Globalisation
Class 12 Indian Economic Development — Meaning, Policy Changes, Pros & Cons, Outsourcing, and WTO
Meaning and Key Policy Changes
Globalisation is an outcome of liberalisation of the economy — liberalisation acted as a catalyst for globalisation. It involves creation of networks and activities transcending economic, social, and geographical boundaries.
Six Key Policy Changes
Step 1: Automatic FDI up to 51%
Specified list of high technology and high investment priority industries — automatic permission for FDI up to 51% of foreign equity.
Step 2: Foreign Technology Agreements
Automatic permission for foreign technology agreements in high priority industries up to ₹1 crore. No permission needed for hiring foreign technicians or testing indigenously developed technology abroad.
Step 3: Rupee Devalued by ~20%
July 1991 — rupee devalued by nearly 20%. Stimulated exports, discouraged imports, raised influx of foreign capital.
Step 4: Rupee Made Convertible
Union Budget 1992-93: Rupee made partially convertible → fully convertible in 1993-94 budget.
Step 5: Export-Import Policy (1992-97)
New five-year EXIM policy removed all restrictions and controls on external trade, allowing market forces greater role in exports and imports.
Step 6: Customs Duty Reduced 250% → 10%
Peak rate of customs duty reduced from 250% to 10% — to bring Indian economy within global competition.
Positive and Negative Traits of Globalisation
In Favour of Globalisation
- 1.Greater access to global markets
- 2.Advanced technology
- 3.Better future prospects for large industries of developing countries to become important players internationally
- 4.Better prospects for skilled people across the globe to increase earnings by utilising their skills
Against Globalisation
- 1.Benefits accrue more to developed countries as they expand their markets in other countries
- 2.Compromises the welfare and identity of people belonging to poor countries
- 3.Market-driven globalisation increases economic disparities among nations and people — domestic companies forced to face stiff competition
Outsourcing
One of the important outcomes of the globalisation process. Emerging as a major activity in industrial and service sectors. Intensified due to growth of fast communication modes, particularly Information Technology (IT). Text, voice and visual data digitised and transmitted in real time over continents.
Why India is Favoured
- •Availability of Skilled Manpower — vast skilled manpower enhances MNCs' faith for investment
- •Favourable Government Policies — tax holidays, tax concessions, etc.
- •Low Wage Rates — cheap labour for skilled work
- •Growth of Indian IT Industry — proved competitive strength in the world. Indian BPO companies gaining prominence and earning precious foreign exchange
Why Developed Countries Oppose
- •Outflow of funds from developed countries to India — reduces income disparities between the two countries
- •Reduces employment generation and creates job insecurity in developed countries
World Trade Organisation (WTO)
GATT
1948
23 countries
WTO
1995
164 members
India MemberOrigin
Key Takeaways
- Facilitate international trade (bilateral and multilateral) through removal of tariff and non-tariff barriers
- Establish a rule-based trading regime — nations cannot place arbitrary restrictions on trade
- Enlarge production and trade of services
- Ensure optimum utilisation of world resources
- Protect the environment
Scholars Against Say:
- •Major volume of international trade occurs among developed nations
- •Developing countries are being cheated — forced to open their markets but not allowed access to developed countries' markets
Bilateral Trade
Trade (export and import) between two countries
Multilateral Trade
Exchange of goods and services between more than two nations
Tariff Barriers
Barriers imposed on imports to make them costlier and protect domestic producers. E.g., Import Duties
Non-Tariff Barriers
Barriers imposed on quantity of import and export. E.g., Quota and Import Licensing