Globalization and its impact on Indian economy

Topic - Critical examination of Globalization and its impact on trade and investment in India

The British Sociologist Anthony Giddens described the Globalization as the social intensification of the world connections in such a manner that the events happening at one place are shaped by the events occurring at a distant place and vice-versa. Globalization has impacted Social, Economic, Cultural and political conditions of different countries. In general sense this term is more or less used for economic integration of the world orders. India has also not been any exception to globalization process and had impacted in different ways by this.

How the Globalization got Global

The first wave of Globalization

The phenomenon of globalization is not something new to the world as trade across the nations and continents has existed since ages. But the economic progression after the first industrial revolution has sped up the process of globalization and integrated the economies at a larger extent. The advent of technologies and colonialism led to the establishment of markets and the consumers. The western world and developed economies supported the globalization to fulfill their demands of markets to sell cheap products and for the investments. The August of 1914, which brought the 1^st World War, came as a major setback to the world order of globalization first wave.

The second wave of Globalization

It started after the end of the world wars but came with the hegemonic capacities of capitalistic western world and with the communist USSR. After the collapse of Soviet Union, the US took the position to influence the world order via Globalization. The establishment of WTO, World Bank and IMF supported the western interest of global economy to fulfill the demands of developed nations. In 1980s, they persuaded developing countries to adopt the global economic system. During this period countries like India and China opened up their economies to the world and joined the system of global value chains.

The financial crisis, of 2008, made the countries to rethink about the outcomes of hyper- globalization and they started thinking about the economic protectionism and self-reliance economy.

The Third wave of Globalization or New Globalization              

Re-thinking of global                                                                                                                             

After the economic shock of 2008, according to the estimate of UNCTAD the world trade growth fell from 9.5% in 2006 to 2.5% in 2008. Countries across the globe became more skeptical about open economic systems and started emphasizing more on import substitution and nationalist economy. Since then the tariffs have increased, anti-dumping duties, licensing, buy local tendencies get surfaced across the nations. According to WTO estimates the world trade fell by 10% and GDP went down by 3% after the slowdown. Though the globalization has become an intrinsic and unavoidable part of economic system but the execution has become more precise and well thought.

Change in geopolitical regimes and the new boss

The geopolitical effects were also seen in the form of shifting of epicenter of power from western world to Asian countries specially China. The intra Asia trade is growing more than 2 times than the trade with the western world. China emerged as super power as it became the important node in the global supply chain by becoming the manufacturing hub, which accounts around 17% of the global trade. In just a span of 30 years, China has become the second largest economy and investment destination. China has utilized the globalization for its own benefit by providing the base to foreign companies in its land and provided the cheap labour. China followed the back track also by establishing itself in the global supply chain.

A more global world

The communication channel via internet and flow of information has made the world more global than ever. Though the reduction of cross boundary movement of goods and labor were seen after the slowdown but the constant flow of information exists. The digital revolution had made the world more dependent in economic terms.

The Post Covid-19 Era

The present pandemic has led the world economy to a substantial halt. It had broken up the global supply chain of goods and services. According to the WTO estimate, the world trade will see an estimated 32% slowdown. The assumptions around the disease conspiracy and the centrality of Chinese economy amid corona had made countries to put sanctions trough trade wars. Countries have started thinking about the import substitutions and to salvage their own economies. For example India had also announced the ‘self reliance’ economy by announcing the packages for reviving its MSMEs and slogan as ‘Vocal for Local’ also emphasize on its internal economic revival.  

Takeaways of Globalization by the world

Pros

It helped in establishing the new companies and provided the employment opportunities in developing world.

Living standards have improved for the middle class and of the poor.

Poverty alleviation happened at a large extent.

Consumer choices increased.

The market competition and efficiency increased to a large extent.

The market system got more organized and better labour conditions.

Developing economies got better market opportunities and investments.

Technology transfer and communication made the situation better for developing world.

Free Trade Agreements provided easy access and remunerations.

Easy migration policies provided cheap and better equipped labour.

Power shifts from western world to Asian centre specially China.

Shift of world trend towards a multilateral regime by the groups such as BIMSTEC, ASEAN, SAARC, G4, G-20, and G7 etc.

Cons

Cheap products have hurt the domestic economy

Impact of global economic trends on each other such as global slowdown of 2008          

Impact on autonomy of political decisions and policy formulation

Trade war impacts such as US-China trade war impacts on world economy

Pandemic threats

Ultra-protectionist tendencies

Job losses due to technological advancements

How Indian trade and investments are impacted

Indian economy crippled to such an extent in 1980s that the foreign reserves reached to around $1 billion and were just sufficient to run the economy for 3 weeks. At that time the Economic Policy of 1991 or the (Liberalization, Privatization and Globalization) LPG policy was adopted and implemented by the then foreign minister Dr. Manmohan Singh.  Today the Foreign Reserves have reached to more than $ 500 billion as a result of the foreign inflows in terms of FDI and overall economic developments.

The Liberalization, Privatization and Globalization opened up the economy to the whole world and for the private players as well. Today India has economic transactions with more than 200 countries and imparts for around 2.6% of global imports and 1.71% of global exports (WTO). Trade accounts for around 48.8% of India’s GDP. India mainly trade in Petroleum, gems and metals, vehicles, organic chemicals, pharmaceuticals and electronic machines. Economies such as UAE, China, US and Saudi Arabia are among the biggest trading partners of India.

Post liberalization and globalization, India has become one of the priority investment destinations for countries across the globe. In 2019, India attracted investment worth $ 51 billion and became 9^th largest recipient of FDI across the globe and 5^th largest among Asian countries. India’s FDI equity inflows stood at around USD 456.79 billion during 2000-2019. The lower wages, special investment privileges such as tax exemptions, ease of doing business and favorable policy regimes are some of the main reasons behind India’s being the favorite investment destination. The digital economy, e-commerce, IT industries, internet companies, real estate, construction companies, energy, pharmaceuticals and chemical companies are some of the priority investment areas in India.

Ways forward

Indian economy is influenced in a positive manner and the post liberalization policies have helped the development of the individuals and the nation. Though the outreach of development had been uneven across the country and was unable to cover the overall population of the country. The rich became richer and technologically sound companies were benefitted the most. It gave the money in the hands of consumer and helped in improving their lives too. But the poor section could not enjoy the fruits of globalization as around 92% of the economy is still unorganized and depends on the internal resources of economy. A balanced and inclusive policy set up is still the need of the hour.