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STRATEGIC MANAGEMENT

A PROJECT REPORT
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQIREMENTS FOR THE AWARD OF THE M.COM DEGREE OF

MASTER IN COMMERCE
(MANAGEMENT)

SUBMITTED TO UNIVERSITY OF MUMBAI, LALA LAJPATRAI COLLEGE, MAHALAXMI, MUMBAI

SUBMITTED BY SAMIR PARIKH ROLL NO. 639

SUPERVISED BY Dr. SURYAKANT LASUNE


OCTOBER 2013

STRATEGIC MANAGEMENT
A PROJECT REPORT
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQIREMENTS FOR THE AWARD OF THE M.COM DEGREE OF

MASTER IN COMMERCE
(MANAGEMENT)

SUBMITTED TO UNIVERSITY OF MUMBAI, LALA LAJPATRAI COLLEGE, MAHALAXMI, MUMBAI

SUBMITTED BY SAMIR PARIKH ROLL NO. 639

SUPERVISED BY Dr. SURYAKANT LASUNE


OCTOBER 2013

AKNOWLEDGEMENT
I would like to place on record my deep sense of gratitude to Dr.Suryakant Lasune, for his generous guidance, help and useful suggestions. I express my sincere gratitude to Dr. Suryakant Lasune, for his stimulating guidance, continuous encouragement and supervision throughout the course of present work. I also wish to extend my thanks to Dr. Suryakant Lasune and other colleagues for attending my seminars and for their insightful comments and constructive suggestions to improve the quality of this project work. I am extremely thankful to the Principal Prof. Neelam Arora, for providing me with infrastructural facilities to work in, without which this work would not have been possible.

SIGNATURE OF STUDENT

CERTIFICATE
I hereby certify that the work which is being presented in the M.Com Internal Project Report entitled Globalization in India with case study ., in partial fulfillment of the requirements for the award of the Master of Commerce in Management and submitted to the Lala Lajpatrai College of Commerce and Economics, Mahalaxmi, Mumbai 400034 is an authentic record of my own work carried out under the supervision of Dr. Suryakant Lasune. The matter presented in this Project Report has not been submitted by me for the award of any other degree elsewhere.

SIGNATURE OF STUDENT:

SIGNATURE OF SUPERVISOR:

INTERNAL EXAMINER:

EXTERNAL EXAMINER:

COLLEGE STAMP: PRINCIPAL

TABLE OF CONTENTS

CHAPTER 1 : Introduction

CHAPTER 2: Literature Survey

CHAPTER 3: Present Work

CHAPTER 4: Result & Discussion

CHAPTER 5: Conclusion

CHAPTER 6: A CASE STUDY ON GLOBALISATION WITH REGARD TO BANKING SECTOR.

REFERENCES

LIST OF TABLES

SR No.

TITLE

Page No.

GDP GROWTH GRAPH

STRUCTURE OF THE ECONOMY

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Introduction 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. With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy. This era of reforms has also ushered in a remarkable change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947, such as self-reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance, resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity. Now that India is in the process of restructuring her economy, with aspirations of elevating herself from her present desolate position in the world, the need to speed up her economic development is even more imperative. And having witnessed the positive role that Foreign Direct Investment (FDI) has played in the rapid economic growth of most of the Southeast Asian countries and most notably China, India has embarked on an ambitious plan to emulate the successes of her neighbors to the east and is trying to sell herself as a safe and profitable destination for FDI. Globalization has many meanings depending on the context and on the person who is talking about. Though the precise definition of globalization is still unavailable a few definitions are worth viewing, Guy Brainbant: says that the process of globalization not only includes opening up of world trade, development of advanced means of communication, internationalization of financial markets, growing importance of MNCs, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution. The term globalization refers to the integration of
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economies of the world through uninhibited trade and financial flows, as also through mutual exchange of technology and knowledge. Ideally, it also contains free inter-country movement of labor. In context to India, this implies opening up the economy to foreign direct investment by providing facilities to foreign companies to invest in different fields of economic activity in India, removing constraints and obstacles to the entry of MNCs in India, allowing Indian companies to enter into foreign collaborations and also encouraging them to set up joint ventures abroad; carrying out massive import liberalization programs by switching over from quantitative restrictions to tariffs and import duties, therefore globalization has been identified with the policy reforms of 1991 in Indi The Important Reform Measures (Step Towards liberalization privatization and Globalization) Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to almost $1 billion; Inflation had roared to an annual rate of 17 percent; fiscal deficit was very high and had become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. Capital was flying out of the country and we were close to defaulting on loans. Along with these bottlenecks at home, many unforeseeable changes swept the economies of nations in Western and Eastern Europe, South East Asia, Latin America and elsewhere, around the same time. These were the economic compulsions at home and abroad that called for a complete overhauling of our economic policies and programs. Major measures initiated as a part of the liberalization and globalization strategy in the early nineties included the following:

Impact of Globalization: The implications of globalization for a national economy are many. Globalization has intensified interdependence and competition between economies in the world market. These economic reforms have yielded the following significant benefits: Globalization in India had a favorable impact on the overall growth rate of the economy.This is major improvement given that Indias growth rate in the 1970s was very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India. Though Indias average annual growth rate almost doubled in the eighties to 5.9%, it was still lower than the growth rate in China, Korea and Indonesia. The pick up in GDP growth has helped improve Indias global position. Consequently Indias position in the global economy has improved from the 8th position in 1991 to 4th place in 2001; when GDP is calculated on a purchasing power parity basis. During 1991-92 the first year of Raos reforms program, The Indian economy grew by 0.9%only. However the Gross Domestic Product (GDP) growth accelerated to 5.3 % in 1992-93, and 6.2% 1993-94. A growth rate of above 8% was an achievement by the Indian economy during the year 2003-04. Indias GDP growth rate can be seen from the following graph since independence India - a growing economy

The Important Reform Measures (Step towards Globalization): Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to almost $1 billion; Inflation had roared to an annual rate of 17 percent; fiscal deficit was very high and had become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. Capital was flying out of the country and we were close to defaulting on loans. Along with these bottlenecks at home, many unforeseeable changes swept the economies of nations in Western and Eastern Europe,South East Asia, Latin America and elsewhere, around the same time. These were the economic compulsions at home and abroad that called for a complete overhauling of our economic policies and programs. Major measures initiated as a part of the liberalisation and globalisation strategy in the early. Steps in Globalization: Devaluation: The first step towards globalization was taken with the announcement of the devaluation of Indian currency by 18-19 percent against major currencies in the international foreign exchange market. In fact, this measure was taken in order to resolve the BOP crisis Disinvestment: In order to make the process of globalization smooth, privatization and liberalisation policies are moving along as well. Under the privatization scheme, most of the public sector undertakings have been/ are being sold to private sector. Dismantling of The Industrial Licensing Regime At present, only six industries are under compulsory licensing mainly on accounting of environmental safety and strategic considerations. A significantly amended locational policy in tune with the liberalized licensing policy is in place. No industrial approval is required from the government for locations not falling within 25 kms of the periphery of cities having a population of more than one million. Allowing Foreign Direct Investment (FDI) across a wide spectrum of industries and encouraging non-debt flows. The Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalise the FDI regime, inter alias, include opening up of sectors such as

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Insurance (upto 26%); development of integrated townships (upto 100%); defence industry (upto 26%); tea plantation (upto 100% subject to divestment of 26% within five years to FDI); enhancement of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for most manufacturing activities in SEZs; opening up B2B e-commerce; Internet Service Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition; etc. The Department has also strengthened investment facilitation measures through Foreign Investment Implementation Authority (FIIA). Non Resident Indian Scheme the general policy and facilities for foreign direct investment as available to foreign investors/ Companies are fully applicable to NRIs as well. In addition, Government has extended some concessions specially for NRIs and overseas corporate bodies having more than 60% stake by NRIs Throwing Open Industries Reserved For The Public Sector to Private Participation. Now there are only three industries reserved for the public sector Abolition of the (MRTP) Act, which necessitated prior approval for capacity expansion The removal of quantitative restrictions on imports. The reduction of the peak customs tariff from over 300 per cent prior to the 30 per cent rate that applies now. 168 International Research Journal of Finance and Economics Issue 5 (2006) Severe restrictions on short-term debt and allowing external commercial borrowings based on external debt sustainability. Wide-ranging financial sector reforms in the banking, capital markets, and insurance sectors, including the deregulation of interest rates, strong regulation and supervisory systems, and the introduction of foreign/private sector competition.

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Strategy of Globalization: In the Report (2006) East Asian Renaissance, World Bank Advisor Dr Indermit Gill stated: Cities are at the core of a development strategy based on international integration, investment and innovation. East Asia is witnessing the largest rural-to-urban shift of population in history. Two million new urban dwellers are expected in East Asian cities every month for the next 20 years. This will mean planning for and building dynamic, connected cities that are linked both domestically and to the outside world so that economic growth continues and social cohesion is strengthened.The market economy seems to be more concerned with the growth of consumerism to attract the high income groups who are mostly in the cities in the developing countries. Rural economy and the agricultural sector were out of focus in the strategy of globalization. WHAT IS GLOBALISATION? In the past two to three decades, more and more MNCs have been looking for locations around the world which would be cheap for their production. Foreign investment by MNCs in these countries has been rising. At the same time, foreign trade between countries has been

rising rapidly. A large part of the foreign trade is also controlled by MNCs. For instance, the car manufacturing plant of Ford Motors in India not only produces cars for the Indian markets, it also exports cars to other developing countries and exports car components for its many factories around the world. Likewise,activities of most MNCs involve substantial trade in goods and also services. The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries. Globalisation is this process of rapid integration or interconnection between countries. MNCs are playing a major role in the globalisation process. More and more goods and services, investments and technology are moving between countries. Most regions of the world are in closer contact with each other than a few decades back. Besides the movements of goods, services, investments and technology, there is one more way in which the countries can be connected. This is through the movement of people between countries. People usually move from one country to another in search of better income, better jobs or better education. In the past few decades, however, there has not been much increase in the movement of people between countries due to various restrictions

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FACTORS THAT HAVE ENABLED GLOBALISATION Technology Rapid improvement in technology has been one major factor that has stimulated the globalisation process. For instance, the past fifty years have seen several improvements in transportation technology. This has made much faster delivery of goods across long distances possible at lower costs. Even more remarkable have been the developments in information and communication technology. In recent times, technology in the areas of telecommunications, computers, Internet has been changing rapidly. Telecommunication facilities (telegraph, telephone including mobile phones, fax) are used to contact one another around the world, to access information instantly, and to communicate from remote areas. This has been facilitated by satellite communication devices. As you would be aware, computers have now entered almost every field of activity.You might have also ventured into the amazing world of internet, where you can obtain and share information on almost anything you want to know. Internet also allows us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible costs.

The Bright Side of Globalization: The rate of growth of the Gross Domestic Product of India has been on the increase from 5.6 per cent during 1980-90 to seven per cent in the 1993-2001 period. In the last four years, the annual growth rate of the GDP was impressive at 7.5 per cent (2003-04), 8.5 per cent (2004-05), nine per cent (2005-06) and 9.2 per cent (2006-07). Prime Minister Manmohan Singh is confident of having a 10 per cent growth in the GDP in the Eleventh Five Year Plan period. The foreign exchange reserves (as at the end of the financial year) were $ 39 billion (2000-01), $ 107 billion (2003-04), $ 145 billion (2005-06) and $ 180 billion (in February 2007). It is expected that India will cross the $ 200 billion mark soon. The cumulative FDI inflows from 1991 to September 2006 were Rs.1, 81,566 crores (US $ 43.29 billion). The sectors attracting highest FDI inflows are electrical equipments including computer software and electronics (18 per cent), service sector (13 per cent),

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telecommunications (10 per cent), transportation industry (nine per cent), etc. In the inflow of FDI, India has surpassed South Korea to become the fourth largest recipient. India controls at the present 45 per cent of the global outsourcing market with an estimated income of $ 50 billion. In respect of market capitalization (which takes into account the market value of a quoted company by multiplying its current share price by the number of shares in issue), India is in the fourth position with $ 894 billion after the US ($ 17,000 billion), Japan ($ 4800 billion) and China ($ 1000). India is expected to soon cross the trillion dollar mark. As per the Forbes list for 2007, the number of billionaires of India has risen to 40 (from 36 last year)more than those of Japan (24), China (17), France (14) and Italy (14) this year. A press report was jubilant: This is the richest year for India. The combined wealth of the Indian billionaires marked an increase of 60 per cent from $ 106 billion in 2006 to $ 170 billion in 2007. The 40 Indian billionaires have assets worth about Rs. 7.50 lakh crores whereas the cumulative investment in the 91 Public Sector Undertakings by the Central Government of India is Rs. 3.93 lakh crores only.

The Dark Side of Globalization : On the other side of the medal, there is a long list of the worst of the times, the foremost casualty being the agriculture sector. Agriculture has been and still remains the backbone of the Indian economy. It plays a vital role not only in providing food and nutrition to the people, but also in the supply of raw material to industries and to export trade. In 1951, agriculture provided employment to 72 per cent of the population and contributed 59 per cent of the gross domestic product. However, by 2001 the population depending upon agriculture came to 58 per cent whereas the share of agriculture in the GDP went down drastically to 24 per cent and further to 22 per cent in 2006-07. This has resulted in a lowering the per capita income of the farmers and increasing the rural indebtedness. Growth of Unemployment Poverty: The proportion of the unemployed to the total labor force has been increasing from 2.62 per cent (1993-94) to 2.78 per cent (1999-2000) and 3.06 per cent (2004-05). In absolute figures, the number of unemployed had been in those years 9.02 million, 10.51 million and 13.10 million respectively. (Economic Survey 2006-07, Table 10.4)

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In reply to a question, the Minister for Labor and Employment informed the Lok Sabha on March 19, 2007, that the enrolment of the unemployed in the Employment Exchanges in 2006-07 was 79 lakhs against the average of 58 lakhs in the past ten years.

About the impact of globalization, in particular on the development of India, the ILO Report (2004) stated: In India, there had been winners and losers. The lives of the educated and the rich had been enriched by globalization. The information technology (IT) sector was a particular beneficiary. But the benefits had not yet reached the majority, and new risks had cropped up for the losersthe socially deprived and the rural poor. Significant numbers of non-perennial poor, who had worked hard to escape poverty, were finding their gains reversed. Power was shifting from elected local institutions to unaccountable trans-national bodies. Western perceptions, which dominated the globe media, were not aligned with local perspectives; they encouraged consumerism in the midst of extreme poverty and posed a threat to cultural and linguistic diversity.

Social Services About the quality of education given to children, the Approach to the Eleventh Five Year Plan stated: A recent study has found that 38 per cent of the children who have completed four years of schooling cannot read a small paragraph with short sentences meant to be read by a student of Class II. About 55 per cent of such children cannot divide a three digit number by a one digit number. These are indicators of serious learning problems which must be addressed. The Approach paper added further: Universalisation of education will not suffice in the knowledge economy. A person with a mere eight years of schooling will be as disadvantaged in a knowledge economy by ICT as an illiterate person in modern industry an services. The less said about the achievements in health the better. The Approach to the Eleventh Plan concedes that progress implementing the objectives of health have been slow. The Report gave the particulars of the rates of infant mortality (per 1000 live births) for India as 60 against Sri Lanka (13), China (30) and Vietnam (19). The rate of maternal mortality (per 1, 00,000 deliveries) of India is 407 against Sri Lanka (92), China (56) and Vietnam (130).
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Growth of Slum Capitals: In his 2007-08 Budget Speech, Finance Minister Chidambaram put forth a proposal to promote Mumbai as a world class financial centre and to make financial services the next growth engine of India. Of its 13 million population, Mumbai city has 54 per cent in slums. It is estimated that 100 to 300 new families come to Mumbai every day and most land up in a slum colony. Prof R. N. Sharma of the Tata Institute of Social Science says that Mumbai is disintegrating into slums. From being known as the slum capital of India and the biggest slum of Asia, Mumbai is all set to become the slum capital of the world. The population of Delhi is about 14 million of which nearly 45 per cent population lives in slums, unauthorized colonies, JJ clusters and undeveloped rural parts. During dry weather these slum dwellers use open areas around their units for defecation and the entire human waste generated from the slums along with the additional wastewater from their households is discharged untreated into the river Yamuna. The cumulative FDI inflows (until September 2006) to the New Delhi region was of Rs. 27,369 crores and to Mumbai Rs. 24,545 crores. The two spots of New Delhi and Mumbai received 46 per cent of the total FDI inflows into India. The FDI inflows have in no way assisted in improving the health and environment conditions of the people. On the other hand, the financial capital of India and the political capital of India are set to become the topmost slum cities of the world.

Victims of Globalization In his Making Globalization Work, Nobel Laureate Stiglitz wrote: Trade liberalization opening up markets to the free flow of goods and services was supposed to lead to growth. The evidence is at best mixed. Part of the reason that international trade agreements have been so unsuccessful in promoting growth in poor countries is that they were often unbalanced. The advanced industrial countries were allowed to levy tariffs on goods produced by developing countries that were, on average, four times higher that those on goods produced by other advanced industrial countries.

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In his foreword to The Dynamics and Impact of Globalization by Dr. M. V. Louis Anthuvan, Justice V. R. Krishna Iyer pointed out pithily: The New World Order is the product of what is now familiarly described as globalization, liberalization and privatization. The weaker sectors like the Asian and African countries are victims, whose economic welfare is slavery, at the disposal of the White world. When World War II came to a close, commercial conquest and trade triumph became the major goal of the United States and the other giant trade powers. Indeed, these mighty countries and companies even made world hunger as Big Business. The poorer countries with natural resources have been made banana republics and cucumber vassals.

The Human Development Report 2006 recorded: Globalization has given rise to a protracted debate over the precise direction of trends in global income distribution. What is sometimes lost sight of is the sheer depth of inequalityand the associated potential for greater equity to accelerate poverty reduction. Measured in the 2000 purchasing power parity (PPP) terms, the gap between the incomes of the poorest 20 per cent of the worlds population and the $ 1 a day poverty line amounts to about $ 300 billion. That figure appears large, but it is less than two per cent of the income of the worlds wealthiest 10 per cent.

Major measures initiated as a part of the liberalisation and globalisation strategy in the early nineties included the following:

Devaluation: The first step towards globalization was taken with the uncement of the devaluation of Indian currency by 18-19 percent against major currencies in the international foreign exchange market. In fact, this measure was taken in order to resolve the BOP crisis

Disinvestment-In order to make the process of globalization smooth, privatization and liberalisation policies are moving along as well. Under the privatization scheme, most of the public sector undertakings have been/ are being sold to private sector Dismantling of The Industrial Licensing Regime At present, only six industries are under compulsory licensing mainly on accounting of environmental safety and strategic

17

considerations. A significantly amended locational policy in tune with the liberalized licensing policy is in place. No industrial approval is required from the government for locations not falling within 25 kms of the periphery of cities having a population of more than one million. Allowing Foreign Direct Investment (FDI) across a wide spectrum of industries and encouraging non-debt flows. The Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalise the FDI regime, inter alias, include opening up of sectors such as Insurance (upto 26%); development of integrated townships (upto 100%); defence industry (upto 26%);tea plantation (upto 100% subject to divestment of 26% within five years to FDI); enhancement of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for most manufacturing activities in SEZs; opening up B2B e-commerce; Internet Service Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition; etc. The Department has also strengthened investment facilitation measures through Foreign Investment

Implementation Authority (FIIA). Non Resident Indian Scheme the general policy and facilities for foreign direct investment as available to foreign investors/ Companies are fully applicable to NRIs as well. In addition, Government has extended some concessions especially for NRIs and overseas corporate bodies having more than 60% stake by NRIs Throwing Open Industries Reserved For The Public Sector to Private Participation. Now there are only three industries reserved for the public sector Abolition of the (MRTP) Act, which necessitated prior approval for capacity expansion The removal of quantitative restrictions on imports. The reduction of the peak customs tariff from over 300 per cent prior to the 30 per cent rate that applies now. Severe restrictions on short-term debt and allowing external commercial borrowings based on external debt sustainability.

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Wide-ranging financial sector reforms in the banking, capital markets, and insurance sectors, including the deregulation of interest rates, strong regulation and supervisory systems, and the introduction of foreign/private sector competition. Indian Economy: Future Challenges Sustaining the growth momentum and achieving an annual average growth of 9-10 % in the next five years. Simplifying procedures and relaxing entry barriers for business activities and Providing investor friendly laws and tax system. Checking the growth of population; India is the second highest populated country in the world after China. However in terms of density India exceeds China as India's land area is almost half of China's total land. Due to a high population growth, GNI per capita remains very poor. It was only $ 2880 in 2003 (World Bank figures). Boosting agricultural growth through diversification and development of agro processing. Expanding industry fast, by at least 10% per year to integrate not only the surplus labour in agriculture but also the unprecedented number of women and teenagers joining the labour force every year. Developing world-class infrastructure for sustaining growth in all the sectors of the economy Allowing foreign investment in more areas. Effecting fiscal consolidation and eliminating the revenue deficit through revenue enhancement and expenditure management. Some regard globalization as the spread of western culture and influence at the expense of local culture. Protecting domestic culture is also a challenge. Global corporations are responsible for global warming, the depletion of natural resources, and the production of harmful chemicals and the destruction of organic agriculture. The government should reduce its budget deficit through proper pricing mechanisms and better direction of subsidies. It should develop infrastructure with what Finance Minister P Chidambaram

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International Research Journal of Finance and Economics - Issue 5 (2006) 171 of India called ruthless efficiency and reduce bureaucracy by streamlining government procedures to make them more transparent and effective.

Empowering the population through universal education and health care, India must maximize the benefits of its youthful demographics and turn itself into the knowledge hub of the world through the application of information and communications technology (ICT) in all aspects of Indian life although, the government is committed to furthering economic reforms and developing basic infrastructure to improve lives of the rural poor and boost economic performance. Government had reduced its controls on foreign trade and investment in some areas and has indicated more liberalization in civil aviation, telecom and insurance sector in the future.

Structure of the Economy Due to globalization not only the GDP has increased but also the direction of growth in the sectors has also been changed. Earlier the maximum part of the GDP in the economy was generated from the primary sector but now the service industry is devoting the maximum part of the GDP. The services sector remains the growth driver of the economy with a contribution of more than 57 per cent of GDP. India is ranked 18th among the worlds leading exporters of services with a share of 1.3 per cent in world exports. The services sector is expected to benefit from the ongoing liberalization of the foreign investment regime into the sector. Software and the ITES-BPO sectors have recorded an exponential growth in recent years. Growth rate in the GDP from major sectors of the economy can be seen from the following Table.

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International Research Journal of Finance and Economics - Issue 5 (2006) Table 1-: Structure of the Economy (Percentage)

(% Of GDP) Agriculture Industry Services

1984-85 35.2 26.1 38.7

2002-3 26.5 22.5 51.4

2003-4 21.7 21.6 56.7

2004-5 20.5 21.9 57.6

ECONOMIC GLOBALISATION VERSUS TECHNOLOGY Globalisation has placed challenges on the human lifestyle and economic development all over the world. As pointed out by Badran, human development will be essential to accelerate science and technology for sustainable development. Technology is the key variable in the economic development of any country. Technological progress and economic development are interdependent. The contrast lies in the different standards of living between highly developed nations, such as the USA, and underdeveloped nations, such as Haiti or Zaire, and is a reflection of the levels of different technologies and the effectiveness and the essential services provided by engineers to society.

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GLOBALIZATION ON INDIAN ECONOMY Most regions of the world are getting increasingly interconnected. While this interconnected ness across countries has many dimensions cultural, political, social and economic this chapter looks at globalisation in a more limited sense. It defines globalisation as the integration between countries through foreign trade and foreign investments by multinational corporations (MNCs). As you will notice, the more complex issues of portfolio investment have been left out. If we look at the past thirty years or so, we find that MNCs have been a major force in the globalisation process connecting distant regions of the world. Why are the MNCs spreading their production to other countries and what are the ways in which they are doing so? The first part of the chapter discusses this. Rather than relying on quantitative estimates, the rapid rise and influence of the MNCs has been shown through a variety of examples, mainly drawn from the Indian context. Note that the examples are an aid to explain a more general point. While teaching, the emphasis should be on the ideas and examples are to be used as illustrations. You can also creatively use comprehension passages like the one given after Section II to test and reinforce new concepts. Integration of production and integration of markets is a key idea behind understanding the process of globalisation and its impact. This has been dealt with at length in this chapter, highlighting the role of MNCs in the process. You have to ensure that the students grasp this idea with sufficient clarity, before moving on to the next topic. Globalisation has been facilitated by several factors. Three of these have been highlighted: rapid improvements in technology, liberalisation

Abstract The growing integration of economies and societies around the world has been one of the most hotly-debated topics in international economics over the past few years. Rapid growth and poverty reduction in China, India, and other countries that were poor 20 years ago, has been a positive aspect of Liberalization Privatization and Globalization (LPG). But Globalization has also generated significant international opposition over concerns that it has increased inequality and environmental degradation. There is a need to study the impact of
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globalization on developing countries from the viewpoint of inward foreign direct investment. Attention should also be focused on the role which some developing countries, particularly from parts of Asia and Latin America, are playing as initiators of globalization through their own MNCs. 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. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organisations. The new policy regime radically pushed forward in favour of a more open and market oriented economy. This paper explores the contours of the on-going process of globalization Liberalization and privatization. Throughout this paper, there is an underlying focus on the impact of LPG on Indian economy. It also comments on impact of LPG on Developing countries.

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Case Study on Globalisation in India with regards the Banking Sector;A. Globalisation with regards to services in banking Sector. The concept of Globalisation infers that the globe is a single unit which functions as one when it comes to decision-making. In other words, Globalisation implies the free movement of goods, services and capital throughout the world. Globalisation involves the opening up of national economies to global markets. This naturally and simultaneously results in the simultaneous reduction in the role of the State to shape national policies. Many Socialists define Globalisation as a primarily economic phenomenon, which involves increasing interaction and integration of national economic systems. This leads in turn to growth in international trade, investment and capital flows. Moreover, there is a rapid increase in crossborder social, cultural and technological exchanges because of the phenomenon of globalisation. The sociologist defines globalisation as a decoupling of space and time. With the advent of instantaneous communications, knowledge, trade and culture can be shared around the world simultaneously. This will ultimately result in an increase in international trade, investment and capital flows. On the other hand, some critics define Globalisation as ''the worldwide drive towards a globalised economic system, dominated by supranational corporate trade and banking institutions that are not accountable to the democratic processes or national governments. Due to Globalization, all important institutions like the nation, state, family, work, services, trade, leisure, culture, knowledge etc. are changing. As a result of this, life styles of people throughout the world are also changing, making the world a single unit when it comes to decision making. The middle and late 90s witnessed great innovations in financial reforms, restructuring, convergence globalization etc. These were accompanied by a rapid revolution in communication technologies. Moreover, a major development was the evolution of the ''convergence'' of computer and communication technologies, such as the Internet, mobile / cell phones etc. The arrival of foreign and private banks with their superior, sophisticated technology-based services forced Indian Banks also to follow the same by going in for the latest technologies so as to meet the threat of competition and retain their customer base. This also brought in revolutionary products and services which have been orchestrated by the Indian Software Industry.

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Software Packages for Banking Applications in India had their beginnings in the mid 80''s. This move was spurred on by RBI and the Rangarajan Committee Report which decided to computerize the Indian Banking branches in a limited manner. This move was aimed at promoting competition and allows an easy assessment of relative vendor capabilities. Gradually, even those who opposed computerization in government and banks changed their perspective and within a few years our country became a superpower in Information technology. The early 90s saw a fall in hardware prices and the advent of cheap and inexpensive but highpowered PCs and servers. Banks went in for what was called Total Branch Automation (TBA) Packages. We are now at the point when we have accepted the use of computers in every sphere of our activity today. Categories of Packages: The IT Packages and services available in India can be broadly classified into the following 6 types: 1. Stand-alone branch-level packages; 2. Multi-branch solutions; 3. Foreign packages; 4. Packages for specialized niche areas; 5. Service Branch / high-volume transaction processing packages; 6. IT Services; Thus, we have a wide spectrum of Banking Software available in the market to fulfill the various needs of the banking Industry. There are number of software companies, which are developing software for the banking industry. 4.In today The entire banking sector has undergone a restructuring during recent years as a result of recent developments. New technologies have added to the competition. The I-T revolution has made it possible to provide ease and flexibility in operations to customers thus making life simpler and easier. Rapid strides in information technology have, in fact, redefined the role and structure of banking in India. Further, due to exposure to global trends after Information explosion led by Internet, customers - both Individuals and Corporates - are now demanding better services with more products from their banks. The financial market has turned into a buyer's market. Banks are also coping and adapting with time and are trying to

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become one-stop financial supermarkets. The market focus is shifting from mass banking products to class banking with the introduction of value added and customised products. Public Sector Banks like SBI have also started focusing on this area. SBI plans to open 100 new branches called Personal Banking Branches (PBB) this year. The PBBs will also market SBI's entire spectrum of loan products: e.g. housing loans, car loans, personal loans, consumer durable loans, education loans, loans against shares and financing against gold. Customised banking products, such as Investment Advisory Services; photo-credit cards; cash Management services; Investment products and Tax Advisory services have already been introduced by a few foreign and private sector banks. A few banks have gone in to market mutual fund schemes. Eventually, the Banks plan to market bonds and debentures, when allowed. Insurance peddling by Banks will be a reality soon. The recent Credit Policy of RBI announced on April 27, 2000 has further facilitated the entry of banks in this sector. Banks also offer advisory services termed as 'private banking' to "high relationship value" clients. The bank of the future has to be essentially a marketing organisation that also sells banking products. New distribution channels are being used; more & more banks are introducing services like disbursement and servicing of consumer loans, Credit card business. Direct Selling Agents (DSAs) of various Banks go out and sell their products. They make house calls to get the application form filled in properly and also take your passport-sized photo. Home banking has already become common. Now, you can order a draft or cash over the phone or internet and have it delivered home. ICICI was the first among the new private banks to launch its net banking service, called Infinity. It allows the user to access account information over a secure line, request cheque books and stop payment, and even transfer funds between ICICI Bank accounts. Citibank has been offering net banking to customers. Products like credit cards, debit cards, flexi deposits, ATM cards, personal loans including consumer loans, housing loans and vehicle loans have been introduced by a number of banks. Advantages for Corporates Corporates are also deriving profits from the increased variety of products and competition among the banks. Certificates of deposit, Commercial papers, Non-convertible Debentures (NCDs) that can be traded in the secondary market are gaining popularity. Recently, market has also seen major developments in treasury advisory services. With the introduction of Rupee floating rates for deposits as well as advances, products like interest rate swaps and forward rate agreements for foreign exchange, risk management products like forward
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contracts, option contracts and currency exchange are offered by almost every authorised dealer bank in the market. This list of services is still growing. Conclusion: Unfortunately, several concerns related to the banking sector still remain. The chief among these is the matter of ownership and control. In the near future, India will be forced to apply the norms of developed countries to the Banking Industry. Consequently, many Indian banks (including some of the biggest) will show very poor return ratios and dozens of banks will go bankrupt. Thus, it becomes imperative that the Banking Industry should streamline itself and become more compatible with global norms in the fields of operation and services Indian Banks have huge financial resources at their disposal. We started with aggregate deposits of about 5000 Crores in the Sixties which increased to 10 Lakh Crores this millennium. This denotes a 200-hundred-fold growth in three decades. A major tool which we have at our disposal is our knowledge capital-something which is being grossly under utilized currently. This is an extremely valuable type of capital. In banking we are short of intangible assets. Our knowledge capital is quite crucial to the success of banking in India. This we cannot garner from outside; neither can we go in for a public issue to mobilise intangible assets. Therefore banking employees have to embrace the need for higher learning and better knowledge. Banking in India has immense potential given the population figures in our country. With a little effort, careful planning and timely legislation this industry can be brought on par with the best banks in the world. B. Impact of Globalisation on Banking Sector in India

There are three distinct spells of development of Banking industry in post independent India, the pre-nationalisation era from 1947 to 1969, the post-nationalisation cum preliberalisation era from 1969 to 1991 and the neo-liberalisation era from 1991 onwards. The first phase was mostly city-centric private Banking marked by frequent failures and liquidation of Banks and consequent pauperisation of numerous poor and middle class depositors and loss of jobs for the employees. The post-nationalisation era saw a seachange in the Banking scenario : financial stability of Public Sector Banks (PSBs) controlling more than 84% of Banking business of the country, PSBs commanding trust and confidence of the Banking-public, expansion of Branch net-work of Banks particularly in hitherto unbanked rural and semi-urban centres, opening up the banking services accessible to the rural poor,

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expansion of credit to agriculture, small scale industries and small entrepreneurs, artisans even to the marginal farmers, small shopowners, vegetable vendors etc. Such expansion of Branch network, coupled with such mass-banking, created considerable job opportunities on the one hand, and, on the other, it helped a green revolution on the agricultural sector, obviating dependence of import of foodgrains, as also a spurt in the development of Small and Medium Scale Industries. It also rescued a vast section of the rural poor from the exploitation by village-money-lenders. By tapping the hitherto untapped huge rural savings, the PSBs could help the growth of large-scale and capital intensive industries too. Even the most ardent critics of Public Sector too have had to recognise and appreciate the laudable role of PSBs towards development of economic self reliance. During this post nationalization era, Regional Rural Banks (RRBs) were established in 1975 onwards under the auspices of PSBs to cater to the credit needs of rural-India. Till 1990, priority sector lending constituted over 70% of the advance portfolio of RRBs giving further fillip to the rural economy. During the last four decades of their productive existence, the PSBs have taken up the services of employees and the liability of depositors of a number of Private Banks going on liquidation due to mismanagement by and the greed of their private owners. With the onset of World Bank-IMF dictated reforms, euphemistically called liberalisation, successive Governments at the centre have consistently been trying to undo all the good work of the PSBs as also to dismantle and privatise the PSBs altogether. On 14th August 1991, the Government of India (GOI) appointed a Committee headed by Mr. M. Narashimham (called Narashimham Committee I) to suggest the modus operandi for reforms of the Banking Sector. On 16th November 1991, the said Committee submitted its Repost suggesting downsizing of PSBs through closure of Branches, merger of PSBs, reduction of priority sector lending from the then prevailing 40% to 10% of total advance portfolio, abolition of Banking Service Recruitment Board, granting of more autonomy to PSBs in respect of both financial and administrative matters, to reduce the supervisory and regulatory control of Reserve Bank of India (RBI), the Central Bank of the country, and, to top it all, dilution of Government Holding in PSBs through suitable amendment of relevant legislations. Thereafter, a number of committees, such as Narashimham Committee II, Khan Committee, Verma Committee, S.C.Gupta Committee, Raghuram Rajan Committee, Anwarul Hoda Committee, to name a few, have been appointed to assess the progress in implementation of the Recommendations of the Narashimham Committee I as also to

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suggest measures for carrying forward the reforms of the Banking Sector further as per dictates of the World Bank-IMF. Following the Recommendations of these Committees, successive Governments have persistently been trying to carry forward the reforms dictated by World Bank-IMF. In the process, law has been amended to pave the way for reduction of Govt. holding of shares in PSBs from 100% to 51% and, in pursuance of such amendment, most of the PSBs (except two major PSBs and two subsidiaries of State Bank of India) have made public issue of 2 shares, thus, reducing Government holding. Instead of filling up more than one-hundred thousandvacant posts through employment, the PSBs have reduced its workforce through Voluntary Retirement Scheme on the one hand, and, on the other outsourcing even the regular and core banking jobs to outside agencies. The role of RBI, as the regulatory and supervisory authority over the Banks, have been redefined and undermined considerably. RRBs have been directed to give more emphasis on conventional Banking and, consequently, its priority lending stands reduced to around 40% (from 70%) of total advances today. Still, all is not yet lost altogether, as least, so far our country, India, is concerned. Bank employees in India have been fighting relentlessly against the machinations of the successive Governments to the reform the Banking Sector at the dictates of the World Bank-IMF combine. It is most encouraging that all the nine unions having all-India presence in the Banking Industry five Workmens Unions and four Officers Unions representing almost 100% of the workforce in the Industry have joined hands to form a United Forum of Bank Unions (UFBU). All the Unions are, in the main, united in principle, against the reforms. Since the onset of the reforms regime in 1991, the Bank employees have undertaken, apart from other forms of struggle-programmes, not less than 19 one-day strike and 3 two-day strike programmes (total 25 days of strike); these strikes are apart from the strikes undertaken jointly with other sections of Trade Union movement on popular demands. I am very happy to report before this august house, that the left political parties in our country have always extended their unequivocal support to all our struggles/strikes against the World Bank-IMF dictated reforms of the financial sector; the left-parties have also voiced their strongest opposition to such reforms both inside and out of legislative bodies. Because of all these strike/struggle of Bank Employees and the role played by the left parties, the successive Governments have not been able to push through their much

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cherished reforms-programme to the fullest extent they wished they could have done, to dismantle the PSBs that they would have liked. The PSBs still retain their Nationalised character, save and except State Bank of Sourastra ( a subsidiary of State Bank of India) which has been merged with State Bank of India, no other PSB has so far been merged with any other by way of reform (merger of New Bank of India with Punjab National Bank was actuated by commercial considerations and not by way of reforms; hence no TU opposed the said merger). The top echelons of PSBs, on their part, has not yet been able to introduce outsourcing to the extent they would have liked. Notwithstanding all their intentions, GOI has not yet been able to privatize the Pension Fund. The result is there for all of us to see. Because of the presence of a strong and dominant Public Sector, the financial sector in our country, though affected, has not crushed down with the melt down of the financial sector in the United States and other major economies of the capitalist world; not a single copper of public money has to be spent to dole out/save any PSB, none of the depositors in any Bank has lost a single farthing of his/her deposit; when the financial giants all over the world have been happily off-loading their employees in thousands to tide over the crisis, not a single Bank-employee in India has lost his job just to accommodate the financial health of his/her employer. Pension, the only post super annual In succor of employees, still remain assured. There is, however, no room to be complacent. The present dispensation at the centre of our country has not learnt any lesson from the prevailing convulsion in the world economy and is still hell bent on going full steam with its reforms agenda. The recent cabinet decision to increase the cap on FDI in insurance sector from 26% to 49%, as also to amend the law to allow proportionate voting rights to the shareholders in Private Banks are indications of the road-map drawn for the desired reforms. There is the added danger of their intentions to allow proportionate voting rights to the private shareholders of PSBs by amending the relevant law. The working class, employees in financial sector in particular, have, therefore, to carry on the struggle unabated. The left parties of our country have always remained with us in these struggles and they will continue to do so in future, we are confident.

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Conclusion

The lesson of recent experience is that a country must carefully choose a combination of policies that best enables it to take the opportunity - while avoiding the pitfalls. For over a century the United States has been the largest economy in the world but major developments have taken place in the world economy since then, leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants- India and China. Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century. India, which is now the fourth largest economy in terms of purchasing power parity, may overtake Japan and become third major economic power within 10 years.

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