Saturday, 25 June 2016

Globalization and economic development


·      Globalization and economic development


Globalization describes a process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation and trade. When we talk about economic globalization it means the integration of national economies into the international economies through trade, foreign direct investment, capital flows migration and the spread of technologies.
 Though several scholars situate the origin of globalization in the modern era, others regard it as a phenomenon with a long history. An economist A.G. Frank argued that a form of globalization has been in existance since the rise of trade links between Sumer and Indus valley civilization in the third millennium B.C.  . However the contemporary process of globalization likely occurred around the middle of nineteenth century as increased capital and labor mobility coupled with decreased transport cost led to a smaller world.
The frontiers of the state with increased reliance on the market economy and renewed faith in the private capital and resources, a process of structural adjustment spurred by the studies and influences of the world bank and other international organization have started in many of the developing countries. Also globalization has brought in new opportunities to developing countries. Greater access to developed country markets and technology transfer hold out promise improved productivity and higher living standard.   

   GLOBALISATION AND INDIAN ECONOMY :


India opened up the economy in the early nineties following a major crisis the led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of domestic and external sector policy measures partly promoted by the immediate needs and partly by the demand of the multilateral organizations. The new policy regime radically pushed forward in favour of a more open and market oriented economy.
Major measures initiated as a part of liberalization and globalization strategy in early nineties included scrapping of the industrial licensing regime, reduction in the number of areas reserved for the public sector amendment of the monopolies and restrictive trade practice act, start of the privatization programme reduction in tariff rates and change over to market determined exchange rates.
 After the policy of LPG has been taken more and more sectors opened up for foreign direct investment. At the same time the Indian tariff rates reduced sharply over the decade from a weighted average of 72.5% in 1991-92 to 24.6% in 1996-97.The liberalization of the domestics economy and the increasing integration of India with the global economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level of 7.3 percent in the last three months of 2015.

                    

·ROLE OF GLOBALISATION ON ECONOMIC DEVELOPMENT     

The role of globalization has proven to be essential to a nation’s ability to yield the maximum potential from its available resources. The maximization of those resources generally leads to the improve economic development that is typically gained because of the increased interconnectedness among countries usually results in a better standard of living and an overall improved quality of life. The successful economic development of a nation hinges on its ability to globalize. Given that the international integration of national economies has such a profound effect globalization plays a central role in determine the future of the world.

1. Specialization of labor

Globalization allows the specialization of labor in agricultural and industrial economic production. This means the implementation of the concept of comparative advantage, which describes a countries need to access information and discharge new technology to capitalize at what they are best at doing. As the article published in the Australian financial review restates, ‘When countries open their border to trade, they tend to specialize in producing goods and services that intensively use their most abundant factors of production “.The benefits of the implementation of global production reside in the advantage of having the possibility of taking resources from different parts of the world and profiting from the national differences in the cost and quality of the production factors lab our, energy land and capital. By allocating the resources and capital invested to obtain those assets effective business can ultimately reduce their overall cost structure and improve the quality and functional of their final products measures that hold greater competitive potential in the global market.


2. Development of the Industrial Sector :


Globalization plays a crucial role in the development of the industrial sector of an economy .Effects of Globalization on Indian Industry started when the government opened the country's markets to foreign investments in the early 1990s. Globalization of the Indian Industry took place in its various sectors such as steel, pharmaceutical, petroleum, chemical, textile, cement, retail, and BPO.

Globalization means the dismantling of trade barriers between nations and the integration of the nations economies through financial flow, trade in goods and services, and corporate investments between nations. Globalization has increased across the world in recent years due to the fast progress that has been made in the field of technology especially in communications and transport. The government of India made changes in its economic policy in 1991 by which it allowed direct foreign investments in the country. The benefits of the effects of globalization in the Indian Industry are that many foreign companies set up industries in India, especially in the pharmaceutical, BPO, petroleum, manufacturing, and chemical sectors and this helped to provide employment to many people in the country. This helped reduce the level of unemployment and poverty in the country. Also the benefit of the Effects of Globalization on Indian Industry are that the foreign companies brought in highly advanced technology with them and this helped to make the Indian Industry more technologically advanced.


 3.FDI and Economic Development

     The growth of FDI accompanied the rise of globalization. According to the world investment report , FDI flows in 2013 Increased to $ 1.45 trillion , with developing countries increasing their share of inflows to  54% with Asia now ahead of both EU and USA. FDI plays an important role in the development process of a country. It has potential for making a contribution to the development techniques along with raising productivity. Developing countries like India need substantial foreign inflows to achieve the required investment to accelerate economic growth and development. It can act as a catalyst for domestic industrial development. Further, it helps in speeding up economic activity and brings with it other scarce productive factors such as technical knowhow and managerial experience which are equally essential for economic development. As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI). Foreign direct investment in India has reached 2% of GDP, compared with 0.1% in 1990, and Indian investment in other countries rose sharply in 2006.India's liberalized FDI policy as of 2005 allowed up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI.
              

4. Globalization and Economic growth

Economic growth and globalization cannot be separated from each other. An economy cannot grow expectedly in the absence of globalization or integration with the rest of the world. Economies of countries that engage well with the international economy have consistently grown much faster than those countries that try to protect themselves. Well managed open economies have grown at rates that are own average 2.5 % points higher than the rate of growth in economies close to the forces of globalization.
                It was in the 1990’s that the first economic liberalization policies were initiated by the then finance minister Dr. Mon Mohan Singh to encourage the wake of globalization in India. Since then, the economic condition of India has significantly increased. Over the years, India has gradually become one of the fastest growing economies in the world. It has become the third largest economy in the world in terms of the purchasing power parity(PPP).It has been expected that the average economic growth will range between 7% and 8%.
The following table shows the trend of GDP(real) growth rate in India before and after LPG.

5. Globalization and Generation of Employment :

Globalization plays a very significant role in the process of generation of employment in developing and underdeveloped countries. With the increase in employment opportunities in these countries the process of elimination of poverty and backwardness can be triggered faster. Over the years, due to the liberalization policies, India has become a consumer oriented market where the changes are brought by the demand and supply forces. Due to the high demand and the supply chains, there has been significant growth in the market. As such, more and more job opportunities are being created in different sectors. This has increased the per capita income considerably which has improved the poverty level to a great extent.
Globalization helps in the growth of the various sector of the economy. This open up new employment opportunities which have put a positive impact on the overall poverty situation of the country. More and more industries are being introduced in the market to cater to the growing demand.

6. Increase in  Export and Import:

After opening up the country’s economy to the rest of the world by adopting LPG policies there seemed to be manifold increase in both export and import in India .The rise in productivity by introducing/using new and improved machineries and other modern gadgets induced export to rise. India's Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable players in the International scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts for nearly 5 to 10% of the country’s total agricultural exports.

7. Growth of Agriculture Sector and Poverty:

Besides the other sectors globalization has influenced positively the agricultural sector of the developing world. The developed and underdeveloped economies are basically dominated by the agricultural sector. With the introduction of new technology and due to the effect of some other factors the agricultural sectors of these economies growing rapidly than before. This growth has positively effect the overall development of such economies.
A major portion of the poverty level in India is from the rural areas whose staple form of income is agriculture and farming. Due to the globalization, Indian agriculture has improved to some extent which has helped to reduce the poverty problems of the rural masses.

Over the years, with the advent of more technology, there has been a significant change in the process of agriculture in the country. Earlier farmers used traditional farming techniques for growing crops. As such, they suffered a lot and the output was affected by a number of factors like pest problems, weather situations and lots more. Due to the globalization and introduction of better equipments , there has been a stark improvement in the techniques of agriculture. Today, farmers are using gadgets like rowers, tractors, electric pipelines and lots more for the cultivation of crops. This has increased the produce in terms of quantity as well as quality. As such, farmers have started earning more and have improved their per capita income and the standard of living.

8. Improvement in the standard of living

Globalization enhances the rate of economic growth in the developing and underdeveloped countries .Due to the high economic growth, there has been rapid progress in the civic amenities .With the introduction of new and improved technologies, growth in FDI creating more and more job opportunities and income earning opportunities for the poor and unemployed workers of these countries. This increases the  per capita income ,which improves the standard of living of the masses.
The following table shows India’s per capita income from 1991 to 2014 on purchasing power parity (PPP) basis.
( Table: India’s per capita income from 1991 to 2014 on purchasing power parity (PPP) basis )
Year
Per Cpita GDP based on PPP
(Figures in US Dollar)
1991
1205.486
1995
1538.919
2000
2041.095
2005
2938.758
2010
4495.662
2014
5855.306
Source:IMF,World Economic Outlook Database, April 2015


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