<<–2/”>a >a href=”https://exam.pscnotes.com/Globalization/”>Globalization-3/”>Globalization essentially means integration of the national economy with the world economy. It implies a free flow of information, ideas, technology, goods and Services, capital and even people across different countries and societies. It increases connectivity between different markets in the form of trade, investments and cultural exchanges.
The concept of globalization has been explained by the IMF (International Monetary Fund) as ‘the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows and also through the more rapid and widespread diffusion of technology.’
India in 1991 introduced economic policy changes and integrated its economy to the international economy. Globalisation in India arrived just before the end of the cold war. India introduced changes in industrial and trade policies to improve its efficiency, productivity and competitiveness of its economy. Besides, it also brought changes in industrial licensing, foreign collaborations, Investment by NRIs, portfolio investment by foreign institutional investment, reduction in tariff rate and SIMPLIFICATION of export-import procedures, opening of the IT-sector, reducing public expenditure investment norms to attract inflow of capital from both the domestic and foreign enterprises in sectors like Banking, insurance, retailing etc.
Positive Impacts of Globalization:
- Gross Domestic Product of India (GDP)
- Raising living standards,
- Alleviating POVERTY,
- Assuring Food Security,
- Generating buoyant market for expansion of Industry and services, and
- Making substantial contribution to the national economic Growth.
- There is an International market for companies and for consumers there is a wider range of products to choose from.
- Increase in flow of investments from developed countries to developing countries, which can be used for economic reconstruction.
- Greater and faster flow of information between countries and greater cultural interaction has helped to overcome cultural barriers.
- Technological development has resulted in reverse brain drain in developing countries.
Negative Impacts of Globalization:
- The first negative aspect of globalization is that its gains are not equally distributed, both between and within countries. The benefits of globalization are also badly skewed within countries, both developing and developed.
Income inequality is rising in many countries, particularly in the OECD countries. Worse, job and income insecurity is increasing, particularly for \unskilled labor, although corporate restructuring has also meant job insecurity for professionals. - There is an underlying threat of multinational corporations with immense power ruling the globe.
- For smaller developing nations at the receiving end, it could indirectly lead to a subtle form of colonization.
Role of Foreign Capital and Multinational companies in
Industrial development of India
The development of any Society or country without Economic Development is a myth. Economic development brings prosperity which in turns is directly proportional to the amount of goods and services produced quantitatively or in broad sense we can say in Money equivalent.
So the factor of production depends on the following parameters.
- Land
- Labour
- Capital
For a country like India which is the second largest populous country in the world, expected to become most populous by 2050 if Population growth is continuing at the current pace, where labour is available in abundance. Similarly, land is also available where more economic prosperity can be brought than the currently pursued economic activity. So after considering all these factors, capital played a crucial role.
So to fulfill the aspirations of common masses and general wellbeing of the society various governments are competing against each other to attract the foreign capital.
This theory is particularly gained ground after the Latin American crises which resulted in the Washington Consensus/Washington model. This is further ascertained by East Asian miracle. India has also experienced the taste of after Economic Reforms of 1991, which is better known as LPG Reforms. However from the experience of various countries various model of foreign capital and model have emerged. It also requires some kind of reduction regulation and restraint.
Why there is a need of foreign capital?
Foreign capital is required because of following reasons.
- Inadequate domestic capital to fuel the economic growth.
Foreign capital is perceived as a resource of filling the gap of the capital scarce country. It helps in maintaining the Foreign Exchange, accelerating government revenue, planning the investment necessary to achieve development target.
For example ‘Savings-investment’ gap
To achieve a planned growth rate of 7 percent per annum and the capital-output ration of 3 percent, rate of saving should be 21 percent. For domestic mobilization of 16 percent, there will be a shortfall of 5 percent. Thus the foremost contribution of foreign capital to national development is its role in filling the resource gap between targeted investment and locally mobilized savings.
- Stability of Foreign exchange.
Foreign capital is needed to fill the gap between the targeted foreign exchange requirements and those derived from net export earnings plus net public foreign aid. This is generally called the foreign exchange or trade gap.
- Reducing the Balance of Payment deficit.
An inflow of private foreign capital helps in removing deficit in the Balance of Payments over time if the foreign-owned enterprise can generate a net positive flow of export earnings.
- Helps in realizing the estimated tax revenue of government
The third gap that the foreign capital and specifically, foreign investment helps to fill is that between governmental tax revenue and the locally raised taxes. By taxing the profits of the foreign enterprises the governments of developing countries are able to mobilize funds for projects (like energy, Infrastructure-2/”>INFRASTRUCTURE) that are badly needed for economic development.
- Foreign investment meets the gap in management, Entrepreneurship, technology and skill.
These can be transferred to the host country through suitable training programmes and the processes. Further foreign companies bring with them sophisticated technological knowledge about production processes while transferring modern machinery equipment to the capital-poor developing countries.
In fact, in this era of globalization, there is a general belief that foreign capital transforms the productive structures of the developing economics leading to high rates of growth. Besides the above, foreign capital, by creating new productive assets, contributes to the generation of EMPLOYMENT a prime need of a country like India.
Forms and types of foreign Capital
Foreign capital flow in a country can take place either in the form of investment, concessional assistance, foreign aid.
- Foreign Investment includes Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) / Foreign Institutional Investment (FII).
FPI includes the amounts raised by Indian corporate through Euro Equities, Global Depository Receipts (GDR’s), and American Depository Receipts (ADR’s).
- Non-Concessional Assistance mainly includes External Commercial Borrowings (ECB’s), loans from governments of other countries/multilateral agencies on market terms and deposits obtained from Non-Resident Indians (NRIs).
- Concessional Assistance includes grants and loans obtained at low rates of interest with long maturity periods. Such assistance is generally provided on a bilateral basis or through multilateral agencies like the World Bank, International Monetary Fund (IMF), and International Development Association (IDA) etc.
Grants do not carry any obligation of repayment and are mostly made available to meet some temporary crisis. Foreign Aid can also be received in terms of direct supplies of agricultural commodities or industrial raw materials to overcome temporary shortages in the economy. Foreign Aid may also be given in the form of technical assistance.
Role of Multinational Corporations in the Indian Economy
Prior to 1991 Multinational companies did not play much role in the Indian economy. In the pre-reform period the Indian economy was dominated by public enterprises.
Earlier Industries and firms are regulated through Industrial Policy, 1956 put some kind of restraint on private firms, as a consequence of which they didn’t able to expand beyond a limit.
While multinational companies played a significant role in the promotion of growth and trade in South-East Asian countries they did not play much role in the Indian economy where import-substitution development strategy was followed. Since 1991, with the adoption of industrial policy of Liberalization-2/”>Liberalization, Privatization
And globalization role of private foreign capital has been recognized as important for rapid growth of the Indian economy. So Multinational corporations have been allowed to operate in India subjected to some regulations.
Impact of Multinational countries on the country and general population.
- Promotion Foreign Investment:
In the recent years, external assistance to developing countries has been declining. This is because the donor developed countries have not been willing to part with a
larger proportion of their GDP as assistance to developing countries. MNCs can bridge the gap between the requirements of foreign capital for increasing foreign investment in India.
The liberalized foreign investment pursued since 1991, allows MNCs to make investment in India subject to different ceilings fixed for different industries or projects. However, in some industries 100 per cent export-oriented units (EOUs) can be set up. It may be noted, like domestic investment, foreign investment has also a multiplier effect on income and employment in a country.
For example, the effect of Suzuki firm’s investment in Maruti Udyog manufacturing cars is not confined to income and employment for the workers and employees of Maruti Udyog but goes beyond that. Many workers are employed in dealer firms who sell Maruti cars.
Moreover, many Intermediate Goods are supplied by Indian suppliers to Maruti Udyog and for this many workers are employed by them to manufacture various parts and components used in Maruti cars. Thus their incomes also go up by investment by a Japanese multinational in Maruti Udyog Limited in India.
2. Non-Debt Creating Capital inflows:
In pre-reform period in India when foreign direct investment by MNCs was discouraged, we relied heavily on External Commercial Borrowing (ECB) which was of debt-creating capital inflows. This raised the burden of External Debt and debt service payments reached an alarming figure of our Current Account receipts.
This created doubts about our ability to fulfill our debt obligations and there was a flight of capital from
India and this resulted in balance of payments crisis in 1991. As direct foreign investment by multinational corporations represents non-debt creating capital inflows we can avoid the liability of debt-servicing payments. Moreover, the advantage of investment by MNCs lies in the fact that servicing of non-debt capital begins only when the MNC firm reaches the stage of making profits to repatriate Thus, MNCs can play an important role in reducing Stress strains and on India’s balance of payments (BOP).
3. Technology Transfer:
Another important role of multinational corporations is that they transfer sophisticated technology to developing countries which are essential for raising productivity of working class and enable us to start new productive ventures requiring high technology. Whenever, multinational firms set up their subsidiary production units or joint-venture units, they not only import new equipment and machinery embodying new technology but also skills and technical know-how to use the new equipment and machinery.
As a result, the Indian workers and engineers come to know of new superior technology and the way to use it. In India, the corporate sector spends only few Resources on Research and Development (R&D). It is the giant multinational
corporate firms (MNCs) which spend a lot on the development of new technologies can greatly benefit the developing countries by transferring the new technology developed by them. Therefore, MNCs can play an important role in the technological up-gradation of the Indian economy.
4. Promotion of Exports:
With globalization and producing products efficiently and therefore with lower costs multinationals can play a significant role in promoting exports of a country in which they invest. For example, the rapid expansion in China’s exports in recent years is due to the large investment made by multinationals in various fields of Chinese industry.
Historically in India, multinationals made large investment in plantations whose products they exported. In recent years, Vistara airlines made a large investment in airline industries with a joint collaboration with Tata Industries.
BrahMos missile is a joint venture of Govt. of India with Russia, which is being sold to Vietnam, will bring income to India.
As a matter of fact until recently, when giving permission to a multinational firm for investment in India, Government granted the permission subject to the condition that the concerned multinational company would export the product so as to earn foreign exchange for India.
However, in case of Pepsi, a famous cold -drink multinational company, while for getting a product license in 1961 to produce Pepsi Cola in India it agreed to export a certain proportion of its product, but later it expressed its inability to do so. Instead, it ultimately agreed to export things other than what it produced such as tea.
5. Investment in Infrastructure:
With a large command over financial resources and their superior ability to raise resources both globally and inside India it is said that multinational corporations could invest in infrastructure such as power projects, modernization of Airports and posts, Telecommunication.
The investment in infrastructure will give a boost to industrial growth and help in creating income and employment in the India economy. The external economies generated by investment in infrastructure by MNCs will therefore crowd in investment by the indigenous private sector and will therefore stimulate economic growth.
In view of above, Make in India initiative, Skill India Initiative, current demographic scenario of India, foreign direct investment (FDI) will be encouraged and actively sought, especially in areas of (a) infrastructure, (b) high technology and (c) exports, and (d) where domestic assets and employment are created on a significant scale,
Globalization is the process of increasing interconnectedness between countries and peoples. It has been driven by advances in technology, Communication, and transportation. Globalization has had a profound impact on the Indian economy, both positive and negative.
One of the most positive impacts of globalization has been increased trade and investment. India is now one of the world’s largest exporters of goods and services. This has led to increased economic growth and employment opportunities. Globalization has also led to increased access to technology and knowledge. Indian businesses and consumers now have access to the latest technologies and products from around the world. This has helped to improve productivity and efficiency.
Globalization has also led to increased competition and efficiency. Indian businesses now face competition from foreign companies. This has forced them to become more efficient and innovative in order to survive. As a result, the quality of Indian goods and services has improved.
Globalization has also led to increased employment opportunities. Indian businesses have expanded into new markets, creating new jobs. In addition, foreign companies have invested in India, creating even more jobs. Globalization has also led to the growth of the Indian service sector, which has created millions of new jobs.
However, globalization has also had some negative impacts on the Indian economy. One of the most serious problems has been increased inequality. The benefits of globalization have not been evenly distributed. The rich have gotten richer, while the poor have gotten poorer. This has led to social unrest and political instability.
Globalization has also led to the loss of jobs in traditional sectors. As Indian businesses have become more efficient, they have been able to produce goods and services more cheaply. This has led to the loss of jobs in manufacturing and agriculture. In addition, foreign companies have often brought their own workers to India, rather than hiring local workers. This has led to further job losses.
Globalization has also led to Environmental Degradation. Indian businesses have often been more concerned with profits than with the Environment. This has led to pollution and the destruction of Natural Resources. In addition, foreign companies have often brought their own polluting technologies to India. This has further damaged the environment.
Globalization has also led to cultural erosion. Indian culture is being influenced by foreign cultures. This is leading to the loss of traditional values and customs. In addition, foreign companies are often trying to sell their products and services by promoting Western values. This is further eroding Indian culture.
In conclusion, globalization has had both positive and negative impacts on the Indian economy. The benefits of globalization have been increased trade and investment, increased access to technology and knowledge, increased competition and efficiency, and increased employment opportunities. The negative impacts of globalization have been increased inequality, loss of jobs in traditional sectors, environmental degradation, and cultural erosion. It is important to weigh the costs and benefits of globalization in order to determine whether it is beneficial for India.
FDI (Foreign Direct Investment) is the investment made by a foreign company in a domestic company. FII (Foreign Institutional Investment) is the investment made by Foreign Institutional Investors in the Indian stock market. Both FDI and FII can have positive and negative impacts on the Indian economy.
The benefits of FDI include:
- Increased investment: FDI can lead to increased investment in the Indian economy. This can help to boost economic growth and create jobs.
- Increased technology transfer: FDI can lead to the transfer of technology from foreign companies to Indian companies. This can help to improve the competitiveness of Indian companies.
- Increased competition: FDI can lead to increased competition in the Indian market. This can help to lower prices and improve the quality of goods and services.
The concerns about FDI include:
- Loss of control over domestic companies: FDI can lead to foreign companies gaining control over domestic companies. This can reduce India’s economic Sovereignty.
- Dependence on foreign capital: FDI can make the Indian economy dependent on foreign capital. This can make India vulnerable to economic shocks.
- Environmental damage: Foreign companies may not be as concerned about the environment as Indian companies. This can lead to environmental damage.
The benefits of FII include:
- Increased liquidity in the stock market: FII can lead to increased liquidity in the Indian stock market. This can help to make the stock market more attractive to investors.
- Increased investment: FII can lead to increased investment in the Indian stock market. This can help to boost economic growth and create jobs.
- Increased competition: FII can lead to increased competition in the Indian stock market. This can help to lower prices and improve the quality of goods and services.
The concerns about FII include:
- Volatility in the stock market: FII can lead to volatility in the Indian stock market. This can make it difficult for businesses to plan for the future.
- Speculation: FII can lead to speculation in the Indian stock market. This can drive up prices and make it difficult for businesses to get a fair price for their Shares.
Globalization of Indian economy
Globalization is the process of increasing interconnectedness between countries and people. It has been driven by advances in technology, communication, and transportation.
The globalization of the Indian economy has had a number of positive impacts. It has led to increased trade and investment, which has helped to boost economic growth. It has also led to increased competition, which has helped to drive down prices and improve quality.
However, globalization has also had some negative impacts on the Indian economy. It has led to job losses in some sectors, as companies have moved production to countries with lower labor costs. It has also led to increased inequality, as the benefits of globalization have not been evenly distributed.
Positive impacts of globalization on Indian economy
- Increased trade and investment: Globalization has led to increased trade and investment between India and other countries. This has helped to boost economic growth and create jobs.
- Increased competition: Globalization has led to increased competition in the Indian market. This has helped to drive down prices and improve quality.
- Access to new technologies: Globalization has given Indian businesses access to new technologies and markets. This has helped them to grow and compete more effectively.
- Increased skills and knowledge: Globalization has helped to increase the skills and knowledge of Indian workers. This has made them more productive and helped them to earn higher wages.
Negative impacts of globalization on Indian economy
- Job losses: Globalization has led to job losses in some sectors, as companies have moved production to countries with lower labor costs.
- Increased inequality: The benefits of globalization have not been evenly distributed. The rich have benefited more than the poor, leading to increased inequality.
- Environmental damage: Globalization has led to increased environmental damage, as companies have moved production to countries with less stringent environmental regulations.
- Loss of cultural identity: Globalization has led to the loss of some traditional Indian cultural values and practices.
Issues of FDI and FII in India
Foreign direct investment (FDI) is when a company from one country invests in a company in another country. Foreign institutional investment (FII) is when an investor from one country invests in a stock market in another country.
FDI and FII can have both positive and negative impacts on the Indian economy.
Positive impacts of FDI and FII:
- FDI can help to boost economic growth by bringing in new capital and technology.
- FII can help to stabilize the Indian stock market by providing liquidity.
- FDI and FII can help to create jobs and improve productivity.
Negative impacts of FDI and FII:
- FDI can lead to job losses in some sectors, as companies move production to countries with lower labor costs.
- FII can lead to volatility in the Indian stock market, as investors move in and out of the market.
- FDI and FII can lead to increased inequality, as the benefits of globalization are not evenly distributed.
The Indian government has taken a number of steps to address the negative impacts of FDI and FII. These include:
- Investing in Education and skills training to help workers adapt to the changing economy.
- Providing support to small and medium-sized enterprises (SMEs) to help them compete with larger companies.
- Implementing policies to protect the environment.
- Promoting cultural diversity.
Question 1
Which of the following is not a positive impact of globalization on the Indian economy?
(A) Increased trade and investment
(B) Increased competition
(C) Increased innovation
(D) Increased Unemployment
Answer
(D)
Explanation
Globalization has led to increased trade and investment in India, which has created jobs and boosted economic growth. It has also led to increased competition, which has forced businesses to innovate and become more efficient. However, globalization has also led to some negative impacts, such as increased inequality and environmental degradation.
Question 2
Which of the following is not a negative impact of globalization on the Indian economy?
(A) Increased inequality
(B) Environmental degradation
(C) Loss of jobs
(D) Increased competition
Answer
(D)
Explanation
Globalization has led to increased inequality in India, as the benefits of economic growth have not been evenly distributed. It has also led to environmental degradation, as businesses have sought to cut costs by polluting the environment. Globalization has also led to job losses in some sectors, as businesses have moved production to countries with lower labor costs.
Question 3
Which of the following is the most important issue facing FDI in India?
(A) The lack of transparency in the FDI approval process
(B) The high level of Bureaucracy involved in FDI
(C) The restrictive investment policies of the Indian government
(D) The lack of skilled labor in India
Answer
(A)
Explanation
The lack of transparency in the FDI approval process is the most important issue facing FDI in India. This is because it makes it difficult for foreign investors to know what the rules are and how to comply with them. This can lead to delays and uncertainty, which can discourage investment.
Question 4
Which of the following is the most important issue facing FII in India?
(A) The volatility of the Indian stock market
(B) The high level of risk in the Indian economy
(C) The lack of liquidity in the Indian stock market
(D) The lack of transparency in the Indian stock market
Answer
(A)
Explanation
The volatility of the Indian stock market is the most important issue facing FII in India. This is because it makes it difficult for foreign investors to make accurate predictions about the future performance of the Indian stock market. This can lead to losses, which can discourage investment.
Question 5
Which of the following is the most important policy change that the Indian government could make to attract more FDI?
(A) Streamlining the FDI approval process
(B) Reducing the level of bureaucracy involved in FDI
(C) Making the investment policies of the Indian government more transparent
(D) Increasing the supply of skilled labor in India
Answer
(A)
Explanation
Streamlining the FDI approval process is the most important policy change that the Indian government could make to attract more FDI. This is because it would make it easier for foreign investors to do business in India. This would reduce the costs of doing business in India and make it more attractive to foreign investors.