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Indian economy opened up to the world in a big way from the beginning of early 1990’s. Liberalization of external sector, large international transactions of the economy and economic integration of the Indian economy have set India on the course towards globalization. India’s participation in the world trade has increased after the completion of Uruguay Round of trade negotiations in April, 1994 and the setting up of WTO (World Trade Organization) in January, 1995. It is important to understand, analyse and assess the Indian economy in the new world setting.

Meaning Of Globalization

Globalization refers to the integration of economies of the world with one another. It is the process of accelerating economic interdependence between countries through international trade. It is necessary to understand that globalization of India will bring us on the path of development at a more rapid rate than ever. It is a matter of joy that India has adopted the path of globalization. Globalization means adoption the path of integration. Integration takes place when domestic product and factors of production (like labour, raw-material, component etc.) can move freely among different countries and become the part of world economy. Hence, world economy is a single market or economy. The economies of the world are so integrated that the domestic products and foreign products can move freely to meet the demand of the people anywhere. Factors can be transferred from one place to another, from one country to another to give the best results in terms of production and efficiency. It is estimated that nearly one-third of world trade has participated in the global production network. There are four parameters of Globalization which are mentioned as under:
  1. Adoption of free policy by reducing trade barriers so that export and import of the commodities can be made possible on the policy of liberalization of international trade.
  2. The flow of capital and technology can take place easily from one country to another.
  3. The factors of production can migrate from one place to another and from one country to another freely in order to use and reward them fully.
  4. There should be one currency of the world economy which can be changeable at the rate set by the free market.
Views In Favour Of Globalization

Globalization renders several benefits to UDCs like India. The views in favour of Globalization are as under:
  1. Free trade leads to specialization in production as per the resources of the countries. The “principle of comparative advantage” can be adopted in the dealings of international trade. According to this principle, a country will import those products in which it does not have comparative advantage and it will export those products in which it has comparative advantage.
  2. The factor income will improve in the process of globalization. In the underdeveloped countries (UDCs) like India, the wages and salaries will rise. In a fully globalized economy, there is a free factor mobility. So, the process of globalization will strengthen the equalization of factor prices.
  3. The globalization of financial market will increase the supplies of finances needed for development and industrialization of a nation.
  4. Globalization will improve the technology of production.
  5. The competition with multi-national companies will force the country's producer to improve the quality of products and sell them at competitive rates which may be lower than present prices.
  6. Cross-border movement of labour will solve the problem of unemployment to some extent.

Views Against Globalization


The views against globalization are as under:

  1. Freeing of import may reduce the production of domestic firms. Some of them may not be able to complete them in price and quality, this will lead to unemployment in the nation.
  2. Globalization will increase the inequalities of income and wealth in a country. The foreign companies pay more to domestic labour and Indian firms pay less comparatively. This is the reason of increasing income-disparities.
  3. Globalization can create the environment of uncertainty. The future of domestic companies may be in danger. The foreign companies adopt better technology. Their research programmes are well organised in comparison to Indian companies. Their marketing strategies are comparatively more effective. In these situations, Indian companies will face tough competition to survive.
  4. The influence of foreign companies may affect the domestic economy so powerfully that the country may find it difficult to face them.

Measures Towards Globalization


The following measures should be adopted to avail full benefits of globalization:

1. Convertibility of Rupee – Currencies should be freely convertible for all the transactions like exports, imports, financial flows etc. Currency should be freely convertible both on the current account and on the capital account. In order to achieve this objective, the currency of a particular country had to determine its own exchange rate in the international market. In August 1994, India got the opportunity for full convertibility of rupee on current account. This was another milestone in the progress of India’s foreign trade. Now, India can involve in following transactions:

  1. India can deal foreign trade, current business and credit-facilities with the help of full convertibility of rupee.
  2. India can pay interest on loans taken from foreign countries, World Bank, IMF etc.,
  3. Indian entrepreneurs can invest money in foreign countries.
  4. The Indian families can bring the currency to foreign country for day to day expenses.

2. Encouragement to Import – India can import all the foreign commodities freely with the exception of few items contained in the Negative List of Imports. India became a member of the WTO. So, it reduces the import duties for the promotion of imports. The quantitative restrictions have been removed by WTO. Trade Rates Intellectual Property Rights (TRIPs), the Patents Act, 1999 had been passed in 1999 to provide Exclusive Marketing Rights (EMRs).

3. Encouragement to Foreign Capital Investment – The shape of industrialisation takes the revolutionized change with the encouragement to foreign investors and NRI in our country. The FDI (Foreign Direct Investment) had been provided upto 26%, 49%, 51%, 74% and 100% for different products and areas of investment. Defence and insurance companies have also been invited to establish in India.

4. Export promotion – The infrastructural facilities were provided to export companies. The transport and communication systems were modernized. The foreign exchange market began to reflect the reality in respect of the demand and supply of foreign exchange. Adequate finance has been provided to export oriented industries. So, many changes were made in tariff list of export items in order to make the price competitive in the world market. Indian workers are also given facilities to go abroad and to send their savings back to India.

The growth rate of export items has been improved to boost output and efficiency of economy. Further, liberalisation of the economy is adopted to promote competition so as to improve the use of resources.

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