Globalization and Its Impact on India - Essay Example

Country Analysis: Globalization and its Impact in India Globalization in India has occurred mostly through the Indian Government allowing foreign direct investment and the operation of foreign businesses in India. Most of the foreign investment in India after 1991 has come through American investors and business entities. Nayak Amar et al. (2004), studies globalization in India using seven critical factors; trade and investment, response of foreign businesses to trade and investment policies in India, responses of foreign governments and their motivation for overseas assistance, international trade and investment policies, trends of foreign direct investments, Indian exports and foreign direct investments going out from India. Some scholars argue that the process of globalization is beneficial for a country’s economy because it is based on the principle of free trade and thus increases the overall competition levels and consequent efficiency of the world’s markets. However, in the specific case of India, scholars have elaborated on how the process of globalization has in fact had negative effects on the country’s economy. Since partition in 1947, India’s trade and industrialization policies have varied; up until 1961 the trade policies were quite “liberal”, from this point onwards and up till 1977 the government of India geared its trade agenda to prioritize domestic industry, 1978 onwards they were again aligned towards liberalization and finally in 1991, after a severe financial crisis India opened its doors to free trade and globalization. To aid the process, IMF and World Bank provided the Indian economy with loans. The country strove to meet its import demands while simultaneously removing import duties in stable phases. In 1995, India formally joined the World Trade Organization. 2004 was a precipice for the Indian economy and saw privatization of several public sectors companies, the crash of their stock exchange and the slowdown and in some places the reversal of the globalization process for the Indian economy. The time period from 1991-2004 was the time in which India experienced the highest levels of foreign direct investments yet. India also received aid from several countries all over the world; to name a few, the UK provided grants aimed towards developing the education sector and alleviating poverty, Japan provided loans and grants aimed at the development of power industry, railways, telecommunication and poverty alleviation and Denmark gave India grants and loans for private sector businesses related to imports. There were also some measures taken by GATT and WTO on India’s account geared towards solving India’s balance of payment problems, increasing the economy’s productivity and global competitiveness and local equity management. Foreign direct investment in India peaked by 1961 and had increased up to 90% by 1990. From 1991 onwards FDI kept increasing as India was now open to free trade and liberalization policies. Globalization also affected the export levels and levels of outsourcing from India; the export basket was made up of mostly law value goods like textiles, handicrafts and garments. The levels of outsourcing however, were phenomenal; India had strong footing in the supply of cheap labor, thin margins and competitive markets. In recent years, outsourcing in India has expanded to involve the technology sector and other backend services sectors. Simultaneously, the outward foreign direct investment from India has also expanded which shows that India’s competitiveness and productivity in the global market has also increased however, improvement is still required as India’s outward FDI consists mainly of basic and commodity products and has not yet reached the efficiency levels required of global standards. Nayar (2006), talks about how globalization in India has had an impact on three important elements, namely the flow of goods and services, the flow of capital and the migration of people. This paper also explores the extent to which India has been able to integrate into its economy the effects of the globalization process. Findings showed that as a result of the globalization process in India had managed to achieve a faster rate of economic growth. Where once it had been a little above 3%, it was now around 6% and expected to increase further. The growth of the industrial sector had also experienced growth. The competitiveness and productivity of India’s trade market has also increased manifold post 1991. The Indian economy has also achieved with this progress a degree of stability and since the process of liberalization has been completely implemented in their economy they have not yet faced a disastrous economic crisis. Furthermore, the process of globalization has also improved the welfare levels of the Indian population with an observable secular decline in poverty rate. In addition to its impacts on the Indian economy, the globalization process also had implications for Indian society as a whole by affecting its “structure, values, institutions and attitudes”. India is a pluralistic society with a critical focus on the basic family unit. Groups of people are bound and stay together due to ties of religion, language or ethnicity. There is also a high level of corruption prevalent in the Indian society and this shows that the people have little “social discipline”. The process of globalization has opened India’s society up to the world and while it has borne its fruits in the form of growth and development, it has also made the Indian society more vulnerable to diseases, increased pollution and further corruption. Changing times and globalization have also ushered in issues such as the degrees of inequality within the society, poverty and unemployment levels and income distribution. However, the paper concludes, that even though globalization has a hand in their occurrence in the Indian economy, the blame for their existence cannot be chalked up solely to the process of globalization. (Mishra and Nayak, n.d). Another aspect from which to look at globalization in the context of India is that of environmental and climate change in the country. Since agriculture is an important part of India’s exports, dependency on climate is high. If the climate changes unfavorably, the crop will be destroyed or less than expected and this has a direct impact on the state of the country’s economy. Employment in India is also linked critically to the agricultural sector, with 68% people employed directly or indirectly by the agriculture industry (O’Brien et al., 2004). So if the climate is unfavorable, impacts on the economic conditions can be disastrous to say the least. With the Indian economy now open to globalization and the economy invested heavily in world trade the country becomes highly vulnerable to climate change because of its consequences for the country’s agricultural industry. Apart from this, globalization has also affected India’s climate by increasing pollution levels due to increased industrialization and as the economy grows and people buy and consume more and more, this pollution continues to increase and adversely affect the climatic conditions of India. Last and very importantly globalization has had the consequence of relocation the service provision sector to India. The country has attracted outsourcing from many different countries worldwide due to its reserves of cheap, ample labor. This means that as a result of globalization, employment in the Indian economy has picked up dramatically in recent years. According to Dossani and Kenny (2006), service provision in India now is as high end as anywhere else in the world and they have gotten so good at it that companies may now need to relocate lower end services to other cheaper locations. This sector is particularly important due to its rapid current growth and the future predicted growth and also due to its implications for other sectors, employment and the overall stability and growth of the Indian economy. In sum thus, globalization has had manifold impacts on the Indian economy over the years. Although all of it has not been good, most of it has helped steer the Indian economy towards progress by putting it on the path to future growth and development. Works cited Dossani, Rafiq and Martin Kenny. "The Next Wave of Globalization: Relocation Service Provision to India." Industry Studies Association Working Paper Series, (2006): . Mishra, S. K. and P. Nayak. "Socio-Economic Dimensions of Globalization in India." Journal of Management Economics, 5. 1 (n.d): 63-80. . Nayak, Amar et al. "Globalization Process in India: A Historical Perspective Since Independence, 1947. "South Asian Journal of Management, 12. 1 (2004): . Nayar, Baldev. "India's Globalization: Evaluating the Economic Consequences ." Policy Studies, 22. (2006): . O'brien, Karen et al. "Mapping Vulnerability to Multiple Stressors: Climate Change and Globalization in India." Global Environmental Change, 14. (2004): 303-313. . Read More