<<–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 has had a profound impact on Indian Society, affecting everything from the economy to culture to politics. Some of the most significant impacts include:
- The rise of the Indian middle class: Globalization has led to the growth of the Indian middle class, which has had a major impact on the country’s economy and society. The middle class is now the largest consumer market in India, and its spending power is driving economic growth. The middle class is also more educated and demanding than previous generations, and this is leading to changes in Social Values and expectations.
- The growth of the IT industry: Globalization has also led to the growth of the Indian IT industry, which is now one of the largest in the world. The IT industry has created millions of jobs in India, and it has also helped to improve the country’s infrastructure and communications networks. The IT industry has also made India a more attractive destination for foreign investment.
- The decline of agriculture: Globalization has also led to the decline of Agriculture In India. Many farmers have been forced to leave their land and move to cities in search of work. This has led to rural poverty and social unrest.
- The rise of consumerism: Globalization has also led to the rise of consumerism in India. Indians are now buying more goods and services than ever before, and this is having a major impact on the country’s economy. Consumerism is also leading to changes in social values, as people become more materialistic and less concerned with traditional values.
- The erosion of traditional culture: Globalization has also led to the erosion of traditional Indian culture. Indian youth are increasingly exposed to Western culture, and this is leading to a loss of interest in traditional Indian values and customs. This is also leading to social tensions, as people from different cultures clash with each other.
- The growth of inequality: Globalization has also led to the growth of inequality in India. The rich are getting richer, while the poor are getting poorer. This is leading to social unrest and political instability.
- The decline of the Environment: Globalization has also led to the decline of the environment in India. The country is now facing serious problems with pollution, deforestation, and Climate change. These problems are having a major impact on the Health and well-being of Indians.
Overall, globalization has had a mixed impact on Indian society. It has created new opportunities for some, but it has also led to problems such as inequality, Environmental Degradation, and social unrest. The challenge for India is to manage the negative impacts of globalization while reaping the benefits.
One way to manage the negative impacts of globalization is to invest in Education and healthcare. This will help to create a more skilled workforce and improve the health of the population. It will also help to reduce poverty and inequality.
Another way to manage the negative impacts of globalization is to protect the environment. This can be done by investing in RENEWABLE ENERGY, promoting Sustainable Development, and reducing pollution.
Finally, India needs to strengthen its Democracy and institutions. This will help to ensure that the benefits of globalization are shared more widely and that the negative impacts are mitigated.
Globalization is the process of increasing interconnectedness between countries and people. It has had a significant impact on Indian society, both positive and negative.
Some of the positive impacts of globalization on Indian society include:
- Increased trade and investment: Globalization has led to increased trade and investment between India and other countries. This has helped to boost the Indian economy and create jobs.
- Improved technology: Globalization has led to the introduction of new technologies in India. This has helped to improve the lives of many Indians, for example by making Communication and transportation easier.
- Increased access to education: Globalization has led to increased access to education in India. This has helped to improve the skills of the Indian workforce and make India a more attractive destination for foreign investment.
Some of the negative impacts of globalization on Indian society include:
- Increased inequality: Globalization has led to increased inequality in India. The benefits of globalization have not been evenly distributed, and some groups have benefited more than others.
- Loss of jobs: Globalization has led to the loss of some jobs in India, as companies have moved their operations to other countries where labor costs are lower.
- Environmental damage: Globalization has led to environmental damage in India, as companies have polluted the environment in order to produce goods more cheaply.
- Loss of culture: Globalization has led to the loss of some traditional Indian culture, as people have become more exposed to Western culture.
Overall, globalization has had a significant impact on Indian society. It has both positive and negative impacts, and it is important to weigh these impacts carefully in order to determine whether globalization is beneficial or harmful to India.
Here are some frequently asked questions about globalization:
-
What is globalization?
Globalization is the process of increasing interconnectedness between countries and people. It is driven by the spread of technology, communication, and trade. -
What are the benefits of globalization?
Globalization can lead to increased trade and investment, improved technology, and increased access to education. -
What are the costs of globalization?
Globalization can lead to increased inequality, loss of jobs, environmental damage, and loss of culture. -
What is the future of globalization?
The future of globalization is uncertain. It is possible that globalization will continue to grow, or it is possible that it will slow down or even reverse.
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Which of the following is not a factor of globalization?
(A) Economic integration
(B) Political integration
(C) Cultural integration
(D) Social integration -
Which of the following is a positive impact of globalization?
(A) Increased trade and investment
(B) Increased cultural diversity
(C) Increased job opportunities
(D) All of the above -
Which of the following is a negative impact of globalization?
(A) Increased inequality
(B) Loss of jobs in traditional industries
(C) Increased environmental degradation
(D) All of the above -
Which of the following is a country that has benefited from globalization?
(A) China
(B) India
(C) Brazil
(D) All of the above -
Which of the following is a country that has not benefited from globalization?
(A) The United States
(B) Japan
(C) Germany
(D) None of the above -
Which of the following is a factor that has contributed to the rise of globalization?
(A) The fall of the Berlin Wall
(B) The rise of the Internet
(C) The end of the Cold War
(D) All of the above -
Which of the following is a factor that has slowed the pace of globalization?
(A) The Rise of Nationalism
(B) The rise of protectionism
(C) The global financial crisis
(D) All of the above -
Which of the following is a prediction about the future of globalization?
(A) Globalization will continue to grow.
(B) Globalization will slow down.
(C) Globalization will reverse.
(D) It is impossible to say. -
Which of the following is a criticism of globalization?
(A) Globalization leads to increased inequality.
(B) Globalization leads to the loss of jobs in traditional industries.
(C) Globalization leads to increased environmental degradation.
(D) All of the above. -
Which of the following is a defense of globalization?
(A) Globalization leads to increased trade and investment.
(B) Globalization leads to increased cultural diversity.
(C) Globalization leads to increased job opportunities.
(D) All of the above.