Globalization and Indian Economy


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Globalization and Indian Economy

  1. 2. Globalization <ul><li>Globalization has come to be a principal characteristic feature of the new millennium and it has become an inescapable reality in today's society. </li></ul><ul><li>No community and society can remain isolated from the forces of globalization </li></ul>
  2. 3. What is globalization <ul><li>Globalization is the increasing integration of economies and societies around the world, transcending the boundaries of the nation state, particularly through international trade and the flow of capital, ideas and people, the transfer of culture and technology, and the development of transnational regulations </li></ul>
  3. 4. Contd <ul><li>Globalization is caused by four fundamental forms of capital movement throughout the global economy. The four important capital flows are:- </li></ul><ul><ul><li>Human Capital </li></ul></ul><ul><ul><li>Financial Capital </li></ul></ul><ul><ul><li>Resource Capital </li></ul></ul><ul><ul><li>Power Capital </li></ul></ul>
  4. 5. Definition of globalization <ul><li>Tom G. Palmer of Cato Institute defines &quot;globalization&quot; as &quot;the diminution or elimination of state-enforced restrictions on exchanges across borders and the increasingly integrated and complex global system of production and exchange that has emerged as a result.“ </li></ul><ul><li>Noam Chomsky argues that the word globalization is also used, in a doctrinal sense, to describe the neo-liberal form of economic globalization. </li></ul>
  5. 6. History <ul><li>The term &quot;globalization&quot; has been used by economists since the 1980s although it was used in social sciences in the 1960s; however, its concepts did not become popular until the latter half of the 1980s and 1990s </li></ul><ul><li>The earliest written theoretical concepts of globalization were penned by an American entrepreneur-turned-minister Charles Taze Russell who coined the term 'corporate giants' in 1897 </li></ul>
  6. 7. Contd <ul><li>The 19 th century is sometimes called “The First Era of Globalization”. It was a period characterized by rapid growth in international trade and investment. The “First Era of Globalization” began to break down at the end of the 20 th century with the first World War and later collapsed during the gold standard crisis in the late 1920’s and early 1930’s </li></ul>
  7. 8. Modern globalization <ul><li>It is the actual period in which globalization took another phase, it worked towards promotion of free trade </li></ul><ul><li>Globalization has been facilitated by advances in technology which have reduced the costs of trade and trade negotiation rounds, originally under the auspices of the General Agreement on Tariffs and Trade (GATT) </li></ul><ul><li>Barriers to international trade have been considerably lowered through international agreements such as GATT </li></ul>
  8. 9. Pro-globalization <ul><li>Supporters of free trade claim that it increases economic prosperity as well as opportunity, especially among developing nations, enhances civil liberties and leads to a more efficient allocation of resources. Economic theories of comparative advantage suggest that free trade leads to a more efficient allocation of resources, with all countries involved in the trade benefiting </li></ul>
  9. 10. Contd <ul><li>Globalization leads to lower prices, more employment, higher output and higher standard of living for those in developing countries </li></ul><ul><ul><li>Income equality </li></ul></ul><ul><ul><li>Life expectancy </li></ul></ul><ul><ul><li>Feminism </li></ul></ul><ul><ul><li>Decreased percentage of children in labour force </li></ul></ul><ul><ul><li>Increasing use of electric powers, cars, radios and telephones per capita </li></ul></ul>
  10. 11. Anti-globalization <ul><li>Anti-globalization is a term used to describe the political stance of people and groups who oppose the neoliberal version of globalization . </li></ul><ul><li>Anti-globalization may occur in order to maintain barriers to the international transfer of people, goods and beliefs, particularly free market deregulation, encouraged by organizations such as the IMF or the WTO </li></ul>
  11. 12. Contd <ul><li>Skeptics believe globalization leads to </li></ul><ul><ul><li>Poorer countries </li></ul></ul><ul><ul><li>Exploitation </li></ul></ul><ul><ul><li>Outsourcing </li></ul></ul><ul><ul><li>Weak labour unions </li></ul></ul>
  12. 13. Measuring globalization <ul><li>Globalization has had an impact on different cultures around the world. Economic globalization, demonstrates that it can be measured in different ways. These centers around the four main economic flows that characterize globalization: </li></ul><ul><li>The index measures the three main dimensions of globalization: </li></ul><ul><ul><li>Economic </li></ul></ul><ul><ul><li>Social </li></ul></ul><ul><ul><li>Political </li></ul></ul>
  13. 14. Contd <ul><li>There is an overall index of globalization and sub-indices referring to actual economic flows, economic restrictions, data on personal contact, data on information flows, and data on cultural proximity is calculated </li></ul>
  14. 15. Effects of globalization <ul><li>Industrial </li></ul><ul><li>Financial </li></ul><ul><li>Economic </li></ul><ul><li>Political </li></ul><ul><li>Informational </li></ul><ul><li>Language </li></ul><ul><li>Competition </li></ul><ul><li>Competition </li></ul><ul><li>Cultural </li></ul><ul><li>Ecological </li></ul><ul><li>Social </li></ul><ul><li>Technical </li></ul><ul><li>Legal </li></ul>
  15. 16. Advantages of globalization <ul><li>Goods and people are transported with more easiness and speed </li></ul><ul><li>The possibility of war between the developed countries decreases </li></ul><ul><li>Free trade between countries increases </li></ul><ul><li>Global mass media connects all the people in the world </li></ul><ul><li>The global village dream becomes more realistic </li></ul>
  16. 17. Contd <ul><li>There is a propagation of democratic ideals </li></ul><ul><li>The interdependence of the nation-states increases </li></ul><ul><li>As the liquidity of capital increases, developed countries can invest in developing ones </li></ul><ul><li>The flexibility of corporations to operate across borders increases </li></ul><ul><li>The communication between the individuals and corporations in the world increases </li></ul>
  17. 18. Disadvantages of globalization <ul><li>Increased flow of skilled and non skilled jobs from developed to developing countries </li></ul><ul><li>Increased likelihood of economic disruptions in one nation affecting all nations </li></ul><ul><li>Corporate influence of nation-states far exceed of civil society organization and average individuals </li></ul><ul><li>Threat that control the world media by a handful of corporation that limit cultural expression </li></ul>
  18. 19. Contd <ul><li>Greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage. </li></ul><ul><li>Greater risk of diseases being transported unintentionally between nations </li></ul><ul><li>Spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity </li></ul><ul><li>International bodies like the World Trade Organization infringe on national and individual sovereignty </li></ul>
  19. 21. Indian economy <ul><li>India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans </li></ul><ul><li>Thus, Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient. </li></ul>
  20. 22. Contd <ul><li>Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted, inflation had roared, fiscal deficit was very high and had become unsustainable; foreign investors and NRIs had lost confidence in Indian economy. So major measures were initiated as a part of the liberalization and globalization strategy in the early nineties included the following:- </li></ul>
  21. 23. Contd <ul><ul><li>Devaluation </li></ul></ul><ul><ul><li>Disinvestment </li></ul></ul><ul><ul><li>Dismantling of The Industrial Licensing Regime </li></ul></ul><ul><ul><li>Allowing Foreign Direct Investment </li></ul></ul><ul><ul><li>Non Resident Indian Scheme Throwing Open Industries Reserved For The Public Sector to Private Participation. </li></ul></ul>
  22. 24. Contd <ul><ul><li>Abolition of the (MRTP) Act </li></ul></ul><ul><ul><li>The removal of quantitative restrictions on imports </li></ul></ul><ul><ul><li>The reduction of the peak customs tariff </li></ul></ul><ul><ul><li>Wide-ranging financial sector reforms </li></ul></ul>
  23. 25. Contd <ul><li>The novel Tale of Two Cities of Charles Dickens begins with a piquant description of the contradictions of the times: It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; we had everything before us, we had nothing before us </li></ul><ul><li>At the present, we can also say about the tale of two Indias. We have the best of times; we have the worst of times. There is sparkling prosperity, there is stinking poverty. We have dazzling five star hotels side by side with darkened ill-starred hovels. We have everything by globalization, we have nothing by globalization </li></ul>
  24. 26. Bright side of globalization <ul><li>The rate of growth of the Gross Domestic Product of India has been on the increase </li></ul>Particulars 1980-90 1993-2001 2003-04 2004-05 2005-06 2006-07 Growth rate GDP 5.6% 7% 1.4% AGR (GDP) 7.5% 8.5% 9% 9.2% 1.7% FER 39 bill $ 107 bill $ 145 bill $ 180 bill $ 141 bill $ Cum FDI 1,81,566 crs (43.29 bill $ ) GOM 50 bill $ (covers 45% of the global market)
  25. 27. Contd <ul><li>Foreign Trade (Export- Import) </li></ul><ul><li>Export increased by 24 percent in 2004-05 as compared to previous year. It stood at US $ 79 billion in 2004-05 compared with US $ 63 billion in the previous year. </li></ul>
  26. 28. Dark side of globalization <ul><li>On the other side of the medal, there is a long list of the worst of the times </li></ul><ul><li>(Demoting) Agriculture </li></ul><ul><li>Growth of poverty and unemployment </li></ul><ul><li>Degrading society </li></ul><ul><li>Growth of slum capitals </li></ul>
  27. 29. Contd <ul><li>GDP Growth Rate </li></ul><ul><li>The global economy experienced an overall deceleration and recorded an output growth of 2.4% during the past year growth in real GDP in 2001-02 was 5.4% as per the Economic Survey in 2000-01. The performance in the first quarter of the financial year is5.8% and second quarter is 6.1%. </li></ul><ul><li>India’s imports in 2004-05 stood at US$ 107 billion recording an increase of 35.62 percent compared with US$ 79 billion in the previous fiscal. </li></ul><ul><li>Oil imports zoomed by 19 percent with the import bill being US $ 29.08 billion against USD 20.59 billion in the corresponding period. Non-oil imports during 2004-05 are estimated at USD 77.036 billion, which is 33.62 percent higher than previous year's imports of US $ 57.651 billion in 2003-04 </li></ul>
  28. 30. Where does India stand <ul><li>Over the past decade FDI flows into India have averaged around 0.5% of GDP against 5% for China 5.5% for Brazil. Whereas FDI inflows into China now exceeds US $ 50 billion annually. It is only US $ 4billion in the case of India </li></ul><ul><li>Consider global trade - India's share of world merchandise exports increased from .05% to .07% over the pat 20 years. Over the same period China's share has tripled to almost 4% </li></ul><ul><li>India's share of global trade is similar to that of the Philippines an economy 6 times smaller according to IMF estimates. India under trades by 70-80% given its size, proximity to markets and labour cost advantages </li></ul>
  29. 31. Future challenges <ul><li>Sustaining the growth momentum and achieving an annual average growth of 9-10 % </li></ul><ul><li>Simplifying procedures and relaxing entry barriers for business </li></ul><ul><li>Boosting agricultural growth </li></ul><ul><li>Expanding industry </li></ul><ul><li>Developing world-class infrastructure </li></ul>
  30. 32. Contd <ul><li>Allowing foreign investment in more areas </li></ul><ul><li>Effecting fiscal consolidation and eliminating the revenue deficit </li></ul><ul><li>Protecting domestic culture </li></ul><ul><li>proper pricing mechanisms and better direction of subsidies </li></ul><ul><li>Empowering the population </li></ul>
  31. 33. Conclusion <ul><li>The lesson is that a country must carefully choose a combination of policies that best enables it to take the opportunity while avoiding the pitfalls and utilizing globalization to the fullest extent possible. </li></ul>