Globalization of Indian economy
Indian society is changing drastically after urbanisation and globalisation. The economic policies have had a direct influence in forming the basic framework of the economy.
Economic policies established and administered by the government also performed an essential role in planning levels of savings, employment, income, and investments in the society. Cross country culture is one of the critical impacts of globalization on Indian society. It has significantly changed several aspects of the country, including cultural, social, political, and economical.
However, economic unification is the main factor that contributes maximum to a country’s economy into an international economy.
Advantages of Globalization in India
- More Employment Opportunities: The introduction of globalisation brought an influx of foreign investments and the favourable policies of the Indian government also helped companies to set up units in this country. This has resulted in new employment opportunities. Also, access to low-cost labour prompted foreign businesses to outsource work to companies operating here.
- In a nutshell, the employment opportunities in this country rapidly progressed after globalization.
- Increase in employment: With the opportunity of special economic zones (SEZ), there is an increase in the number of new jobs available. Including the export processing zones (EPZ) center in India is very useful in employing thousands of people.
- Another additional factor in India is cheap labour. This feature motivates the big companies in the west to outsource employees from other regions and cause more employment.
- Increase in compensation: After globalization, the level of compensation has increased as compared to the domestic companies due to the skill and knowledge a foreign company offers. This opportunity also emerged as an alteration of the management structure.
- High standard of living: With the outbreak of globalization, the Indian economy and the standard of living of an individual has increased. This change is notified with the purchasing behavior of a person, especially with those who are associated with foreign companies. Hence, many cities are undergoing a better standard of living along with business development.
- Increase in per-capita Income: As a direct effect of more employment opportunities, the per-capita income of Indian households also increased after globalization.
- Resultantly, it altered their standard of living and improved the purchasing power of an average Indian. This gave birth to a new middle-class and recorded an increase in demand for consumer products in this country.
- More Choices for Consumers: Globalization and the Indian economy provided Indian consumers with a plethora of choices. Indian, as well as foreign manufacturers, brought various products of the same kind, and consumers got a chance to select their preferred one.
- This increase in competition prompted manufacturers to create better products at a much lower price point.
- Access to Untapped Markets: A noticeable benefit of globalisation is that it provides access to many untapped markets with huge potential. The globalisation of Indian economy means it allowed foreign companies to operate in the Indian market. Also, Indian businesses got an opportunity to operate on a global scale. As a result, the import-export sector in Indian saw an astonishing rise after 1991.
Impact of Globalization
Positive impacts:
- During this discussion of globalisation and Indian economy, a name that deserves special mention is former Finance Minister of India Dr. Manmohan Singh. He was at the forefront of this movement and ensured a successful implementation of it. He also drafted the economic liberalisation proposal. Here are some quick statistics that will reflect the immediate effect of globalisation on the Indian economy –
- After 1992, the average annual growth rate of GDP was 6.1%.
- In 1993-94, the export of India recorded an exponential growth of 20%. Also, in the following financial year, it was at a healthy 18.4%.
- In 1995, the total export value of computer services was about ＄11 billion, and in 2015 it recorded around ＄110 billion.
- These statistics prove globalisation and the Indian economy brought positive changes and fast-tracked India’s economic growth.
- Outsourcing: This is one of the principal results of the globalization method. In outsourcing, a company recruits regular service from the outside sources, often from other nations, that was earlier implemented internally or from within the nation (like computer service, legal advice, security, each presented by individual departments of the corporation, and advertisement).
- As a kind of economic venture, outsourcing has increased, in recent times, because of the increase in quick methods of communication, especially the growth of information technology (IT).
- Many of the services such as voice-based business processes (commonly known as BPS, BPO, or call centres), accountancy, record keeping, music recording, banking services, book transcription, film editing, clinical advice, or teachers are being outsourced by the companies from the advanced countries to India.
- Indian companies gained from successful collaborations with foreign companies. Ex: Tata Motors, Infosys.
- With big Indian MNCs contributing to world trade, India can raise its voice for fairer trade rules at WTO.
- Consumers have an option to choose from a wide range of products- they can have cheapest, best thing.
- We can export what we produce in excess. So, less wastage and we can import what we produce in deficient. In agricultural sphere, Globalization promotes contract farming which increases the earning capacities of farmers.
Negative impacts:
- Trade deficit (as in case of India) which hurt most in case of under-developed and developing economies and widen the gap between the developed & not so developed economies.
- Outsourcing of jobs from developed countries to developing countries. It has led to loss of jobs in developed countries and subsequent protectionist measures as recently in USA and Saudi Arabia.
- As the economies are interlinked any financial crisis in one country, especially developed countries will result in slow down in developing economies. Eg-crisis in COVID 19 times
- Agriculture sector not improved as much as services and manufacturing sector
- Neo-colonialism in smaller developing countries .
- MNC’s ruling the globe and exercising a great political control all over the world & wider economic inequalities.
- Not sustainable growth, development on growing negligence of environment, forests, wildlife etc.
- Destruction of traditional service providers. For example, old restaurants, parathas and lassi are replaced by Mc. Donald’s, Chinese restaurants, etc.
- Advent of a consumer credit society. A person can now buy goods and services even if he does not have sufficient purchasing power at his disposal.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.