Globalization and its impact on India

 

 Introduction:

Globalization can be defined as integration of economies and countries through cross country flow of foreign trade, investment, ideas, technologies, capital, finance, goods, services and people. Globalization can be described as a process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation and trade. The process of globalization can be explained as a gradual removal of hurdles of the investment among the countries. It is the fully-free economic operations across the borders of the countries. It also benefits to the region, who have skill and technology. In India, the economic reforms of early 1990’s, has witnessed a rapid rise in the economic growth. It also helped in reducing the unemployment, improvement in standard of living, better purchasing power and reduction in poverty. With a step of ‘Liberalization Privatization and Globalization’, in 1991 a new chapter was opened in Indian economic history and Indian economy was become opened for foreign investors. Foreign investors were got attracted to India after liberalization decision. . Foreign companies invest in India to take advantage of comparatively cheap wages, special privileges for investment such as tax exemptions.  Due to globalization, foreign companies brought highly advanced technology with them. The main aim is to study and understand the globalization and its impact on GDP growth, foreign trade, export –import, foreign investment inflows to India.

 

India’s Journey towards Globalization:

            As the Indian economy had suffered huge financial and economic crisis, the then Finance Minister of India Dr. Man Mohan Singh brought a new policy also known as New Economic Policy,1991 or LPG Policy. The policy was a measure to come out of the crisis that was going on at that time. The significant measures taken to liberalize and globalize the Indian economy was as follows:

1.      Devaluation: To solve the balance of payment problem Indian currency were devaluated by 18 to 19 %

2.      Disinvestment: To make the LPG model smooth many of the public sectors were sold to the private sector.

3.      Allowing FDI: FDI was allowed in a wide range sectors such as Insurance (26%).

4.      NRI Scheme: the facilities which were available to foreign investors were also give to NRI’s.

5.      Throwing open industries reserved for the public sector to private sector.

6.      Abolition of MRTP Act.

7.      Wide ranging financial sector reforms in banking, capital markets and insurance sectors.

The new economic policy 1991 introduced changes in the areas like trade policies, monetary and financial policies, fiscal and budgetary policies and pricing and institutional reforms. Now after thirty years, i.e. in 2021, it is significant to study the impact of Globalization on India. There are many implications of globalization on Indian economy. It can be discussed through the study of GDP growth, India’s foreign trade, and foreign direct investments inflows to India.

Sectorial Composition of GDP of India:

After Globalization, Indian economy has developed rapidly during last two decades and significant features of this growth performance has been the strength of the service sector. The GDP growth rate is the percent increase in GDP from quarter to quarter. It tells us exactly how fast a country's economy is growing in various sectors. 

 

 

Table 1.1

Sectorial Growth

 (Pre and Post-Globalization)

(Percent per annum)

Sector	1951-80	1981-90	1991-2000	1992-97	1997-2002	2002-2007	2007-2012	2011-2012	2012-2013	2013-2014
Agriculture	2.1	4.4	3.1	4.8	2.5	2.4	4.1	5.0	1.4	4.6
Industry	5.3	6.8	5.8	7.3	4.3	9.2	7.7	7.8	1.0	0.7
Services	4.5	6.6	7.5	73	7.9	8.8	9.4	6.6	7.0	6.9
GDP at factor cost	3.5	5.8	5.8	6.6	5.5	7.6	8.0	6.7	4.5	4.9

Source: Compiled from Indian Economy: V.K.Puri, S.K.Mishra (2014) Himalaya publishing House, New Delhi.

 

Table 1.1, shows that, services grew slower than industry from 1950 to 1990. Services grew in 1980 and get accelerated in 1990 when it averaged 7.5 percent per annum. The slowdown of ninth plan (1997-2002) was confined to Agriculture and Industry sector, Service sector was not affected and had developed with 7.9 percent per annum rate of growth.  The Tenth plan period (2002-2007) service sector grew at a rate of 8.8 percent and that of 9.4 percent in eleventh plan.  In 2011-12 the growth rate was slipped to 6.6 percent per annum and 7.0 percent per annum in2012-13. In 2013-14, services growth rate was recorded at 6.9 percent per annum. The above discussion clears that, the Indian economy had witnessed a services led growth, especially post 1991 period. It reveals that, due to globalization not only the GDP has increased but also the composition of the sectors has also changed. Before globalization maximum part of the GDP in the economy was from agriculture and industry sector. After globalization the service sector consistently remains on the top position of economy.

 

India’s Foreign Trade:

Foreign trade in India is all about imports and exports to and from India. India exports near about eight thousand commodities to 190 countries and imports about six thousand commodities from 140 countries. The difference between export and import is known as balance of trade or trade balance. Following table is the statistics of export, import and trade balance of India in last fifty years.

Table 1.2

Exports, Imports and Trade Balance

Year	Exports ( including re-exports US $ Million)	Imports (US $ Million)	Trade Balance (US $ Million)
1971-72	2153	2443	-290
1981-82	8704	15174	-6470
1991-92	17865	19411	-1546
2001-02	43827	51413	-7587
2011-12	305964	489319	-183356
2020-21(April-Nov Provisional )	174116	218874	-44758

Source: Economic Survey, Ministry of Finance, Govt. of India, 2020-21, p.no. A-96, A-97.

The statistics of above table indicates that, globalization has major impact on India’s foreign trade. The exports increased from17865 US $ Million in 1991-92 to 174116 US $ Million in 2020-21 and imports continuously increased from19411 US $ Million in 1991-92 to 218874 US $ Million in 2020-21. The rate of import was always high, as a result of which the trade balance was always negative throughout the period.

 

Trends in FDI inflows to India:

Foreign Direct Investment (FDI) means the investment from one country into another (generally by companies) that involves installing operations of acquiring assets etc. Foreign Direct Investment (FDI) plays significant role in the process of economic development of any country. FDI can brought tremendous economic growth and development. Many countries have used FDI as a catalytic agent for stimulating economic growth and development. With a step of ‘Liberalization Privatization and Globalization’, in 1991 a new chapter was opened in Indian economic history and Indian economy was become opened for foreign investors. Foreign investors were got attracted to India after liberalization decision. . Foreign companies invest in India to take advantage of comparatively cheap wages, special privileges for investment such as tax exemptions. The trends in FDI inflows to India can be observed from the following table. It is classified in pre-globalization and post-globalization inflows to India.

 

Table 1.3

FDI Inflows to India

(From 1970 to 2015)

Pre-Globalization Period(before 1991)		Post- Globalization period (after 1991)
Year	FDI Inflows to India (US$ 000 million)	Year	FDI Inflows to India (US$ 000 million)
1970	0.05	1992	0.25
1971	0.05	1993	0.53
1972	0.02	1994	0.97
1973	0.04	1995	2.15
1974	0.06	1996	2.53
1975	0.09	1997	3.62
1976	0.05	1998	2.63
1977	0.04	1999	2.17
1978	0.02	2000	3.59
1979	0.05	2001	5.48
1980	0.08	2002	5.63
1981	0.09	2003	4.32
1982	0.07	2004	5.78
1983	0.01	2005	7.62
1984	0.02	2006	20.33
1985	0.11	2007	25.35
1986	0.12	2008	47.10
1987	0.21	2009	35.63
1988	0.09	2010	27.42
1989	0.25	2011	36.19
1990	0.24	2012	24.20
1991	0.08	2013	28.20
-	-	2014	34.58
-	-	2015	44.21

Source: UNCTAD Data Centre

During pre-globalization period, the FDI inflow was increased from $ 0.05 thousand million in 1970 to $ 0.24 thousand million in 1990. The flow of FDI registered wide fluctuations during the period from 1977 to 1989. During post-globalization period, the FDI inflow to India was increased from $ 0.25 thousand million in 1992 to $ 44.21 thousand million in 2015. The trend of FDI inflows in pre and post – globalization period together (i.e. from 1970 to 2015) was a rising trend. FDI increased significantly after 2001. The global economic recession also reflects in FDI inflow figures from the year 2009 to 2013. It reveals that the globalization had accelerated the FDI inflows to India.

            Indian economy has developed rapidly during last two decades i.e. after Globalization. It had witnessed a services led growth, especially post 1991 period. It reveals from table 1.1 that, due to globalization not only the GDP has increased but also the composition of the sectors has also changed. Before globalization maximum part of the GDP in the economy was from agriculture and industry sector. After globalization the service sector consistently remains on the top position of economy.  The exports increased from17865 US $ Million in 1991-92 to 174116 US $ Million in 2020-21 and imports continuously increased from19411 US $ Million in 1991-92 to 218874 US $ Million in 2020-21. Export and import was continuously increased in last three decades. During post-globalization period, the FDI inflow to India was increased from $ 0.25 thousand million in 1992 to $ 44.21 thousand million in 2015. The trend of FDI inflows in pre and post – globalization period together (i.e. from 1970 to 2015) was a rising trend. Hence we can say that globalization affected Indian economy positively.