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Dr. Vidhya Maheshwari (M.B. Khalsa College, Indore)
Prof. Loveleen Kaur Chawla (M.B. Khalsa College, Indore)
Abstract: Globalisation is not a new phenomenon. The period 1870 to 1913 experienced a growing trend towards globalization. The new phase of globalization which started around the mid 20th century became very widespread, more pronounced and over changing since the 1980s by gathering more momentum from the political and economic changes that swept across the communist countries, the economic reforms in other countries and technological and communication revolutions. Globalization should not be thought of as a solution to everything. It merely provides opportunities. Those who take advantage, they flourish and those who do not they sink. Globalization is not supposed to produce equality of outcome but it produces equality of opportunity for those with right mindset. Hence the developing countries have to focus on economic restructuring building market supporting institutions and creating efficient regulatory mechanisms. The challenge of the hour is to make globalization work towards global prosperity through disaggregate development. The critically necessity in this context are the collective and cooperative actions which should be realized by all countries of the world and particularly the developed ones.
GLOBALISATION: IMPACT ON INDIAN ECONOMY Introduction In early 1990s there were major policy reforms in Indian economy. The reforms were popularly known as LPG model (Liberalization, Privatization and Globalization model). Globalization has been identified with the policy reforms of 1991 in India. The series of reforms were under taken to make Indian economy more efficient. The reforms were in the industrial, trade and financial sector. Under the reformed policy the concept of localization totally changed to concept of globalization. Go globally and think globally become the requirement under new reforms. Globalization becomes the thrust area right from manufacturing to services sector. Evolution of globalization in INDIA: Measures initiated as a part of the liberalisation and globalisation strategy in the early nineties: • • • • • • • • • India opened up the economy to global world. The economy became open to foreign direct investment by providing facilities to foreign companies to invest in different fields of economic activity in India. Constraints and obstacles to the entry of MNCs in India were removed or reduced. Indian companies were allowed to enter into foreign collaborations and also encouraged to set up joint ventures abroad. Massive import liberalization programs were carried out by reducing tariffs and import duties on import goods. Scrapping of the industrial licensing regime. The number of areas reserved for the public sector were reduced. Amendment of the monopolies and the restrictive trade practices act. Start of the privatisation programme.
The new policy regime radically pushed forward the concept of more open economy. Measures initiated as a part of the liberalisation and globalisation strategy in the post nineties:
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 1996-97and it touched 35.1% in 2001-02. India is committed to reduced tariff rates, including almost all quantitative restrictions.
Opportunities Globalization has many positive, innovative and dynamic aspects; Globalization led to the increased market access, increased access to capital, and increased access to technology and information. Finally resulting into greater income and employment opportunity. • THE GDP of India in the 1970’s was very low at 3% while at the same time GDP growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India. 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 7.8% in 1996-97. The pick up in GDP growth has helped improve India’s global position. As a result India’s position in the global economy has improved from the 8th position in 1991 to 4th place in 2001. A Global comparison shows that India is now the fastest growing country after China.The Indian GDP growth has been very consistent and outperforming. YEAR 1990-91 TO 1994-95 1995-96 TO 1999-00 2000-01 TO 2003-04 2004-05 TO 2007-08 • GROSS DOMESTIC PRODUCT 6.14% 6.12% 6.40% 8.98%
The rate of economic improvement has moved up considerably during the last five years (including 2007-08). The YOY growth rate of more then 8% for consecutive 5 yrs. Further rapid capacity expansion has brought India at a forefront of high economic growth giving rise to an era of economic prospective and development. The respective growth rates for past couple of years has been as follows: in 1990-95 it was 6.14%, in 1995-00 it was 6.12%,in 2000-04 it was 6.40%, and in recent year it is 8.98%. The rate of growth of per capita income as measured by per capita GDP at market prices (constant 1999-2000 prices) grew by an annual average rate of 3.1% during the 12-year period, $1980-81 to 1991-92. It increased marginally to 3.7 % p.a. during the next 11 years, 1992-93 to 2002-03. Since then there has been a sharp acceleration in the growth of per capita income, almost doubling to an average of 7.2% p.a. (2003-04 to 2007-08). This means that average income would now double in a decade, well within one generation, instead of after a generation (two decades). The growth rate of
per capita income in 2007-08 is projected to be 7.2%, the same as the average of the five years to the current year.
Growth in Per capita Income
% Growth rate
8 7 6 5 4 3 2 1992-93 1993-94 1997-98 1998-99 2002-03 2006-07 2007-08 1994-95 1995-96 1996-97 1999-00 2000-01 2001-02 2003-04 2004-05 2005-06
The fluctuation in Foreign portfolio Investment were much sharper then FDI, The FPI rate decreases by 36% from period 1990-00 and again shows upward growth rate in period 00-07 was 22.1%. YEAR 1990-91 TO 1994-95 1995-96 TO 1999-00 2000-01 TO 2003-04 2004-05 TO 2006-07 Foreign portfolio Investment 75.8% 45.2% 46.3% 65.4%
India’s foreign exchange reserves have grown significantly since 1991. The reserves, which stood at US$ 5.8 billion at end-March 1991, increased gradually to US$ 25.2 billion by end-March 1995. The growth continued in the second half of the 1990s with the reserves touching the level of US$ 38.0 billion by end-March 2000. Subsequently, the reserves rose to US$ 113.0 billion by end-March 2004, US$ 141.5 billion by end-March 2005, US $ 151.6 billion by end March 2006, US$ 199.2 billion by end-March 2007 and further to US$ 309.7 billion by end-March 2008 (Chart 1). It may be mentioned that foreign exchange reserve data prior to 2002-03 do not include the Reserve Tranche Position (RTP) in the IMF.
YEAR 1991 1995 2000 2004 2005 2006 2007 2008 Challenges
Foreign exchange reserve in US$ billion 5.8 25.2 38 113 141.5 151.6 199.2 309.7
Even when the entire world has been benefited from globalization, there are some negative and marginalizing aspects of globalization. These are what have led to dissatisfaction in civil society and at the governmental level. • Agriculture sector: Agriculture is the backbone of the Indian economy. It plays a vital role in providing food and nutrition to the people and in the supply of raw material to industries and to export trade. In 1951, agriculture provided employment to 72 % of the population and contributed 59 per cent of the gross domestic product. However, by 2001 the population depending upon agriculture decreased 58 % whereas the share of agriculture in the GDP went down drastically to 24 % and further to 22 % in 200607. This has resulted in a lowering the per capita income of the farmers and increasing the rural indebtedness.The agricultural growth of 3.2 % observed from 1980 to 1997 decelerated to two % subsequently. The approach to the eleventh Five
year plan released in December 2006 stated that the growth rate of agricultural GDP including forestry and fishing is likely to be below two per cent in the Tenth Plan period.The reasons for the deceleration of the growth of agriculture are given in the Economic Survey 2006-07: Low investment, imbalance in fertilizer use, low seeds replacement rate, a distorted incentive system and low post-harvest value addition continued to be a drag on the sectors performance. With more than half the population directly depending on this sector, low agricultural growth has serious implications for the inclusiveness of growth. YEAR 1981-82 to 1990-91 1991-92 to 1996-97 1997-98 to 2006-07 • Average growth rate in % 3.5% 3.7% 2.5%
Decreased FDI: The data of FDI shows 50% (approx) gradual upward growth from 90-00. The FDI growth decreased by 20% from period 2000-07. YEAR 1990-91 TO 1994-95 1995-96 TO 1999-00 2000-01 TO 2003-04 2004-05 TO 2006-07 Foreign Direct Investment 24.2% 54.8% 53.7% 34.6%
Unbalanced Distribution of Benefits: The first negative aspect of globalization is that its gains are not equally distributed, both between and within countries. The benefits of globalization are also badly skewed within countries, both developing and developed. Income inequality is rising in many countries, particularly in the OECD countries. Worse, job and income insecurity is increasing, particularly for unskilled labor, although corporate restructuring has also meant job insecurity for professionals. Within developing countries, the increased world agricultural prices expected to result from the Uruguay Round should benefit those in agriculture. The urban poor will suffer when food prices rise, but will gain from employment in new export industries. Young women hired by multinationals are likely to benefit most – their incomes increase, with a concomitant increase in their household status. Consumers also gain from the reduction in local prices due to increased competition from abroad. Financial Volatility: Unbalanced benefit flows are not the only negative aspects of globalization. Globally integrated markets have financial volatility as a permanent feature, the frequency of financial crises increasing with the growth in international capital flows. The human costs of such financial volatility can be very high, as shown by the effects of the Asian crisis – bankruptcies, poverty increase, rising unemployment, reduced schooling, reduced public services, and increased social stress and fragmentation – in short, a reversal in human development. The closer linkages that characterize globalization also allow for contagion and worldwide
recession, or at least slowdown. The Asian crisis had repercussions everywhere -- in South America, Russia, Africa, the Middle East – which were affected either directly or indirectly. • More human insecurity: Crime, disease, and loss of cultural identity. Unfortunately, the many opportunities opened up by the widening and deepening of information flows and contacts among the world’s people also include increasing opportunities for crime (trafficking in drugs, weapons, women, international syndicates), for the spread of HIV/AIDS as well as ideas, and for the flow of culture and cultural products which may lead to cultural homogenization, which, while considered enriching by some, is considered as a loss of cultural identity by others.
Suggestions: • The extent to which an enterprise can develop globally from home country base depends on the facilities available like the infrastructural facilities. Infrastructure in India is generally inadequate and inefficient and therefore very costly. • Although unnecessary government interference is hindrance to globalization, government support can encourage globalization. Government support may take the form of policy and procedural reforms, development of common facilities like infrastructural facilities, R and D support, financial market reforms and so on. • Resources is one of the important factors which often decides the ability of a firm to globalize. Resourceful companies may find it easier to thrust ahead in global market. Resources include finance, technology, R and D capabilities, managerial expertise, company and Brand Image, Human Resources etc. • The competitive advantage of the company is a very important determinant of success in global business. A firm may derive competitive advantage from any one or more of the factors such as low costs and price, product quality, product differentiation, technological superiority, after sales service, marketing strength etc. • Government policy and procedures in India are among the most complex, confusing and cumbersome in the world. Even after the much-publicized liberalization, they do not present a very conducive situation. One prerequisite for success in globalization is swift and efficient action • A global orientation on the part of business firms and suitable globalization strategies are essential for globalization.
Conclusion: Globalization should not be thought of as a solution to everything. It merely provides opportunities. Those who take advantage, they flourish and those who do not they sink. Globalization is not supposed to produce equality of outcome but it produces equality of opportunity for those with right mindset. Hence the developing countries have to focus on economic restructuring building market supporting institutions and creating efficient regulatory mechanisms. Left to them the low-income countries cannot travel long. What in fact needed is the international assistance and a support mechanism so as to facilitate their participation in the process of globalization. The challenge of the hour is to make globalization work towards global prosperity through disaggregate development. The critically necessity in this context are the collective and cooperative actions which should be realized by all countries of the world and particularly the developed ones.
References: 1. 2. 3. 4. Chandran, R., International Business Jain, Sagar, Globalisation and India(Lecture) Kastia, Ravi, Globalisation and India’s Business perspective. Ojha, A. K., Globalization and Liberalisation Prospects of New World Order, Third Concept An International Journals of Ideas. 5. Pant, J.C., Business Environment 6. Velayudham, T.K., Globalization Trend and Issues.
Key words: Globalisation, Challenges, opportunities, Impact on India, LPG Model