Globalization

“ Project submitted in partial fulfillment of the requirements of the degree of LLB at Jamia Millia Islamia”

Globalization in India TO: MS. AAKRITI MATHUR BY: SHUJA HAIDER RIZVI VTH SEMESTER

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ACKNOWLEDGEMENT I have made my project for International Trade & Finance on “Globalization in India” I would, therefore, express my gratitude to our International Trade & Finance teacher, Ms. Aakriti Mathur, without whose support and guidance, the completion of this project was not possible. It is my pious duty to express my deep obligation towards my reputed teacher for her kindness and many sided benevolence. I should not forget to appreciate to the administrative staff and library staff of the Faculty of Law, Jamia Millia Islamia for their untired cooperation to complete this project.

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“Globalization is a process that encompasses the causes, course, and consequences of transnational and transcultural integration of human and non-human activities.”

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CONTENT

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Introduction Definitions India Pre Globalization The Important Reform Measures Impact of Globalization on Indian Economy Negative Impacts of Globalization in India Conclusion

INTRODUCTION Globalization is not a single concept that can be defined and covered within a set time

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frame, nor is it a process that can be defined clearly with a beginning and an end. Furthermore, it cannot be explained upon with certainty and be applicable to all people and in all situations. Globalization involves economic integration; the transfer of policies across borders; the transmission of knowledge; cultural stability; the reproduction, relations, and discourses of power; it is a global process, a concept, a revolution, and “an establishment of the global market free from sociopolitical control.” 1 Globalization encompasses all of these things. It is a concept that has been defined variously over the years, with some undertones referring to progress, development and stability, integration and cooperation, and others referring to regression, colonialism, and destabilization. Despite these challenges, this term brings with it a multitude of hidden agendas. An individual’s political ideology, geographic location, social status, cultural background, and ethnic and religious affiliation provide the background that determines how globalization is interpreted. In 1995, Martin Khor, President of the Third World Network 2 in Malaysia, referred to globalization as colonization. Concurrently, Swedish journalist Thomas Larsson, in his book The Race to the Top: The Real Story of Globalization (2001), stated that globalization:

“is the process of world shrinkage, of distances getting shorter, things moving closer. It pertains to the increasing ease with which somebody on one side of the world can interact, to mutual benefit, with somebody on the other side of the world.”3

1 P. V. Nikitin and J. E. Elliott, “Freedom and the Market (An Analysis of the Anti-globalisation Movement from the Perspective of the Theoretical Foundation of the Evaluation of the Dynamics of Capitalism by Palanyi, Hayek and Keynes)”, The Forum for Social Economics, Fall 2000, pp. 1-16, p. 14, as cited in G. Gaburro and E. O’Boyle, “Norms for Evaluating Economic Globalization”, International Journal of Social Economics, Vol. 30, No. 1/2, 2003, pp. 95118, p. 115. 2 See http://www.twnside.org.sg/ 3 T. Larsson, The Race to the Top: The Real Story of Globalization (U.S.: Cato Institute, 2001), p. 9

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Anthony McGrew’s says:

“Globalization [is] a process which generates flows and connections, not simply across nation-states and national territorial boundaries, but between global regions, continents and civilizations. This invites a definition of globalization as: ‘an historical process which engenders a significant shift in the spatial reach of networks and systems of social relations to transcontinental or interregional patterns of human organization, activity and the exercise of power.”4

DEFINITIONS Immanuel Wallerstein “globalization represents the triumph of a capitalist world economy tied together by a global division of labour.”5 Martin Albrow “ …all those processes by which the peoples of the world are incorporated into a single world society.”6

4 Anthony G. McGrew, “Global Legal Interaction and Present-Day Patterns of Globalization”, in V. Gessner and A. C. Budak (eds.), Emerging Legal Certainty: Empirical Studies on the Globalization of Law (Ashgate: Dartmouth Publishing Company, 1998), p. 327, as cited in V. S. A. Kumar, “A Critical Methodology of Globalization: Politics of the 21 st Century?”, Indiana Journal of Global Legal Studies, Vol. 10, Issue 2, 2003, pp. 87-111, p. 98 5 The Modern World System: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century (New York: Academic Press, 1974), as cited in R. J. Holton, Globalization and the Nation-State (London: Macmillan Press, 1998), p. 11.

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Anthony Giddens “Globalization can thus be defined as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa.”7 Peter Dicken, “…globalization is ‘qualitatively different’ from internationalization… it represents ‘a more advanced and complex form of internationalization which implies a degree of functional integration between internationally dispersed economic activities.’”8 Kenichi Ohmae “…globalization means the onset of the borderless world…”9 Mike Featherstone “The process of globalization suggests simultaneously two images of culture. The first image entails the extension outwards of a particular culture to its limit, the globe. 6 , “Introduction”, in M. Albrow and E. King (eds.), Globalization, Knowledge and Society (London: Sage, 1990), p. 8, as cited in R. J. Holton, Globalization and the Nation-State (London: Macmillan Press, 1998), p.

7 The Consequences of Modernity (Cambridge: Polity Press, 1990), p. 64 8 Global Shift: The Internationalization of Economic Activity (London: Guilford Press, 1992), p. 1, p. 87, as cited in I. Clark, Globalization and International Relations Theory (New York: Oxford University Press, 1999), p. 38.

9 The Borderless World: Power and Strategy in the Global Marketplace (London: HarperCollins, 1992), as cited in RAWOO Netherlands Development Assistance Research Council, “Coping with Globalization: The Need for Research Concerning the Local Response to Globalization in Developing Countries”, Publication No. 20, 2000, p. 14.

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Heterogeneous cultures become incorporated and integrated into a dominant culture which eventually covers the whole world. The second image points to the compression of cultures. Things formerly held apart are now brought into contact and juxtaposition.”10 Robert Cox “The characteristics of the globalization trend include the internationalizing of production, the new international division of labor, new migratory movements from South to North, the new competitive environment that accelerates these processes, and the internationalizing of the state…making states into agencies of the globalizing world.”11

India Pre Globalization From independence till the later part of the 1980s, India economic approach was mainly based on government control and a centrally operated market. The country did not have a proper consumer oriented market and foreign investments were also not coming in. This did not do anything good to the economic condition of the country and as such the standard of living did not go up. In the 1980s, stress has given on globalization of the market by the Congress government under Rajiv Gandhi. In his government tenure, plenty of restrictions were abolished on a number of sectors and the regulations on pricing were also put off. Effort was also put to increase the condition of the GDP of the country and to increase exports.12 Even if the economic liberalization policies were undertaken, it did not find much support and the country remained in its backward economic state. The imports started exceeding the 10 Undoing Culture, Globalization, Postmodernism and Identity (London: Sage, 1995), pp. 6-7, as cited in “Culture Communities: Some Other Viewpoints”, Issues in Global Education, Newsletter of the American Forum for Global Education, Issue No. 158, 2000. 11 “Multilateralism and the Democratization of World Order”, paper for the International Symposium on Sources of Innovation in Multilateralism, Lausanne, May 26-28, 1994, as cited in J. A. Scholte, “The Globalization of World Politics”, in J. Baylis and S. Smith (eds.), The Globalization of World Politics, An Introduction to International Relations (New York: Oxford University Press, 1999), p. 15.

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exports and the India suffered huge balance of payment problems. The International Monetary Fund (IMF) asked the country for the bailout loan. The fall of the Soviet Union, a main overseas business market of India, also aggravated the problem. The country at this stage was in need of an immediate economic reform.13

The Important Reform Measures Indian economy was in deep crisis in July 1991, when foreign currency reserves had dropped to almost billion inflation had boomed to an annual rate of 17 percent; fiscal deficit was very high and had become unsustainable; foreign investors and NRIs had lost confidence in Indian economy. Capital was flying out of the country and we were close to defaulting on loans. Along with these jams 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 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 liberalization and globalization strategy in the early nineties included the following. Devaluation: the first step towards globalization was taken with the announcement of the devaluation of Indian currency by 18-19 percent 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 liberalization policies are moving along as well. Under the privatization scheme, most of the public sector undertaking have been are being sold to private sector. 12 Narula, Rajneesh (Ed.), Trade and Investment in a Globalizing World, Series in International Business and Economics, Elsevier Science Ltd., 2001. 13 Saha, Biswatosh, Foreign Investment, Financial Markets and Industry: India in the 1990s, Unpublished Doctoral Dissertation, mimeo. Indian Institute of Management, Calcutta, May 2001.

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Undoing 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 25kms of the periphery of cities having a population of more than one million. Allowing foreign Direct Investment (FDI) across a wide range 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 automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalize the FDI regime, inter alias, include opening up of sectors such as Insurance (upto 26%) development of integrated townships (upto 100%) defense industry (upto 26%) tea plantation (upto100%) 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; opining up B2B e-commerce; Internet service providers (ISPs) without gateways; electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition; etc. strengthened

investment

facilitation

measures

The department has also

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. 

Hurling open industries reserved for the public sector to private participation.

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Now there are only three industries reserved for the public sector Abolition of the (MRTP) Act, which necessitated prior approval for capacity expansion

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The decrease of the peak customs tariff from over 300 per cent prior to the 30 per cent rate that applies now.

Impact of Globalization on Indian Economy Now the concept of localization is totally changed it’s converted into globalization. Go globally and think globally is the chant of present era. Right from Manufacturing to services, thrust is on globalization. For example, Mazda’s sport car MX-5 Miata, was designed in California, it’s proto type product is created in England, assembled in Michigan and Mexico using advanced electronic components which are invented in New Jersey, fabricated in Japan by sourcing the finance from Tokyo and New York and marketed worldwide.14 Globalization has greatly influenced the Indian economy and made it a huge consumer market. Today, most of the economic changes in the country are based on the demand supply cycle and other economic factors. Today, India is the world’s 12th largest economy in terms of market exchange rate and 4th largest in terms of the Purchasing Power Parity. According to a report by the World Bank, the Indian market is expected to grow at around 8 per cent in the year 2015.15 Globalization has also made a positive impact on various important economic sections. Today, the service sectors, industrial sectors and the agriculture sector have really grown to a great extent. Around 54 per cent of the annual Gross Domestic Product (GDP) of India comes from the service industry while the industrial and agriculture sector contributes around 29 per cent and 17 per cent respectively.16 With the improvement of the market, more and more new sectors are coming up and reaping profits such as IT services, chemical, textiles, cement industry and so on. With the increase in the supply level, the rate of employment is also increasing considerably.

14 The Indian Economic Summit Report-2005 15 World Bank Annual Report, 2014, New York. 16 Economic Survey of India, 2010-11. Ministry of Finance, Government of India, New Delhi.

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There has been an improvement in the manufacturing sector as well which grew from 8.98 per cent in 2005 to around 12 per cent. The communication segment has grown up to around 16.64 per cent. The condition is expected to improve further with more demand and increase in customer base. The yearly growth of the industrial sector has been around 6.8 per cent which will rise more in the future. India is one of the well-known industrial markets in the Asia-Pacific region.17 India, an emerging economy, has witnessed unprecedented levels of economic expansion, along with countries like China, Russia, Mexico and Brazil. India, being a cost effective and labor intensive economy, has benefited hugely from outsourcing of work from developed countries, and a strong manufacturing and export oriented industrial framework. With the economic pace picking up, global commodity prices have staged a comeback from their lows and global trade has also seen healthy growth over the last two years. Due to the strong position of liquidity in the market, large corporations now have access to capital in the corporate credit markets. Globalization has many positive, innovative and dynamic aspects, all related to the increased market access, increased access to capital, and increased access to technology and information which have led to greater income and employment opportunities.18 There is no shortage of examples: The world as a whole is definitely more prosperous and healthier, with average per capita incomes tripling in the last fifty years, child mortality rates halving and life expectancy increasing by ten years since 1965. Trade flows also increased 12-fold in the past fifty years as a result of the removal of natural and artificial barriers.

Negative Impacts of Globalization in India While the world as a whole has benefited from globalization, there are negative and marginalizing aspects of globalization. These are what have led to a backlash, as reflected to a certain extent in the demonstrations by civil society accompanying recent 17 Globalization and India’s Business prospective Lecture Ravi Kastia. 18 Globalization and Liberalization Prospects of New World Order Dr.A.K.Ojha.

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international conferences, and by increasing expressions of dissatisfaction at the governmental level. 1. Agriculture sector: - On the other side of the medal, there is a long list of the worst of the times, the foremost casualty being the agriculture sector. Agriculture has been and still remains the backbone of the Indian economy. It plays a vital role not only in providing food and nutrition to the people, but also in the supply of raw material to industries and to export trade. In 1951, agriculture provided employment to 72 per cent of the population and contributed 59 per cent of the gross domestic product. However, by 2001 the population depending upon agriculture came to 58 per cent whereas the share of agriculture in the GDP went down drastically to 24 per cent and further to 22 per cent in 2005-10. This has resulted in a lowering the per capita income of the farmers and increasing the rural indebtedness. The agricultural growth of 3.2 per cent observed from 1980 to 1997 decelerated to two per cent subsequently. The Approach to the Eleventh Five Year Plan released in December 2006 stated that the growth rate of agricultural GDP including forestry and fishing is likely to be below two per cent in the Tenth Plan period. The reasons for the deceleration of the growth of agriculture are given in the Economic Survey 2006-07: Low investment, imbalance in fertilizer use, low seeds replacement rate, a distorted incentive system and lo post-harvest value addition continued to be a drag on the sectors performance. With more than half the population directly depending on this sector, low agricultural growth has serious implications for the inclusiveness of growth. 2. Unstable distribution of benefits: The second negative aspect of globalization is that its gains are not equally distributed, both between and within countries. The benefits of globalization are also badly skewed within countries, both developing and developed. Income inequality is rising in many countries, particularly in the OECD countries. Worse, job and income insecurity is increasing, particularly for unskilled labor, although corporate restructuring has also meant job insecurity for professionals. Within developing countries, the increased world agricultural prices expected to result from the Uruguay Round should benefit those in agriculture. The urban poor will suffer when food prices rise, but will gain from employment in new export industries. Young women hired by multinationals are likely to benefit most – their incomes increase, with a associated increase in their household status.

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Consumers also gain from the reduction in local prices due to increased competition from abroad. 19 3. Financial Instability: Unbalanced benefit flows are not the only negative aspects of globalization. Globally integrated markets have financial volatility as a permanent feature, the frequency of financial crises increasing with the growth in international capital flows. The human costs of such financial instability can be very high, as shown by the effects of the Asian crisis – bankruptcies, poverty increase, rising unemployment, reduced schooling, reduced public services, and increased social stress and fragmentation – in short, a reversal in human development. 4. Contagion: The closer linkages that characterize globalization also allow for contagion and worldwide recession, or at least slowdown. The Asian crisis had repercussions everywhere -in South America, Russia, Africa, the Middle East – which were affected either directly or indirectly. 5. More human insecurity: Crime, disease, and loss of cultural identity. Unfortunately, the many opportunities opened up by the widening and deepening of information flows and contacts among the world’s people also include increasing opportunities for crime (trafficking in drugs, weapons, women, international syndicates), for the spread of HIV/AIDS as well as ideas, and for the flow of culture and cultural products which may lead to cultural homogenization, which, while considered enriching by some, is considered as a loss of cultural identity by others. 6. Impact of globalization, in particular on the development of India, the ILO Report (2004) stated: In India, there had been winners and losers. The lives of the educated and the rich had been improved by globalization. The information technology (IT) sector was a particular beneficiary. But the benefits had not yet reached the majority, and new risks had cropped up for the losers the socially deprived and the rural poor. Significant numbers of non-perennial poor, who had worked hard to escape poverty, were finding their gains 19 Globalization and Poverty: Centre for International Economics, Australia. Globalization Trend and Issues T.K.Velayudham,

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reversed. Power was shifting from elected local institutions to unaccountable trans-national bodies. Western perceptions, which dominated the globe media, were not aligned with local perspectives; they encouraged consumerism in the midst of extreme poverty and posed a threat to cultural and linguistic diversity.20

CONCLUSION: During last decade the volume of world trade has increased and the high and middle income countries have managed to increase their share in world trade. This has happened mainly because of opening up of economies and globalization. Moreover, the middle income countries have invited more Foreign Direct Investment during the period. In contrast with this, the per capita GDP of the low income countries has marginally increased. The economic inequality has widened between different income groups. Therefore one may be tempted to conclude that the globalization has not trickled down to the low income countries. In other words globalization has been confined to developed countries and developing countries have been able to participate in the process. However, globalization should not be accused for loosing share of the low income countries. These countries suffer from internal problems like rapid rise in population, infrastructure bottle necks, and weak financial markets and so on. More access to globalization and its benefits demand that developing countries first put in place a conducive environment necessary to ensure higher returns and larger markets for foreign investors. To get a share of global capital, technology and output, developing countries have to upgrade their social and economic institutions through administrative, legislative and legal reforms. Globalization should not be thought of as a solution to everything. It merely provides opportunities. Those who take advantage, they flourish and those who do not they sink. Globalization is not supposed to produce equality of outcome but it produces equality of opportunity for those with right mindset. Hence the developing countries have to focus on economic restructuring building market supporting institutions and creating efficient regulatory mechanisms. Left to themselves the low income countries cannot travel long. What in fact needed is the international assistance and a support mechanism so as to 20 Globalization: Imperatives, Challenges and the Strategies. The ILO Report (2004)

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facilitate their participation in the process of globalization. The challenge of the hour is to make globalization work towards global prosperity through disaggregate development. The critically necessity in this context are the collective and cooperative actions which should be realized by all countries of the world and particularly the developed ones. Attempts to improve the economic conditions through globalization have been made in our country and globalization has also paved the way to achieve maximum output, quality and value products but regionalism, communalism and political discretion are the main obstacles in the way to good governance. So the world politics is thinking about globalization retreat. The principles of globalization need to be observed by Indian administration to face the challenges of globalization and to maintain its status and significance in our society. A country must carefully choose a combination of policies that best enables it to take the opportunity – while avoiding the pitfalls. For over a century the United States has been the largest economy in the world but major developments have taken place in the world economy since then, leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants- India and China. Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st Century. India, which is now the fourth largest economy in terms of purchasing power parity, may overtake Japan and becomes third major economic power within 10 years.

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References

 G. Gaburro and E. O’Boyle, “Norms for Evaluating Economic Globalization 

Anthony G. McGrew, “Global Legal Interaction and Present-Day Patterns of Globalization

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V. S. A. Kumar, “A Critical Methodology of Globalization: Politics of the 21st Century

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M. Albrow and E. King, Globalization, Knowledge and Society

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J. Baylis and S. Smith, The Globalization of World Politics, An Introduction to International Relations

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Globalisation and Liberalisation Prospects of New World Order Dr.A.K.Ojha, Third Concept An International Journal of Ideas, Aug 2002

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Globalization and Poverty: Centre for International Economics, Australia. Globalization Trend and Issues by T.K.Velayudham

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World Bank Annual Report, 2014, New York

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Economic Survey of India, 2010-11. Ministry of Finance, Government of India, New Delhi