INTERNATIONAL BUSINESS ENVIRONMENT REPORT ON “GLOBALISATION IN INDIA, ONGOING DEBATE AND ECONOMIC IMPLICATION”
SUBMITTED TO: PROF. S.K DUBEY SUBMITTED BY:
SAKSHI MALHOTRA BM09182 SAKSHI SINGH SUPRIYA GUPTA UMANG KAPOOR BM09183 BM09219 BM09229
TO WHOM SO EVER MAY IT CONCERN This is to certify that Sakshi Malhotra, Sakshi Singh, Supriya Gupta and Umang kapoor have completed the project report titled “GLOBALISATION IN INDIA, ONGOING DEBATE AND ECONOMIC IMPLICATIONS” under my supervision. To the best of my knowledge and belief this is their original work and this wholly or partially, has not been submitted for any degree of this or any other University.
We hereby declare that the project report “GLOBALISATION IN INDIA, ONGOING DEBATE AND ECONOMIC IMPLICATIONS in International Business and Environment is being submitted by the Group members to INSTITUTE OF MANAGEMENT STUDIES, GHAZIABAD, is the result of our own work and efforts. It has not been published in any magazine, book or newspaper yet. All other sources of information have been duly acknowledged. 3
ACKNOWLEDGMENT It is an opportunity we take to acknowledge the efforts of many individuals who helped us in making this project possible. First and foremost, we would like to express our heartfelt appreciation and gratitude to our guide and facilitator of the course, Prof. S.K DUBEY. His vision and execution aimed at creating a structure, definition, and realism around the course of International Business and environment fostered the ideal environment for us to learn and grow. This project is a result of his teaching, encouragement and inputs in the numerous meetings he had with us, despite his busy schedule. He has helped provide us the scope and direct our research in a manner to make it most beneficial to us and to the topic. We would also like to thank the Institute of Management Studies, Ghaziabad for providing us the opportunity to do a project in International Business and environment. Last but not the least, we would like to thank the information technology without which this project wouldn’t have been possible.
TABLE OF CONTENT
CONTENT ABSTRACT INTRODUCTION GLOBALISATION IN INDIA HISTORICAL PHASES OF GLOBALISATION PRO’S AND CON’S OF GLOBALISATION IMPACT OF GLOBALISATION DRIVES TOWARD GLOBALISATION DIFFERENT ENTRY MODES EFFECT OF GLOBALISATION ON INDIAN ECONOMY GLOBAL ISSUES WTO AND DOHA ROUND NEOLIBERALISM ORGANISATIONS FOR FACILITATING GLOBALISATION ON GOING DEBATE RESPONDING TO GLOBALISATION ACTIONS BY INDIA CONCLUSION REFERENCES 24 30 32 33 37 38 42 43 23 PAGE NUMBER 6 7 9 12 13 18 20 22
Many reasons have facilitated its growth. Neoliberalism. Many MNC’s have made their presence felt worldwide.ABSTRACT
Globalization is a term which is gaining immense importance in today’s world. which will give equal opportunities to all the nations to navigate the global seas.The inevitability of international business for organization is very well expressed by many management experts. Globalization has gone through many historical phases. There are many global issues also related with the
globalization like WTO and DOHA round. Globalization has its impact on every sector of the economy across the world. and there are some trade and economy related issues also. This report deals with all the aspects mentioned herein.
. When a firm decides to enter the international arena it must make a choice regarding different strategies to be adopted. The aim of every economy must be to go for inclusive globalization.
Historically. services. And the global environment refers to the global factors that are relevant to business such as the WTO principles and agreements. In this chapter we will restrict it to mean the increased economic integration of countries through the movements of goods. conducted between individuals and business in multiple countries. A firm in international business encounters different sets of environment: Internal environment Domestic environment Foreign environment Global environment
The competence of a firm to do International Business depends on a number of internal factors such as the emission and vision of the firm. Differences in the business environment between regions or nations may call for different business strategies. International business is the economic system of exchanging goods and services. These restrictions have gradually been significantly reduced over time. the people in the organization. It describes all commercial transactions that take place between two or more countries for profit.INTRODUCTION International business is a term which involves import and export of goods and services manufactured and marketed by MNC are to source globally. societies and cultures across the globe through better communication and increased economic interaction. factors of production. Foreign environment refers to the environment of the relevant foreign market.
. etc. and ideas across international borders.
The term globalization can broadly be defined as the integration of regions. the attitude. domestic environment includes micro and macro environment. India has had a lot of restrictions on trade in goods and services as well as capital flows.
It has opened the door of many new opportunities as well as formidable challenges. some people fear cultural and social integration even more than economic integration. Therefore. With all its promises on the overall qualitative improvement of life and social harmony.Ever since the term ‘globalization’ appeared for the first time in the second half of twentieth century no other word has meant so many different things to different people and has evoked as much emotions. On the other hand. technologies. The forces of globalization affect virtually every country in the world. (b) movement of capital and (c) flow of finance. Broadly speaking. Besides. services. the term ‘globalization’ means integration of economies and societies through cross country flows of information. political and economic. While everyone welcomes the new opportunities that has emerged one cannot simply leave those negative elements unattended. some see it as the saviour of universal peace and prosperity. In fact. capital. finance and people. rising mercury of its negative elements some condemn it as a new kind of chaos. Cross border integration can have several dimensions – cultural. ideas. understand and manage globalization doing our best to harness its benefits and keep those negative consequences at bay. the main task now is to analyze. there is also the channel through movement of people. All spheres of life–social. one can see this happen through the three channels of (a) trade in goods and services. Limiting ourselves to economic integration. cultural and economic–have been subjected to both the positive and negative elements of globalization. political.
. social. goods.
however. Privatization and Globalization in India (LPG). Secondly. who must ensure the benefits of globalization be distributed to all the regions/states of Indian union. to what extent the high growth rate achieved so far has been translated into development for the well-being of its people? It is all the more necessary to ascertain the magnitude of development because development shouldn’t be seen as mere enhancement of national or personal income as it alone cannot serve the objective of securing the socio-economic equality. With the opening of economy. An array of reforms was initiated with regard to industrial. Fiscal deficit was also high and NRI's were not interested in investing in India. The Indian economy was in major crisis in 1991 when foreign currency reserves went down to $1 billion and inflation was as high as 17%. even though globalization is an uneven process with unequal distribution of benefits and losses. leading to widening disparities. considering the size and diversity of the country. better skill labour and work culture.This has posed a great challenge to academicians and policy makers.
. India’s attempt to tackle the problems of income inequalities has been going on since independence under the centralized planning system. was to make the Indian economy one of the fastest growing economies in the world. failed to provide the necessary growth impetus to the poorer states to reduce regional disparities in any meaningful manner in spite of four decades of economic planning. investor friendly environment and more importantly states which can reform themselves in accordance to the need of the market oriented economy have attracted much of the private investment–both national as well as foreign. These states have grown much faster than states which are not.GLOBALISATION IN INDIA In early 1990s the Indian economy had witnessed dramatic policy changes. It. shrinking role of government would ultimately be a failure to achieve the set objective. In the post globalization era. It also heralded the integration of the Indian economy into the global economy. states with better infrastructure facilities. trade and social sector to make the economy more competitive. The idea behind the new economic model known as Liberalization. The economic changes initiated have had a dramatic effect on the overall growth of the economy.
According to Sen any reform programme should consists of three R’s–reach. A significantly amended locational policy in tune with the liberalized licensing policy is in place. yet a popular cynicism among the political circle in particular.
• Dismantling of The Industrial Licensing Regime At present. privatization and liberalisation policies are moving along as well. In short. most of the public sector undertakings have been/ are being sold to private sector .High growth rate achieved so far is a big accomplishment as the resources so generated could be utilized for developmental purposes to meet the desired social ends. No 10
. composition and nature of that growth do to the lives and freedoms of the people involved. only six industries are under compulsory licensing mainly on accounting of environmental safety and strategic considerations.4 It would. achievement of higher growth rate should be reflected in terms of quality of life of the people. The failure to realize the value of high growth is the main reason for the rejection of ‘shining India/feel good factor’ slogan of the ruling party in 2004 general election. range and a reason–which every responsible individual should analyze. In fact. understand and act accordingly. however.
• Disinvestment-In order to make the process of globalization smooth. as development covers much wider range and value. be highly injustice and misleading to interpret economic growth and economic development synonymously. this measure was taken in order to resolve the BOP crisis. STEPS TAKEN TO GLOBALISE THE ECONOMY • Devaluation: The first step towards globalization was taken with the announcement of the devaluation of Indian currency by 18-19 percent against major currencies in the international foreign exchange market. The values of high growth often depend on what the size. This implies that the higher growth rate achieved so far in the post globalization period could not be translated in terms of improvement in the quality of life of the common people. Under the privatization scheme.
opening up B2B e-commerce. inter alias. Government has extended some concessions specially for NRIs and overseas corporate bodies having more than 60% stake by NRIs. tea plantation (upto 100% subject to divestment of 26% within five years to FDI). No institution whether a business.
THE GROWING RELEVANCE OF GLOBALIZATION The inevitable of globalization for organization is very well expressed by management guru Peter Druckerin his management challenges for 21st century. enhancement of FDI limits in private sector banking.”
. The Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition. Some of the recent initiatives taken to further liberalise the FDI regime. “All institution has to make global competitions a strategicgoal. any place in the world.
• Allowing Foreign Direct Investment (FDI) across a wide spectrum of industries and encouraging non-debt flows.industrial approval is required from the government for locations not falling within 25 kms of the periphery of cities having a population of more than one million. defence industry (upto 26%). • Non Resident Indian Scheme the general policy and facilities for foreign direct investment as available to foreign investors/ Companies are fully applicable to NRIs as well. etc. development of integrated townships (upto 100%).unless it measures up to the standards set by the leaders in its field. include opening up of sectors such as Insurance (upto 26%). Internet Service Providers (ISPs) without Gateways. In addition. allowing FDI up to 100% under the automatic route for most manufacturing activities in SEZs. a university or a hospital can hope to survive let alone to succeed.
ethnicity and race • International relation more complex and fluid • Global environment problem recognized • Global mass media via space technology
. Asia and the Americas • Colonialism • Individual. The struggle for hegemony phase (1952-1969): • League of Nations and UN • Second World War • Emergence of third World War 5.HISTORICAL PHASES OF GLOBALIZATION 1. The germinal phase (Europe. The uncertainty phase (1969-1992): • Exploration of space • World communities based on gender. 1400-1750): • Dissolution of Christendom and emergence of state • Communities • Catholic church • European exploration of Africa. 2. The take-off phase (1875-1925): • First World War • Mass international migration and restrictions thereon 4. The incipient phase (1750-1875): • Establishing of nation state • Citizenship and passports • International exhibitions and communication agreements 3.
is beneficial and that restrictive trade practices impede growth. one country’s growth is not constrained by its own domestic savings. in relation to trade in goods and services.
1) Trade in Goods and Services
According to the standard theory. international trade leads to allocation of resources that is consistent with comparative advantage. Emerging economies will reap the benefits of international trade only if they reach the full potential of their resource availability. in general. Under these circumstances.
3) Financial Flows
The rapid development of the capital market has been one of the important features of the current process of globalization. The inflow of foreign capital has played a significant role in the development in the recent period of the East Asian countries. This will probably require time. That is the reason why many of the emerging economies. While the growth in capital and foreign exchange markets have facilitated the transfer of resources across borders. “Special and differentiated treatment”. It is accepted that international trade. This results in specialization which enhances productivity. have moved over to a policy of outward orientation. Capital mobility enables the total savings of the world to be distributed among countries which have the highest investment potential.PRO’S OF GLOBALIZATION The gains from globalization can be analyzed in the context of the three types of channels of economic globalization identified earlier. the gross turnover in foreign exchange markets has been extremely large. However. That is why international trade agreements make exceptions by allowing longer time to developing economies in terms of reduction in tariff and non-tariff barriers. there is one major concern. Some other gains are:
. which originally depended on a growth model of import substitution.
2) Movement of Capital
Capital flows across countries have played an important role in enhancing the production base. as it is very often called has become an accepted principle.
Competition keeps prices low.
The steady of cash flows into the developing countries decreases the dollar difference.
Politics is emerging and the decisions taken are beneficial for the people worldwide. Cross cultural communication between two countries. Decrease in brain drain.
market. Influx of information between two countries.
sector. as a result inflation is less likely to occur. governments of countries show concern about each other.
There is a worldwide market for the companies and for the people there is more access to products of different countries. there is a global market for companies to trade their products and a wider range of option for people. Ecological imbalances melted out. Advancement in technology.
a case has been built up for special and differential treatment in relation to developing countries. there are two changes with respect to international trade which may work to the advantage of the developing countries:i) The industrially advanced countries are vacating certain areas of production. there are two major concerns.
1) Globalization leads to a more unequal distribution of income among countries and within countries.
With the advent of information technology. Specialized human skills will become the determining factor in the coming decades. However.CON’S OF GLOBALIZATION
On the impact of globalization. the role of human resources has emerged as more important. By and large. While trade benefits all countries. Productive activities are becoming “knowledge intensive” rather than “resource intensive”. This is the reason why even in the present trade agreements. These can be filled in by developing countries. The technological base of these countries is not only wide but highly sophisticated. greater gains accrue to the industrially advanced countries. The argument that globalization leads to inequality is based on the premise that since globalization emphasizes efficiency.
International trade is no longer determined by the distribution of natural
resources. Under each major concern there are many related anxieties. this treatment provides for longer transition periods in relation to adjustment. gains will accrue to countries which are favourably endowed with natural and human resources.
As the nations come together whether it be in the political. some sacrifice of sovereignty is inevitable. In a highly integrated world economy.
2) Globalization leads to loss of national sovereignty and countries are finding it increasingly difficult to follow independent domestic policies. These two issues have to be addressed both theoretically and empirically.While there is a divide between developing and the advanced countries even in this area – some people call it the digital divide . What will be required is a balancing mechanism to ensure that the handicaps of the developing countries are overcome. it has to be noted that while globalization may accelerate the process of technology substitution in developing economies. The higher growth rate achieved by an economy can be at the expense of declining incomes of people who may be rendered redundant. Apart from the possible unequal distribution of income among countries. these countries even without globalization will face the problem associated with moving from lower to higher technology. then part of the resources can be diverted by the state to modernize and re-equip people who may be affected by the process of technology up gradation. social or economic arena. The argument is the same as was advanced in relation to unequal distribution among countries.it is a gap which can be bridged. 16
. it has also been argued that globalization leads to widening income gaps within the countries as well. Globalization may benefit even within a country those who have the skills and the technology. If the growth rate of the economy accelerates sufficiently. Capital and technology are fluid and they will move where the benefits are greater.
The loss of autonomy in the pursuit of economic policies. A globalized economy with increased specialization can lead to improved productivity and faster growth. it is true that one country cannot pursue policies which are not in consonance with the worldwide trends. The constraints of a globalised economic system on the pursuit of domestic policies have to be recognized. In this context. This can happen both in the developed and developing economies.
. There are experts.Globalization is causing Europeans to lose their jobs as work is being outsourced to the Asian countries. When countries are inter-related strongly.
Some other demerits are: It leads to competition for the small domestic players of company 2. Poor countries are exploited by the richer countries where the workforce is taken advantage of and low wages are implemented. as integration gathers speed. a small spark can start a large conflagration. The downside to globalization essentially emphasizes the need to create countervailing forces in the form of institutions and policies at the international level.3) Globalization leads to insecurity and volatility. Global governance cannot be pushed to the periphery. Panic and fear spread fast. It is becoming hard for the countries to ask their public to go through the pains and uncertainties of structural adjustment for the sake of benefits yet to come. The cost of labor in the Asian countries is low as compared to other countries. who believe that globalization is the cause for the invasion of communicable diseases and social degeneration in countries.
When GDP is calculated on a purchasing power parity basis. which picked up from 5. This is major improvement given that India is growth rate in the 1970's was very low at 3% and GDP growth in countries like Brazil.8% in 1996-97. It is thus clear that a globalising economy. Though India's average annual growth rate almost doubled in the eighties to 5. Though growth rates has slumped to the lowest level 4. Rather. Globalisation has intensified interdependence and competition between economies in the world market. Growth rates have slowed down since the country has still been able to achieve 5-6% growth rate in three of the last six years.IMPACT OF GLOBALISATION ON DEVELOPING COUNTRIES ESPECIALLY INDIA
The implications of globalisation for a national economy are many. they are influenced by both domestic and international policies and economic conditions. in decision-making at the national level.9% it was still lower than the growth rate in China.
.6% in 1990-91 to a peak level of 77. Korea. The pick up in GDP growth has helped improve India's global position. As a result domestic economic developments are not determined entirely by domestic policies and market conditions. Indonesia. Consequently India's position in the global economy has improved from the 8th position in 1991 to 4th place in 2001. India is Global: The liberalisation of the domestic economy and the increasing integration of India with the global economy have helped step up GDP growth rates. A Global comparison shows that India is now the fastest growing just after China. Korea and Indonesia. while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world.3% in 2002-03 mainly because of the worst droughts in two decades the growth rates are expected to go up close to 70% in 2003-04. This is reflected in Interdependence in regard to trading in goods and services and in movement of capital. and Mexico was more than twice that of India. This constrained the policy option available to the government which implies loss of policy autonomy to some extent.
But it is not the only reason for this often unrecognised progress. The growth of Indian economy very much depends upon rural participation in the global race. Despite this progress. poverty remains one of the most serious international challenges we face up to 1.2 billion of the developing world 4. good national polices . If the proportion living in poverty had not fallen since 1987 alone a further 215million people would be living in extreme poverty today. Understanding the current status of globalisation is necessary for setting course for future.Globalisation and Poverty: Globalisation in the form of increased integration though trade and investment is an important reason why much progress has been made in reducing and global inequality over recent decades. But the proportion of the world population living in poverty has been steadily declining and since 1980 the absolute number of poor people has stopped rising and appears to have fallen in recent years despite strong population growth in poor countries. For all nations to reap the full benefits of globalisation it is essential to create a level playing field.
. President Bush's recent proposal to eliminate all tariffs on all manufactured goods by 2015 will do it. sound institutions and domestic political stability also matter. After implementing the new economic policy the role of villages got its own significance because of its unique outlook and branding methods.8 billion people still live in extreme poverty.
and the Internet. An increase in interaction of national economic systems all over the world through the growth in international trade. The world had become “flat” in terms of how information is shared and received. investment and capital flows is seen as a worldwide drive toward globalization. communication and computation for a firm to locate different phases of production in different countries. The other factors has to do with the increasing liberalization of trade and capital markets: more and more governments are refusing to protest their economies from foreign competition or influence through import tariffs and non-tariff barriers such as import. the business sector has done well to adapt and exploit the enormous advantages of scientific and technoinnovations to improve their operations and bottom-line. Technology gave birth to several innovations in telecommunications such as the local and international direct dial telephone system. how business and trade is done. computers. TECHNOLOGICAL ADVANCEMENTS FACILITATING GLOBALIZATION Technological developments are considered as the main facilitator and driving force of globalization. but since the mid-1980’s it has improved considerably globalization is driven by how much factors: one involves technological advances that have lowered the cost of transportation. In this era of rapid technological advances. These innovations are used to improve the performance of business organizations in terms of operations and marketing. export restraints and legal prohibitions.
.DRIVES TOWARDS GLOBALIZATION Globalization started after World War II. Science and technology has broken down walls and divisions that have kept many countries and people apart. and how people from different countries interact with each other. fax machines.
Indeed. accounting services. It has enabled trouble-free communication during a business meeting or in the middle of a business production process. distance. people were afraid that it would usher in an era of unprecedented monopoly and control over the world economy by a few powerful. these sweeping changes have also helped companies to improve their profitability and expand their market reach. The good news is. The BPO industry actually includes much business such as the contact center services. and other back-office services Time. web-design. The Internet and globalization gave birth to new industries such as Business Process Outsourcing or BPO. After economic safety nets were put in place. and geography are fast becoming irrelevant when it comes to doing business due to globalization and technological advancements.In the early days of globalization.
. more advanced nations. the Internet and the phenomenon called globalization revolutionized the way business and trade is done. it is now possible for small countries to gradually penetrate the market of the larger. industrialized nations. The Internet has made it possible to communicate with other people and companies across the oceans in real-time.
Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing. know-how or some other skill provided by the licensor"
DIFFERENT ENTRY MODES Exporting
Exporting is the most traditional and well established form of operating in foreign markets. trademark. processing. Exporting can be defined as the marketing of goods produced in one country into another.Once the firm has decided to enter the international arena it must make a choice regarding the strategy to be adopted for organizing its foreign business activities.
The rating agencies which rate investment risks in countries for global investors. EPZs serve as an "entry" into a market. Exports now finance over 80% of imports. More and more companies are opening branch offices/subsidiaries in other countries and are making their presence felt. During 2001-2009 we had surplus in current account ranging between 07-08% of GDP.86% in 2003 from . have upgraded India’s rating. Exporters are responding well to sweeping reforms in exchange rate and trade policies. Tata’s. International confidence in India has been restored.
. Ranbaxy Infosys etc.53% in 1991. Example: Asian paints. Exchange rate for the rupee has remained almost steady. EFFECT OF GLOBALIZATION ON INDIAN ECONOMY India’s share in the world trade has risen to . A fluctuation in the U. Markets have stared responding to the movements ahead. They are primarily aninvestment incentive for would be investors but can also provide employment for the host country and thetransfer of skills as well as provide a base for the flow of goods in and out of the country.
Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation". improved quality of goods. Joint ventures are a more extensive form of participation than either exporting or licensing Export processing zones (EPZ)
Whilst not strictly speaking an entry-strategy.S market or UK market has started affecting Indian market. Certain benefits have accrued to the Indian consumer in the form of large variety of consumer goods.
At issue throughout has been major differences regarding the WTO's proper objectives and direction. but extremely important story is that the underlying cause of the breakdown is the growing rejection of the WTO. Since the Doha Round's 2001 launch. The collapse of the Doha Round WTO expansion talks offers an extraordinary opportunity for a fundamental re-think of the direction of the global economy. by many people worldwide based on this model's effects on their lives.GLOBAL ISSUES RELATED TO GLOBALISATION
WTO Doha “Development” Trade Round Collapse.
. every deadline on issues from service sector liberalization to industrial tariffs has passed. came as no surprise. 2006
Why the WTO Doha Round Talks Have Collapsed – and a Path Forward The collapse of the World Trade Organization (WTO) Doha Round on July 24. social. 2006. popular opposition is now a significant counterforce pressuring many WTO member nations to reject the agenda pushed by the world's largest multinational corporations. and more broadly of the corporate-led globalization model. which traditionally have used the WTO Secretariat and negotiators of the world's most powerful countries to write the rules of the global economy in favor of expanding their profit margins.was simply jettisoned after the Cancun WTO summit imploded.adding new foreign investor rights and limits on countries' competition and procurement policies -. while economic. and environmental conditions have worsened in many rich and poor countries alike. To date. In 2004 half of the original Doha agenda -. But the under-recognized. A decade into the WTO experiment. it is clear that the WTO model of corporate globalization has not delivered the promised benefits of increased economic prosperity.which countries' failure to make specific agricultural concessions is to blame. most press coverage of the Doha Round collapse has focused on the blame game -. Effectively.
" However. while subsistence farmers -. after a decade of damaging results. social movements and NGOs representing the populations of poor countries cheered. Put another way.23 percent of world GDP. many people in the 149 WTO signatory nations have made clear their opposition to more of the same. This was before the World Bank dramatically revised downward its projections of Doha Round gains and revealed that a long list of poor countries would be net losers under the likely outcome. the new research revealed that under the "likely" Doha scenario.a much. more recent World Bank studies based on revised analysis found extremely limited possible gains from a "Doha Round" overall. and European editorials declared the Doha Round collapse as disaster for the poor.The Doha Round was dubbed as a "Development Round. the actual texts reveal an agenda aimed at expanding the scope of the existing WTO regime. These studies also showed that the alleged gains that are projected to accrue to Brazil and India would be largely concentrated in those countries' agribusiness and manufacturing industries respectively. While initial projections by the World Bank were $832 billion. Given the record of the WTO decade.14 percent of projected developing country GDP by that year. Yet. it is a little less than one cent per person per day to the developing world. much larger percentage of those populations -. The most likely Doha scenario the World Bank reviewed would yield benefits of only $54 billion to the world by 2015. Worse. Bangladesh. the actual texts reveal an agenda aimed at expanding the scope of the existing WTO regime. the Middle East. While U. or about four cents per person per day to the world as a whole.S.would see tiny gains or net losses. much of Africa and (notably) Mexico would actually face net losses. with developing countries receiving a meager 16 percent of those gains.
." However. These projections amount to a miniscule 0. Meager Projected Doha Round Gains for a Few and Net Losses for Many The Doha Round was dubbed a "Development Round. proponents of the Doha Round agenda sought to change the debate away from the WTO's performance and onto prospective future gains. or about 0.
The World Bank findings are key to understanding the current political dynamic because many countries only reluctantly entered into WTO expansion talks at Doha in 2001 after being promised a "development" round aimed at rectifying imbalances left over from the original 'Uruguay Round" multilateral negotiations that hatched the WTO." That means they capture alleged savings on consumer food prices as gains. a group of 100 developing nations had tabled an alternative agenda for negotiations. to the negotiations as a mechanism to help the poor. Indeed. First of all. called the Implementation Agenda. however. but fail to show a loss if millions of subsistence farmers. while pursuing policies geared to fatten corporate profit margins. which some economists estimate outweigh the projected gains. So while the media still refers. in that they project gains from agriculture and goods liberalization without taking into account many costs of Doha implementation.There are several key problems with the studies. the models fail to adequately take into account the loss in tariff revenue for developing countries. The Implementation Agenda was the developing countries' counter-initiative after they had rejected the "Millennium Round" WTO expansion agenda at the 1999 Seattle WTO summit. which the United Nations Conference on Trade and Development estimated would be 2 to 4 times the projected gains for developing countries from the Doha WTO expansion.
. where the talks that have just collapsed were started. the economic models used in the studies "assume full employment. lose their livelihoods. which consisted of specific fixes needed to existing WTO terms. they fail to include the increased costs that consumers worldwide pay for medicines due to pharmaceutical monopolies. in fact those pushing WTO expansion merely used the false promise of poverty reduction to get the talks launched. who represent nearly half of the developing world. In addition." And finally. even for the few developing country "winners. These flaws have rarely been mentioned in media reports touting alleged "gains" for the poor. at the 2001 Doha WTO Ministerial. without attribution.
. environmental. the International Labor Organization provides core labor standards. the focus of energy should be on how the world's governments can develop a multilateral trade system that preserves the benefits of trade for growth and development. biodiversity and waste dumping. The critics of corporate globalization are for international trade between different. air pollution. unique countries or regions when it is mutually beneficial. the evidence points conclusively to a global shift away from the neoliberal corporate globalization model embodied by the WTO based on people's experience of the model's failure. For instance. The WTO must be scaled back so that the human rights. Charter on Human Rights provide many standards on access to medicine and food security. To strike this balance between promoting trade while respecting the laws and values of different countries.N. the story to be written is about viable alternatives to the WTO .as well as to the bilateral or regional trade agreements based on the same failed model. while pruning away the many antidemocratic constraints on domestic policy making contained in the existing WTO rules. Currently. there are more than 200 multilateral environmental treaties covering toxics. and the World Health Organization and the U. With the Doha Round's collapse. the WTO trumps all other international agreements. labor and other multilaterally agreed public interest standards already enshrined in various international treaties can serve as a floor of conduct for corporations seeking the benefits of global trade rules. Instead of pinning blame on specific countries. some existing international rules and institutions need to be cut back.The Way Forward: Saving Global Trade from the WTO Taken together. These rules are designed to create a world that operates as one single homogenized global market rather than setting terms of trade between separate nations with distinct priorities. while others need to be bolstered.
and poor countries do the same in return. Such change globally requires work form us living here in the United States. Time is long overdue to change the way this policy is developed and thus whose needs it serves. Replacing the overreaching WTO agenda with fair rules aimed at facilitating trade between willing countries is the only way forward. the US was blamed for causing the collapse in July 2006. because it felt that developing countries would not open markets in the same way that it was being asked to open its and so it saw no point in continuing the talks. This will only happen through citizen activism. as it has been known. while acknowledging the unequal nature of global trade. this “tit for tat” reciprocation. would continue the unequal global trade—under the guise of equality. at the direct expense of the developing world. The WTO experiment has failed.These are but a few of the rich alternatives being discussed everywhere but at the WTO. We can start by building a majority in our elected leadership who understand that the corporate globalization system implemented by the WTO has failed American workers and farmers. in favor of. It wanted what would seem like a fair deal: rich countries open their market. dominated by industrialized countries. Without understanding context or history. The Doha “Development” Round. Hence. the rich countries. However.
. this sounds just and equal. and influenced by. as discussed throughout this site. global trade has always been unequal. was nicknamed that way to show that this round of trade negotiations were to favor poor countries’ ability to develop and prosper from global trade. failed the most basic tenants of democratic governance and failed the world. Meeting Failed because US felt developing countries were not reciprocating on trade concessions Technically. dominated by.
2006 (Emphasis Added) Trade issues expert. sometimes even blaming the poorer countries for failed talks.
. they that advocated ‘market access’ that would displace millions of farmers. — Kamal Nath.’” Failure Since The Doha Round Started In 2001 The failure was not just a sudden one. The content has to demonstrate new opportunities for developing countries. and this was a problem of their whole mindset.India’s commerce minister. The history of the Doha round has been filled with double-talk. or calling deals criticized as bad for the poor. We say the Round should correct the structural flaws and distortions in the system. All Doha talks suspended at WTO as G6 Ministerial collapses. with rich countries often demanding poor countries concede ground in unfair ways. with poor countries occassionally taking a strong stance against these demands. it’s not to open markets in developing countries in order for developed countries to have access for their subsidized products to developing countries. ‘This is not what the Doha Declaration and the Hong Kong Declaration is about. also added: “Asked if the US and EU Ministers were ‘shedding crocodiles tears’ when they said they were sorry for developing countries that the talks had failed. This Round is not for perpetuating the flaws in global trade especially in agriculture. not only free trade. and the EU and US in particular driving for more open markets in poorer countries. quoted by Martin Khor. and there should be fair trade. as good for the poor.” There is no equity in that argument. Third World Network. primarily market access of developing countries into markets of developed countries. They [US] say “we want market access and only if we get it the way we want it can we correct the structural flaws. Martin Khor. Kamal Nath noted similar things: This is a Development Round. July 24. Nath said those countries had got the whole concept of the Round inverted. completing it is extremely important but equally important is the content of the Round.
by the government
. The freedom is from the state. there is a quick historical overview as to how this ideology developed. such as regulations. Reducing public expenditure for social services. for important context. where the market is self-regulating allowing the “trickle down” notion of wealth distribution. Neoliberalism. To help accomplish this. in theory. neoliberalism as an ideology for how to best structure economies is explained. First. to maximize profits and efficiency. NEOLIBERALISM
Neoliberalism is promoted as the mechanism for global trade and investment supposedly for all nations to prosper and develop fairly and equitably. resources and enterprises in a bid to always find cheaper resources. laws. Margaret Thatcher’s TINA acronym suggested that There Is No Alternative to this. such as:
• • • •
Tariffs Regulations Certain standards. Lastly. legislation and regulatory measures Restrictions on capital flows and investment
The goal is to be able to to allow the free market to naturally balance itself via the pressures of market demands. Then. a distinction is made between political and economic liberalism. is essentially about making trade between nations easier. This section attempts to provide an overview. neoliberalism requires the removal of various controls deemed as barriers to free trade. a key to successful market-based economies. goods and services. It is about freer movement of goods. or government. It also includes the deunionizing of labor forces and removals of any impediments to capital mobility. such as health and education. The main points of Neoliberalism includes:
The rule of the market — freedom for capital.
1994). Nobel Laureate in Economics and now strong opponent of the ideology pushed by the IMF and of the current forms of globalization. to allow market forces to act as a self-regulating mechanism Privatization of public enterprise (things from water to even the internet) Changing perceptions of public and community good to individualism and individual responsibility.•
Deregulation. because it is impossible to separate economic issues from social and political issues. History. Politics is the control of the economy. political science. And as J. In most textbooks and classrooms. not only are these three fields of study separated.
. Under free enterprise. former World Bank Chief Economist (1997 to 2000). there have been many innovative products. (Institute for Economic Democracy. Smith has argued: One cannot separate economics. Some 3 billion people — or half of humanity — live on under 2 dollars a day 86 percent of the world’s resources are consumed by the world’s wealthiest 20 percent Joseph Stiglitz. notes that economic globalization in its current form risks exacerbating poverty and increasing violence if not checked. and history. p. is that story. obscuring the close interconnections between them.W. — J. 22. The World’s Wasted Wealth 2. Unfortunately. when accurately and fully recorded. neoliberal policies are seeing positives and negatives. for most people in the world there has been an increase in poverty and the innovation and growth has not been designed to meet immediate needs for many of the world’s people.
Today then. Global inequalities on various indicators are sharp. but they are further compartmentalized into separate subfields. For example.W. Smith. Growth and development for some have been immense.
2) To encourage private foreign investment and credit by providing guarantee of repayment of the private investors.
.MAIN ORGANISATIONS FOR FACILITATING GLOBALIZATION THE INTERNATIONAL MONTARY FUND
The IMF was organized in 1946 and commenced its operations in March. 4) It is a sort of lending institution in foreign exchange. 5) It provides machinery for international consultations. 3) It is a reservoir of the currencies of all the member nations. 1947. 2) It provides machinery for the orderly adjustment of exchange rates. The main functions of the World Bank are: 1) To help its member countries in the reconstruction and development of their territories. 3) To promote the long term balanced growth of international trade. THE WORLD BANK
The international bank for reconstruction and development (IBRD) more popularly known as the he World Bank was formed as a part of the deliberations of Bretton Woods in 1945. The following are the major functions of the IMF: 1) It functions as a short term credit institution. The world trade organization a powerful body which broadly aims at making this world a big village where there is free flow of goods and service and where there’re no barriers to trade.
Following are the functions of WTO: 1) The WTO shall facilitate the implementation.
WORLD TRADE ORGANIZATION
The WTO came into existence on 1st January. This effectively means removing all remaining restrictions on capital flows. 4) The WTO shall monitor national trade policies. It needs to be noted that most of the empirical work on this issue is based on cross-country studies where India may or may not figure in the dataset. 3) The WTO shall handle trade disputes.
. both pros and cons of this sort of unfettered movement of capital across borders.
In the debate on the liberalization of capital flows. 5) It shall provide technical assistance and training to developing countries.
ONGOING DEBATE ON GLOBALISATION
The current state of debate on globalization can be divided into two parts:
One pertaining to the liberalization of capital flows. 2) The WTO shall provide the forum for trade negotiations among its member countries. 1995. There are. the key question is whether to make the rupee convertible on the capital account. administration and operation of world trade agreements. The other pertaining to trade liberalization. As a result. however. we are going to look at the economic theory and empirical evidence on this issue.
and greater short term exposure predicts more severe crisis. appropriate policies for redistributing the gains from trade may not be in place. to prevent the likelihood of a crisis. 34
. child labor etc. Such reversals of capital flows are very unlikely in the case of equity investments and even long-term bond investments. According to the Reserve Bank of India (RBI) the short term debt to reserves ratio for India stood at 0. however. unemployment.15 at the end of June 2009. The minimum maturity for external commercial borrowing for Indian businesses is fixed at 3 years by the RBI. Rodrik and Velasco (2000) thus argue that the ratio of short term debt to reserves is a good predictor of crisis.This ratio suggests no danger of an imminent financial crisis in India. However.As far as the trade liberalization debate is concerned. on which the political support for trade reforms crucially depends. Upon closer examination one finds that the capital reversals are associated mainly with short term bank loans which are recalled by foreign banks in the face of an imminent crisis and are not rolled over. the greater a country’s exposure to short term foreign currency lending. However. in principle. Therefore. As is well known. a country should rely more on equities and long term debts rather than short-term borrowing. everyone can be made better off. trade reforms in many of the Latin American countries have been reversed in response to public outrage over the adverse distributional consequences of free trade. Since the gains to the winners tend to outweigh the losses to the losers. inequality. free trade also creates winners and losers. In this context.. This number is tiny in comparison to the ratios in the East Asian countries prior to the financial crisis. the greater its propensity for financial crises (see Rodrik and Velasco 2000 for evidence). there is general agreement among economists and policymakers that free trade provides aggregate gains for a country. it becomes important to analyze the impact of trade liberalization on direct outcomes of interest such as poverty. it should be kept in mind that the low ratio is mainly a result of restrictions on short term bank borrowing by Indian businesses in foreign currency. FINANCIAL GLOBALISATION Financial globalization has been blamed for the recent financial crises in Latin America and East Asia. The shortterm debt comprises mainly trade credit. Therefore.
then the capital inflows could cause a decrease in investment via the appreciation of the real exchange rate. As far as the Indian experience is concerned. This would spur investment and growth. The REER appreciated by 12% between July. it was 10% less than its level at the end of 2007. The REER has depreciated since 2007 and in October. as opposed to nontraded services. A surge in capital inflows can lead to an appreciation of real exchange rate. Gourinchas and Jeanne (2007) also find that countries relying more on foreign capital have grown slowly. Despite the policy of sterilized intervention. Rajan and Subramanian (2007) find evidence that countries that finance more of their investments with domestic saving grow faster. 2006 and July. capital account liberalization can also impose costs through the appreciation of the local currency. Prasad. but can increase the profitability of the tradable sectors by depreciating the real exchange rate. If investment opportunities are mainly in tradable manufacturing. which in turn reduces the profitability of the tradable sector relative to the non tradable sector of the economy.In addition to the possibility of a financial crisis. As pointed out by Prasad and Rajan (2008).
. large inflows of capital have put an upward pressure on the real exchange rate. In arguing against capital account liberalization and for improvement in domestic financial institutions. 2007 and the exporters were compensated for the loss of competitiveness through direct fiscal transfers. Consistent with this hypothesis. 2009. The RBI has mostly adopted a policy of sterilized intervention to prevent the real exchange rate from appreciating. Rodrik and Subramanian (2009) suggest that the latter can not only increase the amount of savings available for investment. the accumulation of reserves through sterilized intervention effectively involves buying low interest bearing securities from foreign governments financed by high interest bearing domestic debt. the policy of sterilized intervention has limitations. the real effective exchange rate (REER) has fluctuated over time. However.
5 However. why not undertake direct reforms in the financial sector rather than rely on capital mobility to indirectly improve financial institutions? As well. technology etc. it is possible that access to foreign borrowing may tempt the government into running larger deficits. India has substantially liberalized its FDI regime . one cannot replicate the studies on FDI in the retail sector done for other countries. It would be interesting to study their impact on jobs in the retail sector to get a sense of what to expect from FDI. retail sector in particular. several domestic corporations like Reliance. which is likely to have a positive effect on the host country. real estate and banking in particular. Since the beginning of 1990s. Another controversial area from the point of view of FDI is agriculture. Now. There is considerable controversy over the speed of FDI liberalization in general and its speed in the retail sector. Tata. Finally. FDI is prohibited only in a handful of sectors/activities such as multi-brand retail. an approach that has been followed in India. any policy allowing FDI in agriculture needs to be coordinated with the state government(s) involved. roads. FDI needs to be distinguished from portfolio investment because the former is a real transaction involving the transfer of skills. the well being of these displaced workers will be adversely affected and can be a source of major social instability. attracting FDI for infrastructure development (education.
. lottery. The chief concern of people opposed to rapid liberalization of FDI in these sectors. and others have entered the organized retail sector. is the massive labor displacement that a flood of FDI may cause.Given the high fiscal deficit in India. ports and airports) should be a policy imperative. atomic energy. Since FDI is not permitted in multi-brand retailing in India. energy. Since agriculture is a state subject in India. In the absence of rapid job creation in the manufacturing sector. the benefits of competition from the presence of foreign banks can be reaped even without relaxing all capital controls by allowing Foreign Direct Investment (FDI). betting and gambling. As far as the improvement in financial services is concerned. given the poor state of infrastructure in India.
e. the following measures have been taken: 1) Convertibility of rupee The most important measure for integrating the economy of any country is to make its currency fully convertible i. allow it to determine its own exchange rate in the international market without any official intervention. It is. While to some. it represents a brave new world with no barriers. In addition. totally removed the quantitative restrictions on foreign trade. being a member of WTO has since April 2001. for some others.
. 3) Opening the capital to foreign capital The government has taken a number of measures to encourage foreign capital in India. necessary to have a clear understanding of what globalization means and what it stands for. if we have to deal with a phenomenon that is gathering momentum. India. import duties on a wide range of capital commodities have been drastically cut down. it spells doom and destruction.RESPONDING TO GLOBALIZATION: INDIA’S ANSWER
Globalization has become an expression of common usage. MEASURES TOWARDS GLOBALIZATION To pursue the objective of globalization.. therefore. The foreign direct investment floodgates have been opened. free trade of all terms except negative list of imports and exports has been allowed. 2) Import liberalization As per the recommendation of the World Bank.
Demands on the Trading System Without being exhaustive. the demands of the developing countries on the multilateral trading system should include (1) establishing symmetry as between the movement of capital and natural persons. (2) delinking environmental standards and labour related considerations from trade negotiations. (4) adequate protection to genetic or biological material and traditional knowledge of developing countries. and (b) steps that India should take to realize the full potential from globalization.India’s Stance
At the outset it must be mentioned that opting out of globalization is not a viable choice for India in this environment of growing globalization. and (6) effective restraint on industrialized countries in initiating anti-dumping and countervailing action against exports from developing countries. This framework should include (a) making explicit the list of demands that India would like to make on the multilateral trade system. (3) zero tariffs in industrialized countries on labour intensive exports of developing countries.
. An appropriate framework must be evolved to wrest maximum benefits out of international trade and investment. (5) prohibition of unilateral trade action and extra territorial application of national laws and regulations.
However. Admittedly. in this context. Actions by India The set of measures that should form part of the action plan must relate to strengthening India’s position in international trade. It is. 2) We should attempt to take all efforts to ensure that we continue to remain a frontline country in the area of skilled manpower.
. They have often indulged in “double speak”. India’s rise to the top of the IT industry in the world is a reflection of the abundance of skilled manpower in our country. There have been protracted negotiations at WTO in reforming the trade system. which several developing countries lack. India can attract greater foreign investment. means reasonable balance on the fiscal and external accounts. the tariff and non-tariff barriers are coming down. Stability. therefore. The emphasis so far has been on “free” rather than “fair” trade. there are apprehensions that the concerns of developing countries are not being addressed adequately. India is different and is in a stronger position to gain from international trade and investment. In that sense. they should come forward to reduce the trade barriers and subsidies that prevent the products of developing countries from reaching their markets. 1)India has many strengths. While requiring developing countries to dismantle barriers and join the main stream of international trade. Trade barriers impose a serious burden on the developing countries. if we can accelerate our growth with stability. in India’s interest to ensure that there is a greater freedom of movement of skilled manpower. It is important that if the rich countries want a trading system that is truly fair. It is in this context that the rich industrially advanced countries have an obligation. they have been raising significant tariff and non-tariff barriers on trade from developing countries.The purpose of the new trading system must be to ensure “free and fair” trade among countries.
We need a truly active agency in India to encourage Indian firms to file patent applications. 5) Voice our concerns. we must build the complementary institutions necessary for maximizing the benefits from international trade and investment. The need for greater efficiency in the management of natural resources like land. they need to be enacted quickly. We must make good use of the extended time given to developing countries to dismantle trade barriers. we need welltrained and highly skilled people. we must identify and strengthen our comparative advantages. water and minerals has become urgent. Wherever legislations are required to protect sectors like agriculture. the natural resources of our country are not large.7 per cent of world’s population whereas it has only 2. In a capital-scarce economy like ours. In fact. This has to permeate all walks of our life. At the same time.3) Maintain a competitive environment domestically so that we can take full advantage of wider market access. In cooperation with other developing countries modify the international trading arrangements to take care of the special needs of such countries. the country filed only 162. It is this two-fold approach which will enable us to meet the challenges of globalization which may be the defining characteristic of the new millennium. South Korea has been able to file in recent years as many as 5000 patent applications in the United States whereas in 1986. we had taken a long time to pass the Protection of Plant Varieties and Farmers’ Rights Act. efficient utilization of our capacity becomes even more critical. India accounts for 16. For all of these things to happen.0 per cent of world’s land area. Contrary to the general impression. China has also been very active in this area. In effect. 6) India’s growth lies in improving productivity and efficiency.
. 4) Be active in ensuring that our firms make effective use of the new patent rights.
Globalization and Technological changes Changes in the foreign trade and foreign investment policies have altered the environment in which Indian industries have to operate. difficult. no doubt. the Indian Government should be alert to ensure that Indian industries are not the victims of unfair trade practices. At the minimum. The path of transition is. the policy environment became strongly industry friendly. it must be said to the credit of policy makers that once the potential in this area was discovered. they must be able to meet global competition.
. Indian firms are becoming and have to become global players. Indian industry has a right to demand that the macro economic policy environment should be conducive to rapid economic growth. A greater integration of the Indian economy with the rest of the world is unavoidable. The safeguards available in the WTO agreement must be fully utilized to protect the interests of Indian industries. However. It is. The search for identifying new competitive advantages must begin earnestly. however. The configuration of policy decisions in the recent period has been attempting to do that. Obviously. India’s ascendancy in Information Technology (IT) is only partly by design. India is no longer a country producing goods and services for the domestic market alone. time for Indian industrial units to recognize that the challenges of the new century demand greater action at the enterprise level. It is important that Indian industry be forward looking and get organized to compete with the rest of the world at levels of tariff comparable to those of other developing countries.
Rather. has an inherent globalizing tendency. The financial crises affecting different countries have shaken the confidence of the advocates of Globalization. and economy globalization is not merely an intensification of global interconnectedness brought about by market forces and technological change. the advocacy for globalization remains strong. There are many organizations like the IMF. integration of all the economies of the world through free trade treaties.
. it is a worldview shaped by capital and hegemonic power that aspires to establish a global system in line with the interests of capital. Capitalism. as a market-oriented system of production. which has facilitated the growth of MNC’s and continuously provides full support to them. Yet despite notable setbacks and shaken confidence. World Bank and WTO. company. It has significantly enhanced the speeding up of development of all the economies. Its impact has been on every person. The term “globalization” has quickly become one of the most fashionable buzzwords of contemporary political and academic debate.CONCLUSION
Globalization is the interaction. organization.
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