7793333 globalization and india

8/9/2019 7793333 Globalization and India

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Globalization and India

IIPM SM


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What is Globalisation?

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, growingimportance of MNCs, population migrations and more generally

increased mobility of persons, goods, capital, data and ideas

but also infections, diseases and pollution


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Impact of Globalization on India

The frontiers of the stateIncreased reliance on the market economy

Renewed faith in the private capital and resources,Process of structural adjustment spurred by thestudies and influences of the World Bank andother International organisations have startedGlobalisation has brought in new opportunities to

developing countries.Greater access to developed country markets andtechnology transfer hold out promise improvedproductivity and higher living standard.


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DisadvantagesGlobalisation has also thrown up new challenges- growing inequality across and within nations,

-volatility in financial market and environmentaldeteriorations.-Another negative aspect of globalisation is that agreat majority of developing countries remainremoved from the process


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India and Globalization Till the nineties the process of globalisation of theIndian economy was constrained by the barriers to

trade and investment Liberalisation of trade, investmentand financial flows initiated in the nineties hasprogressively lowered the barriers to competition andhastened the pace of globalisation

In 1700 India had a share of Global Trade of 22.5%, 3.5% in 1947

Dr Manmohan Singh at Oxford in July 2005


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Impact on Indian EconomyIndia opened up the economy in the early nineties following

a major foreign exchange crunch that dragged the economy close

to defaulting on loans. Domestic Needs and also Multilateral

Organizations pushed towards the new policy regime in favourof a more open and market oriented economy.

Major measures :

- scrapping of the industrial licensing regime,

- reduction in the number of areas reserved for the public secto- amendment of the MRTP act,

- start of the privatisation programme

- reduction in tariff rates and

- change over to market determined exchange rates.


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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 a weighted average of72.5% in 1991-92 to 24.6 in 1996-97 .

Tariff rates went up slowly in the late nineties it

touched 35.1% in 2001-02.

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.

Impact.. Contd


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n a s o a Indias position in the global economy has improved from the 8th

position in 1991 to 4th place in 2001 (PPP basis)

The liberalisation of the domestic economy and the increasing

integration ofIndia with the global economy have helped step up

GDP growth rates,

-5.6% in 1990-91 to a peak level of 7.78% in 1996-97.-Growth rates have slowed down since the country has still been able

to achieve 5-6% growth rate in three of the last six years.

- Growth rates has slumped to the lowest level 4.3% in 2002-03

mainly because of the worst droughts in two decades

-Now at around 6.5%, expected to go up to 7%

- India is now the fastest growing just after China.

- This is a major improvement from 1970s at 3% GDP

-India still behind growth in countries like Brazil, Indonesia, Korea,

and Mexico was more than twice that ofIndia.


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Globalisation and Income Distribution Globalisation in the form of increased integration though trade and

investment is an important reason why much progress has been mad

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.

India has to concentrate on five important areas or things:

- technological entrepreneurship,- new business openings for small and medium enterprises,

- importance of quality management,

- new prospects in rural areas and

- privatisation of financial institutions.


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Role of Technology 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 ofIndian economy very much depends upon rural participation in

the global race.

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.


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ChallengesUnderstanding 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 Bushs recent proposal to eliminate all tariffs on all

manufactured goods by 2015 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.


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Export and ImportIndias Export $ 32.5 Bn Import ($75bn est 2005)$ 38.4 bn(2001)

$65bn 2005 $129.2 bn Forex reserves Jan 2005

Many Indian companies 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 largestcontributor to the total agricultural export from the country accountin

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 for

nearly 5 to 10% of the countries total agricultural exports.


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Whither India in Global Integration?India clearly lags in globalisation behind China, large part of

East and Far east Asia and eastern Europe.

y Over the past decade FDI flows into India have averaged

around 0.5% of GDP against 5% for China 5.5% for Brazil.

FDI inflows into China now exceeds US $ 50 billion

annually vs $4 bn

y Consider global trade Indias share of world merchandise

exports increased from .05% to .07% over the pat 20 years vs

Chinas share Which has tripled to almost 4%.

y Indias share of global trade is similar to that of the Philippines

economy 6 times smaller according to IMF estimates.

India under trades by 70-80% given its size, proximity to

markets and labour cost advantages.


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Amartya Sens ViewyIndia, as a geographical, politico-cultural entity has been

interacting with the outside world throughout history and

still continues to do so.

yIt has to adapt, assimilate and contribute, 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.


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Key Public Policies.. RBI Gov

1. In the external sector, particularly in the managementof capital account and exchange rate, contributed togrowth, provided resilience to shocks and an overallstability.

Thus, India will continue with pragmatic, cautious andgradual approach in this regard, subject to improvementsin fiscal arena and the progress in strengthening thedomestic financial sector.

2. The management of financial sector has been orientedtowards gradual rebalancing between efficiency andstability and the changing shares of public and privateownership. Higher Market Orientation is key

3. There is advantage in continuing the progress in publicdebt management keeping structural aspects in view.


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Key Public Policies.. RBI Gov4. Significant liberalisation of external trade has

Taken place smoothly, which has imparted competitiveefficiency to the domestic sector almost upto theglobal best standards in many of the sectors.

5. The importance of power, airports and seaports(apart from tourism, which has significantemployment potential) but there is need forimplementation at a pace significantly fasterthan we have ever witnessed in any sector so far.

6. Need to improve both productivity and outputin the agriculture

7. improvements in institutional infrastructure inmatters relating to administrative, judicial andother systems of governance are important.


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Key Public Policies.. RBI Gov

8. Quantity and quality of water, educationand health care infrastructure

9. Regional inequalities in growth. The demonstration

effect of a few high-performing States must spurthe other States, in the medium term,to compete for better governance and economicperformance.

10. Finally, enhanced investment activity, particularly

in the infrastructure area, would necessitate higherdomestic savings, especially in the public sectorcoupled with efficient financial intermediation.In addition, foreign savings need to be attracted

and absorbed


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Indian Financial SystemIndia's stock of financial assets, reflecting the degree of monetization

in an economy and its supply of intermediated capital, is just one-sixt

the size of China's

Whereas China accounts for more than 4 percent of the world's

financial assets, India holds less than 1 percent.

This difference is only partially explained by the size of the twoeconomies. India's financial depth, a measure comparing a country's

financial stock with its GDP, is just 137 percentfar below China's

323 percent.

In the decade to 2003, India's financial stock increased by 12 percent

annuallyhigher than the world average but still well below China'sgrowth rate of 14.5 percent.

If these trends hold, by 2010 China will have a financial stock of

$14 trillion, thus consolidating its position as a significant player

in the global capital market.I

ndia, however, will remain a minor play


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Indian Financial System

Size isn't everything, of course; a financial system's efficiencyin allocating capital is equally important.

On this measure, India would appear to have some advantage

Nearly two-thirds of China's financial stock is held in bank

deposits, compared with less than half of India's total .

But Chinese banks have a dubious lending history, and

estimates of nonperforming loans range from 25 percent to

60 percent of the value of all outstanding loans.2

In India, nonperforming loans are estimated at around

15 to 20 percent of the total.


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India Vs China EconomyStill, though India's equity markets and banking system are

slightly more efficient than China's, there is an enormous gap

between the amount of intermediated capital available to each

nation.Even if China's bank deposits were discounted by 25 percent to

reflect the country's nonperforming loans, its financial stock

would still be more than $4 trillionnearly five times as large as

India's.

(One could argue that since India's $200 billion government deb

t is not an instrument to transfer capital from savers to borrowers,

it should be excluded from consideration. Doing so would reduce

India's financial stock to just $700 billion.)


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The bottom line is that India simply has a lot less

money circulating

in its financial system than one would expect, given

the size of its economy. One reason is its nationalsavings rate, which, though respectable, is only half of

China's rate of 40 percent.

Foreign capital inflows could compensate forIndia's

lack of domestic capital, but unfortunately they widen

the gap: in 2003 foreign direct investment in China

equaled 3.7 percent of GDP, but just 0.9 percent in

India.3

India Vs China .. Contd


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India Vs China InvestmentAs a result, India's economy has been less able to finance investment

and accumulate physical capital (which includes infrastructure,

machinery, and buildings).

In 2002, the country's investment in physical capital was 23 percent

of GDP, compared with 40 percent for China. This factor may explain

why China has invested more in heavy industry and manufacturing,

while India has had success in the less capital-intensive business-service-outsourcing sector.


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The OpportunityIndia has ample opportunities to develop its financial system further

The current round of reforms, which allow pension funds to invest

more in equities, will help spur market growth, as will the continued

privatization of state-owned enterprises.

Opening more parts of the economy to investment from foreign

corporations and from expatriates

something China has done very effectivelyalso holds potential.

India has made remarkable economic progress since opening its

economy in 1991. To continue that growth, it must now focus on

developing its financial system


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er ormance o n a s

External Sector

Foreign Exchange Reserves excluding gold andSDR stood at US$ 129.72 billion on Jan 8, 2005.During early 2004-05, the rupee ended a continuous

24 months (May 2002- April 2004) run of appreciatingagainst US dollar and started weakening from May 2004onwards. But it again started appreciating against US$from September 2004. against all other majorcurrencies Re appreciated in April 2004.From May- July it weakened and then again gainedin August. During Oct- Dec 2004, Re depreciatedagainst the Euro, pound sterling and Yen.

Since, Jan 2005, it is appreciating against all currencies.

7793333 globalization and india

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