GLOBALIZATION AND ITS IMPACT ON INDIAN ECONOMY

Introduction to globalization 

India noticing the need of the time had been coming up with significant changes in its economic policy in the past, mainly noticed during early 1990s. The year 1990 noticed a new economic reform model, popularly known as LPG model (Liberalization, Privatization and Globalization). The model had its major focus at giving a push to the Indian economy and making it as a fastest growing economy that can stand with its head high giving a neck to neck competition to other globally competitive economies. Industrial sectors, trade, as well as the financial sectors were taken into consideration and reforms were designed that could help in increasing the overall efficiency of the Indian economy.

Globalization describes the process of integration of many different regional economies, cultures and societies at a global level through a network of communication, transportation and trade. The term is sometimes used significantly for the economic globalization i.e. the national economies integrated into the world economy through aspects such as foreign direct investment, trade, capital flows, the spread of technology and migration.

With the introduction of reforms through the LPG model in early stages of 1990’s, a new chapter was initiated giving a ray of hope for a better India to its billion plus population. With this major step towards India’s growth and a dream to make India noticeable at a global level this economic transition made its impact on almost all major sectors of the Indian economy be it agricultural sector, bank sector, IT sector or any other. It created an important milestone in India’s growth and development and its real integration into the global economy.

A remarkable change in the Indian mindset that relies on self reliance and socialistic policies of economic development since independence was ushered, as it deviates from the traditional values. The Indian economy had seen an inward looking and consolidated form of governance, which had resulted in isolation, giving birth to inefficiency and absence of India on world level giving rise to many other problems as well. There is no doubt in the potential we carry with our economy as not only us but many other investors see Indian economy as one of the most attractive economy and a land with opportunities.

 

India noticed the need for restructuring its economy and with aspirations of elevating itself from its present desolate position in the world; it thought and gave hand to the concepts of Liberalization, Privatization and Globalization in order to speed up its economic development. India had witnessed the positive role of Foreign Direct Investment (FDI) and has clearly noticed the role that it had played in the rapid economic growth of most of the Southeast Asian countries and most notably China. Noticing the same, India decided to put up an ambitious plan to move on the footsteps of its neighbors to the east and is tried to present itself as a safe and profit making destination for investments.

Though globalization having different meanings in different contexts. In context to India, globalization implies to opening up the doors of Indian economy for foreign direct investment by providing facilities to foreign companies. FDI calls in the foreign investors to invest in the diversified fields of economic activities running in India. Opening the doors to welcome these foreign investors and removing all the constraints and obstacles in between not only allows but also supports foreign investors for a flawless business in India. On the other hand,  validation of Indian companies to enter into foreign markets and at the same time encouraging them to set up joint ventures abroad is what globalization policies reforms have been noticed for in 1991 in India.

 Advent of New Economic Policy

Having suffered from a huge financial and economic crisis several set of measures was taken to overcome the ongoing crisis. The economy was noticing a roaring inflation at an annual rate of 17%, the fiscal deficit were moving high and had became unsustainable. Indian economy was losing faith of foreign investors and an immediate need for a set of strong policies was clearly visible. It was then when India introduced LPG Policy (Liberalization, Privatization and Globalization Policy). The policies were also known as New Economic Policy, 1991.

The measures taken under these policies were to liberalize and globalize the Indian economy:

Devaluation: The first step taken towards globalization and to solve the balance of payment problem and hence, announced devaluation of Indian currency by 18-19 % against major currencies in the international foreign exchange market.

Disinvestment: With globalization, a parallel track was being laid for privatization and liberalization policies as well.  A large no. of public sector undertakings was being sold to private sector under the privatization scheme.

Allowing FDI (Foreign Direct Investment): A wide range of sectors such as Insurance, defense industries etc. were opened for foreign direct investments.

NRI Scheme: The facilities previously given only to the foreign investors were now open for NRI's as well.

Consequences of Globalization:

Having introduced this trio of policies, an important question coming up was the consequences of these implications. Globalization supports interdependence and competition of different economies in the world market. This is reflected as Interdependence in terms of movement of capital and trading in goods and services. Thus, domestic economic developments are not merely determined by domestic policies and market conditions but by also taking into consideration the international policies and economic conditions. The policies and developments in the rest of the world cannot be ignored while evaluating our own domestic policies and economic conditions.