Content

1 - Globalization

2 – Globalization in India

3 – What globalization bought for India

4 – Future challenges

5 – Capital inflow in India

6- Consequence
 Globalization
According to the Oxford English Dictionary, the word 'globalization' was
first employed in a publication entitled Towards New Education in 1930, to
denote a holistic view of human experience in education
Globalization :- Inexorable integration of market , nation-states
and technology to a degree never witnessed before in a way that is enabling
individuals , corporations and nation-states to reach round the world
farther, faster , deeper and cheaper than ever before(t. friedman 1999)
Some group of scholars and activists view globalization not as an
inexorable process but as a deliberate ideology project of economic
liberalization that subjects states and individuals to more intense market
force.
Globalization is a net positive for the world economy. Increased
flows of goods, services and capital across national borders generally
enhance efficiency and should help individual economies become more
flexible and resilient. But there are some cost as well; one that pertains to
monetary policy is that globalization makes it harder to see what’s driving
the economic events that we have to deal with.
Key characteristics of globalization can be defined as trade, FDI,
financial flow, technology.
Globalization in underpinned by liberalization of economic policies
and by technological advances that continue to facilitate transport and
communications networks. Even through it is generally characterized as a
recent phenomenon, globalization can be perceived as an extension of the
process of internationalization. Increased participation in the world
economy is expected to many important benefits:
• Better resource allocation ,
• Increased competition to achieve international stand and of efficiency
and wider options for consumers , and
 • Provider opportunities to tap international capital market and
exposure to new ideas, technologies and product.
Globalization has drawn attention to itself as a consequence of its rapid
acceleration. The spread and integration of people, commerce, knowledge
and culture across the planet has advanced since the dawn of civilization.
It is only over the most recent generation that, driven by microchip
technology, cheap transportation and an avaricious business culture, the
intensity of globalization has delivered controversial results.
The pace of change is most apparent in developed countries. Most
everyday household goods and clothing are imported from a single country,
China; simple enquiries about banking or insurance may involve a call
centre in India, and flexible educational courses are available from
institutions across the world through distance learning.
These illustrations of globalization are broadly positive in their effect,
creating space for personal fulfillment, stimulating wealth through
efficiency and encouraging cross-cultural experience. They also betray how
these rewards are weighted towards those whose circumstances are already
relatively prosperous.
Now let we discuss about component or characteristics of globalization.
These may be FDI, trade, fund flow or anything else but overall emphasis on
market or unity of world market is main aim.
• Economic integration: the integration of economy implies that
the economies of all nations-states should be open to invest and
work as whole with the help of one another to maximize the profit
and improve the life standard of their citizens. This ideology
favored a diminished role for government through privatization of
state-owned enterprises and deregulation of barriers to foreign
trade and investment. A key tenet of this model is to maximize
opportunity and minimize regulations for capitalist enterprise. And
corporations, as the organs of capitalism, had been presented with
what they desire above all else – a massive increase in the size of
the market.
• Foreign direct investment (FDI): Foreign direct investment (FDI)
refers to long term participation by country A into country B. It
usually involves participation in management, joint-venture, transfer
of technology and expertise. (FDI) is a measure of foreign ownership
of productive assets, such as factories, mines and land. Increasing
foreign investment can be used as one measure of growing economic
globalization. Foreign investment can be a significant driver of
development in poor nations. It provides an inflow of foreign capital
 and funds, in addition to an increase in the transfer of skills,
technology, and job opportunities.
• Deregulation and liberalization: Deregulation of market and
liberalization or no barrier market is important to flourish
globalization. Most countries have, often as a result of global,
regional, and bilateral trade and investment negotiations, lowered
barriers to trade and investment. These barriers include trade quotas
and tariffs as well as national capital controls. Although
deregulation and liberalization occur at different speeds in different
countries, the trend is world-wide. The major financial institutions,
such as the IMF and the World Bank, are also partly responsible
through encouraging and facilitating the introduction of market-
based economic policies in their programs. There is no doubt that the
acceleration of integration has led to new relationships and realities.
International production has become a central structural
characteristic of the world economy.
• Technology: Technology is an important factor of globalization. The
technological revolution in information processing, communications
and transportation made it much easier to create a global production
chain and distribution networks. It makes it easier for companies to
integrate their subsidiaries as well as build ties with suppliers and
customers. The use of technology not only facilitates working across
borders, it also brings changes in work relations. More and more
people are working at home or in call centers. Production techniques
are also changing. Old systems for the mass production of standard
products are being replaced by methods that allow shorter
production runs of more differentiated products.

Globalization has n number of effect or characteristics that we cannot

discussed all such as political, health policy, economical, informational,
ecological, social, cultural, etc.

The challenge of globalization is not to try to make it go away or to pretend

it does not exist. It is to find ways to manage change and regulate and
structure globalization so that it is subject to the popular will, supports
fundamental rights, and brings prosperity to as many people as possible.
The global task of trade unions is to affect policy at the international level,
convince governments and enterprises to assume the responsibilities of
globalization, and engage in practical, effective solidarity.
 Globalization brings opportunities but it also brings risks , while
exploiting the opportunities for higher economic growth and better living
standards that more openness things, policymakers – international ,
national, local also face the challenge of mitigating the risk for the poor ,
vulnerable and marginalized and of increasing equity and inclusion.

Critics (Anti globalization): The anti-globalization movement developed in

opposition to the perceived negative aspects of globalization. The term 'anti-
globalization' is in many ways a misnomer, since the group represents a
wide range of interests and issues and many of the people involved in the
anti-globalization movement do support closer ties between the various
peoples and cultures of the world through, for example, aid, assistance for
refugees, and global environmental issues.
Globalization has generated significant international opposition over
concerns that it has increased inequality and environmental degradation.
Along with globalization of economies and trade, culture is being imported
and exported as well. The concern is that the stronger, bigger countries
such as the United States, may overrun the other, smaller countries'
cultures, leading to those customs and values fading away. This process is
also sometimes referred to as Americanization or McDonaldization.
Opportunities in richer countries drive talent away from poorer countries,
leading to brain drains. Globalization has also helped to spread some of the
deadliest infectious diseases known to humans.
Critics argue that globalization results in:
• Poorer countries suffering disadvantages
• The exploitation of foreign impoverished workers
• The shift to outsourcing
• Weak labor unions
• An increase in exploitation of child labor

Despite all these setbacks, globalization appears to be staggering back to its

feet, having narrowly avoided a knockout punch. All these harmful effects of
globalization, it is still need of developing countries to allow FDI and open
their market to be developed and improve life standard of their people.
Some policy improvement and some barriers on open trade can minimize the
harm of globalization
 Globalization in India
In early 1990s the Indian economy had witnessed dramatic policy changes.
The idea behind the new economic model known as Liberalization,
Privatization and Globalization in India (LPG), was to make the Indian
economy one of the fastest growing economies in the world. An array of
reforms was initiated with regard to industrial, trade and social sector to
make the economy more competitive. The economic changes initiated have
had a dramatic effect on the overall growth of the economy. It also heralded
the integration of the Indian economy into the global economy. The Indian
economy was in major crisis in 1991 when foreign currency reserves went
down to $1 billion and inflation was as high as 17%. Fiscal deficit was also
high and NRI's were not interested in investing in India. Then the following
measures were taken to liberalize and globalize the economy.
India opened up the economy in the early nineties following a major
crisis that led by a foreign exchange crunch that dragged the economy close
to defaulting on loans. The response was a slew of Domestic and external
sector policy measures partly prompted by the immediate needs and partly
by the demand of the multilateral organisations. The new policy regime
radically pushed forward in favour of amore open and market oriented
economy.
Major measures initiated as a part of the liberalisation and
globalisation strategy in the early nineties included scrapping of the
industrial licensing regime, reduction in the number of areas reserved for
the public sector, amendment of the monopolies and the restrictive trade
practices act, start of the privatisation programme, reduction in tariff rates
and change over to market determined exchange rates.
Over the years there has been a steady liberalisation of the current
account transactions, more and more sectors opened up for foreign direct
investments and portfolio investments facilitating entry of foreign investors
in telecom, roads, ports, airports, insurance and other major sectors.
The Important Reform Measures (Step towards
Globalization)
Indian economy was in deep crisis in July 1991, when foreign currency
reserves had plummeted to almost $1 billion; Inflation had roared to an
annual rate of 17 percent; fiscal deficit was very high and had become
unsustainable; foreign investors and NRIs had lost confidence in Indian
Economy. Capital was flying out of the country and we were close to
defaulting on loans. Along with these bottlenecks at home, many
unforeseeable changes swept the economies of nations in Western and
Eastern Europe, South East Asia, Latin America and elsewhere, around the
same time. These were the economic compulsions at home and abroad that
called for a complete overhauling of our economic policies and programs.
Major measures initiated as a part of the liberalisation and globalisation
strategy in the early nineties included the following:
• Devaluation: The first step towards globalization was taken with the
announcement of the devaluation of Indian currency by 18-19 percent
against major currencies in the international foreign exchange market. In
fact, this measure was taken in order to resolve the BOP crisis
• Disinvestment-In order to make the process of globalization smooth,
privatization and liberalisation policies are moving along as well. Under the
privatization scheme, most of the public sector undertakings have been/ are
being sold to private sector
• Dismantling of The Industrial Licensing Regime At present, only six
industries are under compulsory licensing mainly on accounting of
environmental safety and strategic considerations. A significantly amended
locational policy in tune with the liberalized licensing policy is in place. No
industrial approval is required from the government for locations not
falling within 25 kms of the periphery of cities having a population of more
than one million.
• Allowing Foreign Direct Investment (FDI) across a wide spectrum of
industries and encouraging non-debt flows. The Department has put in
place a liberal and transparent foreign investment regime where most
activities are opened to foreign investment on automatic route without any
limit on the extent of foreign ownership. Some of the recent initiatives taken
to
further liberalise the FDI regime, inter alias, include opening up of sectors
such as Insurance (upto 26%); development of integrated townships (upto
100%); defence industry (upto 26%); tea plantation (upto 100% subject to
divestment of 26% within five years to FDI); enhancement of FDI limits in
private sector banking, allowing FDI up to 100% under the automatic route
for most manufacturing activities in SEZs; opening up B2B e-commerce;
Internet Service Providers (ISPs) without Gateways; electronic mail and
voice mail to 100% foreign investment subject to 26% divestment condition;
etc. The Department has also strengthened investment
facilitation measures through Foreign Investment Implementation Authority
(FIIA).
• Non Resident Indian Scheme the general policy and facilities for foreign
direct investment as available to foreign investors/ Companies are fully
applicable to NRIs as well. In addition, Government has extended some
concessions specially for NRIs and overseas corporate bodies having more
than 60% stake by NRIs
• Throwing Open Industries Reserved For The Public Sector to Private
Participation. Now there are only three industries reserved for the public
sector
• The removal of quantitative restrictions on imports.
• The reduction of the peak customs tariff from over 300 per cent prior to
the 30 per cent rate that applies now.
• Severe restrictions on short-term debt and allowing external commercial
borrowings based on external debt sustainability.
• Wide-ranging financial sector reforms in the banking, capital markets, and
insurance sectors, including the deregulation of interest rates, strong
regulation and supervisory systems, and the introduction of foreign/private
sector competition.
What globalization bought for India
Globalization in India had a favorable impact on the overall growth rate of
the economy.This is major improvement given that India’s growth rate in
the 1970’s was very low at 3% and GDP growth in countries like Brazil,
Indonesia, Korea, and Mexico was more than twice that of India. Though
India’s average annual growth rate almost doubled in the eighties to 5.9%,
it was still lower than the growth rate in China, Korea and Indonesia. The
pick up in GDP growth has helped improve India’s global position.
Consequently India’s position in the global economy has improved from the
8th position in 1991 to 4th place in 2001; when GDP is calculated on a
purchasing power parity basis. During 1991-92 the first year of Rao’s
reforms program, The Indian economy grew by 0.9%only. However the
Gross Domestic Product (GDP) growth accelerated to 5.3 % in 1992-93,
and 6.2% 1993-94. A growth rate of above 8% was an achievement by the
Indian economy during the year 2003-04.

Some major changes are given below

• Income and Savings: The impressive macro economic growth also led
to a 7.4 per cent growth in the per capita income during 2006-07. The
saving rate during the same year has been estimated at 32.4 per cent
and the investment rate at 33.8 per cent. Both the savings and
investment rate have been steadily growing during the last few years
• Fiscal Consolidation: The gross fiscal deficit of the central and state
governments had been as high as 9 per cent in 1990-91. Domestic
payments and external debt during that year accounted for almost 40
per cent of this deficit. India truly faced fiscal insolvency at that point
of time (Butler and Patel). The deficit was reduced in the next year
(1991-92) to 7.2 per cent of the GDP. It has been steadily declining
with the exception of some years and by 1998-99 it was reduced to 5.1
per cent. This has further come down to 3.3 per cent of the GDP in
2005-06.
• Emerging Sectors: IT, the financial sector and now retail have
emerged as new hubs of economic activity in the post globalisation
scenario. This along with the manufacturing growth, has contributed
to the robustness of the Indian economy, its image in the west and
more importantly in the creation of jobs for the educated and school
dropouts (in retail). IT & ITES has created around 10 million jobs
which would not have been possible without globalisation policies.
The IT and ITES sector are also likely to achieve very high rates of
growth of 16 per cent and 40 per cent per annum in the next five
years respectively and the market is expected to touch $100 billion by
2011.
• Corporate Sector Performance: The performance of the Indian
corporate sector has been outstanding, despite the limitation of
technology and comparable inefficiencies with the international
partners, particularly in the earlier years of reforms. It is today
globally competitive. Not only that they have risen to the challenge
and made most of the opportunities provided to them through the
relaxation of controls, but many of them have now entered the second
phase of acquiring established international companies
• The growth in the post globalisation period has also not totally by-
passed the rural sector as the proportion of households using
electricity (34 per cent to 54 per cent), Cooking Gas (2 per cent to
11.71 per cent), use of Refrigerator, has increased. The poorest of the
poor, i.e., those who go hungry in some or all months of the year has
reduced from 5.5 per cent to 2.6 per cent (during 1993 94 to 2004-05)
• Export and import: India's Export and Import in the year 2001-02
was to the extent of 32,572 and 38,362 million respectively. Many
Indian companies have started becoming respectable players in the
International scene. Agriculture exports account for about 13 to 18%
of total annual of annual export of the country. In 2000-01
Agricultural products valued at more than US $ 6million were
exported from the country 23% of which was contributed by the
marine products alone. Marine products in recent years have
emerged as the single largest contributor to the total agricultural
export from the country accounting for over one fifth of the total
agricultural exports. Cereals (mostly basmati rice and non-basmati
rice), oil seeds, tea and coffee are the other prominent products each
of which accounts fro nearly 5 to 10% of the countries total
agricultural exports.
• The liberalisation of the domestic economy and the increasing
integration of India with the global economy have helped step up
GDP growth rates, which picked up from 5.6% in 1990-91 to a peak
level of 77.8% in 1996-97. Growth rates have slowed down since the
country has still bee able to achieve 5-6% growth rate in three of the
last six years. Though growth rates has slumped to the lowest level
4.3% in 2002-03 mainly because of the worst droughts in two decades
the growth rates are expected to go up close to 70% in 2003-04. A
Global comparison shows that India is now the fastest growing just
after China.
Indian Economy: Future Challenges
• Sustaining the growth momentum and achieving an annual average growth
of 9-10 % in the next five years.
• Simplifying procedures and relaxing entry barriers for business activities
and Providing investor friendly laws and tax system.
• Checking the growth of population; India is the second highest populated
country in the world after China. However in terms of density India exceeds
China as India's land area is almost half of China's total land. Due to a high
population growth, GNI per capita remains very poor. It was only $ 2880 in
2003 (World Bank figures).
• Boosting agricultural growth through diversification and development of
agro processing.
• Expanding industry fast, by at least 10% per year to integrate not only the
surplus labour in agriculture but also the unprecedented number of women
and teenagers joining the labour force every year.
• Developing world-class infrastructure for sustaining growth in all the
sectors of the economy
• Allowing foreign investment in more areas.
• Effecting fiscal consolidation and eliminating the revenue deficit through
revenue enhancement and expenditure management.
• Some regard globalization as the spread of western culture and influence
at the expense of local culture. Protecting domestic culture is also a
challenge.
• Global corporations are responsible for global warming, the depletion of
natural resources, and the production of harmful chemicals and the
destruction of organic agriculture.
• The government should reduce its budget deficit through proper pricing
mechanisms and better direction of subsidies. It should develop
infrastructure with what Finance Minister P Chidambaram of India called
“ruthless efficiency” and reduce bureaucracy by streamlining government
procedures to make them more transparent and effective.
• Empowering the population through universal education and health care,
India must maximize the benefits of its youthful demographics and turn itself
into the knowledge hub of the world through the application of information
and communications technology (ICT) in all aspects of Indian life although,
the government is committed to furthering economic reforms and developing
basic infrastructure to improve lives of the rural poor and boost economic
performance. Government had reduced its controls on foreign trade and
investment in some areas and has indicated more liberalization in civil
aviation, telecom and insurance sector in the future.
 Capital Inflow
In most of the period since the mid-1990s, external sector developments in
India have been marked by strong capital flows. Capital inflows, which were
earlier mainly confined to small scale official concessional finance, gained
momentum from the 1990s after the initiation of economic reforms. As well
as increasing in size, capital inflows have undergone a compositional shift
from predominantly official and private debt flows to non-debt-creating
flows in the post-reform period. Private debt flows have begun to increase
again in the more recent period. Though capital flows are generally seen to
be beneficial to an economy, a urge surge over a short span of time in
excess of domestic absorptive capacity can be a source of stress, leading to
upward pressure on the exchange rate, overheating of the economy and
possible asset price bubbles. In India, capital flows in the past few years
increased sharply and have been well above the current account deficit,
which has largely remained modest.
Trends and Composition of Capital Flows
Fig 1 plots the trends in net capital inflows (sum of FDI, portfolio, loans
and
Non resident Indian deposits) into India between 1985-98 . The plot shows a
recovery of net capital inflows that had begun to decline in the late eighties
and bottomed out in the 1991
crisis. Following liberalization of restrictions on inward investment in 1991-
92, there was a sharp increase in capital inflows between 1992-95 and
1996-97.3 This is similar to the experiences of other emerging economies in
Asia and Latin America, all of who typically experienced a rise in inward
foreign capital following market- oriented reforms. The magnitude of
capital flows into India is much smaller though; the peak level for India is
3.5 per cent of GDP in 1993-94, which is small when compared to other
emerging
markets. For instance, the peak levels are above 20 per cent for Malaysia,
13 per cent for Thailand, 10 per cent for the Philippines and almost 10 per
cent for Singapore between 1990-93 (Glick, 1998: 4-5).4 Second, the swing
in the capital account observed in the case of other emerging economies is
not visible for India so far. This is probably explained by India’s relatively
late start in liberalizing its trade and investment regimes, by which time the
competition for international capital had already stiffened.
Though the magnitude of capital inflows into India is at variance vis-
à-vis Latin America and other parts of Asia, there is a common pattern in
the composition. World capital flows in the nineties have displayed a steep
decline in official capital flows and a rise in private investment, particularly
portfolio capital. This trend is clearly reflected in
Table 1 that profiles the composition of India’s capital account over the
eighties and nineties. The substantial contribution of aid towards the capital
account in the eighties dwindles steadily by the nineties (excluding the IMF
loan in 1991 and 1992). Official flows are replaced by private flows; a
sharp increase in foreign investment, direct and, portfolio, can be observed
after 1992. Commercial borrowings abroad drop during the crisis years,
resuming thereafter. Portfolio investment flows exceed direct investment
(FDI) in the early years of liberalization. The latter accelerates later,
peaking in 1995 and falling thereafter. This feature contrasts with what is
observed for the countries in the APEC region, where foreign capital was
dominated by FDI after the opening of markets, with portfolio flows
increasing only in the early nineties. In a way, these movements reflect the
global trends: global financial markets had changed substantially by the
nineties, with portfolio capital flows registering a sharp rise. More likely
however, might be the process of liberalization in India. While FDI
procedures remained complicated and discretionary, investment via the
financial markets route was much faster and simpler. This might have tilted
the composition of flows in favour of portfolio. A final feature of the table is
the continued dependence upon migrants’ remittances, after a short decline
in 1993-94.
The jump in foreign inward capital that India experienced after reform/
liberalization, as well as the composition of these inflows conforms to the
evidence for other developing countries. Two broad explanations for this
phenomenon have been offered in the literature. One viewpoint holds that
the fall in US interest rate between 1989-92, combined with cyclical
recession in the US, Japan and many parts of Europe, drove world capital
to developing countries in search of higher returns. The other view upholds
the role of ‘internal’ or ‘pull’ factors such as credible economic reforms,
improved macroeconomic performance and domestic policies that
encouraged investor confidence and attracted foreign investment.8,9 To
what extent are these explanations valid for India?
One way of probing the ‘external factors’ hypothesis is to examine
comparative returns on domestic and foreign assets, noting that capital
mobility will be guided by highest available returns. Due to lack of data
availability on comparable assets, we compare interest rate differentials
between India and the rest of the world. Fig. 2 graphs
the interest rate spread between the prime lending rate in India and Libor
between 1993-2000. The interest spread narrows rapidly from 1993, mainly
because of a movement towards lower interest rates after deregulation
rather than arbitrage. Foreign investors were allowed to invest in debt
instruments in 1997 (subject to a 30% ceiling on total investment) and
government treasury bills in 1998. Though it is inappropriate to interpret
the trends in interest differentials without allowing for expectations
regarding exchange rate changes, superficial evidence does suggest that
the relatively high differential rate of return on Indian assets might have
played a role in attracting foreign capital after the opening of financial
markets.
timing of these flows however, suggests that internal or ‘pull’
factors were equally, if not more, important. Before 1991, Indian financial
markets were closed, its trade and investment policies did not exactly
encourage foreign direct investment and its credit-rating along with investor
confidence had ebbed following the balance of payments crisis in 1991.
Post-crisis however, market-oriented reforms were instituted by the
government. The macroeconomic performance of the economy improved, as
output growth recovered on a higher trajectory, the rate of inflation
declined and debt/solvency indicators improved. External debt restructuring
resulted in a decline of the short-term to total debt ratio from 10.2 in 1991
to 3.9 in 1994; as a ratio to reserves, short-term debt fell from 382.1 (1991)
to 24.1 (1994) and further to 13.5 in 1998.10
Significant institutional, regulatory and policy changes impacting the
external environment during this period were the switch to a flexible
exchange rate regime, consolidation of external debt, full convertibility of
current account transactions, trade reforms, liberalisation of investment
policies relating to FDI and financial sector reforms. While the overall
thrust of the reforms served to improve international investors’ confidence,
there is no doubt that specific measures to attract FDI and portfolio capital
into India catalysed these inflows. These focused upon elimination of entry
barriers and market integration. Foreign investment, which was permitted
only in cases of technology transfer, was liberalised and the ceiling of 40
per cent on foreign equity participation was relaxed, procedures were
greatly simplified. Elements of financial liberalisation that have a direct
bearing upon portfolio investments were allowing foreign institutional
investors to operate in the Indian capital market; these investments, initially
restricted to equity, were subsequently relaxed to include debt, including
government bonds.
Simultaneously, raising external resources abroad by domestic
corporates was selectively liberalised.13 These developments are partly
reflected in the growing demand of institutional and private investors
abroad, which has facilitated depository issues in the US and Europe and
equity purchases by foreign institutional investors on the domestic stock
exchanges (Table 2). Equity
investment has been an important channel for portfolio inflows in other
emerging markets too. Table 2 shows that the volume of bond issues has
increased after 1991. These changes are consistent with evidence available
for other emerging markets in Asia, where bond issues nearly quadrupled
between 1989 and 1992 (Khan & Reinhart, 1995: 18) and continued to
increase beyond this period.
The composition of foreign capital is by now well understood to make a
difference in impact. Thus short-term or portfolio capital, which is subject to
‘sudden reversal’ and is, therefore, more volatile, renders the recipient
country extremely vulnerable. Tentative evidence for India supports this
hypothesis as portfolio flows are more volatile than FDI, as measured by the
standard deviation of the two series. The standard deviation of portfolio
investment between 1990-99 is 5163.2 which is substantially larger than
4592.3 for FDI. The difference in volatility increases when measured at
higher frequency, quarterly (1900.5 and 1226.9 respectively) as well as
monthly (205.3 and 94 respectively)
Portfolio flows also render the stock markets more volatile through
increased linkages between the local and foreign financial markets.
Preliminary evidence for India shows some support for this hypothesis as
the co-movement between the share prices index and other stock prices’
indicators during the capital surge of 1992-95 shows in Figs. 1, 3 & 4. The
rise in the share prices’ index presumably contributed to the rise in market
capitalisation and the price-earnings
ratios during this period. 15 Simple correlation measures between portfolio
capital flows and the BSE share price index is positively strong, 0.58. The
price-earnings ratio is observed to be doubling between 1990-91 and 1992-
93 and dipping sharply after 1995, when the flows subsided. A similar trend
is observed for the period of inflows’ boom in South-east Asia; this ratio
doubled between 1990-93 for Hong Kong and Thailand. The negative
consequences were that it fuelled stock market booms and contributed to
market volatility in the case of Mexico and the East Asian economies.
 Consequences
The implications of globalisation for a national economy are many.
Globalisation has intensified interdependence and competition between
economies in the world market. This is reflected in Interdependence in
regard to trading in goods and services and in movement of capital. As a
result domestic economic developments are not determined entirely by
domestic policies and market conditions. Rather, they are influenced by both
domestic and international policies and economic conditions. It is thus clear
that a globalising economy, while formulating and evaluating its domestic
policy cannot afford to ignore the possible actions and reactions of policies
and developments in the rest of the world. This constrained the policy option
available to the government which implies loss of policy autonomy to some
extent, at the national level.
For over a century the United States has been the largest economy in the
world but major developments have taken place in the world economy since
then, leading to the shift of focus from the US and the rich countries of
Europe to the two Asian giants- India and China. Economics experts and
various studies conducted across the globe envisage India and China to rule
the world in the 21st century. India, which is now the fourth largest
economy in terms of purchasing power parity, may overtake Japan and
become third major economic power within 10 years.
 References

• CAPITAL FLOWS AND THEIR

MACROECONOMIC EFFECTS IN INDIA
RENU KOHLI

• Foreign Capital Flows into India:

Compositions, Regulations, Issues and Policy Options
Dr. Sumanjeet
University of Delhi, India

• Impact of Globalization on Developing Countries

(With Special Reference To India)
Krishn A Goyal

• Capital flows to India

Rakesh Mohan1

• THE PROCESSES OF
GLOBALISATION
BOAVENTURA DE SOUSA
SANTOS
Translation: Sheena
Caldmell