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What is Globalization?What is Globalization?y Stephen Gill defines globalisation as the reduction of
transaction cost of transborder movements of capital andgoods thus of factors of production and goods.
y Guy Brainbant says that the process of globalisation doesnot only include opening up of world trade, development ofadvanced means of communication, internationalisation of
financial markets, growing importance of MNCs, population migrations and more generally increasedmobility of persons, goods, capital, data and ideas but alsoinfections, diseases and pollution
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Impact of Globalization on IndiaImpact of Globalization on India
The open frontiers of the state. Increased reliance on the market economy. Renewed faith in the private capital and
resources. Process of structural adjustment spurred by the
studies and influences of the World Bank, andother International organisations have beenstarted.
Globalisation has brought in new opportunities todeveloping countries. Greater access to developed country markets
and technology transfer hold out promiseimproved productivity and higher living standard.
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DisadvantagesDisadvantagesGlobalisation has also thrown up new
challenges
growing inequality across and withinnationsvolatility in financial market and
environmental deteriorations.
Another negative aspect of globalisation isthat a great majority of developingcountries remain removed from theprocess
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India and GlobalizationIndia and Globalization Till the nineties the process of globalisation of
the Indian economy was constrained by thebarriers to trade and investment
Liberalisation of trade, investment and financialflows initiated in the nineties has progressivelylowered the barriers to competition and hastenedthe pace of globalisation
In 1700 India had a share of Global Trade of 22.5%, 3.5% in1947
Dr Manmohan Singh at Oxford in July 2005
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Impact on Indian EconomyImpact on Indian Economyy India opened up the economy in the early nineties following a
major foreign exchange crunch that dragged the economy close todefaulting on loans. Domestic Needs and also Multilateralorganizations pushed towards the new policy regime in favour of amore open and market oriented economy.Major measures :- scrapping of the industrial licensing regime,- reduction in the number of areas reserved for the public
sector,
- amendment of the MRTP act,- start of the privatisation programme- reduction in tariff rates and- change over to market determined exchange rates.
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Impact.. ContdImpact.. Contd
y Over the years there has been a steady liberalisation of thecurrent account transactions, more and more sectors openedup for foreign direct investments and portfolio investmentsfacilitating entry of foreign investors in telecom, roads, ports,airports, insurance and other major sectors
The Indian tariff rates reduced a weighted average of 72.5% in1991-92 to 24.6 in 1996-97 .
Tariff rates went up slowly in the late nineties it touched35.1% in 2001-02.
Peak tariff rates are to be reduced to be reduced to theminimum with a peak rate of 20%, in another 2 years.
Most non-tariff barriers have been dismantled by March 2002,including almost all quantitative restrictions.
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India is GlobalIndia is Global Indias position in the global economy has improvedIndias position in the global economy has improved
from the 8th position in 1991 to 4th place in 2001 (PPPfrom the 8th position in 1991 to 4th place in 2001 (PPPbasis)basis)
y The liberalisation of the domestic economy and the increasingintegration of India with the global economy have helped step upGDP growth rates,
- 5.6% in 1990-91 to a peak level of 7.78% in 1996-97.- Growth rates have slowed down since the country has still been able
to achieve 5-6% growth rate in three of the last six years.- Growth rates has slumped to the lowest level 4.3% in 2002-03
mainly because of the worst droughts in two decades- Now at around 6.5%, expected to go up to 7%- India is now the fastest growing just after China.- This is a major improvement from 1970s at 3% GDP- India still behind growth in countries like Brazil, Indonesia, Korea
and Mexico was more than twice that ofIndia.
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Globalization and IncomeGlobalization and Income
DistributionDistribution Globalisation in the form of increased integration though trade and
investment is an important reason why much progress has been made inreducing poverty and global inequality over recent decades.
But it is not the only reason for this often unrecognised progress, good
national polices , sound institutions and domestic political stability alsomatter.
Despite this progress, poverty remains one of the most seriousinternational challenges we face up to 1.2 billion of the developing world4.8 billion people still live in extreme poverty.
India has to concentrate on five important areas or things:
- technological entrepreneurship,- new business openings for small and medium enterprises,- importance of quality management,- new prospects in rural areas and- privatisation of financial institutions.
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% averageannualGDPgrowth
1900 1950 1.0
1950
19803
.51980 2002 6.02002 2006 8.0
Sources:1900-1990:Angus Maddison (1995),Monitoring the World Economy, 1990-2000:CensusofIndia(2001), 2000-2005 Finance Ministry
Rising GDP growthRising GDP growth
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% MillionPeople
1980 8 65
2000 22 220
2010 32 368
Source:The Consuming Class, NationalCouncilofApplied EconomicResearch, 2002
Middle class is explodingMiddle class is exploding
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30% to 40% ofGDPgrowthisdueto
risingproductivity
Productivity is risingProductivity is rising
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Demographic trend points to sharpDemographic trend points to sharp
increases in input factorsincreases in input factors
54%
46%
DemographicSplit
420
800
0
200
400
600
800
1,0001,200
1,400
1,600
2005 2025
Labor Force will double in the next 20 years
25
+yrs
0-25
yrs
1.5 bn
1.1 bn
LaborForce
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Demographic trend points to sharpDemographic trend points to sharpincreases in input factorsincreases in input factors
Age Dependency72%
45%
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100 Indian Companies have market cap ofUS$ 1 billion
1000 Indian Companies have received foreign
institutional investment 125 Fortune 500 companies have R&D bases
in India 390 Fortune 500 companies have outsourced
software development to India. 2% bad loans in Indian banks (vs ~ 20% in
China) 80% credit goes to private sector (vs~10%
in China)
India has a vibrant private spaceIndia has a vibrant private space
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Role of TechnologyRole of Technology The manufacturing of technology and management of
technology are two different significant areas in thecountry.
There will be new prospects in rural India. The growth ofIndian economy very much depends upon ruralparticipation in the global race.
For example food processing and packaging are the one
of the area where new entrepreneurs can enter into a bigway.
It may be organised in a collective way with the help ofco-operatives to meet the global demand.
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ChallengesChallengesy Understanding the current status of globalisation is necessary
for setting course for future.
For all nations to reap the full benefits of globalisation it isessential to create a level playing field. President Bushs recent proposal to eliminate all tariffs on all
manufactured goods by 2015 may exacerbate the prevalentinequalities.
According to this proposal, tariffs of 5% or less on allmanufactured goods will be eliminated by 2005 and higherthan 5% will be lowered to 8%. Starting 2010 the 8% tariffswill be lowered each year until they are eliminated by 2015.
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Export and ImportExport and Importy Indias Export $ 32.5 Bn Import ($75bn est 2005)$ 38.4 bn(2001) $65bn
2005 $129.2 bn Forex reserves Jan 2005
y Many Indian companies respectable players in the International scene.
y Agriculture exports account for about 13 to 18% of total annual of annual
export of the country.
y 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.
y Marine products in recent years have emerged as the single largest
contributor to the total agricultural export from the country accounting forover one fifth of the total agricultural exports.
y 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 countries total agricultural exports.
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The OpportunityThe Opportunity India has ample opportunities to develop its financial system
further. The current round of reforms, which allow pensionfunds to invest more in equities, will help spur market growth,
as will the continued privatization of state-owned enterprises.
Opening more parts of the economy to investment fromforeign corporations and from expatriates something Chinahas done very effectivelyalso holds potential.
India has made remarkable economic progress since openingits economy in 1991. To continue that growth, it must nowfocus on developing its financial system
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Performance of India's ExternalPerformance of India's External
SectorSector Foreign Exchange Reserves excluding gold and SDR stood at US$
129.72 billion on Jan 8, 2005.
During early 2004-05, the rupee ended a continuous 24 months(May 2002- April 2004) run of appreciating against US dollar and
started weakening fromM
ay2
004
onwards.
But it again started appreciating against US$ from September2004. against all other major currencies Re appreciated in April2004.
From May- July it weakened and then again gained in August.During Oct- Dec 2004, Re depreciated against the Euro, poundsterling and Yen.
Since, Jan 2005, it is appreciating against all currencies.
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India got democracyIndia got democracy
before capitalism andbefore capitalism andthis has made all thethis has made all the
differencedifference