Globalsisation and its Impact on India

Globalisation refers to the increasing interconnectedness and interdependence of countries and their economies marked by free trade, and the free flow of capital among countries.

Globalization provides easy access to foreign resources, including labour markets, to maximize returns and benefit the common good. The capital moved between two or more places, commodities were traded across borders, and people moved in search of better livelihoods to different parts of the world. It also involves the exchange of services, information, and ideas across borders. The exchange is facilitated by advancements in technology, transportation, and communication. This phenomenon has led to the integration of economies, cultures, and societies. However, globalization has both positive and negative impacts.

Positive impacts:

The economy of India has grown hugely since it integrated into the global economy in 1991. It has a drastic impact on India’s economic condition on several factors. Its average annual rate has grown from 3.5% (1980–1990) to 7.7% (2002–2012). That rate peaked at 9.5% from 2005 to 2008. Economic growth has also led to increases in the per capita gross domestic product (GDP). A higher GDP indicates that the country is financially strong and growing at a stable rate. According to the World GDP Ranking 2024 list, India is the fifth largest economy in the world. Other prominent countries like the United States of America, China, Japan, Germany, etc., have a significant presence in this GDP Ranking list. Additionally, as per the Economic Survey forecast, India will tend to grow 6.8% in 2023-24. This means India’s economic growth this fiscal year will be the fastest among major economies. Therefore, in the upcoming years, rising consumption and investments, both domestic and foreign, will contribute to the nation’s growth and may also help India to rank higher in the World GDP Ranking list.

Globalization in India has been influenced by several factors. These factors have contributed to its integration into the global economy. Here are various causes of globalization in India.

Economic Liberalization

The Indian economy was liberalized in the year 1991. The concept of economic liberalization was introduced to attain several objectives – industrialization, expansion in the role of private and foreign investment, and introduction of a free market system. Liberalization opened up the Indian economy to foreign trade and investment that enhanced economic growth, attract foreign capital, and increase competitiveness.

The Indian government implemented extensive economic reforms in 1991, including foreign trade liberalization, banking liberalization, tax reforms, and demands for foreign investment. The new policy abolished the requirement of obtaining a licence for all industries except alcohol, cigarettes, hazardous chemicals; industrial explosives. The New Economic Policy of 1991 was a significant turning point in India’s economic history.

Financial Reform: Financial reforms are measures designed to deregulate the financial structure with the transformation of its structure to achieve a market-oriented system with an appropriate regulatory framework. The financial reform of the country is classified into two components, namely micro reform and macro reform. The micro reform abolishes the barrier to entry increasing the competition in the banking sector whereas the micro reform lowers the restrictions on the capital and thereby decreases the reserve requirements.  The reform aimed to provide functional and operational autonomy to the banking institutions.

Tax Reforms – Tax reform involves modifying the methods of tax collection or administration by the government. India formed the Tax Reforms Committee in 1991 to lay out a roadmap for the reform of direct and indirect taxes as a part of the structural reform process. This was done to introduce the best approach to broadening the base, lowering marginal tax rates, reducing rate differentiation, simplifying the tax structure, etc. GST is one of the biggest indirect tax reforms in the Country. GST is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods as well as services at the national level. It has replaced all indirect taxes levied on goods and services by the Central and State Governments.

Technological Advancements

India has been using technology to transform its economy, boosting its ability to continue growing faster than other major economies. India ranks third among the most attractive investment destinations for technology transactions in the world. With more and more multinational companies setting up their R&D centres in India, the sector has seen an uptrend in investment in recent years. India is now prepping for cutting-edge technologies including 5G, AI, blockchain, augmented reality & virtual reality, machine learning, etc. It has reduced barriers to cross-border communication and trade. This has facilitated the exchange of goods and information on a global scale.

Trade Liberalization

Trade liberalization removes or reduces barriers to trade among countries, such as tariffs and quotas. Having fewer trade barriers reduces the cost of goods sold in importing countries. Reduction of trade tariffs and import quotas by India has enhanced international trade and investment. India’s participation in global trade agreements has increased its global presence.  Bilateral trade agreements with various countries have increased trade and market access.

Foreign Direct Investment (FDI):

India has been successful in attracting foreign investment by offering incentives. Also by implementing policies that are more open to foreign direct investment. Liberalization of foreign investment policy has been a central component of economic reform in India, introduced in 1991. The first step was to remove the age-old limit of 40 per cent foreign equity and allow automatic clearance of up to 51 per cent foreign equity.  100% permitted under automatic route for the following; Agriculture, Plantation Sector, Mining and Exploration of metal and nonmetal ores, Mining – Coal & Lignite, Manufacturing, Broadcasting Carriage Services (Teleports, DTH, Cable Networks, Mobile TV, HITS), Broadcasting Content Service – Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels, Airports – Greenfield, Airports – Brownfield, Air Transport Service – Non-Scheduled, Air Transport Service – Helicopter Services/ Seaplane Services, Other services under Civil Aviation Sector – Ground Handling Services, Other services under Civil Aviation Sector – Maintenance and Repair organizations; flying training institutes; and technical training institutions, Construction Development, Industrial Parks -new and existing, Trading – Wholesale, Trading –E-commerce activities, Trading – SBRT, Duty Free Shops, Railway Infrastructure*, Asset Reconstruction Companies, Credit Information Companies, Intermediaries or Insurance Intermediaries, White Label ATM Operations, Other Financial Services, Pharmaceuticals – Greenfield, Petroleum & Natural Gas – Exploration activities of oil and natural gas fields.The recent approval by the Union Cabinet of India to allow up to 100 per cent foreign direct investment (FDI) in its space sector marks a pivotal shift towards liberalizing a domain that has long been under stringent regulatory control. The Foreign Investment Promotion Board was also established to process applications in cases, which were not covered by automatic approval. All the information about the sectors as stated above is in line with the extant Consolidated FDI Policy issued by DPIIT as amended from time to time. Many Multinational corporations have set up operations in India. It has led to the transfer of technology and management practices.

Outsourcing and Offshoring

Outsourcing is delegating functions or tasks to a third-party vendor; offshoring is moving jobs or operations to cut costs and increase efficiency. Outsourcing and offshoring are viable options for businesses looking to reduce costs, scale processes, and expand operations. Multinational companies may choose to outsource certain tasks or entire processes to low-cost countries, where labour may be cheaper or more skilled. India has become a popular choice for multinational companies. It is due to India’s skilled workforce. The MNCs seek to outsource their operations. Thus, India has become a popular destination. The MNCs outsource their operations in technical fields such as IT. This has led to the integration of Indian companies into global value chains.

Global Market Access:

Market access refers to the ability of a company or country to sell goods and services across borders. As manufacturers look to expand their footprint around the world they must first have their products certified in each country they wish to expand their business. To accomplish that many manufacturers team up with a company that has the knowledge base required to obtain those approvals. Normally, this service is outsourced to a specialized approval company. This service is known as Global Market Access. The emergence of the global market enabled Indian Companies to expand their reach and enabled them to expand their business to a broader customer base.

Cultural Exchange

Cultural exchange, at its core, involves the sharing of ideas, values, traditions, and other aspects of culture among people from different backgrounds. Globalization has facilitated cultural exchanges through media, entertainment, tourism, and migration. Indian films, music, cuisine, and traditional practices have gained popularity worldwide. It has led to cultural flow and led to a greater appreciation of Indian culture globally. Indian artists, scholars, and researchers have worked with people from other countries and learn from each other by exchanging their knowledge. This helps promote cultural diversity and understanding between different cultures.

Tourism and Travel

Tourism promotes cultural exchange and understanding among people from different nations; besides it creates revenue for countries. International tourism has substantially grown in India due to improved infrastructure and promotion of tourism.

Migration and diaspora:

Around 17.9 million born in India were recorded as living overseas in 2023. The Indian diaspora around the world has played a significant role in globalization. The diaspora has helped with cross-border remittances. The Indian diaspora has promoted knowledge transfer, business networks, and cultural exchange with India. These contributions have strengthened economic and social ties between India and other countries.

The negative impact of gloabalisation:

Unequal economic growth: While globalization has undoubtedly ushered in new opportunities, there remain significant unmet demands for fundamental services like water, sanitation, energy, and healthcare. Regardless of substantial progress, India’s evolution into a global economic powerhouse has not yet translated into comprehensive benefits for all its citizens.

Lack of local businesses: Multinational companies who have resources and infrastructure to operate supply chains or distribution in many different countries can hedge out small local businesses.

Increases potential global recessions: Global recessions involve synchronized recessions across many interconnected economies. A major part of India’s economic growth has been its participation in global trade and capital flows. As we witnessed during the 2008 sub-prime crisis in the US, sparked the great recession across borders including India. The recessionary conditions of a country can lead to an outflow of foreign currency investments, resulting in a decline in economic activity. Investors lose confidence in the markets with the stocks and prices flickering.

Adverse impact on domestic industries: Liberalization of trade policies has led to a negative impact on domestic industries. This is because these industries are now facing fierce competition from foreign companies. This has often resulted in the decline of domestic industries.

Environmental degradation: The environment has been negatively impacted by the desire for economic growth. India faces issues from air pollution, river pollution, garbage, land degradation, deforestation, soil erosion, habitat destruction loss of biodiversity, and environmental pollution. Unregulated industrial activities and increased consumption have led to environmental degradation.

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