Impact of Globalization:
The implications of globalization for a national economy are many. Globalization has intensified interdependence and competition between economies in the world market. These economic reforms have yielded the following significant benefits: Globalization in India had a favourable impact on the overall growth rate of the economy. This is a major improvement given that India’s 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 8th
position in 1991 to 4th place in 2001; when GDP is calculated on a purchasing power parity basis. During 1991-92 the first year of Rao’s reforms program, The Indian economy grew by 0.9%only. However the Gross Domestic Product (GDP) growth accelerated to 5.3 % in 1992-93, and 6.2% 1993-94. A growth rate of above 8% was an achievement by the Indian economy during the year 2003-04. India’s GDP growth rate can be seen from the following graph since independence
The Important Reform Measures(Step Towards Globalization):
Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to almost $1 billion; Inflation had roared to an annual rate of 17 per cent; the fiscal deficit was very high and had become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. The capital was flying out of the country and we were close to defaulting on loans. Along with these bottlenecks at home, many unforeseeable changes swept the economies of nations in Western and Eastern Europe, South East Asia, Latin America and elsewhere, around the same time. These were the economic compulsions at home and abroad that called for a complete overhauling of our economic policies and programs. Major measures initiated as a part of the liberalisation and globalisation strategy in the early.
the nineties included the following:
Devaluation: The first step towards globalization was taken with the announcement of the devaluation of Indian currency by 18-19 per cent against major currencies in the international foreign exchange market. In fact, this measure was taken in order to resolve the BOP crisis
Disinvestment-In order to make the process of globalization smooth, privatization and liberalisation policies are moving along as well. Under the privatization scheme, most of the public sector undertakings have been/ are being sold to the private sector.
Dismantling of The Industrial Licensing Regime At present, only six industries are under compulsory licensing mainly on accounting of environmental safety and strategic considerations. A significantly amended locational policy in tune with the liberalized licensing policy is in place. No industrial approval is required from the government for locations not falling within 25 km of the periphery of cities having a population of more than one million.
Allowing Foreign Direct Investment (FDI) across a wide spectrum of industries and encouraging non-debt flows. The Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on an automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalise the FDI regime, inter alias, includes opening up of sectors such as Insurance (up to 26%); development of integrated townships (up to 100%); defence industry (up to 26%);tea plantation (up to 100% subject to divestment of 26% within five years to FDI); enhancement of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for most manufacturing activities in SEZs; opening up B2B e-commerce; Internet Service
Providers (ISPs) without Gateways; electronic mail and voice mail to100% foreign investment subject to 26% divestment condition; etc. The Department has also strengthened investment facilitation measures through Foreign Investment Implementation Authority (FIIA).
Non-Resident Indian Scheme the general policy and facilities for foreign direct investment as available to foreign investors/ Companies are fully applicable to NRIs as well. In addition, Government has extended some concessions especially for NRIs and overseas corporate bodies having more than 60% stake by NRIs
Throwing Open Industries Reserved For The Public Sector to Private Participation. Now there are only three industries reserved for the public sector
Abolition of the (MRTP) Act, which necessitated prior approval for capacity expansion
The removal of quantitative restrictions on imports.
The reduction of the peak customs tariff from over 300 per cent prior to the 30 per cent rate that applies now. 168 International Research Journal of Finance and Economics – Issue 5 (2006)
Severe restrictions on short-term debt and allowing external commercial borrowings based on external debt sustainability.
Wide-ranging financial sector reforms in the banking, capital markets, and insurance sectors, including the deregulation of interest rates, strong regulation and supervisory systems, and the introduction of foreign/private sector competition.