GLOBALISATION

and Its Impact

on Indian
Economy
INTRODUCTION
Globalization is the process of interlinking the national
economy with the world economy.
It is a process by which regional economies, societies,
and cultures have become integrated through a global
network of communication, transportation, and trade.
The process of globalization gained momentum in
INDIA since 1991.

This is because in 1991 ,the government introduced

new industrial policy (nip) 1991, which introduced a
number of reforms in respect of liberalization,
privatisation and globalization.
Definition
The IMF defines globalization 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
Features of
Globalisation
Globalization has closely intertwined economic,
political, cultural and institutional dimensions
whose social impact is often not easy to
disentangle.
Some of these processes are driven by the logic
of new technologies or market forces which are
difficult to control, while others may be more
amenable to management.
As a result of greater access to markets, new
technologies and new ways of doing business,
many aspects of globalization have stimulated
growth and prosperity and expanded possibilities
for millions of people all over the world
The actual experience of globalization has, to a
great degree, varied with the level of
development at which a country has engaged
with it.
The degree and nature of participation of
different categories of countries in global
markets varies substantially.
Although globalization raises particular concern
for developing countries, apprehensions
regarding it abound and have been vocally
expressed even in developed countries.
The experience of countries with economies in
transition has been mixed.
Key Players in Globalisation
Process

1. Multinational firms which carry out

business across the national borders.

2. The World Trade Organization (WTO)

Through which international trade
agreements are negotiated& enforced

3. The World Bank & International Monetary

Fund (IMF) are means to assist Govt.in
achieving development aims through the
provision of loans, technical assistance.
 Conditions for globalization
1. Business Freedom-No unnecessary Government
restrictions like restriction, restrictions on sourcing
of funds and other factors from abroad. Hence the
liberalization is the 1st step towards facilitating
globalization.

2. Facilitators-Infrastructure facilitation available at

home country an help entrepreneurs go globally.

3.Government support Government support available

in the form of policy & procedure reform encourage
globalization
4. Resources-Resources is an important
factor which decides the ability of affirm to
globalize. They include finance
,technology, brand image, companys
image, managerial expertise etc.
5. Competitors- This is an important factor
which companys success in global market
bank on. The factors like low costs& price,
product quality, product differentiation,
technological superiority. After sales
service, market strengths etc are few to
name.
 Reasons For Globalization
Firm operate internationally for a number of reasons:
They may be seeking to secure better sources of raw materials
& energy.
They may want to obtain access to low cost factors of
production such as labour.
They may be attracted to certain countries because of
subsidies those countries provide.
They may be seeking new markets for their products.
Domestic markets may no longer be able to absorb production
at minimum efficient scale.
Contd
They may be motivated by life style
factors.Domestic markets become
saturated .As they mature , firms look
abroad for new opportunities.
They may be seeking opportunities for

economies of scope & for learning.

So why go Global?
Competition within your national market is becoming

too intense so you decide to push sales in overseas

markets.
Your products within your national markets are

reaching the end of the lifecycle so you wish to push it

into national markets.
Sales and profit are generally declining in national

markets.
You wish to become a global player.
 Entering global markets
There are a number of steps that need to be taken to enter
international markets:

1.Analyze the international marketing environment. A

PEST/STEP analysis needs to be conducted on the
market , to assess whether it is worthwhile or not.
2.Political factors
Consider:
The political stability of the nation. Is it a
democracy, communist, or dictatorial
regime?
Monetary regulations. Will the seller be paid
in a currency that they value or will
payments only be accepted in the host
nation currency?
3.Economical Factors
Consider:
Consumer wealth and expenditure within the country.
National interests and inflation rate.
Are quotas imposed on your product.
Are there import tariffs imposed.
Does the government offer subsidies to national players

that make it difficult for you to compete?

4. Social Factors
Consider
Language. Will language be a barrier to
communication for you? Does your host nation speak
your national language? What is the meaning of your
brand name in your host countrys language?
Customs: what customs do you have to be aware of
within the country? This is important. You need to
make sure you do not offend while communicating
your message.
Social factors: What are the role of women and family
within society?
Religion: How does religion affect behaviour?
Values: what are the values and attitudes of
individuals within the market?
5. Technological Factors
Consider:
The technological infrastructure of the market.
Do all homes have access to energy (electricity)
Is there an Internet infrastructure. Does this

infrastructure support broadband or dial up?

Will your systems easily integrate with your host

countrys?
6. Market entry methods
After assessing the environment in your selected country, how do
you decide which are the best countries to enter? Following
factors to be considered before entering-
Speed How quickly do you wish to enter your selected
market?
Costs- What is the cost of entering that market?
Flexibility How easy is it to enter/leave your chosen
market?
Risk Factor What is the political risk of entering the
market? What are the competitive risk? How
competitive is the market?
 Payback period When do you wish to obtain a
return from entering the market? Are there pressures
to break even and return a profit within a certain
period?

Long- term objectives- What does the organization

wish to achieve in the long term by operating in the
foreign market? Will they establish a presence in that
market and then move onto others?
 Trading overseas
There are a number ways an organization can start to
sell their products in international markets.

1. Direct export.
The organization produces their product in their

home market and then sells them to customers

overseas.
2. Indirect export
The organizations sell their product to a third party

who then sells it on within the foreign market.

3. Licensing
Another less risky market entry method is
licensing. Here the Licensor will grant an
organization in the foreign market a license to
produce the product, use the brand name etc in
return that they will receive a royalty payment.
4. Franchising
Franchising is another form of licensing. Here the
organization puts together a package of the
successful ingredients that made them a
success in their home market and then franchise
this package to oversea investors. The Franchise
holder may help out by providing training and
marketing the services or product. McDonalds is a
popular example of a Franchising option for
expanding in international markets.
5.Contracting
Another of form on market entry in an overseas
market which involves the exchange of ideas is
contracting. The manufacturer of the product will
contract out the production of the product to another
organization to produce the product on their behalf.
Clearly contracting out saves the organization
exporting to the foreign market.
6.Manufacturing abroad
The ultimate decision to sell abroad is the decision to
establish a manufacturing plant in the host country.
The government of the host country may give the
organization some form of tax advantage because
they wish to attract inward investment to help create
employment for their economy.
7.Joint Venture
To share the risk of market entry into a foreign market,

two organizations may come together to form a

company to operate in the host country. The two
companies may share knowledge and expertise to assist
them in the development of company; of course profits
will have to be shared out also
 Strategies Initiated due to
Globalization in India
Disinvestment
Devaluation
Dismantling of The Industrial Licensing Regime
Allowing Foreign Direct Investment
Non Resident Indian Scheme
Throwing Open Industries Reserved For The Public
Sector to Private Participation
Abolition of the (MRTP) Act
The removal of quantitative restrictions on
imports.
Impact of Globalization on
Indian Economy
Indian economy had experienced major policy
changes in early 1990s.

The new economic reform, popularly known as,

Liberalization, Privatization and Globalization
(LPG model) aimed at making the Indian
economy as fastest growing economy and
globally competitive.

The series of reforms undertaken with respect to

industrial sector, trade as well as financial sector
aimed at making the economy more efficient
 1. Social and Cultural changes
Extension of internet facilities even to rural areas.
In place of old cinema halls, multiplex theatre are
coming up.
Old restaurants are now replaced by fast food
giant Mc. Donalds.
More inflow of money has aggravated deep
rooted problem of corruption.
Scientific and technological innovations have
made life quite comfortable and enjoyable.

2. Growth of GDP
Chart showing the growth in GDP

26
Sector Wise Growth of GDP
As per the figures available for 2011 fiscal,
almost 52% of Indias GDP comes from the
agricultural sector and the services sector is the
second biggest contributor with 34 percent. The
industrial sector contributes almost 14 percent
ofIndias GDP.
3.Growth of Foreign Exchange
Reserves
Indias foreign exchange reserves have grown significantly
since 1991.
The reserves, which stood at US$ 5.8 billion at end-March
1991 increased gradually to US$ 54.1 billion by end-March
2002,
After which it rose steadily reaching a level of US$ 309.7
billion in March 2008. T
he reserves declined to US$ 252.0 billion in March 2009.
The reserves stood at US$ 292.9 billion as on September
30, 2010 compared to US $ 279.1billion as on March 31,
2010. Although both US dollar and Euro are intervention
currencies and the FCA are maintained in
4. Increase in FDI
During April-February 2010-11, Mauritius has led
investors into India with US$ 6,637 million worth
of FDI comprising 42 per cent of the total FDI
equity inflows into the country. The FDI equity
inflows from Mauritius is followed by Singapore at
US$ 1,641 million and the US with US$ 1,120
million, according to data released by DIPP.
The services sector comprising financial and non-
financial services attracted 21 per cent of the
total FDI equity inflow into India, with FDI worth
US$ 3,274 million during April-February 2010-11
FDI
Telecommunications including radio paging, cellular mobile
and basic telephone services attracted second largest
amount of FDI worth US$ 1,410 million during the same
period.

Housing and Real Estate industry was the third highest

sector attracting FDI worth US$ 1,109 million

Followed by power sector which garnered US$ 1,237 million

during April-December 2010-11. The Automobile sector
received FDI worth US$ 1,320 million.
5. Growth in Agriculture
In 1951, agriculture provided employment to 72 per cent of
the population and contributed 59 per cent of the GDP.

By 2001 the population depending upon agriculture came

to 58 per cent whereas the share of agriculture in the GDP
went down drastically to 24 per cent and further to 22 per
cent in 2006-07.

The agricultural growth of 3.2 % observed from 1980 to

1997 decelerated to 2 % subsequently.
 The share of Indian manufacturing industry
towards India GDP has grown from 25.38% in
1991 to 27% in 2004.
The contribution of the Indian manufacturing
sector to the Indian export sector has increased
from 52% in 1970 to 59% in 1980 and 71% in
1990 and 77% in 2000-01.
Furthermore, the Indian manufacturing exports
accounted for a little over 5% (in 1990) of the
value of output of the Indian manufacturing
sector but today it is close to 10%.
The Indian sectors which grew tremendously as a
result of globalization of the Indian manufacturing
sector are as:

Capital goods Electronics

Engineering goods IT Hardware &
Chemicals peripherals
Petroleum Gems & jewelry
Chemicals & Leather & leather
fertilizers products
Packaging Mining
Consumer non- Steel & non-ferrous
durables metals
Textiles & apparels
Water equipment
6.Growth in Industrial Sector
The vehicles industry in India witnessed a substantial
growth in 2010. The production of vehicles in India grew by
32.4 per cent in August 2010, as against the corresponding
period in 2009.
Ranging from the commercial vehicles to two-wheelers
to the Passenger vehicles segment all registered striking
growth rates of 49%, 31% and 32%.
According to the reports of the Gem and Jewellery Export
Promotion Council, the shipment of jewelry from India was
worth US$ 23.57 billion during the April-November 2010,
recording an increase of 38.25 per cent as compared to
that of US$ 17.05 billion as against the same period in
2009.
Growth in Industrial Sector
Indian exports increased by 26.8 % (y-o-y) and touched
US$ 18.9 billion in November 2010.
This rapid growth in the exports from India urged the Indian
Government to conclude that the total shipments in 2010-
11 might go up to US$ 215 billion.
For the period April 2010 to November 2010 exports in the
country grew by 26.7 % to US$ 140.3 billion. On the other
hand imports increased to US$ 222 billion .
Growth in Industrial Sector
The logistics industry in India is also witnessing enormous
activity.

According to a study conducted by the shipping ministry in

India, some of the important ports in the country handled
about 44.4 million tons of freight in September 2010.

There was a growth rate of 4.5 per cent as compared to the

growth rate in September 2009 which stood at 5.9 per cent.

According to Frost&Sullivan, the traffic in these ports is

going to rise from 814.1 (MT) to 1,373.1 MT from the period
2010 to 2015 at a steady CAGR of 11 percent.
7.Telecom/IT-BPO
According to the reports released by the Telecom
Regulatory Authority of India (TRAI) the total number of
telephone users in India reached 742.12 million in October
31, 2010.
This took the total telephone using population in the
country to 62.51 percent. The number of wireless
subscribers also increased to 706.69 million.
According to the NASSCOM's Strategic Review 2010, the IT-
BPO sector in India remained the fastest developing
industry churning out total revenue of USD 73.1 billion in
2010.
The Information Technology and software services
generated revenues of USD 63.7 billion.
Advantages of
Globalisation
1. Employment
Considered as one of the most crucial advantages,
globalization has led to the generation of numerous
employment opportunities. Companies are moving
towards the developing countries to acquire labor
force. This obviously caters to employment and
income generation to the people in the host
country. Also, the migration of people, which has
become easier has led to better jobs opportunities.
 2. Education
A very critical advantage that has aided the
population is the spread of education. With
numerous educational institutions around the
globe, one can move out from the home country
for better opportunities elsewhere. Thus,
integrating with different cultures, meeting and
learning from various people through the medium
of education is all due to globalization.
Developing countries or labor-intensive countries
have benefited the most.
3. Product Quality
The onset of international trade has given rise to
intense competition in the markets. No longer
does one find limited number of commodities
available. A particular commodity may fetch
hundreds of options with different prices. The
product quality has been enhanced so as to
retain the customers. Today the customers may
compromise with the price range but not with
the quality of the product. Low or poor quality
can adversely affect consumer satisfaction.
 4. Cheaper Prices
Globalization has brought in fierce competition in
the markets. Since there are varied products to
select from, the producer can sustain only when
the product is competitively priced. There is
every possibility that a customer may switch over
to another producer if the product is priced
exorbitantly. 'Customer is the King', and hence
can dictate the terms to a very large extent.
Therefore, affordable pricing has benefited the
consumer in a great way.
5. Free Movement of Capital
Capital, the backbone of every economy, is of prime importance for the proper
functioning of the economy. Today, transferring money through banks is possible
just by the click of a button, all due to the electronic transfer that has made life
very comfortable. Many huge firms are investing in the developing countries by
setting up industrial units outside their home country. This leads to Foreign Direct
Investment, which helps in promoting economic growth in the host country.

6. Communication
Information technology has played a vital role in bringing the countries closer in
terms of communication. Every single information is easily accessible from almost
every corner of the world. Circulation of information is no longer a tedious task,
and can happen in seconds. The Internet has significantly affected the global
economy, thereby providing direct access to information and products.

7. Transportation
Considered as the wheel of every business organization, connectivity to various
parts of the world is no more a serious problem. Today with various modes of
transportation available, one can conveniently deliver the products to a customer
located at any part of the world. Besides, other infrastructural facilities like,
distribution, supply chain, and logistics have become extremely efficient and fast.
 . Communication
Information technology has played a vital role
in bringing the countries closer in terms of
communication. Every single information is
easily accessible from almost every corner of
the world. Circulation of information is no
longer a tedious task, and can happen in
seconds. The Internet has significantly affected
the global economy, thereby providing direct
access to information and products.
8. International Trade
Purchase and sale of commodities are not the only two transactions
involved in international trade. Today, international trade has broadened
its horizon with the help of business process outsourcing. Sometimes in
order to concentrate on a particular segment of business it is a practice
to outsource certain services. Some countries practice free trade with
minimal restrictions on EXIM (export-import) policies. This has proved
beneficial to businesses.

9. GDP Increase
Gross Domestic Product, commonly known as GDP, is the money value
of the final goods and services produced within the domestic territory of
the country during an accounting year. As the market has widened, the
scope and demand for a product has increased. Producers familiarize
their products and services according to the requirements of various
economies thereby tapping the untapped markets. Thus, the final
outcome in terms of financial gain enhances the GDP of the country. If
statistics are of any indication, the GDP of the developing countries has
increased twice as much as before.
 GDP Increase
Gross Domestic Product, commonly known
as GDP, is the money value of the final
goods and services produced within the
domestic territory of the country during an
accounting year. As the market has
widened, the scope and demand for a
product has increased. Producers familiarize
their products and services according to the
requirements of various economies thereby
tapping the untapped markets. Thus, the
final outcome in terms of financial gain
enhances the GDP of the country. If
statistics are of any indication, the GDP of
the developing countries has increased
Disadvantages of
Globalization
1.Health Issues
Globalization has given rise to more health risks and presents new threats and
challenges for epidemics. A very customary example is the dawn of HIV/AIDS. Having its
origin in the wilderness of Africa, the virus has spread like wildfire throughout the globe
in no time. Food items are also transported to various countries, and this is a matter of
concern, especially in case of perishable items. The safety regulations and the standards
of food preparation are different in different countries, which may pose a great risk to
potential health hazards.

2. Loss of Culture
Conventionally, people of a particular country follow its culture and traditions from time
immemorial. With large number of people moving into and out of a country, the culture
takes a backseat. People may adapt to the culture of the resident country. They tend to
follow the foreign culture more, forgetting their own roots. This can give rise to cultural
conflicts.

3.Uneven Wealth Distribution

It is said that the rich are getting richer while the poor are getting poorer. In the real
sense, globalization has not been able to reduce poverty. Instead it has led to the
accumulation of wealth and power in the hands of a few developed economies.
Therefore the gap between the elite and the underprivileged seems to be a never ending
road, eventually leading to inequality.
4.Environment Degradation
The industrial revolution has changed the outlook of the economy. Industries
are using natural resources by means of mining, drilling, etc. which puts a
burden on the environment. Natural resources are depleting and are on the
verge of becoming extinct. Deforestation is practiced owing to the non-
availability of land, thereby drastically reducing the forest cover. This in turn
creates an imbalance in the environment leading to climate change and
occurrence of natural calamities.

5.Disparity
Though globalization has opened new avenues like wider markets and
employment, there still exists a disparity in the development of the economies.
Structural unemployment owes to the disparity created. Developed countries
are moving their factories to foreign countries where labor is cheaply available.
The host country generates less revenues, and a major share of the profits fall
into the hands of the foreign company. They make humongous profits thereby
creating a huge income gap between the developed and the developing
countries.
6.Cut-throat Competition
Opening the doors of international trade has given birth to intense competition.
This has affected the local markets dramatically. In recent times the standard of
living has improved. People are therefore ready to shell out extra money for a
product that may be available at a lower price. This is because of the modern
marketing techniques like advertising and branding. The local players thereby
suffer huge losses as they lack the potential to advertise or export their products
on a large scale. Therefore the domestic markets shrink.

7. Conflicts
Every economy wants to be at the top spot and be the leader. The fast-paced
economies, that is the developed countries are vying to be the supreme power. It
has given rise to terrorism and other forms of violence. Such acts not only cause
loss of human life but also huge economic losses.

8. Monopoly
Monopoly is a situation wherein only one seller has a say in a particular product
or products. It is possible that when a product is the leader in its field, the
company may begin to exploit the consumers. As there exists no close
competitors, the leader takes full advantage of the sale of its product, which may
later lead to illegal and unethical practices being followed. Monopoly is disastrous
as it widens the gap between the developed and developing countries.