberalization and globalization strategy in
the early nineties included the following:

Devaluation: The first step towards globalization 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, privatization and

liberalization policies are moving along as well. Under the privatization scheme, most of the
public sector undertakings have been/ are being sold to private sector.

S.V. Institute of Management Page 10

The changes occurred in India due to adoption Globalization
Policy

(i) Increase in India's share in the Trade of Goods and Services: There has been marginal
increase in India's share in the trade of goods and services, though our progress is very low as
compared to other countries.

(ii) Increase in Foreign Direct Investment: Foreign direct investment has increased from Rs.
174 crores in 1991 to Rs. 9338 crores in 2000.

(iii) Increase in Foreign Exchange Reserve: Our foreign exchange reserve has increased from
Rs. 4822 crores in 1991 to Rs. 152924 crores in 2000.

(iv) Decrease in Price Rise: The price rise in 1990-91 was 12%. It has slowly declined to
around 5% in nineties.

(v) Marginal Increase in Industrial Growth: Though these have been industrial growth but it
is not as expected.

(vi)Failure in the Generation of Employment Opportunities: The new economic policy fails to
generate additional employment opportunities especially in rural areas.

S.V. Institute of Management Page 11

 Gains from Globalization

The gains from globalization can be analyzed in the context of the three types of
channels of economic globalization identified earlier.

Trade in Goods and Services

According to the standard theory, international trade leads to allocation of resources

that is consistent with comparative advantage. This results in specialization which enhances
productivity. It is accepted that international trade, in general, is beneficial and that restrictive
trade practices impede growth. That is the reason why many of the emerging economies,
which originally depended on a growth model of import substitution, have moved over to a
policy of outward orientation. However, in relation to trade in goods and services, there is
one major concern. Emerging economies will reap the benefits of international trade only if
they reach the full potential of their resource availability. This will probably require time.
That is why international trade agreements make exceptions by allowing longer time to
developing economies in terms of reduction in tariff and non-tariff barriers. “Special and
differentiated treatment”, as it is very often called has become an accepted principle.

Movement of Capital

Capital flows across countries have played an important role in enhancing the
production base. This was very much true in 19th and 20th centuries. Capital mobility
enables the total savings of the world to be distributed among countries which have the
highest investment potential. Under these circumstances, one country‟s growth is not
constrained by its own domestic savings. The inflow of foreign capital has played a
significant role in the development in the recent period of the East Asian countries. The
current account deficit of some of these countries had exceeded 5 per cent of the GDP in
most of the period when growth was rapid. Capital flows can take either the form of foreign
direct investment or portfolio investment. For developing countries the preferred alternative
is foreign direct investment. Portfolio investment does not directly lead to expansion of
productive capacity. It may do so, however, at one step removed. Portfolio investment can
be volatile particularly in times of loss of confidence. That is why countries want to put
restrictions on portfolio investment. However, in an open system such restrictions cannot
work easily.

S.V. Institute of Management Page 12

Financial Flows

The rapid development of the capital market has been one of the important features of the
current process of globalization. While the growth in capital and foreign exchange markets
have facilitated the transfer of resources across borders, the gross turnover in foreign
exchange markets has been extremely large. It is estimated that the gross turnover is around
$ 1.5 trillion per day worldwide (Frankel, 2000). This is of the order of hundred times greater
than the volume of trade in goods and services. Currency trade has become an end in itself.
The expansion in foreign exchange markets and capital markets is a necessary pre-requisite
for international transfer of capital. However, the volatility in the foreign exchange market
and the ease with which funds can be withdrawn from countries have created often times
panic situations. The most recent example of this was the East Asian crisis. Contagion of
financial crises is a worrying phenomenon. When one country faces a crisis, it affects others.
It is not as if financial crises are solely caused by foreign exchange traders. What the
financial markets tend to do is to exaggerate weaknesses. Herd instinct is not uncommon in
financial markets. When an economy becomes more open to capital and financial flows,
there is even greater compulsion to ensure that factors relating to macro-economic stability
are not ignored. This is a lesson all developing countries have to learn from East Asian crisis.
As one commentator aptly said “The trigger was sentiment, but vulnerability was due to
fundamentals”.

Concerns and Fears

On the impact of globalization, there are two major concerns. These may be described as
even fears. Under each major concern there are many related anxieties. The first major
concern is that globalization leads to a more iniquitous distribution of income among
countries and within countries. The second fear is that globalization leads to loss of national
sovereignty and that country are finding it increasingly difficult to follow independent
domestic policies. These two issues have to be addressed both theoretically and empirically.

The argument that globalization leads to inequality is based on the premise that since
globalization emphasizes efficiency, gains will accrue to countries which are favourably
endowed with natural and human resources. Advanced countries have had a head start over
the other countries by at least three centuries. The technological base of these countries is not
only wide but highly sophisticated. While trade benefits all countries, greater gains accrue to
the industrially advanced countries.

S.V. Institute of Management Page 13

 This is the reason why even in the present trade agreements, a case has been built up for
special and differential treatment in relation to developing countries. By and large, this
treatment provides for longer transition periods in relation to adjustment. However, there are
two changes with respect to international trade which may work to the advantage of the
developing countries. First, for a variety of reasons, the industrially advanced countries are
vacating certain areas of production. These can be filled in by developing countries.

A good example of this is what the East Asian countries did in the 1970s and 1980s.
Second, international trade is no longer determined by the distribution of natural resources.
With the advent of information technology, the role of human resources has emerged as more
important. Specialized human skills will become the determining factor in the coming
decades. Productive activities are becoming “knowledge intensive” rather than “resource
intensive”. While there is a divide between developing and the advanced countries even in
this area – some people call it the digital divide - it is a gap which can be bridged. A
globalized economy with increased specialization can lead to improved productivity and
faster growth. What will be required is a balancing mechanism to ensure that the handicaps
of the developing countries are overcome.

Apart from the possible iniquitous distribution of income among countries, it has also been
argued that globalization leads to widening income gaps within the countries as well. This
can happen both in the developed and developing economies. The argument is the same as
was advanced in relation to iniquitous distribution among countries. Globalization may
benefit even within a country those who have the skills and the technology. The higher
growth rate achieved by an economy can be at the expense of declining incomes of people
who may be rendered redundant. In this context, it has to be noted that while globalization
may accelerate the process of technology substitution in developing economies, these
countries even without globalization will face the problem associated with moving from
lower to higher technology. If the growth rate of the economy accelerates sufficiently, then
part of the resources can be diverted by the state to modernize and re-equip people who may
be affected by the process of technology up gradation.

The second concern relates to the loss of autonomy in the pursuit of economic policies. In a
highly integrated world economy, it is true that one country cannot pursue policies which are
not in consonance with the worldwide trends. Capital and technology are fluid and they will
move where the benefits are greater. As the nations come together whether it be in the
political, social or economic arena, some sacrifice of sovereignty is inevitable. The
constraints of a globalised economic system on the pursuit of domestic policies have to be
recognized. However, it need not result in the abdication of domestic objectives.

S.V. Institute of Management Page 14

Another fear associated with globalization is insecurity and volatility. When countries are
inter-related strongly, a small spark can start a large conflagration. Panic and fear spread fast.
The downside to globalization essentially emphasizes the need to create countervailing forces
in the form of institutions and policies at the international level. Global governance cannot
be pushed to the periphery, as integration gathers speed.

Empirical evidence on the impact of globalization on inequality is not very clear. The share
in aggregate world exports and in world output of the developing countries has been
increasing. In aggregate world exports, the share of developing countries increased from 20.6
per cent in 1988-90 to 29.9 per cent in 2000. Similarly the share in aggregate world output of
developing countries has increased from 17.9 per cent in 1988-90 to 40.4 per cent in 2000.
The growth rate of the developing countries both in terms of GDP and per capita GDP has
been higher than those of the industrial countries. These growth rates have been in fact
higher in the 1990s than in the 1980s. All these data do not indicate that the developing
countries as a group have suffered in the process of globalization. In fact, there have been
substantial gains. But within developing countries, Africa has not done well and some of the
South Asian countries have done better only in the 1990s.

While the growth rate in per capita income of the developing countries in the 1990s is nearly
two times higher than that of industrialized countries, in absolute terms the gap in per capita
income has widened. As for income distribution within the countries, it is difficult to judge
whether globalization is the primary factor responsible for any deterioration in the
distribution of income. We have had considerable controversies in our country on what
happened to the poverty ratio in the second half of 1990s. Most analysts even for India
would agree that the poverty ratio has declined in the 1990s. Differences may exist as to
what rate at which this has fallen. Nevertheless, whether it is in India or any other country, it
is very difficult to trace the changes in the distribution of income within the countries directly
to globalization.

India‟s Stance

What should be India‟s attitude in this environment of growing globalization? At the

outset it must be mentioned that opting out of globalization is not a viable choice. There are
at present 149 members in the World Trade Organization (WTO). Some 25 countries are
waiting to join the WTO. China has recently been admitted as a member. What is needed is
to evolve an appropriate framework to wrest maximum benefits out of international trade and
investment. This framework should include (a) making explicit the list of demands that India
would like to make on the multilateral trade system, and (b) steps that India should take to
realize the full potential from globalization.

S.V. Institute of Management Page 15

Demands on the Trading System

Without being exhaustive, the demands of the developing countries on the multilateral
trading system should include (1) establishing symmetry as between the movement of capital
and natural persons, (2) delinking environmental standards and labor related considerations
from trade negotiations, (3) zero tariffs in industrialized countries on labor intensive exports
of developing countries, (4) adequate protection to genetic or biological material and
traditional knowledge of developing countries, (5) prohibition of unilateral trade action and
extra territorial application of national laws and regulations, and (6) effective restraint on
industrialized countries in initiating anti-dumping and countervailing action against exports
from developing countries.

The purpose of the new trading system must be to ensure “free and fair” trade among
countries. The emphasis so far has been on “free” rather than “fair” trade. It is in this
context that the rich industrially advanced countries have an obligation. They have often
indulged in “double speak”. While requiring developing countries to dismantle barriers and
join the main stream of international trade, they have been raising significant tariff and non-
tariff barriers on trade from developing countries. Very often, this has been the consequence
of heavy lobbying in the advanced countries to protect „labour‟.

Although average tariffs in the United States, Canada, European Union and Japan – the so
called Quad countries – range from only 4.3 per cent in Japan to 8.3 per cent in Canada, their
tariff and trade barriers remain much higher on many products exported by developing
countries. Major agricultural food products such as meat, sugar and dairy products attract
tariff rates exceeding 100 per cent. Fruits and vegetables such as bananas are hit with a 180
per cent tariff by the European Union, once they exceed quotas.

The tariffs collected by the US on $ 2 billion worth of imports from Bangladesh are higher
than those imposed on imports worth $ 30 billion from France. In fact, these trade barriers
impose a serious burden on the developing countries. It is important that if the rich countries
want a trading system that is truly fair, they should come forward to reduce the trade barriers
and subsidies that prevent the products of developing countries from reaching their markets.
Otherwise the pleas of these countries for a competitive system will sound hollow. To some
extent, conflicts among countries on trade matters are endemic. Until recently, agriculture
was a major bone of contention between U.S. and E.U. countries. Frictions are also bound to
arise among developing countries as well. When import tariffs on edible oil were increased in
India, the most severe protest came from Malaysia which was a major exporter of Palm Oil.
Entrepreneurs in India complain of cheaper imports from China.

S.V. Institute of Management Page 16

In the export of rice, a major competitor of India is Thailand. If development is accepted as
the major objective of trade as the Doha declaration proclaimed, it should be possible to work
out a trading arrangement that is beneficial to all countries.
There have been protracted negotiations at WTO in reforming the trade system. Admittedly,
the tariff and non-tariff barriers are coming down. However, there are apprehensions that the
concerns of developing countries are not being addressed adequately. Looked at from this
angle, the recent Hong Kong Ministerial is a modest success. Despite reservations, we must
acknowledge that it is a step forward. Domestic support to agriculture by developed
countries constitutes a major stumbling block to third world trade expansion. However,
India‟s stand in relation to agriculture has been `defensive‟.

We are not a major player in the world agricultural market. The impact of what has been
accepted in relation to Non-Agricultural Market Access and services will vary from country
to country. Despite some contrarian opinion, the gain to India from services can be
significant. However, the Hong Kong Ministerial is only a broad statement of intentions.
Much will depend upon how these ideas are translated into concrete actions.

Actions by India

The second set of measures that should form part of the action plan must relate to
strengthening India‟s position in international trade. India has much strength, which several
developing countries lack. In that sense, India is different and is in a stronger position to gain
from international trade and investment. India‟s rise to the top of the IT industry in the world
is a reflection of the abundance of skilled manpower in our country. It is, therefore, in India‟s
interest to ensure that there is a greater freedom of movement of skilled manpower. At the
same time, we should attempt to take all efforts to ensure that we continue to remain a
frontline country in the area of skilled manpower.

India can attract greater foreign investment, if we can accelerate our growth with
stability. Stability, in this context, means reasonable balance on the fiscal and external
accounts. We must maintain a competitive environment domestically so that we can take full
advantage of wider market access. We must make good use of the extended time given to
developing countries to dismantle trade barriers. Wherever legislations are required to
protect sectors like agriculture, they need to be enacted quickly. In fact, we had taken a long
time to pass the Protection of Plant Varieties and Farmers‟ Rights Act.

S.V. Institute of Management Page 17

We must also be active in ensuring that our firms make effective use of the new patent rights.
South Korea has been able to file in recent years as many as 5000 patent applications in the
United States whereas in 1986, the country filed only 162. China has also been very active in
this area. We need a truly active agency in India to encourage Indian firms to file patent
applications. In effect, we must build the complementary institutions necessary for
maximizing the benefits from international trade and investment.

Changes in the foreign trade and foreign investment policies have altered the environment in
which Indian industries have to operate. The path of transition is, no doubt, difficult. A
greater integration of the Indian economy with the rest of the world is unavoidable. It is
important that Indian industry be forward looking and get organized to compete with the rest
of the world at levels of tariff comparable to those of other developing countries. Obviously,
the Indian Government should be alert to ensure that Indian industries are not the victims of
unfair trade practices. The safeguards available in the WTO agreement must be fully utilized
to protect the interests of Indian industries.

Indian industry has a right to demand that the macroeconomic policy environment should be
conducive to rapid economic growth. The configuration of policy decisions in the recent
period has been attempting to do that. It is, however, time for Indian industrial units to
recognize that the challenges of the new century demand greater action at the enterprise level.
They have to learn to swim in the tempestuous waters of competition and away from the
protected waters of the swimming pools. India is no longer a country producing goods and
services for the domestic market alone. Indian firms are becoming and have to become global
players. At the minimum, they must be able to meet global competition. The search for
identifying new competitive advantages must begin earnestly. India‟s ascendancy in
Information Technology (IT) is only partly by design. However, it must be said to the credit
of policy makers that once the potential in this area was discovered, the policy environment
became strongly industry friendly.

Over a wide spectrum of activities, India‟s advantage, actual and that which can be realized
in a short span of time must be drawn up. Of course, in a number of cases, it will require
building plants on a global scale. But, this need not necessarily be so in all cases. In fact the
advent of IT is modifying the industrial structure. The revolution in telecommunications and
IT is simultaneously creating a huge single market economy, while making the parts smaller
and more powerful. What we need today is a road map for the Indian industry. It must
delineate the path different industries must take to achieve productivity and efficiency levels
comparable to the best in the world.

S.V. Institute of Management Page 18

Globalization, in a fundamental sense, is not a new phenomenon. Its roots extend farther and
deeper than the visible part of the plant. It is as old as history, starting with the great
migrations of people across the great landmasses. Only recent developments in computer and
communication technologies have accelerated the process of integration, with geographic
distances becoming less of a factor. Is this 'end of geography' a boon or a bane? Borders
have become porous and the sky is open. With modern technologies which do not recognize
geography, it is not possible to hold back ideas either in the political, economic or cultural
spheres. Each country must prepare itself to meet the new challenges so that it is not being
bypassed by this huge wave of technological and institutional changes.

Nothing is an unmixed blessing. Globalization in its present form though spurred by far
reaching technological changes is not a pure technological phenomenon. It has many
dimensions including ideological. To deal with this phenomenon, we must understand the
gains and losses, the benefits as well as dangers. To be forewarned, as the saying goes, is to
be forearmed. But we should not throw the baby with bath water. We should also resist the
temptation to blame globalization for all our failures. Most often, as the poet said, the fault is
in us.

Risks of an open economy are well known. We must not, nevertheless, miss the
opportunities that the global system can offer. As an eminent critic put it, the world cannot
marginalize India. But India, if it chooses, can marginalize itself. We must guard ourselves
against this danger. More than many other developing countries, India is in a position to
wrest significant gains from globalization. However, we must voice our concerns and in
cooperation with other developing countries modify the international trading arrangements to
take care of the special needs of such countries. At the same time, we must identify and
strengthen our comparative advantages. It is this two-fold approach which will enable us to
meet the challenges of globalization which may be the defining characteristic of the new
millennium.

The key to India‟s growth lies in improving productivity and efficiency. This has to permeate
all walks of our life. Contrary to the general impression, the natural resources of our country
are not large. India accounts for 16.7 per cent of world‟s population whereas it has only 2.0
per cent of world‟s land area. While China‟s population is 30 per cent higher than that of
India‟s, it has a land area which is three times that of India. In fact, from the point of view of
long-range sustainability, the need for greater efficiency in the management of natural
resources like land, water and minerals has become urgent. In a capital-scarce economy like
ours, efficient utilization of our capacity becomes even more critical. For all of these things
to happen, we need well-trained and highly skilled people. In the world of today, competition
in any field is competition in knowledge. That is why we need to build institutions of
excellence. I am, therefore, happy that the Ahmedabad Management Association, besides
other functions, is also focusing on excellence in education. Increased productivity flowing
from improved skills is the real answer to globalization.

S.V. Institute of Management Page 19

 Bibliography

 http://www.fibre2fashion.com/industry-article/8/738/impact-of-
globalization2.asp

 http://www.scribd.com/doc/25340192/Impact-of-Globalization-on-Indian-
Economy

 http://www.scribd.com/doc/28682048/impact-of-globalisation-in-indian-economy

 http://www.preservearticles.com/201104215588/changes-occurred-in-india-due-
to-adoption-globalization-policy.html

S.V. Institute of Management Page 20