Friday, 12 December 2014 05:27





The term 'globalization' means integration of economies and societies through cross country flows of information, ideas, technologies, goods, services, capital, finance and people. Cross border integration can have several dimensions – cultural, social, political and economic. Globalization is not only a movement of ideas, information, capitals, people, technologies, goods and services, and labour across the nation-states but has serious implications on socio-economic and political sphere of life.

Globalization has been a historical process with ebbs and flows. During the Pre-World War I period of 1870 to 1914, there was rapid integration of the economies in terms of trade flows, movement of capital and migration of people.  There were fewer barriers for flow of trade and people across the geographical boundaries.

Most of the developing countries which gained Independence from the colonial rule in the immediate Post-World War II period followed an import substitution industrialization regime.  More and more developing countries are turning towards outward oriented policy of growth. Nevertheless, there are more concerns about globalization now than before because of the nature and impact of globalization on market integration, efficiency and industrial organizations.

India opened up the economy in the early nineties following a major crisis 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.

• Positive impacts of Globalization

The rate of growth of the Gross Domestic Product of India has been on an increase from 5.6 per cent during 1980-90 to seven per cent in the 1993-2001 periods. 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).

It is accepted that international trade, in general, is beneficial and that restrictive trade practices impede growth.  That is the reason why many of the emerging economies, which originally depended on a growth model of import substitution, have moved over to a policy of outward orientation.  However, in relation to trade in goods and services, the emerging economies will reap the benefits of international trade only if they reach the full potential of their resource availability. That is why international trade agreement concept is increasing its presence in the global economy and bilateral, multilateral agreements are at a high. Every nation just wants to encash the profits and benefits from other country’s resources. Globalization leads to movement of capital across the nations in forms of foreign direct investment or foreign portfolio investment. This decreases the capital account deficit of the country thus leads to increment in money supply across the nation. The rapid development of the capital market has been one of the important features of the current process of globalization.  While the growth in capital and foreign exchange markets have facilitated the transfer of resources across borders, the gross turnover in foreign exchange markets has been extremely large.  It is estimated that the gross turnover is around $ 1.5 trillion per day worldwide.  This is of the order of hundred times greater than the volume of trade in goods and services.

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), 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  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.

• Negative impacts of Globalization

Low growth of 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. The agricultural growth of 3.2 per cent observed from 1980 to 1997 decelerated to 2per cent subsequently. The Eleventh Five Year Plan aims at 4 per cent growth rate in agriculture. The reasons for the deceleration of the growth of agriculture as given in the Economic Survey as: low investment, imbalance in fertilizer use, low seeds replacement rate, a 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.

Increment in Rural-Urban divides

Globalization has widened the gap between the rich and poor, raised inequalities and mounted the debt of developing countries. The World Commission report found unequal distribution of growth and disparities across the nations and increasing unemployment and poverty. According to the report, the per capita income of the 20 richest capitalist countries went up to 121 times during 1985-2001. The inequality was increased in a large number of countries; while in 16 countries inequality was static and only in case of nine countries it has declined. The Human Development and the ILO studies found increase in unemployment worldwide.

Globalization leads to widening income gaps within the countries. Globalization benefits within a country only to those who have the skills and the technology.  The higher growth rate achieved by an economy can be at the expense of declining incomes of people which may be rendered redundant.  In this context, it has to be noted that while globalization may accelerate the process of technology substitution in developing economies, those countries even without globalization will face the problem associated with moving from lower to higher technology.

Impact on autonomy of the state

Globalization is also known to constrain the authority and autonomy of the state. Free trade limits the ability of states to set policy and protect domestic companies. Capital mobility makes generous welfare states less competitive; global problems exceed the grasp of any individual state; and global norms and institutions become more powerful.