Last week a seminar was organised by the Modern College of Professional Studies in collaboration with the Indian Council of Social Sciences Research. The subject of the seminar was "Impact of Globalization on the Foreign Trade in India- Problems and Challenges".
Many academic experts and leading Economic Journalists led by Shri Shishir Sinha, Business Affairs Editor, ABP News participated in the seminar. My paper titled “Globalisation, Make in India and Indian Economy- The Forward and Backward Linkages: An Annotated edition of policy papers”.
Globalisation, Make in India and Indian Economy- The Forward and Backward Linkages.
An Annotated edition of policy papers by L.R Vishwanath*
Globalisation describes a world environment in which there is relatively free and frequent movement of goods, capital, people, information and ideas internationally. The lessons in the previous activity were guiding students towards an understanding of some of the many consequences of globalisation. This activity takes a step backwards and provides evidence and examples of globalisation, clarifies the different meanings of globalisation and the drivers behind the many globalising processes in the world.
We saw in the World Core Curriculum and the examples of global education, that globalisation can emphasize the sharing of cultural experiences and building a global culture of peace. However, it is economic globalisation that is of concern to many.
ECONOMIC GLOBALISATION: A SHORT HISTORY
Economic globalisation has made global market forces more important in the daily lives of the world’s people relative to nation state political forces. The economic processes of globalisation are not new, however. For thousands of years, people have been buying and selling to each other across great distances.
For example, the Silk Road across Central Asia connected China and Europe during the Middle Ages. The great Chinese navigator, Cheng Ho (or Zheng He), made seven voyages to Southeast Asia, India, the Persian Gulf, and Africa between 1405 and 1433 AD and established major trading ports. In fact, Africa was considered China’s “El Dorado” in the fifteenth century just like South America was for Portugal and Spain from the sixteenth century onwards.
However, not everyone benefited from these historical experiences of globalisation. The Trans-Atlantic Slave Trade saw over ten million Africans shipped to the Americas in 35,000 voyages between the sixteenth and nineteenth centuries. The British East India Company was formed to trade with the East Indies (Indonesia) but ended up trading mostly between the Indian subcontinent and China. While sending cotton, silk, indigo dye and tea back to England, the Company made its greatest profits forcing Indian farmers to grow poppy flowers which were manufactured into opium in company-owned factories and then sold into China against the will of the Imperial government. This eventually led to the Opium Warsbetween China between Britain.
The 19th and early 20th Centuries were also a time of very rapidly increasing free movement of goods, capital and people. New technology – in the form of the telegraph and steamships – made international communication and transportation much faster, easier and cheaper. By 1914, almost all of Africa, Asia, the Pacific and Latin America and the Caribbean had beencolonized by European countries to advance their wealth and power. This was achieved by using military power to rule colonies as sources as cheap, near slave labour and abundant, nearly free natural resources. These resources were sent to the factories in the colonial powers, where they underpinned the industrialisation and economic growth Europe and North America.
Despite becoming politically independent in the years after World War II, most former colonies remained tied into the global economy as suppliers of raw materials, low-paid labour and markets for manufactured imports. Very few countries have been successful in breaking out of this pattern. This is the process known as neo-colonialism.
Economic globalisation has been advanced by five key factors in the past fifty years:
1. To encourage economic growth and investment, governments have privatized many previously government owned services and industries and deregulated economic activity to allow market forces greater scope. The lending and development policies of international agencies and banks, to open their economies to international goods, services, practices and ideas.
2. Large multinational corporations have replaced governments as the vehicle for economic domination and many have grown to be larger and more powerful than most countries.
3. Rapid advances in technology, especially in manufacturing, communication and transport in recent decades, has seen the industrial revolution replaced by the information and services revolution.
4. Advances in communication technologies and the media have intensified daily experiences of global connectedness and contributed to a “global consciousness” that normalizes and, thus, encourages more and more global connectedness.
5. The rise in per capita income generated by these processes has fuelled a massive rise in consumerism and created a perpetual cycle – or a treadmill – of production and consumption.
Thus, globalisation can be defined as the:
… broadening, deepening and speeding up of world-wide interconnectedness in all aspects of life, from the cultural to the criminal, the financial to the environmental. At issue appears to be ‘a global shift’; that is, a world being moulded, by economic and technological forces, into a shared economic and political arena.
Source: Held, D. et al. (1999) Global Transformations: What is Globalisation?
This is similar to the definition provided by Joseph Stiglitz, a former Senior Vice-President of the World Bank and a winner of the Nobel Prize for Economics. Stiglitz defines globalisation as:
… is the closer integration of the countries and peoples of the world … brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and people across borders.
Source: Stiglitz, J. (2004) Globalisation and its Discontents.
A number of scholars argue that these definitions are too narrow as they do not emphasise the many different aspects of globalisation. For example, the University of California Atlas of World Inequality argues that we need to recognize at least four dimensions:
Economic globalisation
… the greater global connectedness of economic activities through international national trade, financial flows and transport, and the increasingly significant roles of international investment and multinational corporations
Environmental globalisation
… the increasingly global effects of human activity on the environment, and the effects of global environmental changes on people.
Cultural globalisation
… the connections among languages, ways of living, and fears of global homogeneity through the spread of North American and European languages and culture.
Political globalisation
… including wider acceptance of global political standards such as human rights, democracy, the rights of workers, environmental standards, as well as the increased coordination of actions by governments and international agencies.
Effects of globalisation on Indian society
Globalization is a significant factor in competitive world that integrate and mobilize cultural values of people at global level. In the age of rapid technical progression, many countries are unified and transformed due to the process of globalization. Globalization has a huge impact on cultural, social, monetary, political, and communal life of countries. Abundant theoretical studies demonstrated that globalization intercedes in a cultural life of populace that raises numerous critical issues (Robertson, 1992). In broad sense, the term 'globalization' means combination of economies and societies through cross country flows of information, ideas, technologies, goods, services, capital, finance and people. Globalization is described by theorists as the process through which societies and economies are integrated through cross border flows of ideas, communication, technology, capital, people, finance, goods, services and information.
To summarize, the process of globalization has changed the industrial pattern social life of global people and it has immense impact on Indian trade system. The globalization of the economic, social and cultural structures happened in all ages. Previously, the pace of process was slow. Today with the start of the information technology, new ways of communication have made the world a very small place. With this process, there is a big market place. Globalization has resulted in increase in the production of a range of goods. MNCs have established manufacturing plants all over the world. It has positive effects and India will overcome many obstacles and adopt global policies to expand business at international scale. India is gaining international recognition and strengthening in economic and political areas.
Positive Impact of Globalisation in India
The impact of globalisation in India has been tremendous.
1. Greater competition among producers resulting from Globalisation is greater advantage to consumers as there is greater choice before them. Consumers may enjoy improved quality and lower prices of several products.
2. Due to globalisation many MNCs have increased their investments in India. This means thousands of people are getting highly paid jobs and, enjoy much higher standards of living than was possible earlier.
3. Local companies supplying raw materials to these industries have prospered.
4. Top Indian Companies have benefit from increased competition. They have invested in newer technology and production methods and raised their production standards.
5. Some Indian companies have gained from successful collaborations with foreign companies.
6. Large Indian companies have emerged as multinationals like Tata Motors.
7. Globalisation has also created new opportunities for Indian companies providing services, particularly in the IT field. Services such as date entry, accounting, and administrative tasks, are now being done cheaply in India and exported to the developed countries. This has generated thousands of jobs.
Pros of Make in India Campaign
As Prime Minister Modi emphasized on the development of labour intensive manufacturing sector. So, this campaign will generate a lot of employment opportunities in Manufacturing, number expected to be around 100 million jobs by 2022. – This campaign will help in achieving objectives of National Manufacturing Policy i.e. to increase the share of manufacturing sector in GDP from current 15-16% to 25% till 2022. -Employment will increase people’s purchasing power which ultimately helps in poverty eradication and expansion of consumer base for companies. – The model of “look east and link west” policy will strengthen the industrial linkages as well as bilateral ties with many countries. – Export-oriented growth model will improve India’s Balance of Payments and help in accumulating foreign exchange reserves (which is very important given the volatility in the global economy with multiple rounds of Quantitative Easing announced by major economies). -Government has decided to formulate an auto response mechanism and issues pertaining to procedural clearings will be resolved at different levels in a given time frame, which is a positive step in making industrial friendly environment. – Foreign investment will bring technical expertise and creative skills along with foreign capital. The concomitant credit rating upgrade will further woo investors. – FIIs play a dominant role (relative to FDI) in the Indian markets. However, FIIs are highly volatile in nature and a sudden exodus of hot money from India can effect a nosedive in the bellwether indices. Make in India will give an unprecedented boost to FDI Flows bringing India back to the global investment radar.
Cons of Make in India Campaign
– From a theoretical perspective, Make in India will tend to violate the theory of comparative advantage. If it is not economically feasible to manufacture a commodity in India, it is best to import the same from a country which enjoys comparative advantage in its production. International trade, after all, is welfare augmenting.
– Reiterating the point made by Dr. Raghuram Rajan, India, unlike China, does not have the time advantage as it undertakes a manufacturing spree. The essential question is – Is the world ready for a second China?
– Make in India will lead to an unsustainable focus on export promotion measures. One such measure is artificially undervaluing the rupee. This will have devastating consequences for the import bill.
-A relative neglect of the world economic scenario may not augur well for Make in India. With the US and Japan economies yet to recover from their economic crises and with the EU foundering, one needs to be wary about the demand side of Make in India. The clairvoyance of the incumbent RBI governor to Make for India should be put to good use
– India has a myriad of infrastructural bottlenecks and to overcome these it needs to invest $ 1 trillion during 12th five year plan. Generating such a huge capital will be a daunting task.
– Another contentious issue is of environmental clearance, which has been surfaced in many projects especially related to mining sector.
-Uncertainty in tax regime (highlighted by Vodafone case) and delay in implementation of GST is also a matter of concern for industries.
-Manufacturing sector demands highly skilled labour whereas India lacks highly skilled labour force. -Complex processes have proved to be hurdles in getting procedural and regulatory clearances especially for new entrepreneurs. This also reflects in World Bank’s “Ease of Doing Business” report which ranked India at 134 out of 189 countries in 2013. However, the steps taken by NDA Government under the leadership of Prime Minister Modi have helped India to improve this rank by few notches to current 130.
Impact of Make in Campaign on Indian Economy
Make in India Campaign is India’s ticket to the Global Big League.
In the past, countries have grown from being agrarian major economies to industrial economies to service based economies. India has largely been exception to this rule and skipped industrial revolution to a great extent. No doubt this service focus has given employment to millions of people but it has done little to reduce the disparity between rich and poor. Take any example, US, UK or China; it was industrial revolution that had set the base for All Inclusive growth for those countries. Let’s see what China did a few decades ago. Before the start of “Made in China”, about 50% of its work force was involved into agriculture. Farming was labour intensive and less productive when compared on its contribution to GDP per countrymen involved. Make no mistake, Agricultural independence is critical for any country and we do not mean to undermine farming’s importance in any manner; however West has proved that farming can be done much more productively and that was what China shifted to when its farm-labour moved to being industrial labour, lineman, supervisor etc. in the want of higher income. All this was made possible by few determined companies and willing government who were aligned to convert China into a industrial major. Fast forward, 25 years, China is the second biggest economy of the world ahead of UK, Japan, Germany, France, Canada and Australia.
Today India, with its more than 45% workforce in farming, stands a similar chance to embark upon a growth path that will shape the future of its billion people in the decades to come.
The Union Finance Minister Shri Arun Jaitley, gave a very optimistic picture of the Indian Economy vis-a-vis the global scenario, while presenting the Union Budget 2016. The Finance Minister said “Our external situation is robust. The Current Account deficit has declined from 18.4 billion US dollars in the first half of last year to 14.4 billion this year. It is projected to be 1.4% of GDP at the end of this year. Our foreign exchange reserves are at the highest ever level of about 350 billion US dollars”.
Going by this strong sentiment outlined by the Union Finance Minister, the broad indications overwhelmingly point out that globalisation has a very strong and bright prospect for the Indian economy as a whole as well as for the accelerated growth of India’s foreign trade.
References
- http://www.civilserviceindia.com/subject/General-Studies/notes/effects-of-globalisation-on-indian-society.html
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This is not an original article. It is an edited version of policy papers on the subject. The author, who is Additional Director General heading Social Media in the Ministry of Information and Broadcasting, is First year LLB student in the Modern College of Law.
All the views presented in this paper are the personal opinion of the author and do not reflect official views of the Government in any manner whatsoever.
hello!! Very interesting discussion glad that I came across such informative post. Keep up the good work friend. Glad to be part of your net community. International economics
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