GLOBALIZATION:

Globalization is a term that carries various meanings for different individuals. It is one of the most
commonly used concepts today. Essentially, it refers to the process of increasing economic integration,
greater openness, and rising interdependence among nations within the global economy. At its core,
globalization involves the merging of world economies through the unrestricted movement of trade, capital,
labour, and technology. In the modern context, it encompasses the unification of economies, industries,
markets, cultures, and policy-making across the globe.
Definitions:
1. Edward S. Herman – “Globalization is both an active process of corporate expansion across borders
and a structure of cross border facilities and economic linkages that has been steadily growing and
changing.”
2. “Globalization represents the desire to move from national to a global sphere of economic and
political activity”.
Globalization can also be described as the process through which national and regional economies, societies,
and cultures become interconnected and unified via a worldwide network involving trade, communication,
migration, and transportation.
Explanation:
Globalization can occur through several key channels:
a. Unrestricted trade in goods and services
b. Movement of capital across borders
c. Open exchange of technology
d. International mobility of labour or people
Globalization began to take shape in the 1950s, primarily through the expansion of world trade between
1950 and 1970. The formation of regional trade blocs such as the European Union (EU) and the North
American Free Trade Agreement (NAFTA) further facilitated trade growth, though they also presented their
own challenges. Consequently, developed economies advocated for broader globalization to capitalize on the
benefits of expanding markets across nations.
In 1950, global exports totalled approximately $61 billion. This figure rose to $315 billion by 1970 and
reached $14.855 trillion in 2010. As of 2023, global exports amounted to $30.857 trillion, reflecting a 1.73%
decline from the previous year. Despite this decrease, the 2023 export value remains significantly higher
than pre-pandemic levels.
Situation of Trade in India:
Globalization in India began gaining momentum with the announcement of a new Industrial Policy by Prime
Minister Indira Gandhi’s government in July 1980. This policy marked a shift toward economic
liberalization and a focus on promoting exports, although these changes became more evident in the mid-
1980s. The Sixth Five-Year Plan emphasized targeted efforts to boost industrial growth under the theme of
"New Industrial Growth with Direct Measures for Poverty Eradication." The Seventh Five-Year Plan
continued this approach, highlighting "Industrial Growth and Liberalization" as its core development
strategy.
However, several challenges emerged during this period, including a balance of payments (BOP) crisis,
global oil price shocks, sluggish economic growth, a downgrade in India’s international credit rating, and the
need to pledge gold reserves abroad. These issues collectively disrupted India’s economic trajectory and
highlighted the urgent need for structural reforms.
The IMF and World Bank offered support to India on the condition that the country implement specific
structural and stabilization reforms to address its economic challenges. These conditions included:
a. Reducing the fiscal deficit and controlling the expansion of the money supply.
b. Liberalizing the domestic economy by easing regulations on production, investment, and pricing,
while allowing market forces to play a greater role in resource allocation.
c. Opening up the external sector by removing barriers to the international movement of goods,
services, technology, and capital.
The economic conditions of 1990–91 compelled India to adopt a Structural Adjustment Programme, leading
to its embrace of globalization. In 1991, the country embarked on a new era of economic reforms under the
leadership of Prime Minister P. V. Narasimha Rao and Finance Minister Dr. Manmohan Singh (1991–1995).
This marked a significant departure from India's earlier socialist economic model.
For India, globalization meant aligning its economy with the global market. This involved reducing import
tariffs, easing export restrictions, encouraging foreign investment, and allowing the inflow of foreign
technology and expertise.
India highlighted several key advantages of embracing globalization, including:
a. Transition from an import-substitution model to a growth strategy driven by exports
b. Attraction of foreign capital and investment
c. Access to global technologies through international collaboration and transfer
d. Broader access to international markets for Indian goods and services
e. Accelerated economic growth alongside efforts to reduce poverty
f. Expansion of employment opportunities through global economic integration
The Steps Taken Towards Globalization:
The Government of India began its journey toward globalization in 1991, aiming to revitalize the Indian
economy. This involved implementing significant changes in economic policy to improve the country's
economic situation and promote overall development. The steps taken were:
1. Import Liberalization: The government eliminated import licensing requirements, making it easier to
import capital goods, raw materials, and intermediate goods by simply paying the applicable customs
duties. By 1995, all quantitative restrictions on consumer goods were removed. To facilitate import
liberalization, peak customs duties were progressively reduced—from 300% to 150% by 1991, then
to 85% in 1993, and eventually to 12.5% by 2006. Further policy changes aligned with the TRIPS
agreement in 1999, including the provision of exclusive marketing rights. The Patents Act was
revised in 2005 to comply with global standards.
2. Free Import of Gold and Silver: Import restrictions on gold and silver were lifted, and commissions
previously charged on these imports were eliminated.
3. Market-Determined Exchange Rate: India moved toward a market-driven exchange rate system,
allowing the rupee's value to be determined by supply and demand in the international market
without government intervention. This began with a two-step devaluation of the rupee by 18–19% on
July 1 and 3, 1991. In 1993, India adopted a unified exchange rate system, marking the shift to a
market-determined exchange regime.
4. Rupee Convertibility: The rupee was made convertible on the current account under the Balance of
Payments (BOP). This allowed importers to purchase foreign exchange from the market, and
exporters could directly sell their foreign currency earnings, promoting easier access to foreign
exchange.
5. Liberalization of Foreign Direct Investment (FDI) and Portfolio Investment: The New Economic
Policy (NEP) opened up India to both direct and portfolio foreign investment. Automatic approval
was granted for up to 51% foreign equity in 34 priority industries. This limit was increased to 74% in
1996. Industrial licensing requirements were lifted for many sectors, opening them up to private
 participation. NRIs were allowed to invest up to 100% equity in high-priority industries, export and
trading houses, hospitals, and struggling industries. Foreign Institutional Investors (FIIs) were
permitted to invest in Indian capital markets, subject to SEBI registration and RBI approval.
6. FDI was also allowed up to 100% under the automatic route for all manufacturing activities in
Special Economic Zones (SEZs). Additionally, 100% FDI was permitted in sectors such as
pharmaceuticals, airports, hotels, tourism, township development, courier services, and urban mass
transit systems. FDI limits were raised to 49% for private airlines and to 74% for private banks.
7. To support these changes, the restrictive Foreign Exchange Regulation Act (FERA) was replaced by
the more flexible Foreign Exchange Management Act (FEMA), easing operations for foreign equity
firms. Both domestic policy reforms and favourable international conditions helped attract significant
foreign portfolio investment to India.
Advantages of Globalization:
Globalization has significantly influenced India’s industrial sector and economic policies, especially
affecting the external sector. The following are key benefits experienced by the country:
a. Increase in Foreign Currency Reserves: Globalization led to a substantial increase in India’s foreign
exchange reserves—from just $1.1 billion in 1991 to an impressive $304.8 billion in 2011. Although
the reserves slightly declined to $295.6 billion by the end of 2012, they have continued to grow and
reached approximately $475.6 billion by March 27, 2025. This increase strengthens India’s ability to
manage international trade and economic stability.
b. Growth in Exports and Balanced Imports: Exporters quickly adapted to liberalized policies, resulting
in a 17% growth in exports during 1993-94. Although imports also rose, this did not disrupt the
Balance of Payments (BOP), indicating a healthier trade equilibrium.
c. Enhanced Self-Reliance: Liberalization reduced India’s dependence on external aid and resources,
boosting the country’s capacity to generate domestic economic growth and sustain itself through its
own industries.
d. Controlled Current Account Deficit: The current account deficit (the gap between imports and
exports of goods and services) was maintained at a manageable level, expected to be less than 0.5%
in 1994-95. This helped maintain economic stability and investor confidence.
e. Reduction in External Debt: India successfully reduced its external debt to below $1 billion, easing
the country’s financial burden and reducing vulnerabilities associated with foreign borrowing.
f. Stable Exchange Rate and Legal Forex Flows: Despite moving to a fully convertible rupee for trade
and current accounts, the exchange rate remained stable. Moreover, foreign exchange started flowing
into India through official and legal channels, reducing illegal currency transactions.
g. Employment Generation: Globalization stimulated job creation by attracting foreign investments and
enabling industries to expand, which opened new employment opportunities across various sectors.
h. Restoration of International Confidence: Global integration restored global trust and confidence in
India’s economy, attracting more foreign direct investment (FDI) and boosting India’s image as a
reliable market for business.
i. Market Expansion and Rise of Consumerism: The opening of markets led to a larger variety of goods
and services, expanding consumer choices and fueling consumer demand, which in turn encouraged
business growth.
j. Improved Efficiency in Banking, Insurance, and Financial Sectors: Globalization opened these
sectors to foreign capital, banks, and insurance companies. This competition led to modernization,
better services, and increased efficiency, benefiting consumers and businesses alike.
k. Technological Advancement: Global exposure facilitated technology upgrades across industries,
enabling Indian firms to modernize production methods, improve quality, and increase
competitiveness.
l. Changes brought about in Indian Education: Globalization challenged India’s educational system but
also offered opportunities to innovate. The traditional boundaries between formal, non-formal, and
informal education blurred, giving way to new learning models such as e-learning, flexible learning,
 distance education, and overseas training. These advancements are helping India adapt to global
knowledge standards and equip its workforce with modern skills.
m. Changes in the Standard of Living and Purchasing Power of People: Globalization has boosted
wealth creation, especially in urban areas. Individuals employed by multinational companies enjoy
higher salaries, encouraging domestic firms to offer better compensation as well. As a result, many
cities are witnessing improved living standards alongside vibrant business growth.
n. Impact on Agriculture Sector: Globalization has transformed Indian agriculture by introducing new
technologies, practices, and access to international markets. Farmers now have better opportunities to
grow high-value crops, improve productivity, and participate in global supply chains, enhancing rural
incomes.
Disadvantages of Globalization:
Globalization poses certain risks and challenges for India. Developed countries often advance their own
interests at the expense of developing nations like India. This has created an uneven playing field, where
large multinational corporations (MNCs) dominate over smaller Indian businesses, causing significant
challenges.
1. Protectionism Despite Promoting Free Trade: Although countries like the US and those in Europe
advocate free trade and globalization, they often implement protectionist measures to shield their
domestic industries from international competition. This creates unfair trade conditions for
developing countries. Developed countries protect their industries through tariffs, subsidies, and
regulations, which limits market access for products from developing countries like India,
undermining the ideals of free trade.
2. Volatile Capital Inflows Causing Economic Instability: Large and unpredictable flows of foreign
capital into India can destabilize the economy. Sudden inflows can cause the Indian rupee to
appreciate, making exports more expensive and less competitive internationally, leading to balance
of payments issues. Additionally, excessive capital inflows increase the money supply, which can
trigger inflation. While foreign investments are beneficial, volatile capital movements can create
economic uncertainty, disrupt export competitiveness, and cause inflationary pressures that affect
overall economic stability.
3. Large Capital Outflows Leading to Inflation: On the flip side, massive outflows of capital can boost
exports but simultaneously increase import costs. This rise in import prices contributes to inflation
within the country. When capital leaves the country, currency depreciation may occur, making
imports more expensive. This price rise can fuel inflation, affecting consumers and businesses.
4. Subsidy Policies by Developed Nations Restricting Export Opportunities: The refusal of the US and
European countries to reduce hefty subsidies on their agricultural products and export incentives
limits the ability of developing countries to compete fairly in global markets. This has been a point of
contention for nations in Asia, Africa, and Latin America in international trade negotiations like those
in Doha, Seattle, Singapore, and Cancun. Agricultural subsidies in developed countries lower their
products’ prices unfairly, preventing Indian and other developing nations’ farmers from competing,
restricting their export growth and rural development.
5. High Tariffs Imposed by Developed Countries: The US and other developed countries maintain high
import tariffs on certain products like steel and cotton textiles, restricting imports from countries like
India and various African nations. Such tariffs protect domestic industries in developed countries but
limit market access for Indian exporters, negatively impacting India's trade potential in these sectors.
6. Backlash Against Outsourcing: While the growth of Business Process Outsourcing (BPO) in India
created many jobs, opposition to outsourcing has emerged in the US and Europe. There are ongoing
efforts to introduce laws to curb these outsourcing-driven employment opportunities. This backlash
threatens India’s BPO sector, which provides employment to thousands, potentially leading to job
losses and reduced foreign earnings.
7. Foreign Exchange Rate Volatility: Globalization and liberalization have made the Indian economy
vulnerable to fluctuations in foreign exchange rates. For example, in 2003-04, the rupee fluctuated
 significantly against the US dollar due to portfolio capital inflows, stabilizing later but showing
similar patterns in 2014. The 2008 global financial crisis also caused sharp changes in the rupee’s
value. Frequent currency fluctuations create uncertainty for exporters and importers, increase the cost
of foreign debt, and add volatility to India’s financial markets.
8. Negative Impact on Village and Small-Scale Industries: Global competition from large, well-
established multinational companies has adversely affected India’s village and small-scale industries.
These smaller enterprises often struggle to compete with the efficiency and resources of MNCs,
leading to their decline or closure. Local industries face intense competition from global players who
have better technology, finance, and scale advantages. This threatens traditional livelihoods and local
economies dependent on small businesses.
Impact on Local Industries in India:
1. Disadvantages Due to Small Size: Many Indian businesses suffer from being smaller in scale
compared to multinational corporations (MNCs), which limits their ability to compete effectively in
the global marketplace. Small size restricts economies of scale, bargaining power, access to
resources, and ability to invest in research and development, putting Indian firms at a disadvantage.
2. Inefficiency After Removal of Protectionism: The withdrawal of protective policies exposed Indian
companies to intense competition from MNCs. Many domestic firms, having grown accustomed to
protection, found themselves inefficient and unable to compete on quality, cost, or innovation.
Protectionist policies had shielded Indian industries from external competition, allowing some
inefficiencies. Once these protections were removed, many businesses struggled to upgrade and
compete.
3. High Cost of Capital: The cost of borrowing and financing investments in India is relatively high,
which has negatively impacted domestic investments and limited growth opportunities for Indian
firms. Expensive capital discourages expansion, innovation, and upgrading of technology, putting
Indian companies at a disadvantage compared to foreign competitors with easier access to cheaper
funds.
4. MNCs’ Dominance through Joint Ventures: Many Indian companies were compelled to enter joint
ventures with multinational corporations, which often resulted in foreign companies gaining control
over Indian firms. While joint ventures were initially seen as partnerships, MNCs often leveraged
their resources and expertise to dominate the ventures, leading to loss of control for Indian
businesses.
5. Failure to Upgrade Technology: Indian industries struggled to keep pace with rapidly changing
global technologies, resulting in an inability to compete effectively with technologically advanced
MNCs. Lagging in technological innovation lowers productivity and quality, making Indian products
less competitive on price and performance.
6. Unfavourable Tax Policies: Government tax policies were often indifferent or inconsistent, which
affected the competitiveness of Indian products in both domestic and international markets. High or
poorly structured taxes can increase production costs, reduce profit margins, and discourage
investment, hurting competitiveness.
7. Discriminatory Government Policies: Certain government policies were biased or unevenly applied,
negatively impacting Indian enterprises' ability to compete fairly. Lack of a level playing field due to
favouritism or regulatory hurdles undermines the growth potential of many Indian firms.
8. Widening Economic Inequality: Globalization has contributed to an increased gap between the rich
and the poor in India. Benefits of globalization have often been unevenly distributed, favouring large
corporations and urban centers, while many rural and lower-income groups have not shared
proportionally in the economic growth.
9. MSMEs Unable to Compete Internationally: Micro, Small, and Medium Enterprises (MSMEs) were
ill-prepared to face foreign competition, leading to difficulties in sustaining their businesses. MSMEs
generally lack the resources, technology, and market access to compete with foreign firms, leading to
closures and job losses in this critical sector.
Many believe that globalization, initiated in 1991, created a new economic environment in India with
significant inflows of foreign capital. However, the domestic corporate sector often found itself
disadvantaged and overwhelmed by foreign investors, becoming more of a target than a beneficiary in this
rapidly changing landscape.