Globalisation is the increasing economic and financial integration of economies around the world.

It mainly
refers to the world wide changes that are taking place to remove national boundaries to financing, production, sale
and distribution of goods. This is how India brought itself into the global sphere. Its most significant experience
with globalisation occurred in the early 1990s with the government strategy called Liberalisation, Privatisation
and Globalisation (LPG); a model that featured expansive economic liberalisation due to its shaky financial
position. Under this scheme, the government allowed 51% of foreign investment in 34 high priority industries
without permission (among other liberal reforms). The effectiveness of these reforms may be gauged from the fact
that total foreign investment grew from a meagre US$132 million in 1991-92 to $5.3Billion in 1995-96. The
account deficit in the early 90s was close to $9.7 Billion dollars; by 2001-02, the CAD recorded a surplus
equivalent to 0.3% of GDP. This was a successful stepping stone in opening Indias economy and removing
obstacles for foreign direct investment (FDI) by providing facilities to foreign companies to invest in different
fields of Indias economy. Figure 1 indicates the continued opening of Indias economy allowing the GDP growth
rate to reach levels of 10%; a significant improvement from levels of less than 2% that were present in 1991-92.

As a result of the LPG scheme, India is much more integrated with the world. This presents India with an
array of opportunities; namely FDI and Trade partnerships, but it also poses a threat as they are more susceptible to
economic shocks, such as the Global Financial Crisis.
For fighting this crisis Indias 2 main strategies are
Increasing FDI: This includes relaxing many barriers to foreign investors
Strong trade agreements: India Utilises this opportunity of trade agreements and aimed to strengthen its
ties with other economies in order to ensure their own prosperity through exports.

Both of these are aimed at increasing total output in order to offset the decrease during the GFC as Indias
pre-GFC growth couldnt insulate it completely from the effects of the global downturn. From figure 2, Indias
economic growth decelerated in 2008-09 to less than 4%; a 4.8% decline in GDP growth rate from 8.8%.

1
Tradingeconomics.com
 2

The decline was a product of the fall in major exports such as IT/software exports, merchandise exports
(mainly in areas of high labour employment) due to slowing demand of the other economies it is linked with. A
sharp drop can be seen in the following graph from just below US$ 20000 million in mid-2008 to barely above
10000 million in 2009.

2
Tradingeconomics.com,. 'India GDP Annual Growth Rate | 1951-2015 | Data | Chart | Calendar'.
 A drop in Indias biggest industries and export sectors were a major reason for the drop in total GDP as there
was a fall in total exports. IT software exports services grew less than 1% in the first half of 2008-09, business,
financial and communication declined respectively of 13.8%, 6.4% and 28.2%. Furthermore, Indias merchandise
exports experienced a decline of 13.5% (Nov 2008). Indias fine Jewellery and Gem Industries which mainly rely
on export sales, has been hard hit by the global financial crisis, especially in the United states, which is a major
market for Indian Jewellery goods. The total demand for gold in India declined significantly by 83% (y-o-y) during
Jan-Mar FY09 3.These areas also suffered as Indias FDI flows dropped by 40% in the first six months of 2008. 4
To boost growth in the export sector, the Indian government released policies which feature trends of
liberalisation. In early 2009, the government introduced a range of incentives to encourage exports in the
previously mentioned areas through the Foreign Trade policy 2009-2014. They include:
Expanding the Market Linked Focus Product Scheme 5 to bicycle parts, motor cars and motorcycles,
apparels and clothing accessories, auto components etc. for exports from April 4, 2009 to September 30, 2009.
India has widened its export base, hence, reaching out to more and bigger markets in order to increase their exports
and make up for the decrease during the GFC.
Widening the coverage of the ECGC 6 by making available back up guarantee to the ECGC to the extent
of Rs350 crore to enable it to provide guarantees for exports to difficult markets; hence making exporting more
attractive
the incentive(duty credit script) 7 available under focus market scheme raised from 2.5% to 3%; 8
The following were passed on 10th February 2006 in the face of a projected slowdown of Indias economy as
a result of the US melt down and aimed to give strong incentive for Indian exporters.
Tax free zones
Software technology parks of India 9
Special economic zone
These were to encourage technological development in the IT sector and increase software exports.

These measures have proven to be relatively successful as exports started to recover since the middle of 2009
and was in full force by 2010. Indias strategy for economic growth through export encouragement successfully
saw an increase of 12.65% in FY14 in export of cut and polished diamonds with the segment reaching US$ 19635
million as a result of the increasingly healthy business environment and investor friendly policies. Indias
merchandise exports in Nov 2009 was at US$ 13.2 billion, following a revival of economies in developed
countries; resulting in increased demand as a product of recovering consumer demand. This saw a growth of
18.2% by 2010 as compared with a decline of 13.5% in November 2008. Economic growth is also evident as
merchandise as a percentage of GDP increased from 12.1% to 17% from 2004-05 to 2014-15. 10
It is important to note that since the manufacturing sector exports(largely composed of merchandise goods)
has increased and as a result of having a high share of total exports at 63% (figure 4), it has had a significant

3(Dnb.co.in)
4http://www.odi.org/comment/2519-global-financial-crisis-financial-flows-developing-countries-expected-fall-by-one-
quarter
5 Objective of MLFPS is to promote export of products which have high export intensity / employment potential, so as
to offset infrastructural inefficiencies and other associated costs.
6 Export guarantee credit corporation
7 is a pass that allows the holder to import commodities by not paying a specified amount in import duties -
http://www.Indianeconomy.net/splclassroom/16/what-is-duty-credit-scrip/#sthash.aKW9eMUp.dpuf

8 http://dgft.gov.in/exim/2000/statrep/rep0910/are0910.pdf
9 has the objective of encouraging, promoting and boosting the Software Exports from India
10 https://www.kpmg.com/IN/en/services/Tax/FlashNews/IES-2014-15.pdf
impact on GDP growth, thus, targeting the export sector by the Indian government enabled India to successfully
increase their overall growth .

11

FDI relaxations were prevalent post GFC. A document effective from April 1st 2010 streamlined the process
of approval for FDI; increasing access for investors to India. Under this strategy, one of the tactics used by the
government featured the allowance of investment of up to US$258.3 million to be cleared; as opposed to only
$192.3 million. The relaxation was aimed to expedite increased cash flow. Figure 5 indicates a slight improvement
in FDI flows after 2009-10; however, there hasnt been a significant or outstanding growth in FDI. It has mainly
allowed FDI levels to return to the average.

12

However, Indias initiatives to enhance FDI have been of some use for certain industries that recorded a
slump during the GFC. The liberalities of the government regarding FDI ensured that the technology sector
received 6.197 billion through FDI in 2011, and increase of 46% from the previous year when compared to the

11 https://www.kpmg.com/IN/en/services/Tax/FlashNews/IES-2014-15.pdf
12
Tradingeconomics.com)
decline of 40% in 2008. The investment in the IT/business sector had created 153 projects with an estimated 41607
jobs in the industry. IT services revenue has experienced growth 2 times that of in the past five years. Figure 6
indicates a continued growth.

The manufacturing sector also benefitted heavily from the FDI initiatives put in place by the government.
Manufacturing sector had 830 foreign companies placing production facilities in India in 2009-2014, accounting
for more than 1,000 projects. 13 Hence, the increase in FDI has been beneficial to the major GDP contributing
industries.
Another strategy by the government that has been equally as successful is utilising trade agreements with
other economies. One example of this is the US-India bilateral trade and investment pact 14 which featured the US
India strategic dialogue in 2009 that placed importance on improving trade. Hence, as stated before, Indias market
reforms have included an increasingly liberal foreign investment regime. This further allowed Indias economy to
grow as exports to the US went up 3.2% from 2012 to 41.3 Billion dollars in 2013. The two largest categories were
Precious Stones ($9.2 billion) and Pharmaceutical products ($4.5 billion). Now, generic drugs account for 20 per
cent of global exports in terms of volume, which makes India the largest provider of generic medicines globally.
Currently it is valued at US$ 20 billion in 2015 15 which adds significant value to Indias GDP. The pharmaceutical
industry is an example of how India has boosted its growth by creating environments that foster enhancement of
new industries.
A technological breakthrough can be seen with the boom in the IT sector and growth in pharmaceutical
products and research. Furthermore, India faces diversification of the industrial base; multiple industries have
expanded such as the Gems industry, and new ones have been able to take root quickly, such as the pharmaceutical
industry; rather than relying solely on agriculture. It can be concluded that the strategy of implementing more
liberal policies and encouraging exports has effectively allowed India to recover from the GFC through increasing
their economic growth. GDP growth increased from 6.8% in 2008-09 to 7.74 in 2009-10.
In order to promote growth after the GFC, India introduced the make in India campaign (2014) to attract
capital and technological investment in India. 100% FDI is now allowed in areas such as IT/software and electrical

13 http://www.ft.com/intl/cms/s/0/ec5eb22c-eaa0-11e4-96ec-00144feab7de.html#axzz3tEjH9E5W
Financial Times,. 'Foreign Direct Investment Pours Into India Bucking Global Trend - FT.Com'. N.p., 2015. Web. 25
Nov. 2015.
14 (Ustr.gov)
15 (Ibef.org)
machinery. Consequently between September 2014 and August 2015, the government received US$17 billion
worth of proposals from companies interested in manufacturing in India. The yearly SBI Composite Index, an
indicator for manufacturing activity in the country, reached a 6-month high of 54.5 in November, compared to
53.5. 16 This is possibly a contributing factor for the 7.4% GDP growth in the second quarter of 2015, surpassing
China to become the fastest growing economy 17. However, it is far too early to gauge the complete effectiveness of
this tactic. It is expected that the increased FDI flow from this campaign will make India more efficient and
productive and enhance its growth.
Indias economic growth did not necessarily translate to positive economic development in all areas. The
strategies that were used to enhance economic growth have benefitted Indias economic development in certain
areas, however others have been negatively impacted upon. A part of Indias liberalisation strategy requires that
investors (FDI) must contribute 10% into the back end and that 50% of the investment is to be in backend
infrastructure development (especially in services as of 2011) 18,
Hence spending from in selected infrastructure segments as of 2011 included
a. Electricity: US$167 billion
b. Railways: US$65 billion
c. Road and Highways: US$92 billion
This investment has been quite successful. The national highway development programme in 2008 aimed
to improve roads and by 2012 they were able to upgrade almost 20000 km of national highways. Progress in
railway is slow, but it is on the way. Major cities are currently receiving updates in trains known as metro
systems. The following table gives details as to the completed and those that are under construction.

Cities that have a metro system Metro systems under construction

Kolkata Chennai

Delhi Hyderabad

Chennai Pune

Bangalore Nagpur

Gurgaon Lucknow

Mumbai Kanpur

Jaipur Navi Mumbai

Kochi

Patna

Indore 19

16 http://economictimes.Indiatimes.com/news/economy/indicators/manufacturing-sector-growth-improves-in-nov-sbi-
index/articleshow/49908587.cms

18 (Prakash)
19 (Padmanabhan)
 Thus, figure 9 indicates India still has significant headway to cover in order to advance their railway systems,
however, FDI has made it possible to have a start in some form of development.
Improved technology through increased FDI in IT/software/technology sectors, has ensured that renewable
energy production to be 16.44% higher than that in the previous year. Production of thermal power, nuclear , hydro
were all higher than the set targets.
Furthermore, in the US-India Bilateral trade and investment agreement 20, India has attempted to improve the
overall development through Americas investment in the smart cities project. The project has only been put into
place in 2015, thus it is too early to evaluate its effectiveness in improving Indias economic development.
However, there are some perceived benefits: innovators and providers will be able integrate technologies and
create standards- based platforms suitable for use across sectors such as energy, environment, transportation,
resilience and health care. This is so that all areas of India will be operating at optimal levels and with the national
standards. Hence, overtime it would enhance an individuals overall living standards and provide an environment
for businesses to flourish.
Increased FDI also provided extra employment for those in India. For example, Indias Pharma industry has
experienced immense growth at 14% in the last 5 years as a result of funding from foreign investors through
Indias liberal strategies. Several TNC operate in this area and provides substantial employment opportunities. In
total, it employs 5 million directly and 24 million indirectly. Likewise, the G20 nations have invested 73.9 billion
dollars in India with UK as its top investor. UK, consequently is also Indias largest employer and employs around
691,000 people across the country accounting for 5.5% of the total organised private sector jobs. 21

22

Thus, Indias approach with increased FDI is effective in the sense that it provides many job opportunities.
This is reflected in the consistent growth of GDP per capita from figure 10.

20 (Ustr.gov)
21 http://timesofIndia.Indiatimes.com/India/India-to-be-worlds-fastest-growing-economy-by-17-UK-
confederation/articleshow/49763449.cms
22 http://www.tradingeconomics.com/India/gdp-per-capita
 Thus, the general improvement in technology and infrastructure has had a role in improving Indias HDI
upto 0.586 as compared to 0.554 in 2008 from figure 11. 23

Year 1980 1990 2000 2005 2008 2010 2011 2012 2013

HDI 0.369 0.431 0.483 0.527 0.554 0.570 0.581 0.583 0.586

However, since a part of Indias growth has been accompanied by technological change from FDI and trade,
the skills required to operate these technologies is far above what those who need jobs the most in India actually
have or can attain. This is evident in figure 12 in which previously labour intensive areas such as manufacturing
and agriculture have now experienced a loss in employment.

Even though the poverty ratio 24 level came down from 36 percent in 1993-94 to 21.9% 25 in 2011 in both
rural and urban areas, inequality has continued to rise as a result of the higher concentration of high skilled jobs.
Since Indias approach to improved economic development and growth was mainly by increasing FDI, the
concentration of foreign assets and liabilities26 in relatively higher skill and technology-intensive sectors (such as
IT/software/Pharmaceuticals), has pushed up the demand for and the wages of higher skilled workers.
Consequently, the top 10% 27 of wage earners as of 2011 now make 12 times more than the bottom 10%. This
is up from a ratio of six in the 1990s. There is increasing concentration of wealth among top quintile. This is
indicated by the fact that the consumption of the top 20% of households grew just under 3% per year as compared
to 2% in the 1990s. Yet the growth in consumption of the bottom 20% was stagnant at 1% per year. This disparity

23 http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/IND.pdf
24
that is, people below the poverty line as a percentage of the population
25
http://data.worldbank.org/indicator/SI.POV.NAHC/countries/IN?display=graph
26
causes and consequence of income inequality: A global perspective, Era Dalba-Norris, Kalpana
Kochhar, Nujin Suphaphiphat, Frantisek Ricka, Evridiki Tsounta, IMF
27
http://timesofIndia.Indiatimes.com/India/Indias-income-inequality-has-doubled-in-20-
years/articleshow/11012855.cms
is indicated in Indias 2013 GINI coefficient at 33.9 28, ranking at 135th out of 187 countries. Figure 13 indicates a
fluctuation in the GINI coefficient; however, it does reveal the general trend of higher figures than most of the 187
countries that India is put up against. 29

30

Thus, India's approach for economic development has not been successful in bridging the gap between the
rich and the poor. However, in broad terms, Indias strategy of encouraging FDI and exports during and after the
GFC has brought significant funding in order to improve the general lives of individuals in terms of certain areas
of living standards.

Indias plan of action for enhancing economic growth and development through encouraging exports, FDI
and trade has played an important role in the development of the Indian economy. It has enabled India to achieve a
certain degree of financial stability, growth and development. These strategies have ensured that India is able to
focus on the areas that needed a boost and economic attention and address the various problems that continue to
challenge the country.

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