Chapter-4

Globalization: An Indian Perspective

4.1. Introduction

In current scenario, globalization has not only become an important matter of

discussion among economist but also among the journalists and politicians of every
stripe. It is widely claimed that in current era, globalization has a greater say in our day
to day dealings. National cultures, national economies and national borders are
becoming increasingly fluid. Development of networks and infrastructures have
surfaced to smooth the progress of the interactions, and institutions have emerged to
regulate them. Such developments are rarely uniform and typically display clear
patterns of irregularity.

Main elements of globalization includes; free movement of goods and services, flow of
capital, movement of labor and the transfer of technology across national and
international boundaries. These movements have brought the developed economies
closer together and made them more strongly integrated. Many transition and
developing countries through liberalization and increased openness to trade have
benefited from the process. However, globalization is much more than simply the
growth, expansion of international trade and the movements of factors of production.

There is no doubt that globalization has subsidized the degree of effective autonomy for
national governments in current situation. While taking the decisions pertaining to the
growth, stability and social equity governments are considering not only the domestic
factors but also the global factors which can influence such decisions. At present, it is
more costly to keep itself isolated from the rest of the world. Irrespective of the fact that
the governments degree of autonomy has gone done quite considerably, we cannot deny
its fundamental role to help the country to adjust into the process of globalization.

The contemporary wave of globalization has been driven by the new set of factors, such
as, deregulation of financial services, emergence of modern transportation and
communication technologies, collapse of Eastern Bloc and demonstration of the

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success stories of the East Asian economies. One of the main features of this golden age
of globalization is the development of an onwards worldwide capitalism. It becomes
more active and secure up the third generation of technological change to build up
global production network. They were enticed by the profit and exploited the
vulnerabilities in the Third world countries. Competitive deregulation of financial
markets and development of information technology has influenced the recent wave of
globalization. The rapid integration of financial markets and the emergence of several
new instruments of financial flows and financial management also propelled this
process.

Globalization and organizations with global business have turned into reality. Aspects
of globalization brought opportunities along with challenges for all kinds of business
organizations. Employees are being scattered internationally, means the knowledge
engine is working all through, yet biological, geographical and linguistic restrictions are
preventing real-time accessibilities (American Productivity and Quality Centre,
127
1996) . Demands are all for greater modes of interaction, co-ordination, sharing and
learning from one another within organizations which are existing internationally.
128
Global pre-emption has been noted as important (Prahalad, 1997) , whereby the
innovations and modes of continuous learning for firms are getting necessary or
survival in the hyper-competitive structure of the global mall.

In accordance to the current global economy there is the space for knowledge economy,
where knowledge turns up to be the costly resource and is the platform to offer highest
modes of returns, added by strategic management for sustainable kind of competitive
advantages. On international basis, many scholars have accepted the eminence related
129
to knowledge resource (Pillania, 2005) . There are the multinational corporations (or
130
the MNCs) with the knowledge repositories (as in Inkpen and Ramaswamy, 2006)
with the demand to make best kind of innovative utilisation of their subsidiaries. There

127
American Productivity and Quality Centre (1996), International Benchmarking Clearinghouse ,
http://www.apqc.org (accessed July 18, 1999).
128
Prahalad, C.K. (1997), Strategies for growth, in Gibson, R. (Ed.), Rethinking the Future, Nicholas
Brealey, London, pp. 72-5.
129
Pillania, R.K. (2005), Leveraging knowledge: Indian industry expectations and shortcomings ,
Global Business Review, Vol. 6 No. 2.
130
Inkpen, A. and Ramaswamy, K. (2006), Global Strategy Creating and Sustaining Advantage across Borders ,
Oxford University Press, New York, NY, p. 107.

104
is the instance of great risk related to the aspect of neglecting knowledge and
management of the same in current scenario.

In case of countries like those of India, with the space for globalization and
liberalization in the recent past, the provisions are marked as bigger issues. Here, the
platform meant for competition for relevant Indian firms turns up as global, as there is
the purely generated domestic Indian firm facing competition from different kinds of
multinational corporations or imports. In terms of surviving and growing, Indian firms
are developing knowledge assets with better knowledge assets. They are also realizing
the relevance of knowledge and as such the Indian Government appointed commission
for knowledge for the implication of diversified aspects. Indian President further
stresses over the making India one of the global superpowers in term of knowledge.

Economy of India experiences major kinds of changes in the policy during the early
part of 1990s, that has got the newer mode of economic reform, relevant popularly
marked as Liberalization, Privatization and Globalization (or the model of LPG). LPG
aims in making Indian economy the fastest growing front and being competitive on
international platform. There are many reforms followed in the industrial sector,
financial and trading sectors of India. The core idea is to attain efficient economic
structure.

Reforms related to liberalization of Indian economy during July, 1991 dawned a newer
phase for India and its population. 1991 attained economic transition with excessive
impact over the entire economic development in all the major economic sectors and the
counted effects marked in last decade. Further, there is the advent related to the real
kind of integration of Indian economy in reference to international economy.

This particular era related to reformation ushered remarkable change of Indian mental
set up by deviating traditional values since Indian independence of 1947. The noted
aspects are like those of socialistic policies and self reliance in reference to economic
development, led by inward-looking restrictive governance. This leads to the mode of
isolation, with backwardness and levels of economic inefficiency with similar kinds of
problems. In spite of all potentialities, India still needs time to be attain the fast track in
attaining prosperity.

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Indian economy is restructuring itself with aspirations towards the elevation from
current desolate position on international map. It is speeding up its economic
developments imperatively and is witnessing positive role under the role of Foreign
Direct Investment (or FDI) by following rapid growth in economy in the Southeast
countries of Asia and China in particular. India has got an ambitious plan in terms of
emulating successes with her neighbours of east and thereby is trying to sell itself as a
profitable destination for FDI.

Globalization follows many diversified meanings as per the relevant context. Precise
definition for globalisation is yet to get nailed. Still, for Guy Brainbant, process of
globalization is about opening up for wide platform of world trade, advanced ways of
communication, internationalization of all the financial markets, MNCs being
important, population migrations and increased mobility of goods, persons, data, capital
and ideas, along with diseases, infections and pollution. Globalization refers to
economic integration of the whole world by uninhibited financial and trading flows,
mutual exchange meant in case of knowledge and technology. Further it also is about
free movement in inter-country context of labor. For India, there is the opening up of
economy towards foreign direct investment through the facilities relevant to foreign
companies for investing in diversified economic fields in India. It is also noted by
removing obstacles and constraints towards the entry of MNCs into Indian
demography, allowing respective Indian companies to get into foreign collaborations
and encouraging for joint ventures abroad. It also carry out massive modes of importing
liberalization programs through the mode of switching from quantitative restrictions
towards the tariffs as well as import duties, and thus being noted as globalization with
policy reforms in India during 1991.

Globalization can be described as a process involving international integration as an

outcome of forums, views, products and services, opinions combined with other aspects
of culture. Thus far, it has had its share of ups and downs. The period between 1870 and
1914 was a symbolic one since there were trade flows between countries, capital moved
from one side to the other and people largely migrated as well. Because of this, the
economies integrated rapidly. Trade barriers also reduced and opened up for better and
smoother flow of trade with people travelling more frequently. In fact, in those

106
times there were hardly any passports or visa pre-requisites and insignificant non-tariff
barriers or restrictions on flow of funds. Despite this, the scope and spread of
st nd
globalization dipped in the period between the 1 and 2 World War. This period was
dotted with the emergence of several hurdles so as to stop the fluent movement of
goods and services. The basic thought process of economies was that they could
flourish even better if they operated behind protected walls. Most leading countries
nd
decided to take a step back after the 2 World War. It took considerable time for these
st
countries to arrive at the position they were before the 1 World War. With regard to per
st
centage of exports and imports to the total output, America could achieve the pre-1
World War level of 11per cent around the beginning of the 70s decade.

A major part of the developing countries which freed themselves from colonial rule
nd
immediately after the 2 World War choose to follow an import substitution industrial
regime. Even the Soviet countries fell in line and were away from the global economic
integration process. We have come much ahead from those times. There has been active
globalization, especially in the past two decade. The Soviet bloc countries that existed
previously are now integrating with the global economy and with much renewed
enthusiasm. Developing countries are today re-working their vision of growth and are
looking at an outward oriented policy in this regard. Studies, however, indicate that
trade and capital markets have ceased to be any more globalized than they were around
the end of the last century. There still are, however, certain concerns regarding the issue
of globalization than previously on account of the nature and speed of transformation.
The colossal impact of new information technology on market integration, efficiency as
well as industrial organization are some striking features of the present situation.
Integration of product markets have indeed been left far behind by globalization of
financial markets.

4.2. Importance of Globalization

There are various meanings of globalisation as per context and in reference to person
illustrating it. Definition of globalisation is unavailable, yet with some worth viewing.
As per Guy Brainbant, it is the process for opening up international trade, advanced
development of communication, internationalisation in terms of financial markets,
population migrations; increasing importance led by MNCs and increasing mobility

107
related to goods, people, capital, ideas and data; added by infections, pollution and
diseases. It stands for integration of various economies by uninhibited trade as well as
financial flows, by mutual exchange of knowledge and technology. There is the
addition of free inter/cross country labour movement.

Globalization has stimulated the process of trade and foreign direct investment in
participating developing economies. These two are the most noteworthy factors of
appearance of globalization and economic development in an open economy. The
liberalization of trade constitutes the prime component of economic dimension of
globalization which is highly significant during the total phase of globalization. Trade
liberalization came first during the so called golden age (1950-73) of globalization with
the unprecedented expansion of international trade. After Second World War, on an
average trade has grown at roughly double the rate of growth of GDP. The growth in
trade is connected with the internationalization of trade in manufacturing corporations.

FDI of the corporations assumes to be a special significance for improving the growth
performance of the nations. This development is coincided with the upsurge in
international investment begun in the late 1960s. The pattern of world trade had
undergone major changes during the current phase of globalization.

Manufactures, which was a mere 20 per cent of total exports from the developing
countries in the 1970s went up to 70 per cent in the 1990s. The share of minerals and
oil exports was in the downward direction too. At the same time, the share of developed
countries in world income (in current dollars) increased from less than 73 per cent in
1980 to 77 per cent in 1999, while that of the developing countries remained at a
constant figure of 20 per cent. From the developing countries perspective there is a
change in pattern that emerged during the 1980s and 1990s - namely there was
concentration of exports in the hands of a few East Asian countries in the developing
world and the terms of trade of manufactures might have moved against the developing
countries. (Bhandari A., 2005)

For India as well, globalization refers to the opening of economy towards foreign
direct-investment through foreign companies in terms of investing different economic
fields in India, removing restrictions and obstacles for the entry of different MNCs into
108
India, permitting Indian companies to participate in foreign collaborations added by the
provision of encouraging these companies in setting up joint ventures internationally.
There is room for carrying out liberalisation of excessive and massive import programs
through the modes of switching over managed fro, quantitative restrictions to the
margin of import and tariffs duties. Thus, it gets identified as per policy reforms
declared during 1991 within India. Lately, India has witnessed growth in exports of
various commodities in recent times (Table 7). It has been made possible with the
drastic reduction in barrier to international trade. It has opened the door for export led
growth.

Table 7: Commodities Trade (2012-13)

Commodity

A) PLANTATION

B) AGRI & ALLIED PRDTS

C) MARINE PRODUCTS

D) ORES & MINERALS

E) LEATHER & MNFRS

F) GEMS & JEWELLERY

G) SPORTS GOODS

H) CHEMICALS &
RELATED PRODUCTS

I) ENGINEERING GOODS

J) ELECTRONIC GOODS

K) PROJECT GOODS

L) TEXTILES

M) HANDICRAFTS

N) CARPETS

O) COTTON RAW INCL

WASTE

P) PETROLEUM
 PRODUCTS

Q) UNCLASSIFIED
EXPORTS

Total

Source: http://www.rbi.org.in/statistics

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Importance of globalization to world and India in particular encouraged many
academicians and scholars with economists, business historians, social scientists,
management experts, political economists and others to write exclusively over the
subject. Globalization got analysed and illustrated in diversified manners and hence
thus appears difficult for any particular kind of classification in the literary domain.
Still, most of the writings were about the impact led by globalization at the level of firm
or at the level of aggregate and thus remains normative in the analytical perspectives.
There seems to be a natural outfall about the impact studies under two dominant
schools of thoughts, which are- globalization being good for India, and not good for
India. However, there is the third school of thought that considers dynamics of
globalization for short term time intervals.

The analysed made by the first school of thought follow the theoretical principle of free
trade and the relevant competition added to the same and declares it as good for
international dimension in the long run. This is the reason that globalization turns up
good for India. Proponents of WTO/GATT lay emphasis over the aspects related to
foreign companies, governments and various international bodies that are lashed out in
terms of closed-door policies led by GOI for international investment and trade.
Research works made over the success structure have towed this argument and there are
131 132
the studies led by Johri (1983) and Kumar (1996) in this domain.

The next school of thought lay emphasis over the impact of liberalization and the modes
133
related to the opening up of economy of India over itself. As per Kidron (1965) , Kurien
134 135 136 137 138
(1966) . Athreye (1999) , Nayak (2000, 2002. 2003) , and

131
Johri, Lalit M (1983), Business Strategies of Multinational Corporations in India: Case Study of
Drug and Pharmaceutical Industry, Vision Books Pvt. Ltd, New Delhi.
132
Kumar. Sanjeev (1996). Foreign Direct Investment in India, B R Publishing Corporation, Delhi.
133
Kidron, Michael" (1965), Foreign Investments in India, Oxford University Press, London.
134
Kurian, Mathew K (1966), Impact of Foreign Capital on - Indian Economy, People's
Publishing House Private Limited, New Delhi.
135
Athreye Suma and Kapur Sandeep (1999), "Foreign Controlled Manufacturing Firms in India -Long-Term
Trends", Economic and Political Weekly, November 27, 1999.
136
Nayak, Amar K ] R (2000), Patterns of FDI in India ( Master's Dissertation), Graduate School of
Business, Kobe University, Japan.
137
Nayak, Amar K J R (2000), Disequilibrium of FDI in Extraction vs. Conservation of Natural Resources ,
Presented at International Conference on New Environmental Technologies, BORDA (Germany) & NISWASS
(India), Bhubaneswar, November 28-30.
138
Nayak, Amar K J R (2003), Case Based Research Sampling Method: From Exploratory Research
Toward Theory Building, 2nd International Conference of the Association of Indian Management
Scholars, Indian Institute of Management, Bangalore, December 28-30.

110
 139
Kumar (2003) impact of FDI over India is a very important domain for the scholars
140
dealing with globalisation. According to Stiglitz (2002) GIobalization is yet to meet
its determined aspects related to the developing countries. In accordance to Lall
141 142
(1999) , Sharma (2000) and Nayak (2003) nature of imports and exports are
relevant in reference to globalisation over India.

Third set of scholars dealt with the globalisation and the related dynamics for a
determined span of time. As per Bagchi (1972) there are the strong political patronage
th
assisting the British companies in terms of expanding in India in the early part of 20
143
century. According to Tomlinson (1989) short-term structures as created by various
British expatriates as well as multinationals towards the generation of immediate
success eventually limited options for any kind of future evolution. As per Encarnation
144
(1989) there is the interplay of forces within local government, companies at local
and foreign levels from politico-economic perspectives.

Gains from Globalization

Globalization as an overall phenomenon works towards cutting across geographical

borders in order to create more business activity and a vibrant global economy. While
there could be some disadvantages of globalization, one cannot deny the gains from it.
These are analyzed in terms of three types of channels that have been identified earlier
on.

Trade in Goods and Services

The standard theory opines that the activity of international trade results in resources
being allocated being consistent with comparative advantages. This leads to

139
ibid
140
Stiglitz, Joseph E (2002), Globalisation and its Discontents, Alien Lane, The Penguin Press, London.

141
Lall. Sanjaya (1999). "India's Manufactured Exports: Comparative Structure and Prospects", World
Development, Volume 27, Issue 10.
142
Sharma Kishore (2000), Export Growth in India: Has FDI Played a Role? Discussion
Paper, Yale University, Economic Growth Centre.
143
Tomlinson B R (1989), "British Business in India, 1860-1970" in Davenport-Hines, RPT and
Geoffrey Jones (Eds.), British Business in Asia Since i860, Cambridge University Press, New York.
144
Encarnation, Dennis (1989), Dislodging Multinationals, India's Strategy in Comparative Perspective, Cornell
University Press.

111
development of specialization and improves productivity. It is now a commonly-known
and acknowledged fact that international trade has always been useful in general while
trade barriers and restrictions work against growth and development of the economy.
This perhaps is the true reason behind so many economies that previously worked on a
growth model of import substitution, soon switched over to an outwardly-inclined
policy. Yet, there still remains a concern in terms of trade in goods and services. It will
be possible to reap benefits of international trade only if these emerging economies
make full use of the resources available to them. Also this would need time which is
why several international trade agreements often allow a longer span of time for
developing economies by way of reduced tariffs and non-tariff barriers. This has
become a reality and is regarded as special and differentiated treatment.

Movement of Capital

The production foundation of economies have often benefited from the capital flows
th th
that have taken place across different countries. The 19 and 20 centuries experienced
this to a great extent. It is capital mobility that facilitates spreading the worlds savings
between countries that not just have great investment potential but also take the risk of
mobilizing it. Therefore, when a country develops its domestic savings, it also works
towards applying these savings for its future growth by investing it wisely. The East
Asian countries have recently seen a period of significant inflow of foreign capital
which has led to well-fuelled growth. Some of these countries had to deal with the
problem of their current account deficit which had exceeded 5 per cent of the GDP in a
large part of the rapid growth period. Foreign direct investment or portfolio investments
are two ways in which capital flows. In the case of developing countries, foreign direct
investment is mostly the preferred option. It is not possible to expand productive
capacity directly by way of portfolio investment. In fact, at times, portfolio investment
can show some volatility, especially when there is some loss of confidence. This is one
of the reasons as to why countries prefer to restrict on portfolio investment. However,
in an open system such restrictions cannot work easily.

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Financial Flows

One of the major features of the present-day globalization process is the swift
development of the capital market. Capital growth and foreign exchange markets have
helped resources to be transferred beyond a countrys geographical boundaries and the
gross turnover in the foreign exchange markets has been on a huge scale. The gross
turnover worldwide has been estimated at about $1.5 trillion per day (Frankel, 2000).
Such a scale is around a hundred times more than the volume of the traded goods and
services. Today, currency trade has become an important goal in itself. Additionally, it
has also become extremely important to achieve expansion of the foreign exchange
markets as well as that of the capital market in order to transfer capital on an
international level. Still, there have been several difficult situations because of a volatile
foreign exchange market and the way in which funds from countries can be withdrawn
comfortably. It is important to understand that financial catastrophes are not always and
totally caused by foreign exchange traders. However, it is also a fact that financial
markets often blow weaknesses out of proportion. Financial markets are often tinged by
the herd instinct and when an economy is seen to be thrown open to capital and
monetary flow, it becomes doubly important to keep a track of macro-economic
stability. All developing countries are learning this from the East Asian mess. As aptly
described by a commentator, the situation was that while the trigger was sentiment, the
vulnerability was because of the basics.

Concerns and Fears

With regard to globalization, two major concerns, even termed as fears, have arisen.
The first one is that, globalization is a phenomenon that creates a rather unfair and
wrong income distribution among countries and even, within them. Additionally, one
also fears that globalization lessens a feeling of national freedom and liberty. Because
of this, nations find it more and more troublesome to work on the basis of independent
domestic rules and regulations. Therefore, it becomes imperative to handle these
matters both, theory-wise and empiricism-wise. The hypothesis that inequality could be
one of the outcomes of globalization stands on the premise that since it stresses on
efficiency, only countries that can boast of natural and human resources of requisite
talents and qualities will stand to gain its benefits.

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It is also true that advanced countries have an additional benefit over the rest by at least
three centuries. While these countries do not have a sound technological base, it is very
sophisticated and modern. Therefore, despite trade being a very beneficial proposition
for all the countries, it is mostly countries that are industrially more advanced that
benefit in a largely lucrative manner. This manner involves a longer transition period in
terms of adjusting. Nonetheless, developing countries stand to gain a little differently
with regard to international trade. Basically, industrially-advanced countries are slowly
weaning off some production functions which can soon be handled by the developing
countries. The East Asian countries pulled off something like this in the decades of
1970s and 1980s. Secondly, international trade is not any longer dependent on the
appropriation of natural resources. The field of information technology has helped to
contribute tremendously in human resources and in turn, elevate it to a great level. In
the latter decades, the human resources function transformed in terms of becoming very
exclusive and specialized, thus becoming a major determining factor in business and
management. Today, productive activities are rather knowledge-centric and not any
longer resource-centric. A gap, called the digital divide, has formed between
developing and developed countries. One can be covered by creating a mechanism that
would help developing countries to work on their handicaps. The only pre-requisite for
this would be a balancing mechanism.

In addition to the possible unfair and illegal distribution of wealth and income across
different countries, one has also noticed the fact that the globalization phenomenon has
created several huge income chasms between the countries too. Moreover, this is
possible in both, the developing as well as developed countries alike. The rationale in
this regard applies as much as it does in the earlier example of the unfair distribution of
income among countries. Benefits from globalization can be accrued even within a
single country on condition that it has adequate skills and technological expertise and
support. At times, a high growth rate could be achieved by an economy at the cost of
lesser incomes of people who start becoming useless on account of the progress of
information technology. Here, it must be remembered that although globalization would
take a country a few notches higher on the ladder of progress by way of increased
technology substitution, the same countries could still face possible problems that are
related to the movement from lower to higher technologies. It is very important for an
economy to keep accelerating its growth rate adequately. If this happens, a

114
portion of its resources could be allocated into modernization efforts and into re-
equipping people whose working conditions could be affected on account of the
technological upgrade.

The other fear is with regard to autonomy loss when pursuing economic policies. It is
not possible for a country to carry out policies that are not in line with global trends, in
a highly integrated world economy. As capital and technology are both fluidic, they are
bound to chase more beneficial zones. When countries move in closer to one another on
a common ground whether political, social or economic, a bit of sovereignty is sure to
be sacrificed. It is therefore of prime important to identify the difficulties of a global
economic setup especially at the time of working towards creating domestic policies.
Yet, this need not necessarily end in the abandoning of domestic goals.

Furthermore, insecurity and volatility are the other fears associated with globalization.
Generally, when nations are strongly inter-connected, even a small issue could give way
to a huge problem. It is possible for panic and chaos to start off. Globalization largely
stresses on the need to form balanced forces by way of having institutions and
regulations at a global level. It is not possible to push global governance to the
boundaries, when integration starts becoming faster. Globalization as a phenomenon
does have its impact but there is not much clear empirical proof of this. There is an
increasing trend seen in the aggregate world exports as well as the world output of
developing countries. With regard to the aggregate world exports, developing countries
have shown an increased share from 20.6per cent in 1988-90 to about 29.9per cent in
the year 2000. Likewise, with regard to the aggregate world output, the developing
countries indicate an upward trend of share from 17.9 per cent in 1988-90 to about
40.4per cent in year 2000. Developing countries have also shown a higher growth rate
than the industrial countries in the GDP and the per capita GDP.

In fact, the growth rates in the 1990s were even more than those in the 1980s. However
this data is not a clear indicator of the fact that as a group, developing countries have
not had a strong setback. On the contrary, these countries have indeed gained
substantially. Among the developing countries, the performance of Africa is not
satisfactory while some South Asian could have possibly shown better improvement
only in the 90s decade.

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The growth rate in the per capita income in some of the developing countries indicates
a double figure than that of industrialized countries. Yet, in absolute terms, there is a
wider chasm in the per capita income figures. In case of income distribution within
countries, one is unable to make a judgment on whether the major determinant of the
deteriorating distribution of income is globalization. There are numerous controversies
in our country about what went wrong with the poverty ratio in the latter half of the
90s decade. Majority of the analysts would second the statement that in India, the
poverty ratio did indeed dip in the 90s decade. There are differences with regard to the
kind of rate at which it has dipped. To sum up, whether India or any other country, the
fact remains that it is not an easy task to trace the fluctuations in the distribution of
income and their movement towards globalization.

Table 8: Total Merchandise Trade of Developing Economies with World

US dollar at current prices (Millions)

Country 1991

Australia
41854

Bangladesh 1689

China
71910

India
17727

Japan
314786

Source: http://stat.wto.org; World Trade Organization

India's Stance

India stands at crossroads on the globalization issue and one wonders the attitude it
should opt for in such an environment of increasing globalization. It would be
important to remember that stepping out of the globalization arena is not a good step.
With current strength of 149 members in the World Trade Organization or the WTO,
116
there are additionally 25 more countries in line to enter the WTO. A new entrant is
China.

Furthermore, it is also necessary to create a proper framework to be able to extract

maximum advantages from international trade and investment. Ideally, the framework
ought to: 1) clearly explain the number of demands that India would expect to make on
the multilateral trade structure, 2) the kind of steps that India should take so as to make
use of globalization to the fullest.

Demands on the Trading System

Developing countries ought to include the following demands on the multilateral

trading system:

a) To establish a balance between capital movement and natural persons,

b) To delink environmental standards and other considerations related to labour
issues from trade negotiations;
c) To have zero tariffs in the industrialized countries for labour-centric exports of
developing countries;
d) To protect genetic or biological matter as well as traditional know-how of
developing countries;
e) To stop any kind of unilateral trade activities or any other extra-territorial
relevance of a countrys rules, regulations and laws amendments;
f) To exert appropriate restraint on industrialized nations with regard to the
initiation of anti-dumping or nullifying actions against the exports originating
from developing countries.

The new trading system exists in order to bring about a free and fair trade among
different countries. Until now, the idea of free rather than fair trade has been
emphasized. It is also in this regard that the rich and industrially-strong countries are at
an advantage. They have been creating major as well as not so major tariff and non-
tariff trade hurdles from developing nations. Heavy lobbying in these countries has
further created such consequences. The average tariffs in the USA, Canada, European
Union and Japan also known as the Quad countries have ranged from about 4.3per
cent in Japan to about 8.3per cent in Canada while they are certainly higher on the

117
different exports by developing nations. A large part of the main agricultural food items
like meat, sugar, as well as dairy items bring on tariff rates even more than 100per cent,
while fruits and vegetables like bananas call for as much as 180per cent tariff by the
European Union, after the point they exceed their quotas. Tariffs collected by America
on imports from Bangladesh of up to $ 2billion are even higher than those worth even
30$ billion from a country like France. Additionally, such barriers push a major strain
on developing countries. The point to be made here is that if rich nations are in favour
of a fair trading system, it is important that they take a step ahead and bring down trade
barriers and subsidies that come in the way of developing countries products from
being available in their markets. Else, the requests from their end to have a competitive
system will not hold any water.

Conflicts amongst nations with regard to trade issues are to an extent quite regional. Till
recent times, the issue of agriculture was one of extreme disagreement between
America and the countries belonging to the European Union. This was the case among
other developing countries too. At one point, when import tariffs on edible oils were
hiked up in India, the strongest protest was from Malaysia, a prime exporter of palm
oil. This is also a grudge held by Indian entrepreneurs cheaper imports from China
which tend to ruin their prospects. Thailand is another rival in export of rice. Going by
what the Doha declaration claimed, if developed is identified as the main objective of
trade, it would not be impossible to create a trading arrangement that benefits all
countries.

There have also been several negotiations with the WTO with regard to improving the
trade system. Tariff as well as non-tariff hurdles are on the decrease. Despite this, there
are a few other doubts that possibly the concerns of certain developing countries are
being neglected. An example that is relevant here is the recent Hong Kong Ministerial
that succeeded. The progress of the third world expansion is experiencing several
hurdles in its way because of the domestic support to agriculture by developed
countries. In this regard, Indias stand is rather defensive. India does not stand among
the major players in the world agriculture market. Regarding the effect and
repercussions in relation to the Non-Agricultural Market Access, it is bound to differ
from country to country. Moreover, India stands to gain a lot from services. Yet, the

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Hong Kong Ministerial forms a statement of intentions. What gets translated into actual
actions is what a lot depends on.

Actions by India

The action plan that has been chalked out in order to improve Indias stature in the
international trade has to have the second set of measures. As such, India is a very
stronger play compared to other developing countries. India has immense potential to
gain from international trade and investment. In fact, its strong position in the global IT
industry reflects its huge coffer of skilled manpower. It would therefore be to Indias
advantage that it could be one of the frontrunners in this aspect.

In this context, stability refers to a good balance in terms of fiscal and external
accounts. It is important to have a competitive domestic environment for us to be able
to exploit the potential of access to a wider market. The extended time that is given to
developing countries to be able to break down the trade barriers ought to be made use
of well. Legislations meant to defend sectors such as agriculture should be implemented
without delay. It took us a lot of time to clear the Protection of Plant Varieties and
Farmers Right Act. It is also very important to be very active in making sure that our
firms are using the new patent rights to the best of their abilities. While China is
extremely focused and active in this, India ought to create a more active body that helps
to motivate Indian firms to file patent applications. Therefore, it is crucial to establish
certain institutions that would be needed in order to gain the maximum advantages from
international trade and investment initiatives.

There are also certain changes in the foreign trade and investment policies that have
had certain repercussions on the environment where Indian industries function. The fact
that the Indian economy will have to undergo a better integration with the world is a
reality. Naturally, the Indian government will have to ensure that unfair trade practices
do not make a prey out of the Indian industries. For this, there are strong safeguards
that are present in the WTO agreement that are geared to defend the interests of the
Indian industries.
In order to ensure that a macro level economic policy environment encourages fast
economic growth, the Indian industry has to voice its need. However, Indian industrial
119
 st
units would do well to understand the needs of the 21 century and to also identify the
challenges of this century for better and stronger action at the enterprise stage itself.
Indian firms are now geared to be recognized as global players and to be treated as
them. The minimum expectations from them are to be able to face global competition
well. One has to also identify ones competitive advantages too so as to make it work
for them. Indias position in the Information Technology industry is strong because of
the potential discovered in this area by the policy makers and their efforts in making it
conducive to progress.

India has several activities going on that would work to its advantage. This would need
creating plants on a global scale. The progress made in the IT field would improve its
industrial framework. The telecom and IT industry are making revolutionary progress
which contribute to making it a large single market economy, simultaneously also
making the parts stronger.

Basically, globalization is not very new. In fact, it goes back to very old times when
there were major migrations of people across continents. Technological progress has
only recently shrunk the globe. Thus, to get things done, one does not have to
physically or geographically move. Every country has to ensure that it is strong enough
to handle technological and institutional developments.

Globalization, in its present state, cannot be called an entirely technological

phenomenon. This phenomenon has several dimensions to it which need to be
understood in a holistic manner, if one wants to benefit from it.

We all know the risks of an open economy. Yet, we must keep a keen eye on the many
opportunities a global system holds. While the world is not in a position to marginalize
India though itself can do so. India is in a strong position to work towards getting the
most out of globalization. However, we must learn to speak out and work hand-in-hand
with other developing countries change the international trading norms to be able to
benefit countries. We must also understand our other comparative strengths. This
approach will help us face the many aspects of globalization, something very typical of
the new millennium.

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India will achieve its growth only when it steps up its own productivity and
effectiveness. Moreover, this has to move to different walks of our life. Our natural
resources are not many, though it may seem otherwise. While Indias population covers
almost 16.7per cent of the worlds population, it has only about 2 per cent of the
worlds land area. This looks very insignificant when compared to Chinas population
which is 30per cent higher than Indias while its land area possession is almost thrice
that of Indias. If one looks at a long-term sustainability, one needs to have better
efficiency in managing our natural resources such as land, water, and minerals. We do
not have much capital which makes it even more imperative to utilize our capacity in
the most optimum manner. Therefore, we need to invest in getting better-trained and
skilled professionals. Knowledge is the key word in todays world for which we need to
build better institutions. It therefore gives me great pleasure that the Ahmadabad
Management Association which stresses a lot on excellence in education. Globalization
as a phenomenon can be dealt with only by an increasing productivity that emanates
from improved skills and talent.

4.3. Impact led by Globalization over Indian economy

Economic reformation of India started at a slower pace since 1980s, and it further got
accelerated as there was the resurge of external crisis in the primitive phase of 1990s.
Relaxation offered at diversified external and internal controls over the private
economic activity gets counted as a relevant aspect of this reformation, where
license-permit-quota raj remains predominant. The core aim of this liberalization is
about attaining efficiency in the allocation of resource, and re-integrates the economy
of India on international grounds1. Moreover, there is the removal of restrictions with
the attempt to case by case replacement, through discretionary controls that got more
efficient regulation forms that has got market and the shape of the informational
framework for these regulation as positive input within smoother approach of
functionalities related to markets. Power, finance and telecom industries have got
different where necessary regulation demands for potential monopolies, problematic
information and sometime both. Power and finance can be noted as the process of
redrawing nature related to boundary between Indian market and the state.

121
Reformation managed within governmental structures gets noted as a component of
reform. There are some activities that continue in terms of being handled by
government, from equity and level of efficiency. Some noted scope in terms developing
effectiveness related to direct activity of the government in the field of economy, if in
case of efficiency that expends funds for all sorts of public goods or attain redistribution
or gets noted for the efficiency that raises revenue by taxation or borrowing (that
ultimately demand for taxation). Reform attained in government can get clubbed with
new regulatory under institutional reform. However, there are reforms related to
government decentralization with added no instrumental objectives, with the motivated
aspect by intrinsic value attained from local democracy for improving efficiency as well
as equity in the decisions related to economy.

Governance reform improve effectiveness and efficiency that get attained by designing
instruments in a much better way, or through the process of changing internal
organization related to government towards the efficient incentives. As for instance,
there are changing approaches in taxation bases as well as rates towards the reduction
of allocate distortions, or the aspects of redesigning the modes of intergovernmental
schemes of transfer in order to avoid distortions towards the incentives related to the
transfer of the recipients. As for instance, there are also the changes in the latter state
and relationships gets noted between judiciary, bureaucracy, legislature or the
governmental branches (with self-interest of the government actors), which further gets
added by the change in the structure of determined relationships among diversified
geographical jurisdictions of the government.

Current governmental jurisdictions have been noted at sub national levels under the
mode of federalism. The changes in the intergovernmental relations can get inclusive of
diversified dimensions, yet most of the things are possible within India, and here
efficiency gets further enhanced and gathered under decentralization process. There are
some modes of decentralization that can come under efficiency conflict (as tax
competition), and get the way to attain equity goals difficult. The most important
concern here with decentralization is about the fiscal discipline impact. Yet, Indias
centralized nature, offers presumption to accept decentralization with some dimensions.

122
There were some economic reforms during 1985-89 and the same offered definite shape
and began new economic reformations under globalization of India. In the budget of
1991-it was declared that it was after a span of four decades planning marked for
industrialization that we are now capable to welcome instead of being frightened by
foreign investment. The modes of direct foreign investment are subject to offer us with
the accessibility towards capital, technology and relevant market.

th
In the respective Memorandum over Economic Policies of 27 August 1991 to IMF, it
was considered that- The Government of India believes that the policies set forth in the
Memorandum are adequate to achieve the objectives of the program, but will take any
additional measures appropriate for this purpose. In addition, the Government will
consult with the Fund on the adoption of any measures that may be appropriate in
accordance with the policies of the Fund on such consultations.

Government of India assured for the implementation of economic reforms under

consultation with international bank and its policies. There were successive coalition
governments since 1996 to 2004, where different parties led the government and
adopted economic policy for liberalization very faithfully. In 2004, economic policy
turned up as the lodestar for the fiscal outlook of Indian government.

India being a fresh entrant to the globalizing block underwent a number of broad
transformations as late as the initial part of the 1990s even though the consciousness of
the requirement of exposing the national boundaries began in the later part of the
1980s,. In 1991, the Indian rupee declined by about 20 per cent, the procedure which
had started declined a bit but nobody denied that it had started.

The national economy undergoes several repercussions of the globalization

phenomenon. Economies go through even greater inter-dependence as well as fierce
competition in the world market. Reforms yield many perceptible advantages. There
has been a positive effect on the macro level economic growth rate. Given the fact that
India had a very low economic growth rate of around 3per cent in the 70s decade, and
that countries such as Brazil, Indonesia, Korea, and Mexico registered a GDP growth
more than twice Indias, this is quite a big achievement. India registered a healthy
average annual growth rate when it doubled its own GDP to around 5.9per cent in the

123
80s but it still could not match that of China, Korea, and Indonesia. Indias global
position has been further strengthened by its spurt in the growth rate. As a result, its
th
renewed position in the global scenario has moved from the 8 position in 1991 to the
th
4 position in 2001; in which the GDP is evaluated on the basis of purchasing power
parity. The years 1991-92 marked the commencement of Raos reforms initiative. At
the time, the Indian economy grew at a snails pace of 0.9per cent. Despite this, the
Gross Domestic Product (GDP) grew to about 5.3per cent in 1992-93, and then 6.2per
cent in 1993-94. The economy achieved a healthy growth of more than 8per cent in
2003-04.

Important Reform Measures (Step towards Globalization)

July 1991 was a difficult time for the Indian economy, foreign currency reserves having
hit a rock bottom $1 billion, inflation having touch an annual 17per cent and a very
high and unsustainable fiscal deficit. To add to these problems, foreign investors and
NRIs were quite sceptical about the Indian economys potential. There was no one
interested in pumping capital into India and we were almost defaulting on loans. While
we were struggling with these issues on the home front, there were other unexpected
goings-on in Western and Eastern Europe, South East Asia, Latin America and other
places. Such economic upheavals implied a total restructuring of our economic
programs.

Some measures as part of the liberalization and globalization strategy around the
early 90s included:

Devaluation: The announcement of the devaluation of the Indian currency by about 18-
19per cent against important currencies in the international foreign exchange market
marked the initial move towards the globalization phenomenon. As a matter of fact, this
was done so as to solve the Balance of Payments BOP catastrophe.

Disinvestment: Privatisation and liberalization policies have to keep moving on if the

globalization process is to be kept moving smoothly as well. Moreover, a large part of
the public sector undertakings have been or are in the process of being sold to the
private sector.
124
In addition to this dismantling of the industrial licensing regime also took place. Only
about six industries under compulsory licensing that largely involve environmental
safety and strategic consideration were kept out of the process. Additionally, a majorly
rectified location policy has been created in tune with the liberalized licensing policy.
One does not need any kind of industrial approval from the government for any places
that are within 25 kms of the city periphery and with population exceeding 1 million.

To allow Foreign Direct Investment (FDI) right across an entire spectrum of industries
while encouraging non-debt flows. There is also a liberal and clear foreign investment
regime in which majority of activities are kept open to foreign investment on the
automatic route that does not have any kind of limit with regard to foreign ownership.
There are some other initiatives in the recent times that have been carried out with an
intention of liberalizing the FDI regime while also opening up sectors like: Insurance
(up to 26per cent), tea plantations (up about 100per cent which would be subject to
26per cent disinvestment within 5 years to the FDI); improvement of the FDI limits in
private sector banking which would allow up FDI of up to 100per cent under automatic
route for a large part of the manufacturing in SEZs; throwing open the B2B e-
commerce; Internet Service Providers (ISPs) that are without gateways; email and voice
mail of 100per cent FDI that would also be subject to the 26per cent disinvestment
condition. Investment facilities have also been strengthened via the Foreign Investment
Implementation Authority (FIIA) by the department.

The Non Resident Indian Scheme reflects the overall general policy as well as FDI
facilities that are available to foreign investors or to companies or NRIs too.
Additionally, the Government has also worked out certain concessions largely for the
NRIs as well as for the overseas corporate bodies with more than 60per cent NRI-
owned stake.

There are not more than only three industries that have been reserved for the public
sector. Abolition of the (MRTP) Act that previously required a prior approval in case of
expansion of capacity: Removing quantitative restrictions on imports and reduction of
peak customs tariff from 300per cent to the 30per cent rate that is presently applicable.
168 International Research Journal of Finance and Economics - Issue 5 (2006)
125
There are also many restrictions on the short-term debt which allows external
commercial that are structured on the sustainability of external debt. There are other
reforms in the financial sector banking, capital markets as well as the insurance
sectors which further include deregulation of rates of interest, strict policy structures
and supervisory system as well as the entry of competition from the foreign or private
sector.

The trajectory of Indias globalizing has been traced out in the following stages

Section 1: The Big Move toward Protectionist Posture

Obviously, it became difficult to make the regulation framers believe that trying to be
only self was not cheap or efficient in any case though in political terms it appears to be
a good move of patriotism. This radical form of nationalist behaviour was manifest and
apparent in the short sighted financial development that happened in those times.

Both the purchases and sales of items from and to abroad be extremely less and the
revenues were a little under 1 per cent of the gross world trading revenues. The
disappointing trade numbers of our country were even worse given that we had about
15 per cent of the total number of people in the world. Our best numbers with regard to
exports became possible only in the year 1980 (of $919.8 million) and this number
reduced a great deal during 1981 and 1982. For a period of six consecutive years (from
1979 to 1985) export figures could not rise beyond $700 to $800 million.

The service related area did not do much good either. Whilst the service related export
figures gradually rose for this duration, the numbers were below 400 million dollars.
Also during this time, IT facilities were not really available and the services area in the
country had not been growing well hence export was not viable.
The revenues based on item purchases from abroad were the most in 1981 (at $925.5
million) and from then onwards kept on rising. There was huge hike in buying of goods
from outside during 1974 courtesy the foremost rise in the price of oil which was
carried out by OPEC. Till then, India has not discovered a local source of oil and was
mainly relying on fuel from outside. Still the actual payment due for imports of fuel did

126
not breach the $1 million threshold, a key cause being the extreme costs and taxes
imposed and limited permitted amount of items from abroad. During 1974, at the time
rule framers noted the huge rise in trade disbalance from a point of $16.2 million
145
(1973) to $160.4 million (1974), conveniently put the blame on the hike in oil rates.
Broadly speaking, the period of 1965 to 1985 was a very troubled phase that saw the
decline of economic conditions and also trade situation.

Table 9: Indias Trade: 1965-1985

Year

1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985

Source: International Financial Statistics Yearbook 1994, International Monetary Fund, Washington
D.C. (All values are in terms of millions of US dollars at present rates.)

A very incoherent trade regime was a key cause for the unsatisfactory development of
India trading. The difficulty was even of demarcating the sectors which needed to
import goods and items for production. Bhagwati-Das says that it was expected that the
entities engaged in ascertaining the necessity of importing good for each industry were
prey to rarefied ideas of justice thus trying to imply that each sector should receive the

145
Upadhyay A (2007). Foreign exchange reserves Is the glass half full or half empty? Friday, Mar 09,
Opinion Forex Industry and Economy - Infrastructure

127
same amount or in corroboration with capacities and number of people employed or
equities outlined by previous importing allotments and these kind of regulations which
146
do not have logic .

The difficulties of this sort of a handicapped economy was rather apparent in the initial
part of the 1970s during which the economy was severely jolted. A disappointing
monsoon trend meant that agriculture produce was short of demand causing terrible
lack of water for some regions of the nations. This created tremendous problems for
industry based produce which was not happening satisfactorily. Moreover, owing to the
extra pressure generated owing to the 1971 war between Indian Pakistan, the economy
was in a terrible state. Daily basis items were given in quotas and notorious individuals
resorted to massive hoarding of goods. The opposing party in country agitated and
whipped up unrest against the government which defended itself by blaming
international events. Then in the year 1973, the fuel crises took place and chaos
descended on the country. India had no money to give for fuel bought from outside; still
the debts were rising and revenues from exports were little. Look at the Table 5 for
1973 numbers when the bill for things purchased from outside rose from $191.7 million
till $291 million and once more in 1976 rose to $402 million. The opposition figures
created a lot of unrest.

However, there did not seem to be any solution. The economy was being fiercely
protected. Think about the 350 per cent importing costs on vehicles and the general tax
of 152 per cent. Local sectors were secured and enjoyed monopolies and did not
attempt creativity or invention. The growth phase which should have happened as per
the nascent sector argument did not actually take off. Rigid forex regulations were
needed and were important to halt the non legal forex and gold stealing and laundering.
It turned out to be very difficult when the looking for rent had a ball and the black
money was 50 per cent of the actual GDP. Scholars realised that being protectionist
could spoil the finances and rule makers saw the economy declining to an absolute low
in their hunt for answers.

146
Nayak, Amar KJ R (2004), Successful Foreign Direct Investment in India: A Case of Suzuki Motor
Corporation, Global Business and Economic Research Conference, Istanbul, Turkey, August 04-06.

128
Also in addition to the economic troubles, Indira Gandhi announced an Emergency thus
clamping down on several liberties, jailing the masses who as much as implied that they
were against the government. India was in dire need of some radical solution to boost
financial development which might have forced the opposition to give up unrest.

During the earlier part of the 1980s, the monsoons were good in India. Whilst the
agriculture industry was in dire straits and had to grow, it could now improve while the
industry based sectors managed to come up with some technology innovations and
expanded much more quickly compared to earlier. The country also saw that they could
perform far more efficiently with regard to services. Thus the economy slowly started
improving and this was a better scenario compared with the 1970s. The requirement of
exposing the economy was acutely realised by Rajiv Gandhis regime and import taxes
were brought down in the earlier part of the 1980s. However, the actual endorsement
for globalizing, liberalizing and removal of protectionist attitude took place in the later
part of the 80s.

Section 2: Emergence of Globalization

During the 1980s, some indication of transformation regulations took place while Rajiv
Gandhi was PM however; the broader principles had borne the brunt of previous
mistakes. Aggarwal (2004) says that the macro level financial difficulty peaked in
1990s with the clubbed debt of the Central Government and states at 10 per cent of the
gross domestic product, the reserves were 3.3. per cent of the GDP in addition to an
inflation high of 9.9 per cent, this was notwithstanding Indias good faring with regard
to its Gross Domestic Product which was 6 per cent owing to the elevated pace of
industrial development of 5.0 per cent and local saving ration of 21.9 per cent of the
Gross Domestic Product (Aggarwal, 2004). Still this development also saw puzzling
national level indicators thus bringing about the need for taking a lot of outside money
147
and cause a staggering outside liability of 28.7 per cent. Joshi-Little said in 1997 that
it was the foremost time ever that India had to face the looming possibility of not being
able to meet her global economic liabilities. The additional pressure of the fuel

147
Krishna Pravin, and Mitra, Devashish (1998), Trade Liberalization, Market Discipline and
Productivity Growth: New Evidence from India, Journal of Development Economics, Vol. 56, p. 447-
462.

129
crisis owing the 199 Gulf War further pushed the nation to a dangerous situation and we
had forex currency for just three weeks of buying goods from outside. Radical changes
were needed.

During June 1991, the nation received the much required jocks from globalizing and
liberalizing. This was owing to great demands by eminent financial people and rule
makers for transforming the system. Though this change considerably reduced the
worth of the Indian rupee by 21 per cent in the span of a day, it was not evident that the
era of astronomical high rates and taxes were more or less gone. Taxes were reduced, a
greater level of foreign direct investment was solicited and importing restrictions
relaxed. The liberalizing initiative mainly had two components- the broader changes
and stability. Stability steps were of limited duration and included measures for instance
slashing of government expenditure which would lower demand and reduce inflation.
The structural adjustment programme, a long duration measure, included steps for
instance conversion of the present amount on the balance of debt, less curbs on local
business and the advocating of export.

Thus Aggarwal was of the opinion that for actual transformation to take place for
trading and exchange, the two phases of reducing the worth of the rupee, broad but
stage wise curbing of importing taxes, quantity based curbs and size imposition barring
customer products, the removing of money compensating help for export, reducing and
making reasonable the system of providing for exporting concessions, absolute
conversion of the rupee for the present account on the balance of payments in 1992,
shifting from a double system of exchange in 1992 to one market were one of the
changes which were done ( see Aggarwal, 2004, pp 48).

These measures not just caused an absolute transformation in the regulations; moreover
they demonstrated lawmakers urge to shift to the market based finance since mistakes
of government curbs seemed to be increasingly glaring. Thus, the improvements were
supposed to attain steadiness, curb the burden from inflation and kick start producing
148
and efficiency. (Aggarwal, pp 49)

148
Aggarwal, M. R. Macroeconomic Adjustment, Stabilization and Sustainable Growth in India:
Looking Back and to the Future, The Indian Journal of Economics, Vol. LXXXIV, No. 332, July 2003,
p. 45-67.

130
There was rapid improvement and looking forward following the grave problems which
had dogged the economy in 1991. The actual Gross Domestic Product during the 1990s
grew at a yearly pace of 6 per cent which was highly commendable given that the
whole world was in the midst of an economic meltdown of sorts. The greatest rise in
the actual Gross Domestic Product was witnessed during 1996-1997 with 7.8 per cent
(anticipated to be crossed during 2004)

Heightened produce also had an impact on the cost. The inflation pace of 13.6 per cent
during 1991 was brought down to 1.3 per cent in 2001-2002, a terrific attainment by all
accounts. The economy regulations were implemented properly and the financial
burden was a lot but still could be more managed compared with previous years. Still,
the financial principle cutting down measure did not actually help owing to the
problems generated by the Iraq war and also the politics linked unrest throughout the
nation. During the initial three years that made up the 1990s, financial difficulties went
on partially owing to the heightened fuel costs and the larger pulls of economic crises
and also the problem of politics linked lack of stability, the problem of technology
creativity and the dismal rainy season. The pattern of economic meltdown was not
prolonged completely. The heightened global trade, more liberal economic and
technical enhancements caused by the boom of IT all come together to reflect in
improved prospects from 1994 onwards. Liberalizing had in some ways now causing
the lure of FDI, the Indian economic was looking forward and there was general feel
149
good sentiment for both investing and producing individuals.

The Indian economy had really appeared to take off. As revealed by Table 10, in 1994
whilst the actual Gross Domestic Product heightened by 5.9 per cent, the inflation pace
reduced from 13.7 per cent during 1992 to 8.4 per cent. Though the interest rates
continued to be extremely large, there was a bit of burden in the lower direction. The
actual rate of the numbers of unemployed people was extremely large at 36.69 million;
however, the number did not rise, which was commendable given a burgeoning number

149
Yu, Eden S H and Chao, Chi-Chur (2000), On Investment Measures and Trade, Blackwell Publishers Ltd.,
Cambridge, USA.

131
 150
of people. Still as has been apparent for a number of years, the number of Indian
unemployed is in excess of the declared numbers of people who are not employed.
There are a large number of people who are not satisfactorily employed and there is
also the problem of a lack of education. The full time working hours for India is
confined largely to the cities and towns and there is barely any industrial growth in the
poorer regions owing to lack of development. Moreover, these difficulties are
compounded by the skewed labor base, the difficulty in gathering information, the lack
of employed people; it is also difficult to gather information regarding populations.
However, despite these problems, the 1990 development was commendable irrespective
of the manner of calculation.

As the global trade regulations became freer, though at a much lesser pace compared to
scholarly expectations, there were indications of even more exposure, by reducing the
importing taxes, flexibility on deals, more available forex and better enthusiasm for
getting FDI. I seemed that rule framers by 1995 seemed to believe that a quicker pace
of financial development could be done by globalizing. Success can multiply and rule
framers tend to learn quickly if the political advantages are great. Still, the development
during 1994-1997 could not be paralleled by the great development of the 1997-2000
duration. Chitre (2003) has noted that the slowdown was owing to less pace of
development in agriculture and not linked to industry.

150
Joshi, Vijay and Little IMD, Reform on Hold, Asian Development Review (by Asian Development
Bank), Vol. 15, No.2, 1997.

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Table 10: Macroeconomic Performance in Post Liberalization Years

Real

Growth Rate
Year
(Factor Cost)

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

Source: www.planningcommission.nic.in for Real GDP growth rate

www.rbi.org for Inflation, Employment and Broad Money

www.data.worldbank.org for Lending Interest Rate

During 2004 it was apparent that the Indian economy was the quickest expanding
economy in the globe, next after Chinas economy. Even China could progress because
they also decided to open up their economy. Indians economy like the economy of the
rest of the world underwent huge technical transformations. Whilst the IT areas for
instance Bangalore that possesses 1,500 international firm offices, Hyderabad and Pune
expanded at a big pace, the results of the industry development was seen in a host of

133
rural regions. Also during April 2005, there was a confirmation that India had attained
an 8 per cent development during 2004 (Times of India, April 28, 2005)

Table 11: International Trade Performance Post 1991 Years

Billion Rs.

Year

1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12

Source: http://www.rbi.org.in

Table 11 indicates the radical transformation of the economy during the 1990s with
regard to global trade trends. Whilst the export revenues went up a lot, the exposing of
our boundaries and the bringing down of importing taxes cause import to increase. The
balance of trade number could be handled (usually less compared to $14 billion). It
must be noted that the non fuel importing and exporting demonstrated a good balance
of trades with regard to the Indian economy from the year of 2000. Thus importing of
oil constituted a huge pressure on the international balances and was the key cause for
the balance of trades lack of balance. Even if the service industry did develop, the key
importing of goods has also expanded a lot. A key event that happened during April

134
2005 was software exporting through Indias IT valley Bangalore increased by more
than 52 per cent to $ 6 billion (Times of India, April 28, 2005).

Still a financial growth cannot be minus a political scandal and Indias growth story
was also part of this. The opposition and critics said that the enhanced lack of equalities
between incomes owing to an undesirable outcome of globalizing. A lot of political
people Left based and others have also noted that computer professionals and IT
workers are getting too much money. The massive divisions created by digitization
151
proved to be worrying for scholars. Still even Bhagwati (2004) noted that the
procedure of globalizing has resulted in more advantages rather than expenses and this
has to endorse in all ways possible. Also the prospect of trade across the world which is
free and fair can only be possible if globalizing is endorsed by rule framers.

The key conclusion of this research is that our countrys financial development got a
good boost only after 1991. The enhanced financial development is primarily and
immediately owing to the good rainy season and the free trading shift that also began
during that time. Obviously, the lazy financial growth was linked more protectionist
behaviour and rule framers realised a lot based on the lessons from 1950-1990. The
information demonstrates that the free trade shift during the 1990s had good outcomes
with regard to financial conditions. The later financial development relies a great deal
on the pace of privatizing and globalizing. Kulkarni said in 1996 that the nation is
prepared to make a good strategy to brace itself for the next trend of free trading
liberalizing shift.

In the July of 1991, the Indian economy was in doldrums at a time when forex currency
152
had fallen to about $ 1 billion, and inflation had increased to a yearly growth pace of
17 per cent, the financial debt had increased and could not be sustained, international
investing agents and non resident Indians too had no faith in the Indian finance scene.

151
Bhagwati, Jagdish, (2004), In Defence of Globalization, Cambridge University Press, New York
152
Bhagwati, Jagdish, (2004), In Defence of Globalization, Cambridge University Press, New York.

135
Money was moving away from the nations and there was the dangerous prospect of non
repayment of debts. To top the domestic problems, abroad too, the financial scenarios
of the whole of Europe, S.E. Asia and Latin America too were in the throes of change.
These tended to be financial constraints domestically and outside that necessitated
revamp and transformation of our financial principles and measures.

4.4. Socio-economic Dimensions of Globalization in India

During the post-Independence phase, the managers from Indian economy got very
cautious proceedings and derived the aspect that world has been divided into two
determined blocs; which are capitalist economies (especially, US) and communist
economies (especially, USSR). A cold war among these blocs is identified by these
managers. There are less developed economies that were bound to join any of these two
blocs; especially those economies being under British Empire and got independence in
near past. These economies were finding it difficult to make a selection. India opted to
maintain a safer distance from both of these so-called blocs by the adoption of mixed
economy. In this process, India invited suspicion from the blocs. There were some
economists that considered Indian economy being pro-capitalism with the faade of
appearing a socialistic economy. State-managed economic were subject to endeavour
the form of capital formation within private sector, at the cost of resources and public
sector to attain relevant transition towards the mode of opening up capitalism in the
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future that got the conditions of transition. As per Bardhan (1984) there appear vivid
pictures under this possibility.

On an official note, management policy related to the Indian economy got modelled
over socialistic pattern, like that of USSR. Since, 1970s, rate of growth of the economy
of the USSR slowed down in a sustainable way. There were extensive developments in
the economy as per the vast inputs led by the labours and materials that remained no
longer possible. However, productivity led by Soviet Union asserted low aspects as
against major industrialized countries. There was the need for the improvement in the
quality of the product. Leaders from Soviet Union were facing fundamental dilemma of
stronger controlled by the central with increased mode of

153
Bardhan P. (1984), The Political Economy of Development in India, Basil Blackwell, Oxford,
Expanded Edition, Oxford University Press, New Delhi, 1998.

136
conservative bureaucracy, which further got guided by the traditional economic
development being failed to respond towards the complex demands of the industry
related to the highly developed as well as the modern economy.

Addition of the weaknesses from the past for solving newer kinds of problems, made
the Russian leaders of 1980s seek for a economic reformation programme to galvanize
respective economy. As per the experiment led by Mikhail Gorbachev, solutions related
to economic problems with the openness were new in the approaches of USSR
economy.

Process of improving productivity came up as the way to strengthen roles led by the of
market forces. However, the reforms forcing the market in terms of assuming greater
role is meant to signify the process of lessening control and authority led by the
planning hierarchy and determined diminution within social services.

India very closely was keeping an eye on these developments and was channelizing
same in reference to its economy that was facing difficult conditions. Its efficacy over
the management of the economy over socialistic pattern is offering serious malaise,
though there were higher amount of growth rates in Indian economy of 1980s, with
154
huge foreign borrowings. As per Joshi and Little (1994) higher rate of growth during
1980s towards fiscal expansion was financed and initiated by internal and external
borrowings.

155
Ahluwalia (2002) agreed to this view and declares Indian growth of 1980s as
unsustainable, and stated it as fuelled by a build up of external debt. (Panagaria,
156
2004) . This is the reason that India got no other way out than to lead towards open
economy in dealing with market forces on international periphery. Official
pronouncement under New Economic Policy (or the NEP) over stabilization as well
structural adjustments took longer modes, in case the events of 1980s attained

154
Joshi, V and Little, IMD (1994), India: Macroeconomics and Political Economy: 1961-91 , World
Bank, Washington, DC.
155
Ahluwalia, M.S (2002) Economic Reforms in India since 1991: Has Gradualism Worked?, Journal
of Economic Perspectives, Vol. 16(3), p. 67-88.
156
Panagariya, A (2004), India in the 1980s and 1990s: A Triumph of Reforms : revised paper,
originally delivered at IMF-NCAER Conference, A Tale of Two Giants: Indias and Chinas
Experience with Reform, November 14-16, 2003, New Delhi.

137
postponement. Early part of 1990s offered greater debacle towards USSR and
ideological disaster towards the principles related to Indian economic management with
the decisive events of India were under gravitational force within the capitalist bloc.

Sector for agriculture performed miserably during 1987 to 1989 and the same was
followed by the assassination of former Prime Minister Rajiv Gandhi. Consecutively,
the Prime Minister who was in power in June 1991, when the condition of India over
foreign exchange reserves remained relevantly poor and unstable. India came up with
the proposal of loan of a total of US$ 2.26 billion from IMF to meet the destitution that
it was into, without any other alternative than towards the process to succumb
prescription of World Bank-IMF in terms of embarking stabilization as well as
structural adjustments that were preconditioned for the loan. World Bank agreed for the
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loan with 'Strategy for Trade Reform'. This is the reason that India came up with
New Economic Policy (or NEP) in the year 1991.

NEP can get classified into two parts - stabilisation programmes added by structural
adjustment with reform programmes. Stabilisation programmes is meant for the
reduction of macroeconomic imbalances (like current and fiscal account deficits) led
under demand of restraining aggregate, whereas the latter aims at the process of
increasing growth through the process of eliminating supply of bottlenecks which were
actually hindering efficiencies, competitiveness and dynamism towards the economic
system.

4.4.1. Effects over Globalization under Macro-economic Balances

As the analyses of pre-globalization along with post-globalization phases were made,

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Olekalnsa and Cashin (2000) declared expenditure and revenue data of Indian
government to remain adhere towards constraint of inter-temporal budget which never
got characterized by the Indian fiscal policy. These are the results that offered support
towards fiscal consolidation that occurred during the early part of 1990s. Still, the
reforms remained unlike towards the sustainable path meant under debt stock, in spite

157
Chitre, Vikas, Global Slowdown and the Indian Economy, The Eleventh D.T. Lakdawala Memorial
Trust Lecture, February 8, 2003, unpublished manuscript.
158
Olekalns, N and Cashin, P. (2000), An Examination of the Sustainability of Indian Fiscal
Policy, http://www.economics.unimelb.edu.au/ research/workingpapers/wp00_01/748.pdf

138
of budget deficit size in proportion to the GDP that diminished since 1991. The reforms
were followed by the deficits being financed by borrowings under relatively less
determined or regulated mode of financial market.

Domestic markets got liberalized, and cost assessed under domestic borrowing
increased as well as concessional kind of external finance turned up as smaller
proportion towards the total estimated borrowing. The approach came up with a major
kind of increase in liabilities of interest and the way of increasing debt-to-GDP ratio.
Moreover, the fiscal consolidation was demanded in case the Indian public finances
turned up consistent with relevant debt sustainability (Fig 8).

4.4.2. Effects led by Globalization over Foreign Sector

Immediate cause towards the launching of NEP in foreign sector, exchange reserve and
respective trade imbalance were marked in case of statistical trends, whereby phase of
post-globalization exhibits comfortable position of India. Reserves of gold increased
from US$ 300 million to approximate of US$ 4000 million (see Fig. 9).

Figure 8: Show-up of Indian Public Finances

Source: Planning Commission

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Figure 9: Gold Reserves (US $ million) of India

Figure 10: Foreign Currency Assets (US $ million) of India

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Figure 11: Foreign Exchange Reserves (US $ million) of India

Table 12: Outstanding Repurchase Obligations to IMF (US $ million) India

Source: IMF

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Figure 12: Export and Import (US $ million) of India

Figure 13: Percentage of Import to Export

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4.4.3. Effects under Globalization over Macro-economic Indicators within
Domestic Sector

Foreign sector still remains as the tiny part (with 5 per cent to 6 per cent of acquisition)
from national income led by India. Growth of GDP, though turned up impressive, yet
was without any significant acceleration. In case we measure GDP logarithm against
time, we get the linear growth (see Fig 17). Therefore globalization over structural
changes accelerated the rate of growth of GDP as meagre. Contribution led by the
agriculture towards GDP continued in terms of falling under rate of pre-globalization
and so is the linear trend under the fall of percentage contribution in the agriculture
sector. Percentage of contribution in the secondary sector towards total GDP are
relevantly increasing with constant rate and indicating post-globalization phase that
never brought in any structural change (see Fig 15).

Figure 14: Gross Domestic product at Factor Cost (in Rs. Crore)

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Figure 15: Sectoral proportions of GNP at Factor Cost

Statistical trends under the gross savings along with the capital formation (see Fig. 16)
mark the traditional kind of log-linear growth from early 1960s (see Fig. 17). Still, there
were the indications towards structural changes being the source of savings. Savings
rate (percentage to GDP) within the household sector accelerated and relevantly the
noted public sector decreased (see Fig. 19). Savings marked in the sector for private
corporate domain is noted for the attaining relevant increase. Formation of gross fixed
capital lagged behind gross domestic savings (see Fig. 16 & Fig. 18).

Figure 16: Gross Domestic Savings and Fixed Capital Formation (as Per cent to
GDP)

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Figure 17: Gross Domestic Savings and Gross Fixed Capital Formation (in
logarithmic Scale)

Figure 18: Gross Domestic Savings: Growth and Structural Changes (As
percentage to GDP)

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Figure 19: Sector-wise Structure of Savings (in percentage)

4.4.4. Agriculture after Globalization

The statistics of area under 12 major crops in India covers about 95 per cent of area
under cultivation. The data indicate that after globalization, the area under cultivation
has increased (Table 13). However, the area under food crops as per cent to the total
area under cultivation has decreased. More so, the area under course (food) crops as
percentage to total area under cultivation (as well as the total area under food crops) has
decreased . This trend indicates a shift of the Indian Agriculture to cash crops and in the
food grain sector to the finer crops ( see fig. 20). As pointed out by Swaminathan
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(2002) , such changes have affected the poorer section of the society adversely.

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Swaminathan, M.S (2002) Food for Peace and Development, The Hindu.

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Table 13: Area Under Cultivation - Food Grains (Post Liberalization)

(Million hectares)

Year

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11
 2011-12

Source : Ministry of Agriculture, Government of India

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Figure20: Average Food Rate and Food Grain Production in India in 2012

4.5. Strategy of Globalization

Agricultural sector is the mainstay of the rural Indian economy around which socio-
economic privileges and deprivations revolve, and any change in its structure is likely
to have a corresponding impact on the existing pattern of social equality. No strategy of
economic reform can succeed without sustained and broad based agricultural
development, which is critical for raising living standards, assuring food security,
generating buoyant market for expansion of industry and services, and making
substantial contribution to the national economic growth. Studies also show that the
economic liberalization and reforms process have impacted on agricultural and rural
sectors very much. According to Bhalla (1997), of the three sectors of economy in
India, the tertiary sector has diversified the fastest, the secondary sector the second
fastest, while the primary sector, taken as whole, has scarcely diversified at all. Since
agriculture continues to be a tradable sector, this economic liberalization and reform
policy has far reaching effects on (I) agricultural exports and imports, (ii) investment in
new technologies and on rural infrastructure (iii) patterns of agricultural growth, (iv)
agriculture income and employment, (v) agricultural prices and (vi) food security
(Bhalla, 1993). Reduction in Commercial Bank credit to agriculture, in lieu of this
reforms process and recommendations of Khusrao Committee and Narasingham
Committee, might lead to a fall in farm investment and impaired agricultural growth
(Panda, 1996). Infrastructure development requires public expenditure which is getting

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affected due to the new policies of fiscal compression. Liberalization of agriculture and
open market operations will enhance competition in resource use and marketing
of agricultural production, which will force the small and marginal farmers (who
constitute 76.3% of total farmers) to resort to distress sale and seek for offf arm
employment for supplementing income.

A central issue in Agricultural Development is the necessity to increase productivity,

employment, and income of poor segments of the agricultural population. Among the
rural poor, the small farmers constitute a sizeable portion in the developing countries.
Studies by FAO have shown that small farms constitute between 60-70% of total farms
in developing countries and contribute around 30-35% to total agricultural output
(Randhawa & Sundaram, 1990). Liberalisation era (1990-91) began in India when over
40% of rural households were landless or near landless, and over 96% of the owned
holdings and 68.53% (over 2/3rd ) of owned land belonged to the size groups
(marginal, small and semi-medium). The decade of 1981- 82 to 1991-92 seems to have
witnessed a marked intensification of the marginalisation process - the per centage of
small owners increased from 14.70% to 21.75%. Small farmers emerged as the size
group with the largest share of 33.97% in the total land, which is just doubled during
this decade.

As regards the Large Farmers, they were 1 % of the total owners in 1990-91 but owned
nearly 13.83% of the total land. An interesting, but speculative, inference is that the
changing position of the large owners represents the other side of the marginalisation
process, i.e., the presence, and possibly growing strength, of a small but dominant and
influential group in agriculture. Analytical reports reveal that marginalisation process
could gather further momentum in the years ahead to become an explosive source of
economic and political turbulence, due to the features of prevailing policy cum- market
environment in the country. Trend towards a greater casualisation (erratic and low-paid
work) of the workforce that was witnessed in the 1980s appears to have continued in
the1990s. Low productivity and inability to absorb the growing labour force make the
agricultural sector in India witness to a pervasive process of marginalisation of rural
people.
This process is likely to get intensified in the coming years, raising formidable
problems in achieving sustained development of rural areas and rural people (V M Rao
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& Hanumappa, 1999). Both Information Technology, Genetic Engineering and Bio-
Technology, which are the drivers of globalisation with their complementarities of
liberalisation, privatisation and tighter Intellectual Properties Rights, are bound to
create new risks of marginalisation and vulnerability. Information Technology will
facilitate dissemination of information on development, education, extension,
husbandry, marketing, production, and research, to agricultural farmers.

4.6. Victims of Globalization

In his work on Making Globalization Work, Nobel Prize winning Stiglitz said that
liberalizing of trading which resulted in the unhindered movement of items and
facilities should have brought about development. The proof tends to jumbled. Partially,
the cause is that global trading deals have not managed to boost development in non
rich nations because there is no balance. The grown western economies could impose
extra costs on items manufactured by grown nations were roughly four times more
compared with items which were generated by other industry based nations.

The upcoming era is a result of what we know and define as globalizing, liberalizing
and privatizing. The suppressed sections for instance the nations of Asia and Africa are
affected and their improvement is not really the concern of the developed economies
that care for only cheap labor. After the World War II ended, more and more expansions
and trading successes was the key preoccupation of US and similar countries. These
nations have succeeded in making even the grave issue of world hunger as a matter of
business. The less fortunate nations which is not so well endowed not are completely
dependent and tend to behave as most puppets of the powerful nations.

In 2006, the Human Development Report said that globalizing has resulted in the
emergence of a prolonged argument regarding the actual pattern of development in the
international disbursement of money. However, there is a failure to see the actual wide
spreadness of lack of equality and the linked possibility to make more efforts to bring
down poverty. In terms of the purchasing power parity of 2000, the divide among the
salaries of the poorest 20 per cent of the people of the world and $1 per day poor
threshold works out to be in the region of $ 300 billion. The numbers appear huge but

150
comprises lower than 2 per cent of the earnings of the worlds most wealthy 10 per
cent.

4.7. Steps to Make Globalization Work

The massive development brought about by IT which has reduced the impact of
location and duration and also brought down the expense of shifting data, items and
money through the world and accompanied by globalizing which has resulted in great
chances for human growth in both growing and grown nations. Working according to
the dictates of the market, globalizing is being increasingly utilized to encourage
financial development to bring about gains for a few nations and for some clusters in
the nation. India ought to give a lot of focus to make sure of the quick growth in
literacy, health related factors, water, cleanliness, workers and recruitment to ensure
that through time driven measures, the objectives are achieved and not delayed. A
robust base for human growth of each individual is necessary for the societal, political
and financial growth of the nation.

Even if as of now our country seems to rising in some areas of growth for instance IT-
ITES, this sort of prospering might be confronted by other rival nations which are now
gaining and attaining higher levels of literacy. As has been said before, our
development in the field of education has been gradual and not real lacking any sort of
base and we cannot rival global conditions.

The government is required to take instant measures to enhance agriculture growth and
forge more work chances in the rural areas to bring down the burgeoning lack of
equality between urban and rural regions and to distribute authority and assets to local
governance bodies to execute tasks linked to non urban growth. Measures must be
instantly implemented for the immediate connecting of water bodies, particularly the
ones which are going to the south for the provision of much required water resources
for agricultures.

It must not be forgotten that in the absence of a maintenance linked and efficient
expansion of agriculture, different kinds of related growth in all sectors cannot be
sustained and would be superficial. Notwithstanding the focus on growth in
manufacture and services, and notwithstanding the good influx and surge of forex,

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agriculture continues to be the biggest sector which is making available business for
about 60 per cent of the working people in our nation.

Just the development of the gross domestic product and other national level factors will
not address the difficulty of the number of grinding poor and the undeveloped type of
lives led by individuals in their own capacity. The development has to be sustained with
human growth and prospects for jobs. The good of a country cannot begin from the
upper level but has to begin at the lower most levels of the pyramid.

As a new participant in the globalization wave, India went through several structural
and policy changes only in early 1990s, even if the awareness of need for opening up
countrys borders was started in late 1980s, when Mr. Rajiv Gandhi was at the helm of
policy design. With almost 20per cent devaluation of the Indian rupee in 1991, the
process began that for a while slowed down a little but rarely anyone was in doubt
about its existence. The recent reports show that Indian economy grew at the record
breaking and astonishing pace of 8per cent growth in real GDP in 2003-2004. The real
question is how did the economy that was an almost autarky from 1950 to 1985
period, reached to such a realization that gains from trade are there to reap and the
economic transition necessary for globalization is a pre-condition for wider economic
growth? This paper attempts to investigate if globalization is a cause of Indias
economic growth and if the new culture of trade policy change in India is there
permanently or temporarily.

This increased economic growth is mainly and directly is a result of countrys better
monsoons and the free trade movement that started in that year. Clearly the lethargic
economic development was associated with greater protectionism and policy makers
seemed to have learned an important lesson from 1950 to 1990 era. The data show that
the free trade movement of 1990s has shown positive results in economic terms. The
future economic growth therefore depends heavily on the speed of privatization and
globalization. As Kulkarni (1996) points out, the country is ready to have a firm plan to
get ready for the second wave of free-trade and liberalization movement.

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