INTERNATIONAL ENVIRONMENT

EMERGENCE OF GLOBALISATION
GLOBALISATION OF THE INDIAN
ECONOMY
 GLOBALISATION
• Globalization refers to the multiplicity of
linkages and interconnections between
states and societies which comprise the
present world system .
• It describes the process by which events,
decisions and activities in one part of the
world come to have significant consequences
for individuals and societies in distant parts
of the globe.
 Globalisation
• Globalization has two distinct phenomena:
• Scope: ie; widening of the extent and form
of cross-border transactions.
• Intensity: deepening of the economic
interdependence between the actions of
globalizing entities located in one country
and those located in other countries.
 Globalization
• Imp causes of Globalization:
• The pressure on business enterprises by consumers
and competitors alike , to continually innovate and
come up with new products , while improving
existing ones .
• The renaissance of market oriented policies
persued by the national Govts and regional
authorities. More than 30 countries have
abandoned centralized planning as the main mode
of allocating resources.
 Globalisation
• More than 80 countries , including India
and China have liberalized their inward FDI
policies.
• The other factors which stimulated cross
border corporate integration are :
• privatization of state owned enterprises.
• Liberalization and deregulation of markets
 Globalisation
• Globalization of Indian economy implies that :
• Commodity as well as factory market is functioning
under the influence of market forces generated in
world economy.
• Gain in efficiency to compete in world markets.
• Increase in exports , influx of foreign exchange and
private foreign capital .
• (contd)
 Globalization
• Better balance of payments position
relieves tension of default in IBRD loan
instalments.
• Higher growth path and stability.
• Promotes sourcing cheapest suppliers in
open global competitions.
• Facilitates integration with global main
stream.
 Globalisation
• For integrating Indian economy with the world
economy not only faster export growth and but
also free access to import is necessary and
accordingly import duties have been brought down
substantially
• India’s tariff structure also need to be lowered .
• new industrial policy also permits approval of FDI
upto 51% foreign equity in the case of high priority
industries and promotes MNCs.
GLOBALIZTION - condition of the
economy –post independence era
• Due to greater reliance on the working of the
closed economy, Indian economy has generated a
high cost inefficient industry.
• It has prohibited the optimum utilization of the
factors of production.
• Despite all potentialities Indian industries were not
competing with the global industries-with respect to
cost and quality.
• Monopoly houses developed under the shadow of
FERA and MRTP Acts.
• The closeness of the Indian economy prohibited
the introduction of the advanced technology
of the developed nations .
• So the globalization of the economy was
essentially needed.
• It was intended to make India an important
production centre of the world.
• It will also provide an opportunity for the
Indian Cos to become multinational concerns
 GLOBALIZATION
• It can also attract foreign investors so as to
make India a centre of the world market.
• India can utilize these avenues very well , on
account of its competitive edge over other
countries , due to its large skilled labour.
• The strategy adopted since july 1991 – for
further integration of the Indian economy
with the world economy.
 Globalisation
• For integrating Indian economy with the world
economy faster export growth and free access
to imports is necessary and accordingly import
duties were brought down substantially.
• Existing high tariff resulting in high cost
industry structure has to be lowered.
• Since globalization requires free flow of direct
investment , the industrial policy of 1991
permitted approval for FDI upto 51% of
 Globalization
• FDI up to 51% of foreign equity in the case of
priority industries and opened the door for
multinationals in a big way.
• Foreign investment will bring in new
technology and marketing expertise from
which the country will benefit.
• An open policy towards technology transfer is
also a requirement for globalization .
•
 Globalization
• One obstacle to the much needed inflow of
technology is the cumbersome approval
process – leading to delays and uncertainties.
• To overcome this , the new industrial policy
recommend that automatic approval be given
by the Govt. for high priority industries and
similar facility for non-priori.ty industries
also .
 Globalization
• NEP advocates a market friendly approach
and removal of bureaucratic controls is
expected to attract foreign capital and
technology
• Also facilitate easy movement of goods
through substantial reduction in tariff thus
pay the way for integrating the Indian
economy with the world economy .
 Globalization
• Disadvantages - external envt is going to be
more complex . There will be less social
protection for inefficiency.
• India’s globalization efforts hindered by lack
of favorable international evnvt.
• Openness of the economy to the world
competition is an invitation to multinationals
the role of multinationals is not salubrious to
developing countries..
 Globalization
• One major implication is the
internationalisation of prices – equalisation
of domestic prices with international prices.
• If some items have relatively lower prices
due to subsidization , policy adopted would
be to take away the subsidies so that the
prices would attain parity with the prices
prevailing in the international markets.
 Foreign capital
• If an underdeveloped country is interested in
rapid economic progress the country has to
import foreign capital. The need of foreign
may arise in a developing country like India
due to the foll. reasons:
• Inadequacy of domestic capital.
• Due to lack of experience domestic capital may
not flow into certain lines of production,. FC
can show the way for domestic capital.
 Foreign Capital
• Foreign capital brings with it technical
knowhow and business experience which are
equally necessary for economic devt.
• Different forms of foreign investment:
• 1. direct foreign investment - may subscribe
to the stocks and debentures of cos in India.
• Foreign Collaboration : joint participation of
foreign and domestic capital.
 Foreign capital
• Inter - Govt. Loans : U.S aid was given to
war torn countries to reconstruct their
economy.
• Loans from international institutions.