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Impact of globalization on Indian economy

INTRODUCTION :
Globalisation is the new buzzword that has come to dominate the world since the nineties
of the last century with the end of the cold war and the break-up of the former Soviet
Union and the global trend towards the rolling ball. The frontiers of the state with
increased reliance on the market economy and renewed faith in the private capital and
resources, a process of structural adjustment spurred by the studies and influences of the
World Bank and other International organisations have started in many of the developing
countries. Also Globalisation has brought in new opportunities to developing countries.
Greater access to developed country markets and technology transfer hold out promise
improved productivity and higher living standard. But globalisation has also thrown up
new challenges like growing inequality across and within nations, volatility in financial
market and environmental deteriorations. Another negative aspect of globalisation is that
a great majority of developing countries remain removed from the process. Till the
nineties the process of globalisation of the Indian economy was constrained by the
barriers to trade and investment liberalisation of trade, investment and financial flows
initiated in the nineties has progressively lowered the barriers to competition and
hastened the pace of globalization

DEFINITION
Though the precise definition of globalisation is still unavailable a few definitions worth
viewing,
Stephen Gill: defines globalisation as the reduction of transaction cost of Transborder
movements of capital and goods thus of factors of production and goods.
Guy Brainbant: says that the process of globalisation not only includes opening up of
world trade, development of advanced means of communication, internationalisation of
financial markets, growing importance of MNC's, population migrations and more
generally increased mobility of persons, goods, capital, data and ideas but also infections,
diseases and pollution

IMPACT ON INDIA
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Impact of globalization on Indian economy


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.
Major measures initiated as a part of the liberalisation and globalisation strategy in the
early nineties included scrapping of the industrial licensing regime, reduction in the
number of areas reserved for the public sector, amendment of the monopolies and the
restrictive trade practices act, start of the privatisation programme, reduction in tariff
rates and change over to market determined exchange rates.
Over the years there has been a steady liberalisation of the current account transactions,
more and more sectors opened up for foreign direct investments and portfolio
investments facilitating entry of foreign investors in telecom, roads, ports, airports,
insurance and other major sectors.
The Indian tariff rates reduced sharply over the decade from a weighted average
of 72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late
nineties it touched 35.1% in 2001-02. India is committed to reduced tariff rates. Peak
tariff rates are to be reduced to be reduced to the minimum with a peak rate of 20%, in
another 2 years most non-tariff barriers have been dismantled by March 2002, including
almost all quantitative restrictions.

Strategies Initiated
Major measures initiated as a part of the liberalization and globalization strategy in the
early nineties included the following:

Disinvestment
Devaluation
Dismantling of The Industrial Licensing Regime
Allowing Foreign Direct Investment
Non Resident Indian Scheme
Throwing Open Industries Reserved For The Public Sector to Private
Participation
Abolition of the (MRTP) Act
The removal of quantitative restrictions on imports.
The reduction of the peak customs tariff

Importance of the Study

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Globalisation has brought in new opportunities to developing countries. Greater access to
developed country markets and technology transfer hold out promise improved
productivity and higher living standard. Indias economic growth has been substantially
high and India has become progress vibrant and nationally competitive. This urged to
study the performance of India in this fiscal year due to the initialisation of globalisation

Objective of the Study

To understand the meaning of globalization.


To analyse the Economic performance and growth of India due to globalization in
the current pace.
To analyse the pleasant and unpleasant side of globalization.
To analyse the pitfalls of globalization.
To estimate the future of the Indian economy.

PROCESS OF GLOBALISATION IN INDIA


Since the early 1970s, there have been several research papers on varied issues of
globalization with reference to India. However, one of the basic issues is still not
researched sufficiently. The key concern of this paper is to explain the meaning of
Globalization in terms of the genesis, the evolution, and the characteristics of
globalization with respect to India.
In other words, the paper focuses on what globalization has meant for India during the
last about 60 years. Overlooking such a fundamental issue in the past studies has lead to
confusion on the subject has lead to misplaced views on the meaning, problems and
prospects of globalization with respect to India.
First, it is believed that India put restrictions on Foreign Direct Investments (FDI) that
restricted the flow of FDI to India since India became free from colonial rule in 1947.
The policies of the GOI and the amount of FDI in India since 1948 to 1961 reveal a
different story. India has also been a founder member of General Agreement of Tariff and
Trade (GATT), a body for frees global trade and investment, way back in 1948.
Second, globalization with respect to India has been seen mostly in terms of how freely
the GOI has allowed the foreign business entities to operate in India and how much of
foreign direct investments have entered India. However, seeing globalization on these
lines is only seeing globalization as a one-way process.

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Impact of globalization on Indian economy


Third, globalization process in India is generally perceived as a phenomenon of post
1991. The trends in the changes in the policies of the GOI again reveal a different reality.
Further contrary to the reality, the amount FDI in India in the post 1991 period is
presumed to be mainly from the American companies.
To clarify the concept of globalization and place it in the proper perspective, our
researchers has undertaken a historical analysis of the various processes involved in the
evolution of globalization since 1947 with respect to India. For our analysis, we took
seven key parameters, via. trade and investment policies of the GOI during 1947-2004,
responses of foreign companies to the trade and investment policies of GOI responses of
foreign governments in terms of the structure and motivation of their overseas
development assistance GATT/WTO policies on trade and investment, trends in foreign
direct investments, exports including outsourcing from India, an outward foreign direct
investments from India. The overall analysis of the seven variables of globalisation
process discovers the meaning globalization with reference to India.
India tried to integrate with the world economy as soon as it became a sovereign state
but with its own terms and conditions. However, over these years, India has slowly been
pressured by the several external forces like the foreign governments, foreign
corporations and international agencies to integrate on their terms. The roots of the
present globalization process in India lie way back in thel980s. India started to liberalize
trade in 1977-78. This open policy increased the number of items in the Open General
License (OGL).
Globalization has been only a one-way process that is foreign enterprises has found a
Favourable way to do business in India since Independence. Foreign companies have
invested in India only when the policies of the GOI have favoured either the market
seeking or the efficiency seeking objectives of the foreign firms. The foreign firms have
either left India or critiqued India otherwise. From the historical observations, it is
imperative that the GOI, the foreign companies and the governments of other nations have
to recognize and respect the need for both Globalization of India and globalization in India in
order to ensure that the globalization process takes off in a balanced and sustained manner.
Hence, while undertaking policies on liberalization of Indian economy, the GOI has to take care
that liberalization does not lead to globalization of India alone as it has been presumed in the past
15 years. The policies of the GOI should be able to direct foreign direct investment into
manufacturing sector and high technology areas through which the Indian economy can
effectively be part of the globalization process worldwide. With similar framework of our study,
further research may be conducted on other developing countries in Asia to enhance our
understanding of globalization process in other countries of Asia

Difference between Liberalization and Globalization


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Impact of globalization on Indian economy


Globalization as many of you have heard is the greater integration among countries and
economies for trade, economic, social, and political benefits. Globalization in trade is
also called 'one global market place' where a consumer does not have to restrict their
purchases to one country/economy and can enjoy the benefits of the goods and services
produced worldwide. For example, Macy is a popular department store in the United
States, but does not have outlets in many Asian countries. Many years ago before
globalization, an Asian consumer would not be able to purchase Macy's products,
however, nowadays due to globalization, any customer, in any part of the world, can
purchase Macy's products and have them delivered to their doorstep by making
transactions online. Liberalization, though similar to globalization, is more focused on
the local economy Liberalization generally refers to the removal of restrictions; usually
government rules and Regulations imposed on social, economic, or political matters.
Liberalization maybe trade, social, economic, or capital market related. Social
liberalization, For example, maybe related to things like making abortion related laws
less stringent. Trade liberalization maybe with regard to reducing restrictions on imports
or exports and facilitating free trade Difference between them: Globalization and
liberalization are concepts that are closely related to one another. A country usually
experiences liberalization of its economic and other policies, which is later on followed
by globalization. There are, however, many differences between the two. Liberalization
generally relates to activity within a certain country as a result of modernization and
development. Globalization relates to activities among countries and results in
interdependence and interaction among countries and facilitates the movement of goods
and services, capital, individuals, knowledge, technology

Methodology
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Impact of globalization on Indian economy


Secondary data is collected for the study. The data is collected from various journals and
internet links in order to

Compare and analyse the growth statistics of various sectors of the economy.
Tabulating and estimating the GDP of the Indian economy.
To estimate the contributions made by the different sectors on Indias growth.
To analyse Indias current position among the world countries in terms of GDP
To determine the contributions made by India to the world economy.

Growth of GDP
Chart showing the growth in GDP
25
20
15
GDP

10
india
5
0

10 11 12

year

COUNTRY
INDIA

2000
5.5

2001
6

2002
4.3

2003
4.3

2004
8.3

2005
6.2

2006
8.4

2007
9.2

2008
9

2009
7.4

2010
7.4

The economic scenario in India has been pretty stable over the last 5 years. Despite the
economic downturn two years back the Indian economy has managed to remain stable.
The India GDP recorded for the period December 2010 stood at 7.4 percent. However
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2011
10.4

Impact of globalization on Indian economy


according to the (CMIE) or Centre for Monitoring Indian Economy India will record a
GDP of 10.4 per cent in the year 2011. India's GDP growth 2010 - 2011 has not been
phenomenal but is certainly encouraging.

Growth of Foreign Exchange Reserves


Indias foreign exchange reserves have grown significantly since 1991. The reserves,
which stood at US$ 5.8 billion at end-March 1991 increased gradually to US$ 54.1
billion by end-March 2002, after which it rose steadily reaching a level of US$ 309.7
billion in March 2008. The reserves declined to US$ 252.0 billion in March 2009. The
reserves stood at US$ 292.9 billion as on September 30, 2010 compared to US $
279.1billion as on March 31, 2010. Although both US dollar and Euro are intervention
currencies and the FCA are maintained in major currencies like US dollar, Euro, Pound
Sterling, Japanese Yen etc. the foreign exchange reserves are denominated and expressed
in US dollar only. Movements in the FCA occur mainly on account of purchases and sales
of foreign exchange by the RBI in the foreign exchange market in India. In addition,
income arising out of the deployment of the foreign exchange reserves and the external
aid receipts of the Central Government also flow into the reserves. The movements of the
US dollar against other currencies in which FCA are held also impact the level of
reserves in US dollar terms.

Chart showing the growth of Foreign Exchange


Reserves

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Impact of globalization on Indian economy

Growth of FDI
Chart showing the source of FDI into India between
April 2000 and March 2011
FDI
MAURITIUS

SINGAPORE

USA

UK

NETHERLAND

JAPAN

CYPRUS

GERANY

FRANCES

OTHERS

During April-February 2010-11, Mauritius has led investors into India with US$ 6,637 million
worth of FDI comprising 42 per cent of the total FDI equity inflows into the country. The FDI
equity inflows from Mauritius is followed by Singapore at US$ 1,641 million and the US with
US$ 1,120 million, according to data released by DIPP.
Year

A. Direct investment

B. Portfolio investment

Total (A+B)

Rupees
crore

US $
million

Rupees
crore

Rupees
crore

2000-01

18406

4029

12609

2760

31015

6789

2001-02

29235

6130

9639

2021

38874

8151

2002-03

24367

5035

4738

979

29105

6014

2003-04

19860

4322

52279

11377

72139

15699

2004-05

27188

6051

41854

9315

69042

15366

2005-06

39674

8961

55307

12492

94981

21453

2006-07

103367

22826

31713

7003

135080

29829

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US $
million

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US $ million

Impact of globalization on Indian economy


2007-08

140180

34835

109741

27271

249921

62106

2008-09

161536

35180

-63618

-13855

97918

21325

2009-10

176304

37182

153511

32375

329815

69557

India has been ranked at the second place in global foreign direct investments in 2010
and will continue to remain among the top five attractive destinations for international
investors during 2010-12 , according to United Nations Conference on Trade and
Development (UNCTAD) in a report on world investment prospects titled, 'World
Investment Prospects Survey 2009-2012'. India attracted FDI equity inflows of US$
1,274 million in February 2011. The cumulative amount of FDI equity inflows from April
2000 to February 2011 stood at US$ 128.642 billion, according to the data released by the
Department of Industrial Policy and Promotion (DIPP)The services sector comprising
financial and non-financial services attracted 21 per cent of the total FDI equity inflow
into India, with FDI worth US$ 3,274 million during April-February 2010-11, while
telecommunications including radio paging, cellular mobile and basic telephone services
attracted second largest amount of FDI worth US$ 1,410 million during the same period.
Housing and Real Estate industry was the third highest sector attracting FDI worth US$
1,109 million followed by power sector which garnered US$ 1,237 million during AprilDecember 2010-11. The Automobile sector received FDI worth US$ 1,320 million.

Growth of Capital Market


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.

Growth in the Number of Billionaires


India, presently with exactly 55 "dollar-billionaires" (individuals with a total net worth of
one billion dollars and above), accounts for roughly 4.5% of the global total of 1210
billionaires across the six continents. 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.

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Impact of globalization on Indian economy

Growth in Industrial Sector


Chart showing the current Industrial Growth Rate in
India on Year-on-Year Basis
(Base Year 2004-05)
25
20
15
10
INDIA
5
0

10

11

12

YEAR

Countr
y

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011

India

6
9.7

7.5 4.7

6.5 7.4

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7.9

7.5

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8.5 4.8 9.3

Impact of globalization on Indian economy

Sector Wise Growth of GDP


Indian exports increased by 26.8 per cent (y-o-y) and touched US$ 18.9 billion in
November 2010. This rapid growth in the exports from India urged the Indian
Government to conclude that the total shipments in 2010-11 might go up to US$ 215
billion. For the period April 2010 to November 2010 exports in the country grew by 26.7
per cent to US$ 140.3 billion.
On the other hand imports increased to US$ 222 billion India also made a substantial
profit from Foreign Exchange Earnings. The number of Foreign Tourist that visited the
country from January- November 2010 was about 4.93 million as compared to 4.46
million foreign tourists during the same period in 2009, registering a growth rate of 10.4
per cent. The (FEE) or Foreign Exchange Earnings went up to a whopping US$ 12.88
billion during the period January-November 2010 as compared to US$ 10.67 billion
during January-November 2009. The growth rate registered by the Ministry of Tourism
was 20.7 percent.
The logistics industry in India is also witnessing enormous activity. According to a study
conducted by the shipping ministry in India, some of the important ports in the country
handled about 44.4 million tons of freight in September 2010. There was a growth rate of
4.5 per cent as compared to the growth rate in September 2009 which stood at 5.9 per
cent. According to Frost Sullivan, the traffic in these ports is going to rise from 814.1
(MT) to 1,373.1 MT from the period 2010 to 2015 at a steady CAGR of 11 percent. The
investment industry in India also showed positive signs of growth in 2010. According to
the reports released by the Association of Mutual Funds in India the total assets that the
mutual fund industry managed accounted at US$ 160.44 billion in September
2010.According to the reports released by the Telecom Regulatory Authority of India
(TRAI) the total number of telephone users in India reached 742.12 million in October
31, 2010.
This took the total telephone using population in the country to 62.51 percent. The
number of wireless subscribers also increased to 706.69 million. According to the
NASSCOM's Strategic Review 2010, the IT-BPO sector in India remained the fastest
developing industry churning out total revenue of USD 73.1 billion in 2010. The
Information Technology and software services generated revenues of USD 63.7 billion.
The vehicles industry in India also witnessed a substantial growth in 2010. The
production of vehicles in India grew by 32.4 per cent in August 2010, as against the
corresponding period in 2009. Ranging from the commercial vehicles to two-wheelers to

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the Passenger vehicles segment all registered striking growth rates of 49 per cent, 31 per
cent and 32 percent.
According to the reports of the Gem and Jewellery Export Promotion Council, the
shipment of jewellery from India was worth US$ 23.57 billion during the AprilNovember 2010, recording an increase of 38.25 per cent as compared to that of US$
17.05 billion as against the same period. Even the aviation industry registered a steady
growth in 2010 as compared to the previous year. As per the Ministry of Civil Aviation,
the total number of passengers carried by the domestic airlines during JanuaryNovember, 2010 were 46.81 million as compared to 39.35 million in the previous year,
registering a profit of 18.9 per cent.

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Impact of globalization on Indian economy

Unpleasant Side of Globalization


Poverty Rate
Chart showing the poverty rate in India
40
35
30
25
POVERTY RATE 20
15
10
5
0

10 11 12

YEAR

Country 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
India

35

35

25

25

25

25

25

25

25

25

25

25

In spite of the decline in the poverty rate, the number of rural landless families increased
from 35 per cent in 1987 to 45 per cent in 1999, further to 55 per cent in 2005. The
farmers are destined to die of starvation or suicide. Replying to the Short Duration
Discussion on Import of Wheat and Agrarian Distress on May 18, 2006, Agriculture
Minister Sharad Pawar informed the Rajya Sabha that roughly 1, 00,000 farmers
committed suicide during the period 1993-2003 mainly due to indebtedness.
In his interview to The Indian Express on November 15, 2005, Sharad Pawar said: The
farming community has been ignored in this country and especially so over the last eight
to ten years. The total investment in the agriculture sector is going down. In the last few
years, the average budgetary provision from the Indian Government for irrigation is less
than 0.35 percent. Employment and Unemployment Agricultural and allied sectors
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Impact of globalization on Indian economy


accounted for about 52.1% of the total workforce in 200910. While agriculture has faced
stagnation in growth, services have seen a steady growth. Of the total workforce, 7% is in
the organised sector, two-thirds of which are in the public sector.
The NSSO survey estimated that in 200405, 8.3% of the population was unemployed,
and an increase of 2.2% over 1993 levels, with unemployment uniformly higher in urban
areas and among women. Growth of labour stagnated at around 2% for the decade
between 19942005, about the same as that for the preceding decade. Avenues for
employment generation have been identified in the IT and travel and tourism sectors,
which have been experiencing high annual growth rates of above 9%.

Chart showing the employment rate in India


25
20
15
employment rate

10
INDIA
5
0

1 2 3 4 5 6 7 8 9 10
year

Country 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
India
10.8

8.8

8.8 9.5 9.2

8.9 7.8 7.2 6.8

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Impact of globalization on Indian economy

Growth in Agriculture
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 percent 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. The agricultural growth of 3.2 per cent observed from 1980 to 1997
decelerated to two per cent subsequently. The Approach to the Eleventh Five Year Plan
released in December 2006 stated that the growth rate of agricultural GDP including
forestry and fishing is likely to be below two per cent in the Tenth Plan period. The
reasons for the deceleration of the growth of agriculture are given in the Economic
Survey 2006-07: Low investment, imbalance in fertilizer use, low seeds replacement rate,
distorted incentive system and low post-harvest value addition continued to be a drag on
the sectors performance. With more than half the population directly depending on this
sector, low agricultural growth has serious implications for the inclusiveness of growth.

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Social Services
Rate of Literacy
Chart showing the Literacy Rate in India
80
70
60
50
literacy rate 40
30

india

20
10
0

1 2 3 4 5 6 7 8 9 10 11 12
year

Country 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
India

52

52

52 59.5 59.5 59.5 59.5 61

61

61

61

61

Though there is a increase in literacy rate, 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.
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Impact of globalization on Indian economy

Infant Mortality Rate


Chart showing the infant mortality rate in India
70
60
50
40
INFANT MORTALITY

30
india

20
10
0

1 2 3 4 5 6 7 8 9 101112
YEAR

Country

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

India

64.9 63.19 61.47 59.59 57.92 56.29 54.63 34.61 32.31 30.15 49.13 47.57

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

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Impact of globalization on Indian economy


(92), China (56) and Vietnam (130). Compared to other countries, the mortality rate is
high. This should be taken care

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