GLOBALISATION

“I do not want my house to be walled in on all sides and my widows to be stuffed.

I want the cultures of all the lands to be blown about my house as freely as possible.
But I refuse to be blown off my feet by any”. Mahatma Gandhi

One of the main features of the current economic scene is the emphasis on
globalization and its effects on developing countries like India. Driven by the
information and communication revolution and policy shifts in favour of market
economy, liberalisation and investment regimes, globalisation has made rapid stride in
the nineties. The establishment of WTO in 1995 has accelerated the pace.

Globalisation, by dismantling economic boundaries, has opened up new opportunities

for millions. Many developing countries have, in fact, shown great urge to globalise their
economies. This is signified by the fact that of the 135 members of WTO, 100 are from
the developing world.

Globalisation : What It Means ?

Globalisation, according to World Development Report 1999-2000, “ reflects the
progressive integration of the world’s economies, requires national governments to
reach out to international partners as the best way to manage changes affecting trade,
financial flows, and the global environment". It is a situation of growing interdependence
of the world’s people. It is a process, integrating not just the economy but culture,
technology and governance.

In the Indian context, globalisation implies opening up of the economy to foreign

direct investment, by removing constraints and obstacles to the entry of multinational
companies, allowing Indian companies to enter into foreign collaborations in India and
also encourage them to set up joint ventures abroad, carrying out import liberalisation
programmes; and instead of a plethora of export incentives, opting for exchange rate
adjustments for promoting exports.

Some argue that globalisation is not new, and that the world was more integrated a
century ago. Trade and investment as a proportion of GDP were comparable. With
borders open, many people were migrating abroad. The Human Development Report
1999, mentions four distinguishing features of this new era of globalisation.
1) New Markets: Foreign exchange and capital markets linked globally 24 hours a day.
2) New Actors: The WTO, the global networks of NGOs and other groups that tanscend
national boundaries.
3) NewTools: Internet links, cellular phones, media networks.
4) New Rules: Multilateral agreements on trade, services and intellectual property
backed by strong enforcement mechanisms, reducing the scope for national policy.
As it is well known, 1990 and 1991 were years of unbelievable change.
An unexpected and unforeseen development which changed the very character of
international relations occurred – the disintegration of the Soviet Union. Many people
thought and interpreted this as the failure of communism itself. Right or wrong, the path
of socialism followed by Russia and East European countries stood discredited. But the
Thatcherite policies in the UK and Reagonomics in USA were apparent successes. Thus,
coupled with the great strides made by South East Asian Tigers, following free market
policies under the guidance of the U.S., enhanced the appeal of free market, free
movement of capital and free trade in goods.
The Globalisation Debate:
Globalisation is a term that provokes strong reactions, both positive and negative. It is
praised for the new opportunities if brings such as access to markets and technology
transfer – opportunities that result in increased productivity and higher living standards.
But globalisation is also regarded as a ‘peril’ because it sometimes brings instability and
unwelcome change. It exposes workers to competition from imports, which can threaten
their jobs. It reduces the importance of banks and even entire economies when flows of
foreign capital have an upper hand. What are the specific arguments For and Against
globalisation ?

Globalisation and the World Trading System:

Many aspects of globalisation have captured worldwide attention in the 1990s,
including capital flows, migration and environmental issues. But for more than a century,
the driving force behind globalisation has been the expansion of trade in goods and
services. And throughout the early decades of the 21st century, trade will continue to
drive global integration, especially among developing countries.
Trade is important developing countries for four reasons:
• It is frequently the means of realising the benefits of globalisation.
• Trade offers ample opportunities to expand not only in goods but also in services.
• There will be geographic dispersion of production and increased trade among cities,
regions and countries.
• Growth of trade is strongly supported by international institutions like the WTO.
Developing countries are exporting more to their industrial counterparts. Further,
there is a change in the composition of trade also. For example, Latin American
countries and India have shifted their exports from resource-based manufacture to low
and medium technology exports. India’s exports comprised low-technology products. .
(Examples: textiles, garments and footwear). Heightened competitive pressures among
countries enhance overall national welfare.
The social consequences of the new openness to trade cannot be ignored. There will
be regional and sectoral disparities; as also internal migration to cities. Labour skills and
mobility will have to be enhanced. Policy framework will have to be enhanced. Policy
framework should be such that the gains from trade are widely shared among the
population, reassuring those, who initially suffer from reform, that their long term
welfare is secure.
Globalisation and the International Financial System:
The 1990s saw a huge upsurge in flows of private capital from developed to
developing countries. At the beginning of the decade, both private and official flows
were about the same, but during the middle of the decade, the private flows have assured
greater importance. Not since the late 19th century have international capital flows
assumed such prominence. There are differences between the two, which have
implications for developing countries as they integrate into the global financial system,

At the end of the 19th century, capital flows financed infrastructure projects such as
railways and road networks. A hundred years later, foreign direct investment is
channelised through multinational corporations which are operating throughout the
world. These investments bring with them more than money. They open access to
markets, make new technologies available and provide workers with training. But there
is also another type of capital in the form of mutual funds and pension funds that is ready
to move across national borders at a moment’s notice in search of the highest short term
returns. The current US ‘sub-prime crisis’ is too well known to be repeated.
It is the latter type of capital that is posing severe problems to developing countries.
Rapid change in investor sentiment can cause great instability in developing economies.
The sudden collapse of South East Asia – Indonesia, Malaysia, South Korea, Thailand
and Philippines which did not spare even Japan – in 1997 and early 1998 is a case in
point. It surprised everybody since they were South East Asian ‘Tigers’ which, countries
like India had to emulate. According to several economists, the US pushed these
countries too hard for capital liberalisation despite a wealth of scholarly research showing
the need for caution. The result was that tides of investment flooded into the ill-prepared
developing countries, finally resulting in a global financial crisis. Prof. Jagdish Bhagwati
in an article in Foreign Affairs said that “the claims of enormous benefits from free
capital mobility are not persuasive.” This is from one who has believed in globalisation.

Another theory is that while short term capital is risky, foreign direct investment is
safe. Even this appears disputable. Large repatriation of profits by MNCs and payments
for royalty and imports could have an adverse effect on the balance of payments position
among developing countries .

There are some others who say that the real reason for the failure of the South East
Asian economies is neither short term capital nor FDI but something more complex and
indeed unique to each nation. These reasons including mounting private sector debt that
exceeded their respective foreign exchange reserves, allocation of capital into real estate
and stock exchange and more significantly, lack of government control over financial
institutions.
Lessons for India:
What should be our strategy in the light of the above SE Asian countries’ experience ?
Any policy measure should address the following important issues: Convertibility of the
rupee both on the current and capital accounts; import liberalisation and opening up to
foreign capital.
India achieved full convertibility on current account on August 19, 1994. There is
partial capital account convertibility.
 Import liberalisation has taken the share of reduced customs duty. It has come down
from 75% to between 15% to 25%. FDI has been showing an upward trend but not up to
the expectation of the government.
The moral of all this for us is: While we should do away with restrictions on
industries, commerce and finance, we should never do away with regulations. Our policy
should be: Restrictions, No; Regulation, Yes. This policy has paid us rich dividends in
the sense that while the current US financial crisis has turned into a sort of financial
Tsunami for the countries in Europe, India has been reasonably safe.

Globalisation and Poverty:

It is observed that nearly 1.3 bn. People live on less than a dollar a day and close to
1 bn.cannot meet their basic consumption requirements,
The share of the richest 20% of the world’s people is 74 times that of the poorest 20%.
Poverty is everywhere. Measured by the Human Poverty Index (HPI), more than a
quarter of the 4.5 bn. people in developing countries still do not have some of life’s most
basic needs. In industrial countries, human poverty is hidden among statistics of
success. There is large scale regional disparity. In India, for example, the level of human
poverty in Bihar is more than twice that in Kerala.

The HDR 1997 had this to say: “The greatest benefits of globalisation have been
garnered by a fortunate few. A rising tide of wealth is supposed to lift all boats but some
are more seaworthy than others….and some are sinking .”

Poverty is the most visible face of the developing world and it is made worse by
globalisation. And this is happening when it is being realised the world over that removal
of poverty is a moral imperative. When an MNC and a small domestic industry compete,
the result is all too obvious. The small company just cannot survive with the vast
resources at its disposal, the economies of scale enjoyed by it and the research that it can
take up, the MNC will drive out the domestic company from the market in no time.
While the present day world does not give us any option except to join the process of
globalisation, we should, along with other developing countries, find ways and means of
devising policies and programmes which really help the poor nations and the poor among
these nations. We should fight for a more just and equitable world order and develop the
strength and unity to resist imposition of unequal treaties and discriminating trade
policies. We should work towards the goal of economic community comprising South
Asian countries, Myanmar, Malaysia, Singapore, China, Thailand and Japan.
Internally, we should pursue the policies which help the poor and the weak. That is
the goal ordained by the Constitution, which is variously described as ‘development with
a human face’, ‘distributive justice’ ‘progress tempered by equity’ and as the XI FYP
(2007-12) aims ‘inclusive growth’.

Globalisation and the Environment:

Environmental degradation is a global problem that surpasses the scope of national
governments. Globalisation turns out to be a double-edged sword.
Globalisation can improve prospects for environmental management through the
spread of environment friendly technologies, standards and pressures by consumers and
activists. It can also add pressures for environmental exploitation leading to deforestation
and the demand for fish leading to overfishing.

Environmental degradation is a chronic and ‘silent emergency’ that threatens the

livelihood of some of the poorest people of the world. Scientists predict a steady rise in
global temperatures inundating as much as 17% of the land area in Bangladesh, 12% in
Egypt and almost all of the Maldives. Renewable resources are being depleted rapidly.
Water availability now is 60% of 1970 levels, as is forest coverage – all these threaten the
economic, food and health security of the world’s poorest people.
Globalisation and Social Fragmentation:
Uneven globalisation is bringing not only integration but also fragmentation. Social
tensions are ignited when there are extreme inequalities. Globalisation open many
opportunities for crime and crime is becoming rapidly global. There are now 200
million drug users, threatening neighbourhoods around the world. Illegal trafficking is a
growing business, destabilising societies and governments. Global travel has meant
greater vulnerability to HIV/AIDS. AIDS is now a poor people’s epidemic.
Globalisation expands the opportunities for unprecedented human advance for some,
but shrinks those opportunities for others. It is integrating economy, culture and
governance but fragmenting societies. Globalisation to be meaningful must have the
following components:
• Stronger policies to protect and promote human development.
• Human development should go beyond national boundaries to include international
cooperation.
• Communities, NGOs and corporations must become involved apart from the govt,

Globalisation and Rural Economy:

The following are some of the extracts taken from the Report of the Expert Group
on Agricultural Indebtedness (July 2007: Chairman: Radhakrishna R)

The most important manifestations of the crisis are deceleration of agricultural growth
combined with increasing inefficiency in input use thereby adversely affecting the
profitability of agricultural production. The growth of agriculture both in terms of gross
product and in terms of output has visibly decelerated during the post-reform period
compared with that during the eighties. For example, the growth rate of GDP from
agriculture decelerated from 3.08 per cent during 1980-81 to 1990-91 to 2.61 per cent
during 1992-93 to 2002-03 at 1999-2000 constant prices.. The annual growth rate for all
crops taken together decelerated to 1.58 per cent during 1990-91 to 2003-04 from a
growth rate of 3.19 per cent during 1980-81 to 1990-91. The growth rates of agriculture
both in terms of GDP from agriculture and agricultural output (and yield) have also
decelerated in most of the states. Except for the states of Bihar, Gujarat and Orissa, a
deceleration took place in the growth rates of agriculture in all the other states during 1993-
94 to 2003-04 as compared with 1983-84 to 1993-94. Even in these three states, which had
a low base, the growth rates were very low and statistically insignificant in two of them.
More important, foodgrains growth fell from 2.85 per cent in the 1980s (1980-81 to
1990-91) to 1.16 percent in the 1990s (1990-91 to 2003-04), which was lower than the
rate of growth of population of 1.9 per cent during this period. The 1990s was thus the
first decade since the 1970s in which the rate of growth of food production fell below the
rate of population growth. This is essentially due to the gradual decline in the growth of
yield levels, especially of some food crops. While the annual yield growth for all crops
taken together decelerated from 2.56 per cent during the eighties to 0.90 per cent during
the latter period, for rice the yield growth rate decelerated from 3.47 per cent to 0.99 per
cent and for wheat from 3.10 per cent to 1.35 per cent. In the case of cotton, the yield
growth rate has gone down from 4.10 per cent during the eighties to -0.69 per cent during
the nineties. In this case, the effectiveness of pesticides is declining and the spurious
pesticides have failed to prevent complete loss of the crop

Stagnation in Terms of Trade

Another important manifestation of the crisis in agriculture is the stagnant if not

deteriorating terms of trade for agriculture after the introduction of economic reforms.
It may be emphasised that a major objective of economic reforms was to initiate
policies that would end discrimination against agriculture and improve its terms of
trade vis-à-vis other sectors of the economy. The whole set of macro-economic
policies such as devaluation of the currency, ending of protection to industry were all
expected to benefit tradable agriculture. But this has not happened.
.
Income terms of trade for agriculture showed an improvement up to 1998-99, but no
noticeable improvement thereafter. Further, income terms of trade recorded a much
bigger increase during the 1980s as compared with the later period. It is, therefore, clear
that the changes in macro-economic policies have failed to turn decisively the terms of
trade in favour of agriculture. On the basis of an alternate analysis, the Planning
Commission has also come to some sombre conclusions regarding the relative position of
agriculture:

“During 1997-2002, agricultural prices declined relative to prices not only

of inputs but also non-food consumer goods. As a result purchasing power
of agricultural incomes (current price GDP deflated by consumer
expenditure deflator) decelerated more than GDP at constant prices. Real
farm incomes defined in this way not only show no per capita growth after
1996-97, but also increased variability” (Planning Commission, Mid Term
Appraisal of the Tenth Five Year Plan, 2005).

The above data show that a perceptible stagnation took place in the
fortunes of the agricultural sector during the post liberalisation period. This
happened despite large increases in administered prices of important agricultural
commodities.
Slowdown of Agricultural Exports

One of the major expectations from trade liberalisation and exchange rate reforms
was that these would result in significant increases in exports of tradable agricultural
commodities. Exports of many agricultural commodities did register an increase up to
1996-97 primarily as a result of devaluation of currency and also because of rapid growth
of international trade during this period. Many commodities such as rice, meat products,
processed foods, fish, fruits and vegetables whose demand is more elastic, registered very
high rates of growth during the nineties. On the other hand, some traditional exports such
as tea, cotton, were not able to sustain their growth rate after liberalisation. Marine
products are the largest export earner, even as oil meals were a major item in early 1990s.
Recently, oil meal exports have suffered and cotton exports have collapsed (due to
shortage of supplies). Sugar has also fared similarly, although its exports increased from
2001 onwards. Exports of spices have shown some buoyancy (G. S. Bhalla,
Globalisation and Indian Agriculture, Vol.19 in State of the Indian Farmer: A
Millennium Study, Academic Foundation, 2004).

The level of exports flattened after 1997 primarily because of large

deceleration in the growth of international trade in agriculture consequent to the
East Asian crisis. Simultaneously, international prices started falling for most of
the commodities that made Indian exports non-competitive. Exports also became
unviable because of large hikes in administrative prices of many commodities
The trade scenario in agricultural commodities after 1991 reflects the impact of
economic liberalisation and steep devaluation of the rupee. Although the country
was able to accelerate the growth rate of agricultural exports, the boom was short
lived. After 1996, there was a deceleration in export growth and imports tended to
increase. It is only since 2002-03 that agricultural exports have started rising a
little faster.

Impact of Deceleration in Agricultural Growth on Employment

Another serious dimension of the crisis was the deceleration in the overall employment
growth in the economy from 1.74 per cent during 1983 to 1993-94 to 1.08 per cent during
1993-94 to 2004-05. This had its impact on the absorption of labour from agriculture into
other activities. The growth rate of agricultural employment during the period declined
from 1.41 per cent to only 0.63 per cent indicating a steep deceleration in growth of
employment in agriculture in the post-liberalisation period. Employment in non-
agricultural occupations too did not increase sufficiently.

Second, because of a sharp increase in labour force, there was a sharp increase in open
unemployment during 1993-94 to 2004-05. According to National Sample Survey (NSS),
there were 3.98 million unemployed in India in 1973-74 and their number had increased
to 7.49 million by 1993-94 and to as many as 13.6 million by 2004-05. In the meantime,
the incidence of unemployment (defined as the ratio of unemployed persons to the labour
force) increased from 1.64 per cent in 1973-74 to 1.96 per cent in 1993-94 and to 2.39 per
cent in 2004-05.

REFORM POLICIES AND THE FARMING COMMUNITY

Neglect of Agriculture

The available evidence both from macro and micro level suggests significant decline in
the public agricultural support systems including public investment in agriculture. This
led to unprecedented distress that has been one of the causes underlying the rising trend
in the incidence of farmers’ suicides. The crisis in agriculture was well under way by late
1980s and the economic reforms beginning with 1990s have deepened it. The crisis in
agriculture in the post-reform period has become pervasive. The manifestation of the
crisis is felt in different forms in different agro-climatic and institutional contexts. The
absence of irrigation facilities has forced farmers in dry regions to incur serious debts by
investing in unstable ground water resources. The growing pressure on land in command
areas has resulted in rapid increase in the highly exploitative tenancy system. The
volatile prices of commercial crops, including certain plantation crops, often triggered by
cheap imports have caused farmers to suffer ruination because of agricultural trade
liberalisation. The exposure to externally engineered crops with the hope of high yields,
with scant regard to their suitability to domestic conditions has resulted in high levels of
instability in output that has led to loss of livelihoods.

Trade Liberalisation, Structural Adjustment, Targeted Credit and Agriculture

Agricultural trade has been gradually liberalised beginning with mid-1990s. All-India
product lines have been placed under Generalised System of Preferences (GSP). By
2000, all agricultural products were removed from Quantitative Restrictions (QRs) and
brought under tariff system. Canalisation of trade in agricultural commodities through
state trading agencies was virtually removed and most of the products are brought under
Open General Licensing (OGL).

Internally, the structural adjustment process had far reaching implications for Indian
agriculture. Fiscal reforms adversely affected the agricultural input support system and
institutions. Much of the Green Revolution initiated in mid-1960s in India was built upon
a system of state supported incentives, subsidies, and substantial public investment in
agricultural infrastructure. The National Seed Corporation established in 1963, and later,
a network of State Seed Corporations established after 1975, had virtual monopoly and
responsibility of developing and distributing improved and high yielding variety (HYV)
seeds in collaboration with the agricultural universities. Trade in seeds was opened to
private trade in 1980s and by 1991 hundred per cent foreign equity was allowed in the
seed industry and restrictions on the import of seeds were relaxed. The liberalisation of
seed production and distribution has led to two serious consequences. First, the supply of
genuine seeds has declined and in the absence of proper regulations, spurious seeds have
found a flourishing market. Second, prices of seeds especially for commercial crops and
fruits and vegetables have risen disproportionately. There is a need to increase the supply
of genuine seeds by rejuvenating the public seed producing system and promoting seed
production through public-private partnership. Appropriate regulatory mechanisms
should be put in place to check the supply of spurious seeds.

It must be emphasised that a substantial proportion of the Indian agriculture is a ‘small

farm’ based economic activity. It is increasingly moving from a system of farmers’ own-
resource-based subsistence farming to purchased-input-based intensive commercial
farming. This requires timely and assured credit at reasonable interest rates. The share of
Gross Capital Formation (GCF) in Indian agriculture in total GCF started to decline since
the early 1980s. By1995-96, it declined to 6.3 per cent from 16.1 per cent during 1980-
81. There was a steep decline in the share of public sector GCF in agriculture to 17.3 per
cent in 1999-00 from 43.2 per cent in 1980-81 (Table 1.11). Contrary to expectations,
private investment failed to compensate for the drastic decline in public sector
investment. Although private investment recorded a high growth during 1980-81 to 1999-
00, its growth rate sharply decelerated during 1999-00 to 2004-05. The consequence was
that the overall GCF in agriculture as a share of total capital formation in the country
declined sharply from 16.1 per cent to 9.2 per cent by 1999-00. Simultaneously, a drastic
reduction took place in the share of developmental expenditure on rural development
from 11.7 per cent of GDP in 19991-92 to 5.9 per cent in 2000-01.

If one goes by the consumption expenditure based head-count estimates of

poverty, one may not be in a position to perceive the stress on agricultural communities,
but if one looks at the undernourishment, the stress becomes apparent. What is of
significance is that even as the head-count of persons who are poor is coming down, there
has been a spurt in the number of undernourished persons across all farming classes,
especially in the 1990s. This clearly brings out the adverse impact of reforms on the
health conditions of the farming community.

In conclusion, we may quote James D.Wolfehson, the former President of the

World Bank:
“Globalisation and localisation are not likely to disappear or even diminish in intensity.
They are driven by powerful underlying forces like the new capabilities of information
and communication technologies ……As globalisation brings distant parts of the world
functionally closer together…..it may well be that development policies will achieve
results more quickly, while failed policies will have their consequences exposed more
quickly and painfully as well. In such a world …..globalisation offers enormous potential
for advances in development strategy that can be of great and lasting benefit to the
poorest people of the world.”