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GLOBALIZATION AND ITS IMPACT ON INDIA

Seminar Report
Submitted in partial fulfillment of the requirements for the award of the degree of
Bachelor of Technology in Electrical and Electronics Engineering

by NURUKURTHI SATISH (Roll No.: B080521EE)

Under the Guidance of RATNA KUMAR K (Assistant Professor MED)

Department of Electrical Engineering NATIONAL INSTITUTE OF TECHNOLOGY CALICUT January 2012

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CHAPTERS :

1. GLOBALIZATION INTRODICTION MERITS AND DEMERITS OF GLOBALIZATION 2.IMPACT OF GLOBALIZATION IN INDAI 2.1 GLOBALIZATION IN INDIA 2.2 IMPACT OF GLOBALIZATION IN INDIA 2.3 MEASURES TO MAKE MOST OF GLOBALIZATION

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1.GLOBALISATION

1.1 INTRODUCTION

The human society around the world, over a period of time, has established greater contact, but the pace has increased rapidly since the mid 1980s.The term globalization means international integration. It includes an array of social, political and economic changes. Unimaginable progress in modes of communications, transportation and computer technology have given the process a new lease of life.

The world is more interdependent now than ever before .Multinational companies manufacture products across many countries and sell to consumers across the globe. Money, technology and raw materials have broken the International barriers. Not only products and finances, but also ideas and cultures have breached the national boundaries. Globalization is the process of integrating various economies of the world creating any hindrances in the free flow of goods and services, technology, capital and even labour or human capital. The term globalization has therefore, four parameters: a. b. c. d. Reduction of trade barriers to permit free flow of goods and services among nation states; Creation of environment in which free flow of capital can take place among nation state; Creation of environment, permitting free flow of technology; and Creation of environment in which free movement of labour can take place in different countries of the world.

World commission on the social dimension of globalization says Our primary concerns are that globalization should benefit all countries and should raise the welfare of all people throughout the world. This implies that it should raise the rate of economic growth in poor countries and reduce world poverty, and that it should not increase inequalities or undermine socio-economic security within countries about globalization. According to Famous economist Branko milanovic Globalization means free movement of capital, goods, technology, ideas and people. Any globalization that omits the last one is partial and not sustainable. According to stiglitz, Globalization is the closer integration of countries and peoples of the world which has been brought about by enormous reduction of costs of transport and communications, and the breaking down of artificial barriers to the flow of goods and services, capital, knowledge, and people across borders.

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1.2 Merits and Demerits of Globalization

There are many contradictions to Globalization from the very first moment it started. Historical evidence reveals that all these trade, capital and technology flows helped the imperialist nations to drain out resources from the poor colonial nations. Thus, the imperialist nations thrived at the cost of colonial countries who remained in stagnation. After analyzing the economic system after the entry of globalization following merits and demerits are crystal clear.

MERITS:
(a) Globalization will promote direct foreign investment and thus, it enables developing countries to raise capital without recourse international indebtedness. (b) Globalization enables developing countries to make use of technology developed by advanced countries without investments in research and development. (c) Globalization widens the access of developing countries to export their produce in the developed countries. Simultaneously, it enables the consumers of developing countries to obtain quality consumer goods, especially consumer durables, at relatively much lower prices. (d) Globalization introduces faster diffusion of knowledge and thus enables developing countries to raise their level of production and productivity. It therefore, generates th momentum to reach international standards of productivity. (e) Globalization reduces costs of transport and communication. It also reduces tariffs and thus enlarges the share of foreign trade as a percentage of GDP. (f) Greater and faster flow of information between countries and greater cultural interaction has helped to overcome cultural barriers.

DEMERITS:
(a) The outsourcing of jobs to developing countries has resulted in loss of jobs in developed countries. (b) Medium and small scale industries in developing countries will be having big loss due to the entrance of powerful multinational companies. (c) Employment requirement will be reduced for short period and that short period cant be predicted. (d) There is an underlying threat of multinational corporations with immense power ruling the globe. (e) Poorer countries suffering disadvantages: While it is true that free trade encourages globalization among countries, some countries try to protect their domestic suppliers. The main export of poorer countries is usually agricultural goods. Larger countries often subsidise their farmers (e.g., the EU's Common Agricultural Policy), which lowers the market price for foreign crops. (f) An increase in exploitation of child labor: Countries with weak protections for children are vulnerable to infestation by rogue companies and criminal gangs who exploit them. Examples include quarrying, salvage, and farm work as well as trafficking, bondage, forced labor, prostitution and pornography.

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2. Impact of Globalization on INDIA

2.1 Globalization in INDIA

In early 1990s the Indian economy had witnessed dramatic policy changes. The idea behind the new economic model known as Liberalization, Privatization and Globalization in India (LPG), was to make the Indian economy one of the fastest growing economies in the world. An array of reforms was initiated with regard to industrial, trade and social sector to make the economy more competitive. The economic changes initiated have had a dramatic effect on the overall growth of the economy. It also heralded the integration of the Indian economy into the global economy. The Indian economy was in major crisis in 1991 when foreign currency reserves went down to $1 billion and inflation was as high as 17%. Fiscal deficit was also high and NRI's were not interested in investing in India. Then the following measures were taken to liberalize and globalize the Indian economy. Steps Taken to Globalize Indian Economy Areas hitherto reserved for the public sector were opened to private sector. The government intended to transfer the loss- making units to the private sector, but it failed because there were no takers for them. Instead, the Government started disinvestment of the highly profit- making PSUs and the proceeds were used to reduce fiscal deficits. Thus due to various ward its programme of privatization, though it did succeed in liberalizing the economy to the private sector both domestic and foreign. Permitting private sector to set up industrial units without taking a licence, the Government removed certain shackles which were holding back or delaying the process of private investment. Abolishing the threshold limit of assets in respect of MRTP companies and dominant undertakings, the government freed the business houses to undertake investment without any ceiling being prescribed by the MRTP commission. Obviously, considerations of promoting growth were more dominant with the government and such issues as concentration of economic power were assigned back seat. Grant approval for direct foreign investment, the government decided to grant approval for direct foreign investment up to 51 percent in high priority areas. The Government could also consider proposals would require prior clearance of the Government. No permission was required for hiring foreign technicians. Foreign testing of indigenously developed technologies, etc. Greater autonomy was given to PSU managements and the Boards of public sector companies were made more professional. The economy was opened to other countries to encourage more exports. To facilitate the import of foreign capital and technology and other allied imports, reduction in import duties and other barriers were brought about.

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2.2 Impact of Globalization in INDIA

As INDIA is a developing country, we should find many benefits from Globalization but unfortunately INDIA is unable to make the most of Globalization. Lets go into details of major economic issues like employment, trade, import, export and flow of FDI.

TRADE:
During the 11 year period Indias merchandise exports increased at the rate of 13.3 percent per annum, while that of china increased at the faster rate of 18.6 percent. However, compared to the world average annual exports of 8 percent during the period, India did benefit from globalization in increasing its export growth rate. But Indias share in world merchandise exports improved only marginally from 0.59 percent in 1995 to 0.99 percent in 2006. Indias performance in service sector exports was relatively much better. Service exports increased from $10 billion in 1995 to $63 billion in 2006, indicating an annual average growth of 18.2 percent during the period. Much of this increase was due to software exports as a consequence of outsourcing by developed countries, especially USA and some extent the European Union countries. This singular achievement is very creditable. Compared to the world average growth of commercial services of the order of 7 percent, India did benefit substantially in the service sector exports.

IMPORTS AND EXPORTS:

Globalizers advocates the acceptance of the new strategy of liberalization and globalization on the plea that India will be able to access foreign markets more effectively. Exports rose from 5.8 percent of GDP in 1990-91 to 9.1 percent of GDP in 1995-96. but if we examine the trend of imports, they increased from 8.8 percent of GDP in 1990-91 to 12.3 percent in 1995-96. Even thereafter, when exports fell in 1996-98, imports continued their forward march. As a consequence, Indias trade deficit during 1996-97 to 2000-01 and it only increased from then and reached 9.7 percent of GDP during 2008-09. This shows the reality that foreigners have been able to penetrate the Indian market more effectively than Indians have been able to access foreign markets. Indias performance in achieving a net positive balance invisibles has helped it to wipe out the large trade deficit, in the year 2003-04, net invisible showed a positive balance of 4.6 percent of GDP which not only wiped out the trade balance deficit, but created a positive balance in current account to the extent of 2.3 percent of GDP. A major contributor to the present situation is a massive inflow of foreign exchange from the software service provided by India as a consequence of sharp in exports of enabled and business process outsourcing services.

Foreign Investment Flows:

It is often claimed that globalization leads to a greater flow of foreign investment, which should help to increase the productive capacity of the recipient economy. It is worthwhile considering this for India.

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Foreign investment takes two forms Foreign direct investment (FDI) : helps to increase the productive capacity of the economy. Foreign Portfolio Investment (FPI) : is of a more speculative nature and is thus very volatile.

During the period 1990-91 and 1994-95 the share of FDI in total investment inflow was only 24.2 percent and that of FPI was 75.8 percent. Eventually after several 5 year plans and 10 year plans FDI was 60.8 percent and that of FPI was 39.2 percent during 2000-01 to 2010-11. If we observe the graph of FPI and FDI, FDI graph was increasing gradually and FDI can be predicted and as we all discussed that FPI is a volatile graph there are lots of ups and downs in FPI, and we can say that FPI was decreasing when we are considering 10 years completely. Though FDI is increasing there are fluctuations in internal sectors of FDI. There are total of 10 sectors in FDI and five priority sectors are energy, telecommunications, electrical equipment, transport and metallurgical industries. While FPI is mostly due to software exchange and this is volatile it mostly depends on economic position of developed countries.

Employment at the time of globalization:

The employment situation in India has worsened in the era of globalization. The rate of growth of employment which is in the range of 2.04 in 1983-84 was decreased to 0.98 during 1994-2000. This clearly shows that there is a negative growth rate in employment. Consequences are neglecting the agriculture and not filling of government posts though there are vacancies. Hence employment rate of government jobs went negative (-0.03) during 1994-2000, overall employment rate during that period is 0.53 positive rate is because of private sectors which has growth rate of 1.87. When globalization was introduced economist thought that there will be unemployment during short term period and in long run employment opportunity will increase, but situations are never that way in India. Employment rate never increased, so we can say that India didnt have any advantage in employment area.

Inequality and poverty:

There is no doubt that poverty has declined from 36 percent in 1993-94 to 26.1 percent in 1999-00, though at a relatively decreasing rate in the post-liberalization period, there is unanimity among economists about a rise in inequality or relative deprivation. The estimates of growth rates in per capital expenditure between 1993-94 to 1999-00 point to a significant increase in rural- urban inequalities at the all- India level, as also in most of the states. There has been significant increase in differences in salary incomes between those in rural and urban sectors. In India major occupation is agriculture and most of the people depend on agriculture as globalization effected agriculture there are many people who are left unemployed and this is the reason why Indias poverty reduction is becoming slow.

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2.3 Measures to make most of globalization:

Good political governance based on a democratic political system, respect for human rights, the rule of law and social equality. An effective state that ensures high and study economic growth, provides public goods and social protection, raises the capabilities of the people through universal access to education and other social services, and promotes gender equality. A vibrant civil society, empowered by freedom of association and expression, that reflects and voices the full diversity of views and interests, organization representing public interests, the poor and other disadvantage groups are also essential for ensuring participatory and socially just governance. Strong representative organizations of workers and employers are essential for fruitful social dialogue.

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