GLOBALISATION

SUMMARY TABLE OF IMPORTANT FIVE YEAR PLANS FROM 1951 TO 2017

Plans Period Focus of the Plan

1st April 1951 to 31st
1st Plan March 1956 Increase in agricultural production
Equitable distribution of production, income and wealth

2nd 1st April 1956 to 31st

Plan March 1961 Increase in industrial production
Development of heavy industry

Three Annual Plans 1st April 1979 to 31st March 1980

1st April 1980 to 31st

6th Plan March 1985 Removal of poverty
Reduction of inequality
Development of infrastructure

1st April 1985 to 31st

7th Plan March 1990 Generation of employment opportunities
Increase in agricultural productivity

Two Annual Plans 1st April 1990 to 31st March 1992

1st April 1992 to 31st

8th Plan March 1997 Fuller utilization of manpower by the turn of the century
Universalisation of elementary education
Strengthening of infrastructure

REASONS FOR ECONOMIC CRISIS IN 1991

1. Public enterprises running into major losses. More spent on welfare vis a vis revenue.
2. Government not able to repay its external debt.
3. Falling income after Gulf war
4. Foreign exchange reserves dropped to bankruptcy
5. Rising prices of essential goods like oil.
6. Slow and Unsatisfactory economic growth.
7. Indian letters of credit not honoured anymore by International banks.
8. Wide fluctuations in stock market.
ECONOMIC POLICY
Economic Policy refers to a plan of action prepared by the government for the development
of the country.
New Economic Policy (NEP) refers to all those economic reforms introduced since July 1991
or policy measures and changes which aim at increasing productivity and efficiency by
creating an environment of competition in the economy.

NEP 1991

Structural
Stabilization
Reform
Measures
measures

Stabilisation measures
These measures are Short Term Measures. These measures are intended to correct balance of
payment and inflation. These measures focussed on correcting disequilibrium in the foreign
exchange market through
1. Demand Reduction
2. Reform in trade Policy
3. Reduction in Fiscal deficit
4. Dismantling of barriers to the free flow of capital

Structural reform measures

These measures are long term measures. These measures are aimed at improving efficiency
of the economy. These measures include reforms in fiscal, exchange rates, trade and
industrial policies as well as policies concerning public sector, financial sector and capital
market. These reforms include elements such as
1. Deregulation of prices and investments
2. Changes in structure of taxation and public expenditure
3. Moderation in wage increases
4. Privatization of public enterprise
5. Greater integration with world economy

CHARACTERISTICS OF THE NEW ECONOMIC POLICY

1. Abolition of Industrial licensing
In the beginning, NEP abolished industrial licensing for all industries except 18
industries concerning social security. At present, there are only 5 industries under
compulsory licensing. They include alcohol, cigarettes, industrial explosives and
pharmaceutical industries. Thus 85 % industries are now delicensed. It means that
they need not wait for government approval to set up new projects or for expanding
existing projects.

2. Encouraging of Foreign investment

Industrial policy of 1991 approved Foreign Direct Investment (FDI) in high priority
 industries requiring high investment and technology. Initially FDI was permitted upto
51 %. Later this limit was raised to 74 % and then 100 % for many industries.
3. Entry of Foreign technology
NEP liberalized the import of foreign technology to improve the quality of goods and
services and to bring down the cost. Its main objective is to obtain international
competitiveness.
4. Reducing the role of public sector
Many changes were made in public sector policy with the objectives
1. To end state monopoly
2. Improve efficiency of public sector
3. Release capital blocked in sick public sector enterprises.
Earlier 17 industries were in public sector. The NEP has reduced this number to 8
industries and now there are only 2 industries reserved for the public sector. These are
railways and atomic energy.

5. Liberalization of imports
Import licensing controls have been abolished except for imports of consumer goods.
Almost all capital goods, raw materials, intermediaries and components have been
made freely importable. The tariff structure had been rationalised and custom duty has
been reduced.
6. Export promotion
Several incentives have been given through the EXIM (Export – Import) policy
announced periodically. Established exporters can maintain a foreign currency
account. They also allowed to raise external credit to finance their trade account.
Special Economic Zones (SEZs) are set up to promote exports.

NEP

All policies initiated

by the government
fall under 3 heads

Liberalization Privatization Globalization

LIBERALIZATION
Economic liberalization means scrapping of the undesirable restrictions, controls and
licensing over investment, imports and production.
Merits
1. Increase in foreign investment.
2. Increase in efficiency of domestic firms.
3. Rise in the rate of economic growth.
 4. Control of price.

Demerits
1. Increase in unemployment.
2. Loss to domestic unit.
3. Increased dependence on foreign nation.
4. Unbalanced development of sectors.

PRIVATISATION
Privatisation is a process which reduces the involvement of the state or public sector in a
country’s economic activities.
Merits
1. State owned companies are not competitive. So, they have inefficiencies built into the
system. Government runs the losses of such state-owned companies. It is not a good
way of using government funds.
2. Privatization leads to improvement in performance of the organization as well as the
trade sector.
3. The management and employees of the organization are motivated to take initiative
and make decisions that will improve the performance of the enterprise. Usually in
government run enterprises, the initiative of management and employees would be
very limited.
4. Privatization would help to reduce corruption in the respective government
departments.

Demerits
1. Social objectives, if any of the government run organizations would reduce.
2. Privatization would result in high employee turnover. While this would help the particular
organization perform well, the employees would be adversely affected.
3. Sometimes the output of the government enterprise would be priced at artificially low
level. When privatized, the price may increase and stabilize at a different prize and it
might be higher than the artificially low level run by the government organization.

Reasons why Privatization was not accepted in the India

1. India is a socio democratic country.
2. Privatization focuses more on profit maximization and less on social objectives.
3. Privatization has provided the unnecessary support to the corruption and unlawful
ways of accomplishments of licenses and business deals amongst the government and
private bidders.
4. Lobbying and bribery are the common issues corrupting the practical applicability of
privatization.
5. Privatization intensifies price inflation in general as privatized enterprises do not get
government subsidies after the deal and the burden of this inflation affects the
common man.
6. India not ready to give decision making power regarding what to produce, how to
produce etc. in the hands of private companies and individuals.

GLOBALIZATION
Globalisation can be defined as the expansion of economic activity across political
boundaries of a nation. Globalisation is this process of rapid integration or interconnection
between countries.
Merits
1. Increase in the volume of trade in goods and services.
2. Inflow of Private foreign capital and export orientation of the economy
3. More availability of investible funds in the form of FDI
4. Helps in development and strengthening of domestic economies of India
5. Improved productivity efficiency and healthy competition
6. Increased volume of output, income and employment.

Demerits
1. Does not aim at achieving sustainable growth
2. Has led to widening of income inequalities among various countries
3. Increase in aggravation of income inequalities within countries
4. There has been loss of autonomy.
5. There is dependence of underdeveloped countries on advanced countries.

Factors promoting Globalization

Improvement in technology has played a major role in stimulating the globalisation process:
1. Transport Technology. Rapid improvement in transport has contributed greatly towards
globalisation. Advanced technology in transport system has helped in faster delivery of goods
across long distances at lower costs. Containers for transport of goods: have led to huge
reduction in port handling costs, increased the speed with which goods can reach markets.
Airlines: the cost of air transport has fallen, this has enabled much greater volumes of goods
being transported by airlines.
2. Development of information and communication technology also has helped a great deal.
Telecommunication facilities—telegraph, telephone (including mobile phones), fax, e-mail
etc. are now used to contact one another quickly around the world, access information
instantly and communicate from remote areas. Teleconferences help in saving frequent long
trips across the globe.
3. Information technology has also played an important role in spreading out production of
services across countries. Orders are placed through internet, designing is done on computers,
even payment for designing and printing can be arranged through the internet. Internet allows
us to send instant electronic mail (e-mail)

Role of information technology in the globalization of Indian companies

Information technology is playing an important role in India today and has transformed
India's image from a slow moving bureaucratic economy to a land of innovation.
During the last few years Information Technology (IT) has played an important role in
globalisation. Internet has dramatically transformed the way in which business is conducted
nowadays. Except physical movement of products, every other transaction is possible through
internet. It has facilitated closer interaction between different countries of the world.

Airtel belonging to Bharti Enterprises is an Indian MNC company providing mobile network
services and is based solely on information and communication technology. They work on
GSM , 3G and 4G technology in India. From setting up and connecting of cell sites to
ensuring that calls, sms and data goes through information technology is used every step of
the way. They make use of IT to garner sales using E-commerce i.e selling through their
website whether it is selling of connection or selling of plans, recharges or activation of
services. Payments made while purchasing from their website is cashless and done through
online payment. Information technology plays a major role in the company’s customer
relationship management whether it is catering to customer request, helping customers with
their enquiries or even registering customer complaints. Its through the use of information
and communication technology and an online presence that an Indian company like Airtel has
become a huge MNC today with offices in over 20 countries all over the world.

Globalisation would take a long time to happen and would not have been effective and
profitable to the participating companies without the expansion of IT. This is because a long
time would be involved in sending information about matters which require quick decision-
making and in many cases the decisions would be taken too late to be effective.

Impact of globalization in India

1. For consumers, wide variety of good quality goods at lower prices are available which
leads to higher standard of living.
2. New jobs are created in industries such as cell phones, electronics , fastfoods,
automobiles.
3. Local companies have prospered through supplying raw materials to these industries.
4. Top Indian companies have gained from successful collaborations with Foreign
companies. Some of these companies have emerged as multinationals themselves.
5. Companies providing services have also benefitted from new opportunities.
However, Small manufacturers have been hit hard due to competition. In order to cut
cost of the products, employers try to cut labour cost therefor worker’s jobs are no
longer secure.

Struggle for Free and Fair Globalization

Globalization has two sides - a positive side as well as a negative side. If a balance has
to be brought about we must strive towards fair globalization. Fair Globalization means
globalization which creates opportunities for all and ensures that’s its benefits are better
shared.
On one hand, we have people with education, skill and wealth who have benefitted from
globalisation, on the other hand, there are uneducated, less skilled people who have not
benefitted from it.
The government can play a major role in ensuring that the fruits of globalisation reach
everyone, the educated and the uneducated, equally. Its policies must protect the interest not
only of the rich and the powerful, but all the people in the country.

The government should ensure that

1. Labour laws are properly implemented and the workers get their rights.
2. The government should support small producers to improve their performance till the
time they become strong enough to compete.
3. If necessary, the government should use trade and investment barriers to protect the
small producers
4. The government negotiate at the WTO for ‘fairer rules’.
5. It can also align with other developing countries with similar interest to fight against
the domination of developed countries in the WTO.

Massive campaigns and representation by people’s organizations have influenced important

decisions relating to trade and investment at the WTO. This has demonstrated that people
also can play an important role in the struggle for fair globalisation.
MULTINATIONAL CORPORATIONS
MNC are corporations that own and control production in more than one nation.
According to International Labour Organization , “ The essential nature of multinational
enterprises lies in the fact that its managerial headquarters are located in one country (home
country) while the enterprise carries out operations in a number of other countries as well
(host country).
MNCs control production facilities in more than one country . The production facilities are
acquired through Foreign Direct Investment.
Characteristics of MNCs
1. They are of giant size. The assets and sales of MNCs run into billions of dollars and
they also make supernormal profits.
2. A multinational conducts international operations.
3. It is oligopolistic in character.
4. It grows in a spontaneous and conscious manner.
5. It facilitates a multilateral transfer of resources.

Negative impact of MNCs

1. MNCs are profit oriented and are not concerned with development of the host
country.
2. Their technology is usually capital intensive and may not be suited for countries like
India.
3. MNCs create regional economic disparities.
4. Foreign remittance like payment of dividend, royalties, technical know-how and
professional services etc, put a severe drain on the foreign exchange resources of a
developing country.
5. MNCs may prove detrimental to industrial development in the long run.
6. MNC expenditure on scientific research in developing countries is negligible.
7. MNCs often resort to undesirable and corrupt practices.
8. MNCs prefer to participate in the production of mass consumption and non-essential
items.

Control of production by MNCs

1. Direct setup of factories and offices for production.
2. Set up production jointly with some of the local companies of the countries.
3. Buy up local companies and then expand production.
4. Place orders for production with small producers of the countries.

Steps by the government to attract MNCs to set up operation in the country

1. Industrial zones, called Special Economic Zones (SEZs), are being set up.
2. SEZs are to have world class facilities: electricity, water, roads, transport, storage,
recreational and educational facilities.
3. Companies who set up production units in the SEZs do not have to pay taxes for an
initial period of five years.
4. Government has also allowed flexibility in the labour laws to attract foreign
investment.
5. Instead of hiring workers on a regular basis, companies hire workers ‘flexibly’ for
short periods when there is intense pressure of work.
 6. This is done to reduce the cost of labour for the company.

Exploitation of the labour market by MNCs

1. The impact of MNCs on labour markets has been of growing concern, particularly, for
host countries.
2. The deterioration of labour market conditions for unskilled workers in many
developing countries is particularly a cause for concern.
3. Many multinational companies exploit the labour markets by making use of the
abundant unskilled labour at relatively low labour costs abroad.
4. This leads to income inequalities between developed and developing countries.
5. Many foreign investors are less than willing to invest in worker training and human
capital than are domestic entrepreneurs who ‘live in the community’.
6. Government has allowed flexibility in the labour laws to attract foreign investment.
7. These flexible laws give multinational companies a free hand to recruit or remove
unskilled labour at will leading to a fear of job insecurity in the labour market.

FOREIGN DIRECT INVESTMENT

As per the International Monetary Fund, foreign direct investment, commonly known as FDI,
"... refers to an investment made to acquire lasting or long-term interest in enterprises
operating outside of the economy of the investor."
The investment is direct because the investor, which could be a foreign person, company or
group of entities, is seeking to control, manage, or have significant influence.
It refers to investments directly made I industry or other spheres of economic activity of a
country by foreign industrial houses or MNCs with the objective of earning profits.
It is an investment made by MNCs.
FDI is an important source of financing industrial development in less developed countries.

FOREIGN TRADE
Foreign trade is the exchange of capital, goods, and services across international borders or
territories.
Foreign trade in India includes all imports and exports to and from India.
1. Import Trade : Import trade refers to purchase of goods by one
country from another country or inflow of goods and services from
foreign country to home country.
2. Export Trade : Export trade refers to the sale of goods by one country
to another country or outflow of goods from home country to foreign
country.

BILATERAL AND MULTILATERAL TRADE

Bilateral trade agreement refers to trade agreements of one country with another. This means
that trade agreements between any two countries of the world.
Multilateral trade agreement refers to trade agreements of one country with many countries of
the world. This means these are trade agreements among many countries of the world.
BARRIERS TO TRADE
Trade Barriers refers to various restrictions which are used by the government to increase or
decrease foreign trade e.g tax on import.
In the 1950s and 1960s the government put in trade barriers to protect domestic producers
from foreign competitors.
During this time competition from imports would have hampered the growth of industries.
This changed around 1991.
Starting around 1991, the government decided that the time had come for Indian producers to
compete with producers around the globe.
It felt that competition would improve the performance of producers within the country since
they would have to improve their quality.
Removal of barriers meant that goods could be imported and exported easily and also foreign
companies could set up factories and offices here.

IMPORT QUOTA
1. An import quota is a limit on the quantity of a good that can be produced abroad and
sold domestically.
2. It is a type of trade barrier that sets a physical limit on a quantity of a good that can be
imported into a country during a given period of time.
3. For example, the India may limit the number of Japanese car imports to 2 million per
year.
4. Quotas will reduce imports, and help domestic suppliers.
5. This will lead to higher prices for consumers, a decline in economic welfare and could
lead to retaliation with other countries placing tariffs on our exports.

EXPORT QUOTA
1. An export quota is a restriction imposed by a government on the amount or number
of goods or services that may be exported within a given period
2. This is done usually with the intent of keeping prices of those goods or services low
for domestic users.
3. For example, if the production of wheat is less in a given year, the government may
reduce the amount of wheat that can be exported out of the country.
4. This will help to make wheat available for domestic consumers at affordable prices.
5. This will lead to food grains being available at reasonable prices and economic
welfare, however it will have an adverse effect on the foreign currency that we could
have earned on the exports.

WORLD TRADE ORGANISATION

World Trade Organisation (WTO) is an organisation whose aim is to liberalise international
trade.
It was started on 1st January 1995 as an initiative of the developed countries.
WTO establishes rules regarding international trade, and sees that these rules are obeyed.
164 countries of the world are currently members of the WTO since 29 July 2016.
Its headquarters is in Geneva, Switzerland.

Functions of WTO
1. Administering WTO trade agreements
2. Forum for trade negotiations
3. Handling trade disputes
4. Monitoring national trade policies
 5. Technical assistance and training for developing countries
6. Cooperation with other international organizations

Criticisms of WTO
WTO is supposed to allow free trade for all, however in practice, it is seen that the developed
countries have unfairly retained trade barriers. On the other hand, WTO rules have forced the
developing countries to remove trade barriers.

Impact of WTO on the Indian Economy

1. It is expected that WTO will offer greater export opportunities to the Indian economy.
Accordingly, our share in international trade is expected to increase in the future.
2. Under Multi fibre Arrangements our textiles and readymade garments trade was
subject to Quota restriction. As per provision of the WTO all these restrictions have
been removed. It has helped India to increase its export of garment and textile.
3. Due to agreed reduction in Trade barriers and reduction in subsidies, to the domestic
producers of agricultural goods in the developed countries, prices of these goods are
expected to rise in the international market. Accordingly, India’s export of
agricultural products are expected to rise.
4. With greater stability of the International trading system through WTO, India is
expecting a marked decline in dumping as a strategy adopted by the developed
nations to exploit markets of the less developed countries.

GLOBALISATION TWENTY YEARS FROM NOW

The entire world will become one market place. People will be able to buy quality goods at
the cheapest rates. There will be increase in the volume of trade in goods and services. There
will be an increased inflow of foreign capital and more investible funds in the form of FDI.
The domestic economy of India will be strengthened and the country will be more export
oriented. Competition among producers will increase and it will benefit consumers. There
will be an increase in volume of output, income and employment.
However there may be a few negative impacts as well. Growth will happen but it will be not
sustainable growth. Income inequalities among various countries will widen especially
among developed and developing countries. There will be aggravation of income inequalities
within countries. It will lead to loss of autonomy which is a bad situation incase of industries
which operate for the welfare of the people. There will be greater dependence of
underdeveloped countries on advanced countries. Many rules and regulation of the WTO will
be more biased against developing countries.
Globalisation is inevitable It is better to accept it with open heartedly but at the same time the
government needs to adopt measure which will safeguard our national self -interest and
maximize economic gains from the world market.