Implications of Globalization in India

Implications of Globalization in India

Globalization is essentially an economic phenomenon which has strong implications. To understand the effect of globalization on Indian economy, society, culture, religion and psyche, it is essential for us to know how and when economic reforms were carried out.

IMF (International Monetary Fund) has prescribed a set of rules for the carrying out of economic reforms. When the Chandra Sekhar’s government was defeated at the hands of Congress, Indian economy was undergoing through a chaotic situation.

The 1991 Gulf war aggravated the international oil prices, which seriously affected India’s BoP (Balance of Payment) situation. Exports were low and imports were high (due to high price of oil and petroleum). India’s economic performance was in doldrums because industrial production plunged to the ground.

Fiscal deficit soared up to new heights, which earned nothing except high rate of inflation. Due to the populist form of government spending in the 1980s, supported by huge borrowings without sufficient return, India’s internal and external debt touched the sky.

Short term commercial borrowings from abroad led to a difficult situation for the government. India virtually came to the brink of default. Under this situation, the Government borrowed a huge sum of conditional loan’ from IMF. Thus India became obliged to follow IMF prescribed ‘structural reforms’.

The IMF package consists of a set of economic policies for a debt-ridden and low performing economy, for the short run which is called stabilization measures’, and which includes:

Monetary Policies

Positive real interest rates

Increase in reserve rate

More vigorous open market operations

Credit controls

Realignment of the Exchange Rate to a Near Market Determined Rate.

Reduction of Budgetary Deficits

Increased revenue mobilization efforts

Review of public investment priorities and identification of a core programme of investment.

Real Wage Restraint

Removal of formal indexation arrangements

The Long Term ‘Structural Reforms’ prescribed by IMF include

Promotion of Private Sector (Domestic-and Foreign)

Definitive political commitment

Rapid improvement in infrastructure

Improvement in regulatory regimes

Facilitation of investment approval procedures

Commercialization of Public Enterprises-Improvement in Operational Efficiency

Privatization programmes

Financial Sectors Reforms

Movement to market determined rates capital market development, including promotion of stock exchanges

Liberalization of Trade Regime

Removal of import and exchange control and progress towards lower and less-dispersed band of tariffs.

Price-Flexibility

Tax-Reforms

Reduction of distortion effects on resource allocation

Increased elasticity of tax-system

 Administrative Reforms

Reduction in size of public service

Safety net well targeted programmes of transfers to vulnerable groups.

Training, credit and employment programmes for vulnerable group. Impact of Globalization on Indian Economy

Due to globalization, the export sector of the Indian economy received a big boost. The growth performance of the exports improved during 1993-1996.

During the period April-September 2000, the export growth rate touched the figure of 22%, while imports stood at around 15%. Thus India’s current account situation improved due to globalization led economic reforms.

Government investment expenditure has been reduced but not fiscal deficit which is still around 5% of GDP (Gross Domestic Product). This is because of high consumption expenditure on the part of the government.

Government is stressing on disinvestment of public sector units. For the employees, government has started VRS (Voluntary Retirement Scheme). Although defense expenditure has gone up, but Government has reduced subsidies on food, fertilizer and electricity. Social sector investment as a percentage of GDP has not increased.

Expenditure on health and education is not substantial. Although efforts of privatization has given an impetus to the private sector, but employment generation by the private sector is meager.

The NDA (National Democratic Alliance) government headed by BJP (Bharatiya Janata Party) has started the ‘second generation economic reforms’, which includes reforms in all spheres including political institutions, economic machinery, democratic set-up, judiciary, etc.

The proponents of globalization in India have argued that economic integration will improve the locative efficiency of resources, reduce the capital output ratio, and increase the labour productivity, help to develop the export spheres and e*port culture, increase the inflow of the capital and updated technology into