RESEARCH PAPER

Dr. Vidhya Maheshwari Prof. Loveleen Kaur Chawla

(M.B. Khalsa College, Indore) (M.B. Khalsa College, Indore)

Abstract:

Globalisation is not a new phenomenon. The period 1870 to 1913 experienced a growing
trend towards globalization. The new phase of globalization which started around the mid
20th century became very widespread, more pronounced and over changing since the 1980s
by gathering more momentum from the political and economic changes that swept across the
communist countries, the economic reforms in other countries and technological and
communication revolutions.

Globalization should not be thought of as a solution to everything. It merely provides

opportunities. Those who take advantage, they flourish and those who do not they sink.
Globalization is not supposed to produce equality of outcome but it produces equality of
opportunity for those with right mindset. Hence the developing countries have to focus on
economic restructuring building market supporting institutions and creating efficient
regulatory mechanisms.

The challenge of the hour is to make globalization work towards global prosperity through
disaggregate development. The critically necessity in this context are the collective and
cooperative actions which should be realized by all countries of the world and particularly
the developed ones.
 GLOBALISATION: IMPACT ON INDIAN ECONOMY

Introduction

In early 1990s there were major policy reforms in Indian economy. The reforms were
popularly known as LPG model (Liberalization, Privatization and Globalization model).
Globalization has been identified with the policy reforms of 1991 in India. The series of
reforms were under taken to make Indian economy more efficient. The reforms were in the
industrial, trade and financial sector. Under the reformed policy the concept of localization
totally changed to concept of globalization. Go globally and think globally become the
requirement under new reforms. Globalization becomes the thrust area right from
manufacturing to services sector.

Evolution of globalization in INDIA:

Measures initiated as a part of the liberalisation and globalisation strategy in the early
nineties:

• India opened up the economy to global world.

• The economy became open to foreign direct investment by providing facilities to
foreign companies to invest in different fields of economic activity in India.
• Constraints and obstacles to the entry of MNCs in India were removed or reduced.
• Indian companies were allowed to enter into foreign collaborations and also
encouraged to set up joint ventures abroad.
• Massive import liberalization programs were carried out by reducing tariffs and
import duties on import goods.
• Scrapping of the industrial licensing regime.
• The number of areas reserved for the public sector were reduced.
• Amendment of the monopolies and the restrictive trade practices act.
• Start of the privatisation programme.

The new policy regime radically pushed forward the concept of more open economy.

Measures initiated as a part of the liberalisation and globalisation strategy in the post
nineties:
 • Over the years there has been a steady liberalisation of the current account
transactions, more and more sectors opened up for foreign direct investments and
portfolio investments facilitating entry of foreign investors in telecom, roads, ports,
airports, insurance and other major sectors.
• The Indian tariff rates reduced sharply over the decade from a weighted average of
72.5% in 1991-92 to 24.6% in 1996-97and it touched 35.1% in 2001-02. India is
committed to reduced tariff rates, including almost all quantitative restrictions.

Opportunities
Globalization has many positive, innovative and dynamic aspects; Globalization led to the
increased market access, increased access to capital, and increased access to technology and
information. Finally resulting into greater income and employment opportunity.

• THE GDP of India in the 1970’s was very low at 3% while at the same time GDP
growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice
that of India. The liberalisation of the domestic economy and the increasing
integration of India with the global economy have helped step up GDP growth rates,
which picked up from 5.6% in 1990-91 to a peak level of 7.8% in 1996-97. The pick
up in GDP growth has helped improve India’s global position. As a result India’s
position in the global economy has improved from the 8th position in 1991 to 4th place
in 2001. A Global comparison shows that India is now the fastest growing country
after China.The Indian GDP growth has been very consistent and outperforming.

YEAR GROSS DOMESTIC PRODUCT

1990-91 TO 1994-95 6.14%
1995-96 TO 1999-00 6.12%
2000-01 TO 2003-04 6.40%
2004-05 TO 2007-08 8.98%

• The rate of economic improvement has moved up considerably during the last five
years (including 2007-08). The YOY growth rate of more then 8% for consecutive 5
yrs. Further rapid capacity expansion has brought India at a forefront of high
economic growth giving rise to an era of economic prospective and development. The
respective growth rates for past couple of years has been as follows: in 1990-95 it was
6.14%, in 1995-00 it was 6.12%,in 2000-04 it was 6.40%, and in recent year it is
8.98%.

• The rate of growth of per capita income as measured by per capita GDP at market
prices (constant 1999-2000 prices) grew by an annual average rate of 3.1% during the
12-year period, $1980-81 to 1991-92. It increased marginally to 3.7 % p.a. during the
next 11 years, 1992-93 to 2002-03. Since then there has been a sharp acceleration in
the growth of per capita income, almost doubling to an average of 7.2% p.a. (2003-04
to 2007-08). This means that average income would now double in a decade, well
within one generation, instead of after a generation (two decades). The growth rate of
 per capita income in 2007-08 is projected to be 7.2%, the same as the average of the
five years to the current year.

Growth in Per capita Income

9
8
% Growth rate

7
6
5
4
3
2
1992-93

1993-94

1997-98

1998-99

2002-03

2006-07

2007-08
1994-95

1995-96

1996-97

1999-00

2000-01

2001-02

2003-04

2004-05

2005-06
Year

• The fluctuation in Foreign portfolio Investment were much sharper then FDI, The
FPI rate decreases by 36% from period 1990-00 and again shows upward growth rate
in period 00-07 was 22.1%.

YEAR Foreign portfolio Investment

1990-91 TO 1994-95 75.8%
1995-96 TO 1999-00 45.2%
2000-01 TO 2003-04 46.3%
2004-05 TO 2006-07 65.4%

• India’s foreign exchange reserves have grown significantly since 1991. The reserves,
which stood at US$ 5.8 billion at end-March 1991, increased gradually to US$ 25.2
billion by end-March 1995. The growth continued in the second half of the 1990s
with the reserves touching the level of US$ 38.0 billion by end-March 2000.
Subsequently, the reserves rose to US$ 113.0 billion by end-March 2004, US$ 141.5
billion by end-March 2005, US $ 151.6 billion by end March 2006, US$ 199.2 billion
by end-March 2007 and further to US$ 309.7 billion by end-March 2008 (Chart 1). It
may be mentioned that foreign exchange reserve data prior to 2002-03 do not include
the Reserve Tranche Position (RTP) in the IMF.
.

YEAR Foreign exchange reserve in US$ billion

1991 5.8
1995 25.2
2000 38
2004 113
2005 141.5
2006 151.6
2007 199.2
2008 309.7

Challenges

Even when the entire world has been benefited from globalization, there are some negative
and marginalizing aspects of globalization. These are what have led to dissatisfaction in civil
society and at the governmental level.

• Agriculture sector: Agriculture is the backbone of the Indian economy. It plays a vital
role in providing food and nutrition to the people and in the supply of raw material to
industries and to export trade. In 1951, agriculture provided employment to 72 % of
the population and contributed 59 per cent of the gross domestic product. However,
by 2001 the population depending upon agriculture decreased 58 % whereas the share
of agriculture in the GDP went down drastically to 24 % and further to 22 % in 2006-
07. This has resulted in a lowering the per capita income of the farmers and
increasing the rural indebtedness.The agricultural growth of 3.2 % observed from
1980 to 1997 decelerated to two % subsequently. The approach to the eleventh Five
 year plan released in December 2006 stated that the growth rate of agricultural GDP
including forestry and fishing is likely to be below two per cent in the Tenth Plan
period.The reasons for the deceleration of the growth of agriculture are given in the
Economic Survey 2006-07: Low investment, imbalance in fertilizer use, low seeds
replacement rate, a distorted incentive system and low post-harvest value addition
continued to be a drag on the sectors performance. With more than half the population
directly depending on this sector, low agricultural growth has serious implications for
the inclusiveness of growth.

YEAR Average growth rate in %

1981-82 to 1990-91 3.5%
1991-92 to 1996-97 3.7%
1997-98 to 2006-07 2.5%

• Decreased FDI: The data of FDI shows 50% (approx) gradual upward growth from
90-00. The FDI growth decreased by 20% from period 2000-07.

YEAR Foreign Direct Investment

1990-91 TO 1994-95 24.2%
1995-96 TO 1999-00 54.8%
2000-01 TO 2003-04 53.7%
2004-05 TO 2006-07 34.6%

• Unbalanced Distribution of Benefits: The first negative aspect of globalization is that

its gains are not equally distributed, both between and within countries. The benefits
of globalization are also badly skewed within countries, both developing and
developed. Income inequality is rising in many countries, particularly in the OECD
countries. Worse, job and income insecurity is increasing, particularly for unskilled
labor, although corporate restructuring has also meant job insecurity for professionals.
Within developing countries, the increased world agricultural prices expected to result
from the Uruguay Round should benefit those in agriculture. The urban poor will
suffer when food prices rise, but will gain from employment in new export industries.
Young women hired by multinationals are likely to benefit most – their incomes
increase, with a concomitant increase in their household status. Consumers also gain
from the reduction in local prices due to increased competition from abroad.

• Financial Volatility: Unbalanced benefit flows are not the only negative aspects of
globalization. Globally integrated markets have financial volatility as a permanent
feature, the frequency of financial crises increasing with the growth in international
capital flows. The human costs of such financial volatility can be very high, as shown
by the effects of the Asian crisis – bankruptcies, poverty increase, rising
unemployment, reduced schooling, reduced public services, and increased social
stress and fragmentation – in short, a reversal in human development. The closer
linkages that characterize globalization also allow for contagion and worldwide
 recession, or at least slowdown. The Asian crisis had repercussions everywhere -- in
South America, Russia, Africa, the Middle East – which were affected either directly
or indirectly.

• More human insecurity: Crime, disease, and loss of cultural identity. Unfortunately,
the many opportunities opened up by the widening and deepening of information
flows and contacts among the world’s people also include increasing opportunities for
crime (trafficking in drugs, weapons, women, international syndicates), for the spread
of HIV/AIDS as well as ideas, and for the flow of culture and cultural products which
may lead to cultural homogenization, which, while considered enriching by some, is
considered as a loss of cultural identity by others.

Suggestions:
• The extent to which an enterprise can develop globally from home country base
depends on the facilities available like the infrastructural facilities. Infrastructure in
India is generally inadequate and inefficient and therefore very costly.
• Although unnecessary government interference is hindrance to globalization,
government support can encourage globalization. Government support may take the
form of policy and procedural reforms, development of common facilities like
infrastructural facilities, R and D support, financial market reforms and so on.
• Resources is one of the important factors which often decides the ability of a firm to
globalize. Resourceful companies may find it easier to thrust ahead in global market.
Resources include finance, technology, R and D capabilities, managerial expertise,
company and Brand Image, Human Resources etc.
• The competitive advantage of the company is a very important determinant of success
in global business. A firm may derive competitive advantage from any one or more
of the factors such as low costs and price, product quality, product differentiation,
technological superiority, after sales service, marketing strength etc.
• Government policy and procedures in India are among the most complex, confusing
and cumbersome in the world. Even after the much-publicized liberalization, they do
not present a very conducive situation. One prerequisite for success in globalization
is swift and efficient action
• A global orientation on the part of business firms and suitable globalization strategies
are essential for globalization.
Conclusion:
Globalization should not be thought of as a solution to everything. It merely provides
opportunities. Those who take advantage, they flourish and those who do not they sink.
Globalization is not supposed to produce equality of outcome but it produces equality of
opportunity for those with right mindset. Hence the developing countries have to focus on
economic restructuring building market supporting institutions and creating efficient
regulatory mechanisms. Left to them the low-income countries cannot travel long. What in
fact needed is the international assistance and a support mechanism so as to facilitate their
participation in the process of globalization. The challenge of the hour is to make
globalization work towards global prosperity through disaggregate development. The
critically necessity in this context are the collective and cooperative actions which should be
realized by all countries of the world and particularly the developed ones.

References:

1. Chandran, R., International Business

2. Jain, Sagar, Globalisation and India(Lecture)
3. Kastia, Ravi, Globalisation and India’s Business perspective.
4. Ojha, A. K., Globalization and Liberalisation Prospects of New World Order,
Third Concept An International Journals of Ideas.
5. Pant, J.C., Business Environment
6. Velayudham, T.K., Globalization Trend and Issues.

Key words: Globalisation, Challenges, opportunities, Impact on India, LPG Model