Chapter 4: Globalisation and the Indian Economy
This chapter examines how increasing economic integration across national borders—through trade, investment, and technology flows—has transformed India's economy, creating new opportunities while also presenting challenges of vulnerability and inequality. We analyze the drivers of globalization, India's integration journey since 1991 reforms, and the complex debates about winners and losers in the globalized economy.
1. Understanding Globalization
Globalisation refers to the process of increasing interconnectedness and interdependence among countries through cross-border flows of goods, services, capital, technology, and people. It represents integration of national economies into a global economic system.
- Multidimensional Process: Economic globalization (trade, investment), cultural globalization (media, food, fashion), political globalization (international institutions, treaties), and technological globalization (internet, communication networks).
- Historical Context: While often seen as recent phenomenon, globalization has historical waves: 1870-1914 (gold standard, steamships, telegraph), post-WWII (Bretton Woods institutions), and current wave (1970s-present) driven by container shipping, jet travel, and digital technology.
- Drivers of Contemporary Globalization: Technological innovations (containerization, internet), policy changes (trade liberalization, financial deregulation), multinational corporations' expansion, and international institution development (WTO, IMF, World Bank).
Critical Insight: Globalization is not a natural or inevitable process but shaped by political choices and power relations. The rules of global integration—who benefits, who bears costs—are determined through negotiations where powerful countries and corporations have disproportionate influence.
2. India's Globalization Journey
India's relationship with global economy has swung between openness and protectionism:
- Colonial Integration (1757-1947): Forced openness as raw material supplier and manufactured goods market for Britain. Deindustrialization, famines exacerbated by export-oriented agriculture.
- Inward-Looking Development (1947-1990): Import substitution industrialization, foreign exchange controls, license-permit raj. Achieved industrial diversification but inefficient, technologically backward industries. "Hindu rate of growth" 3-4%.
- Crisis and Reform (1991): Balance of payments crisis triggered liberalization: trade reforms, industrial deregulation, financial sector opening, foreign investment encouragement.
- Accelerated Integration (1991-2020): WTO membership (1995), IT services boom, outsourcing hub emergence. Trade/GDP ratio increased from 15% (1990) to 55% (2012), now around 45%.
- Strategic Engagement (2020-present): Atmanirbhar Bharat (self-reliance) with selective globalization. Participation in supply chain diversification away from China. Free trade agreements with UAE, Australia.
3. Key Milestones in India's Global Integration
- India joined WTO as founding member
- Bound tariff rates, committed to trade liberalization
- TRIPS agreement required patent law changes
- Agriculture subsidies became contentious issue
- IT/ITeS exports grew from $5 billion to $50 billion
- Outsourcing hub for software, BPO services
- Indian companies went global: Tata-Corus, Mittal-Arcelor
- Remittances became major forex source
- Make in India for manufacturing integration
- RCEP opted out (2019), bilateral FTAs pursued
- Pharmaceuticals as "pharmacy of the world" during COVID
- Export restrictions during food crisis (2022)
4. Impact of Globalization on Different Sectors
Sectoral Winners and Losers
| Sector | Impact | Winners | Losers | Policy Responses |
|---|---|---|---|---|
| Information Technology | Highly positive | Software engineers, IT companies, urban educated | Few direct losers | SEZs, tax benefits, skill development |
| Manufacturing | Mixed | Automobiles, pharmaceuticals, chemicals | Textiles, toys, electronics (initially) | PLI schemes, tariff protection for some |
| Agriculture | Mostly negative | Cash crop exporters (basmati, spices) | Foodgrain farmers, smallholders | Minimum support prices, import restrictions |
| Services | Positive | Finance, telecom, tourism, education | Traditional small services | Liberalization, foreign investment |
| Unorganized Sector | Negative | Few | Artisans, small workshops, informal workers | Limited social protection |
5. Globalization Debates and Challenges
A. Positive Impacts of Globalization on India
- Economic Growth Acceleration: GDP growth increased from 3-4% (pre-1991) to 6-7% average (post-1991). Poverty declined from 45% (1994) to 11% (2021) by national poverty line.
- Technology and Quality Upgradation: Access to advanced technology improved productivity. Consumer choice expanded dramatically (cars, electronics, food items). Quality standards forced by competition.
- Services Export Success: IT/ITeS exports reached $194 billion (2022-23). India became back office to the world. Created 5 million direct jobs, many more indirect.
- Foreign Investment Inflows: FDI increased from negligible to $85 billion (2021-22). Created jobs, brought technology, integrated into global supply chains.
B. Negative Impacts and Vulnerabilities
- Agricultural Distress: Falling prices for many crops due to imports. Cotton farmers affected by subsidized US/EU cotton. Vulnerability to global price fluctuations.
- Manufacturing Job Losses: Small-scale industries collapsed facing import competition. Textile towns like Tiruppur, Ludhiana affected by Chinese competition.
- Inequality Increase: Top 10% income share increased from 37% (1990) to 57% (2021). Skill-biased technological change benefited educated.
- External Vulnerability: 1991, 2013 balance of payments crises triggered by external factors. COVID showed supply chain vulnerabilities.
- Cultural Homogenization: Western fast food, clothing, media influencing Indian culture. Local traditions, languages under pressure.
The China Challenge: China's WTO accession (2001) flooded global markets with cheap manufactured goods. Indian manufacturing struggled to compete. Trade deficit with China: $100 billion (2022-23). Recent policy attempts to reduce dependency through PLI schemes, quality control orders, and "China plus one" strategy by multinationals.
6. Globalization Concepts Memory Aids
Globalization Dimensions: E.C.P.T. - Economic, Cultural, Political, Technological. Remember: "Every Cat Plays Together" for interconnected aspects.
WTO Agreements: G.A.T.S.T.R. - GATT (goods), GATS (services), TRIPS (intellectual property), TRIMS (investment). Remember: "Good Agreements Treat Services Together" for WTO pillars.
Globalization Impacts: G.T.E.I.V. - Growth acceleration, Technology transfer, Export success, Inequality rise, Vulnerability increase. Remember: "Great Things Eventually Involve Vulnerability" for mixed outcomes.
7. Global Economic Institutions
International Organizations:
- World Trade Organization (WTO): Sets global trade rules, resolves disputes. India's concerns: agricultural subsidies issue, special and differential treatment for developing countries, services mobility.
- International Monetary Fund (IMF): Provides loans during balance of payments crises, surveillance of global economy. India's relationship: borrower in 1991, now contributor.
- World Bank: Provides development loans, technical assistance. India was largest borrower historically, now focuses on knowledge partnership.
- Multinational Corporations (MNCs): Companies operating in multiple countries. Bring investment, technology, jobs but also accused of tax avoidance, environmental harm, undermining local businesses.
India's Globalization Strategies:
- Export Promotion: SEZs, export subsidies (now WTO limited), export credit. Focus sectors: pharmaceuticals, IT, automobiles, textiles.
- Import Management: Tariffs (average 18% though reduced from 150% in 1991), quality standards, anti-dumping duties. Strategic protection for sensitive sectors.
- Investment Attraction: Ease of Doing Business improvements, corporate tax cuts (22%), production-linked incentives, single window clearance.
- Diaspora Engagement: 32 million overseas Indians, remittances $111 billion (2022). Pravasi Bharatiya Divas, OCI cards, investment facilitation.
8. Essential Globalization Terminology
Foreign Direct Investment (FDI): Investment by foreign entity in productive assets in another country with lasting interest and control. Greenfield (new facilities) vs Brownfield (acquiring existing). India allows 100% FDI in most sectors automatically.
Outsourcing: Contracting out business processes to external providers, often in other countries. India became global outsourcing hub for IT services, call centers, back-office operations. Creates jobs but also criticism of "brain drain" and quality issues.
Special Economic Zone (SEZ): Designated areas with relaxed regulations, tax benefits to attract investment and promote exports. 270+ SEZs in India, contributed 25% of exports (2022). Criticisms: land acquisition issues, tax revenue loss.
Remittances: Money sent by migrants working abroad to home country. India receives largest remittances globally: $111 billion (2022). Major sources: UAE, USA, Saudi Arabia. Important for balance of payments and household incomes.
Globalization Revision Focus
Exam Strategy: For globalization questions, use specific sector examples (IT success, textile struggles). Discuss both macroeconomic impacts (growth, exports) and micro impacts (farmers, workers). Compare pre and post 1991 periods. Address current debates: self-reliance vs globalization, digital globalization. Use data: trade/GDP ratio, FDI inflows, export values.
Note: Globalization topics connect to current issues: supply chain disruptions post-COVID, trade wars, digital services tax debates, climate change as global challenge. Understanding India's changing position in global economy—from aid recipient to emerging power—is important. Recent focus on strategic autonomy and selective engagement makes nuanced understanding of globalization necessary.
