Globalization and India

8/3/2019 Globalization and India

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What is Globalization?What is Globalization?y Stephen Gill defines globalisation as the reduction of

transaction cost of transborder movements of capital andgoods thus of factors of production and goods.

y Guy Brainbant says that the process of globalisation doesnot only include opening up of world trade, development ofadvanced means of communication, internationalisation of

financial markets, growing importance of MNCs, population migrations and more generally increasedmobility of persons, goods, capital, data and ideas but alsoinfections, diseases and pollution


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Impact of Globalization on IndiaImpact of Globalization on India

The open frontiers of the state. Increased reliance on the market economy. Renewed faith in the private capital and

resources. Process of structural adjustment spurred by the

studies and influences of the World Bank, andother International organisations have beenstarted.

Globalisation has brought in new opportunities todeveloping countries. Greater access to developed country markets

and technology transfer hold out promiseimproved productivity and higher living standard.


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DisadvantagesDisadvantagesGlobalisation has also thrown up new

challenges

growing inequality across and withinnationsvolatility in financial market and

environmental deteriorations.

Another negative aspect of globalisation isthat a great majority of developingcountries remain removed from theprocess


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India and GlobalizationIndia and Globalization Till the nineties the process of globalisation of

the Indian economy was constrained by thebarriers to trade and investment

Liberalisation of trade, investment and financialflows initiated in the nineties has progressivelylowered the barriers to competition and hastenedthe pace of globalisation

In 1700 India had a share of Global Trade of 22.5%, 3.5% in1947

Dr Manmohan Singh at Oxford in July 2005


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Impact on Indian EconomyImpact on Indian Economyy India opened up the economy in the early nineties following a

major foreign exchange crunch that dragged the economy close todefaulting on loans. Domestic Needs and also Multilateralorganizations pushed towards the new policy regime in favour of amore open and market oriented economy.Major measures :- scrapping of the industrial licensing regime,- reduction in the number of areas reserved for the public

sector,

- amendment of the MRTP act,- start of the privatisation programme- reduction in tariff rates and- change over to market determined exchange rates.


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Impact.. ContdImpact.. Contd

y Over the years there has been a steady liberalisation of thecurrent account transactions, more and more sectors openedup for foreign direct investments and portfolio investmentsfacilitating entry of foreign investors in telecom, roads, ports,airports, insurance and other major sectors

The Indian tariff rates reduced a weighted average of 72.5% in1991-92 to 24.6 in 1996-97 .

Tariff rates went up slowly in the late nineties it touched35.1% in 2001-02.

Peak tariff rates are to be reduced to be reduced to theminimum with a peak rate of 20%, in another 2 years.

Most non-tariff barriers have been dismantled by March 2002,including almost all quantitative restrictions.


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India is GlobalIndia is Global Indias position in the global economy has improvedIndias position in the global economy has improved

from the 8th position in 1991 to 4th place in 2001 (PPPfrom the 8th position in 1991 to 4th place in 2001 (PPPbasis)basis)

y The liberalisation of the domestic economy and the increasingintegration of India with the global economy have helped step upGDP growth rates,

- 5.6% in 1990-91 to a peak level of 7.78% in 1996-97.- 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.- Growth rates has slumped to the lowest level 4.3% in 2002-03

mainly because of the worst droughts in two decades- Now at around 6.5%, expected to go up to 7%- India is now the fastest growing just after China.- This is a major improvement from 1970s at 3% GDP- India still behind growth in countries like Brazil, Indonesia, Korea

and Mexico was more than twice that ofIndia.


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Globalization and IncomeGlobalization and Income

DistributionDistribution Globalisation in the form of increased integration though trade and

investment is an important reason why much progress has been made inreducing poverty and global inequality over recent decades.

But it is not the only reason for this often unrecognised progress, good

national polices , sound institutions and domestic political stability alsomatter.

Despite this progress, poverty remains one of the most seriousinternational challenges we face up to 1.2 billion of the developing world4.8 billion people still live in extreme poverty.

India has to concentrate on five important areas or things:

- technological entrepreneurship,- new business openings for small and medium enterprises,- importance of quality management,- new prospects in rural areas and- privatisation of financial institutions.


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% averageannualGDPgrowth

1900 1950 1.0

1950

19803

.51980 2002 6.02002 2006 8.0

Sources:1900-1990:Angus Maddison (1995),Monitoring the World Economy, 1990-2000:CensusofIndia(2001), 2000-2005 Finance Ministry

Rising GDP growthRising GDP growth


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% MillionPeople

1980 8 65

2000 22 220

2010 32 368

Source:The Consuming Class, NationalCouncilofApplied EconomicResearch, 2002

Middle class is explodingMiddle class is exploding


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30% to 40% ofGDPgrowthisdueto

risingproductivity

Productivity is risingProductivity is rising


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Demographic trend points to sharpDemographic trend points to sharp

increases in input factorsincreases in input factors

54%

46%

DemographicSplit

420

800

0

200

400

600

800

1,0001,200

1,400

1,600

2005 2025

Labor Force will double in the next 20 years

25

+yrs

0-25

yrs

1.5 bn

1.1 bn

LaborForce


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Demographic trend points to sharpDemographic trend points to sharpincreases in input factorsincreases in input factors

Age Dependency72%

45%


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100 Indian Companies have market cap ofUS$ 1 billion

1000 Indian Companies have received foreign

institutional investment 125 Fortune 500 companies have R&D bases

in India 390 Fortune 500 companies have outsourced

software development to India. 2% bad loans in Indian banks (vs ~ 20% in

China) 80% credit goes to private sector (vs~10%

in China)

India has a vibrant private spaceIndia has a vibrant private space


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Role of TechnologyRole of Technology The manufacturing of technology and management of

technology are two different significant areas in thecountry.

There will be new prospects in rural India. The growth ofIndian economy very much depends upon ruralparticipation in the global race.

For example food processing and packaging are the one

of the area where new entrepreneurs can enter into a bigway.

It may be organised in a collective way with the help ofco-operatives to meet the global demand.


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ChallengesChallengesy Understanding the current status of globalisation is necessary

for setting course for future.

For all nations to reap the full benefits of globalisation it isessential to create a level playing field. President Bushs recent proposal to eliminate all tariffs on all

manufactured goods by 2015 may exacerbate the prevalentinequalities.

According to this proposal, tariffs of 5% or less on allmanufactured goods will be eliminated by 2005 and higherthan 5% will be lowered to 8%. Starting 2010 the 8% tariffswill be lowered each year until they are eliminated by 2015.


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Export and ImportExport and Importy Indias Export $ 32.5 Bn Import ($75bn est 2005)$ 38.4 bn(2001) $65bn

2005 $129.2 bn Forex reserves Jan 2005

y Many Indian companies respectable players in the International scene.

y Agriculture exports account for about 13 to 18% of total annual of annual

export of the country.

y In 2000-01 Agricultural products valued at more than US $ 6million were

exported from the country 23% of which was contributed by the marine

products alone.

y Marine products in recent years have emerged as the single largest

contributor to the total agricultural export from the country accounting forover one fifth of the total agricultural exports.

y Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and

coffee are the other prominent products each of which accounts for nearly

5 to 10% of the countries total agricultural exports.


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The OpportunityThe Opportunity India has ample opportunities to develop its financial system

further. The current round of reforms, which allow pensionfunds to invest more in equities, will help spur market growth,

as will the continued privatization of state-owned enterprises.

Opening more parts of the economy to investment fromforeign corporations and from expatriates something Chinahas done very effectivelyalso holds potential.

India has made remarkable economic progress since openingits economy in 1991. To continue that growth, it must nowfocus on developing its financial system


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Performance of India's ExternalPerformance of India's External

SectorSector Foreign Exchange Reserves excluding gold and SDR stood at US$

129.72 billion on Jan 8, 2005.

During early 2004-05, the rupee ended a continuous 24 months(May 2002- April 2004) run of appreciating against US dollar and

started weakening fromM

ay2

004

onwards.

But it again started appreciating against US$ from September2004. against all other major currencies Re appreciated in April2004.

From May- July it weakened and then again gained in August.During Oct- Dec 2004, Re depreciated against the Euro, poundsterling and Yen.

Since, Jan 2005, it is appreciating against all currencies.


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India got democracyIndia got democracy

before capitalism andbefore capitalism andthis has made all thethis has made all the

differencedifference

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Globalization and India