SEMINAR REPORT: I

Subject: Business Environment

MBA SY Sem III

PANKAJ KAPSE

Roll No: 18

MBA SY Sem III

SRTMUN

Sub Centre LATUR

Impact of Globalisation on Developing Countries and India Impact of
Globalisation on Developing Countries and India
by Chandrasekaran Balakrishnan

Chandrasekaran Balakrishnan for The 2004 Moffatt Prize in Economics

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 globalisation

Definations

Globalised World - What does it mean?

Does it mean the fast movement of people which results in greater interaction?

Does it mean that because of IT revolution people can be in touch with each other
in any part of the world?

Does it mean trade and economy of each country is open in Non-Intrusive way so
that all varieties are available to consumer of his choice?

Does it mean that mankind has achieved emancipation to a level of where we can
say it means a social, economic and political globalisation?

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:

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 amore 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.

India is Global:
The liberalisation of the domestic economy and the increasing integration of India with the global
economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level
of 77.8% in 1996-97. Growth rates have slowed down since the country has still bee able to achieve 5-6%
growth rate in three of the last six years. Though growth rates has slumped to the lowest level 4.3% in
2002-03 mainly because of the worst droughts in two decades the growth rates are expected to go up
close to 70% in 2003-04. A Global comparison shows that India is now the fastest growing just after
China.

This is major improvement given that India is growth rate in the 1970's was very low at 3% and GDP
growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India. Though
India's average annual growth rate almost doubled in the eighties to 5.9% it was still lower than the
growth rate in China, Korea and Indonesia. The pick up in GDP growth has helped improve India's global
position. Consequently India's position in the global economy has improved from the 8 th position in 1991
to 4th place in 2001. When GDP is calculated on a purchasing power parity basis.

Globalisation and Poverty:

Globalisation in the form of increased integration though trade and investment is an important reason why
much progress has been made in reducing poverty and global inequality over recent decades. But it is not
the only reason for this often unrecognised progress, good national polices , sound institutions and
domestic political stability also matter.
Despite this progress, poverty remains one of the most serious international challenges we face up to 1.2
billion of the developing world 4.8 billion people still live in extreme poverty.

But the proportion of the world population living in poverty has been steadily declining and since 1980
the absolute number of poor people has stopped rising and appears to have fallen in recent years despite
strong population growth in poor countries. If the proportion living in poverty had not fallen since 1987
alone a further 215million people would be living in extreme poverty today.

India has to concentrate on five important areas or things to follow to achieve this goal. The areas like
technological entrepreneurship, new business openings for small and medium enterprises, importance of
quality management, new prospects in rural areas and privatisation of financial institutions. The
manufacturing of technology and management of technology are two different significant areas in the
country.

There will be new prospects in rural India. The growth of Indian economy very much depends upon rural
participation in the global race. After implementing the new economic policy the role of villages got its
own significance because of its unique outlook and branding methods. For example food processing and
packaging are the one of the area where new entrepreneurs can enter into a big way. It may be organised
in a collective way with the help of co-operatives to meet the global demand.

Understanding the current status of globalisation is necessary for setting course for future. For all nations
to reap the full benefits of globalisation it is essential to create a level playing field. President Bush's
recent proposal to eliminate all tariffs on all manufactured goods by 2015 will do it. In fact it may
exacerbate the prevalent inequalities. According to this proposal, tariffs of 5% or less on all manufactured
goods will be eliminated by 2005 and higher than 5% will be lowered to 8%. Starting 2010 the 8% tariffs
will be lowered each year until they are eliminated by 2015.

GDP Growth rate:

The Indian economy is passing through a difficult phase caused by several unfavourable domestic and
external developments; Domestic output and Demand conditions were adversely affected by poor
performance in agriculture in the past two years. The global economy experienced an overall deceleration
and recorded an output growth of 2.4% during the past year growth in real GDP in 2001-02 was 5.4% as
per the Economic Survey in 2000-01. The performance in the first quarter of the financial year is5.8% and
second quarter is 6.1%.

Export and Import:

India's Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million
respectively. Many Indian companies have started becoming respectable players in the International
scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. In
2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of
which was contributed by the marine products alone. Marine products in recent years have emerged as the
single largest contributor to the total agricultural export from the country accounting for over one fifth of
the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee
are the other prominent products each of which accounts fro nearly 5 to 10% of the countries total
agricultural exports.

Where does Indian stand in terms of Global Integration?

India clearly lags in globalisation. Number of countries have a clear lead among them China, large part of
east and far east Asia and eastern Europe. Lets look at a few indicators how much we lag.

Over the past decade FDI flows into India have averaged around 0.5% of GDP against 5%
for China 5.5% for Brazil. Whereas FDI inflows into China now exceeds US $ 50 billion
annually. It is only US $ 4billion in the case of India

Consider global trade - India's share of world merchandise exports increased from .05% to .
07% over the pat 20 years. Over the same period China's share has tripled to almost 4%.

India's share of global trade is similar to that of the Philippines an economy 6 times smaller
according to IMF estimates. India under trades by 70-80% given its size, proximity to
markets and labour cost advantages.

It is interesting to note the remark made last year by Mr. Bimal Jalan, Governor of RBI.
Despite all the talk, we are now where ever close being globalised in terms of any
commonly used indicator of globalisation. In fact we are one of the least globalised
among the major countries - however we look at it.

As Amartya Sen and many other have pointed out that India, as a geographical, politico-
cultural entity has been interacting with the outside world throughout history and still
continues to do so. It has to adapt, assimilate and contribute. This goes without saying
even as we move into what is called a globalised world which is distinguished from
previous eras from by faster travel and communication, greater trade linkages, denting of
political and economic sovereignty and greater acceptance of democracy as a way of life.

Consequences:

The implications of globalisation for a national economy are many. Globalisation has intensified
interdependence and competition between economies in the world market. This is reflected in
Interdependence in regard to trading in goods and services and in movement of capital. As a result
domestic economic developments are not determined entirely by domestic policies and market conditions.
Rather, they are influenced by both domestic and international policies and economic conditions. It is thus
clear that a globalising economy, while formulating and evaluating its domestic policy cannot afford to
ignore the possible actions and reactions of policies and developments in the rest of the world. This
constrained the policy option available to the government which implies loss of policy autonomy to some
extent, in decision-making at the national level.