Eco Fundas

Globalization and Indian Economy

India's dynamic and highly competitive private sector has long been the backbone of its
economic activity. It accounts for over 75 per cent of its Gross Domestic Product and
offers considerable scope for joint ventures and collaborations.Today, India is one of the
most exciting emerging markets in the world. Skilled managerial and technical manpower
that match the best available in the world and a middle class whose size exceeds the
population of the USA or the European Union,provide India with a distinct cutting edge
in global competition.

How did Globalization come to India?

Globalization came to India when its economy was in deep crisis in July 1991. The
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. This came as a period of
economic transition which jolted the economy out of their conventional, self reliant and
socialistic policies of economy. Adoption of globalization, liberalization and privatization
in 1991 led to the real integration of the
Indian economy into the global economy.
With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter
dawned for India with its billion plus population. Until then, India’s inward looking
restrictive form of governance resulted in the isolation,overall backwardness and
inefficiency of the economy.
Liberalization and Globalization of the economy
Globalization meant integrating Indian economy to rest of the economies of the world
through uninhibited trade and financial flows, as also through mutual exchange of
technology and knowledge. It was a great challenge for a developing economy then to be
able to make a mark at a global platform. In context to India, this implied opening up the
economy to foreign direct investment by providing facilities to foreign companies to
invest in different fields of economic activityin 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. Therefore,
Globalization was identified with the policy reforms of 1991 in India.Foreign Direct
Investment (FDI) played a positive role in the rapid economic growth of most of the
Southeast Asian countries and most notably China. India also 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.
Steps towards Liberalization, Privatization and 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 liberalization policies are moving
 along as well. Under the privatization scheme, most of the
public sector undertakings were sold to private sector
FDIs: Foreign Direct Investment (FDI) was invited to induce
rapid economic growth in the dipping economy. So today, various economies
and societies have greater and palpable influences on each other. This influence is not
just confined to economic and political arena but also to cultural and social aspects. The
formations of world organizations like General Agreement on Tariffs and Trade
(GATT), IMF have boosted globalization.
The Virtues and the Vices of Globalization

Like most of the things in the world, there are two sides of the trend, Globalization. It
came as a boon for few countries helping their economy grow but to few underdeveloped
nations fell victim to stagnancy.
Virtues
There is an International market for companies and for consumers so there is a wider
range of products to choose from. Increased flow of investments from developed
countries to developing countries has tremendously helped in economic reconstruction-
Technological development has resulted in reverse brain drain in developing countries.
Vices - There is an underlying threat of multinational corporations
with immense power ruling the globe.
- For smaller developing nations at the receiving end, it
could indirectly lead to a subtle form of colonization.

All in all, globalization positively influenced Indian economy

helping it grow rapidly. It helped in reducing its financial
dependence on developed nations and also made the economy
globally competitive.
Crisis jolts Globalization
Economic and financial globalization and the expansion of world trade have brought
substantial benefits to countries around the world. But the current financial crisis has put
globalization on hold, with capital flows reversing and global trade shrinking.Some
analysts see the drivers of the recent globalization wave
getting undermined, with protectionism on the rise. Even
supporters of globalization agree that the benefits of
globalization are not without risks - such as those arising
from volatile capital movements. The IMF works to help
economies manage or reduce these risks, through economic
analysis and policy advice and through technical assistance in
areas such as macroeconomic policy, financial sector
sustainability, and the exchange-rate system.