GLOBALISATION

INTERNAIONAL TRADE & FINANCE

SUBMITTED BY

GUFRAN KHAN
5TH Sem., B.A.,LL.B(HONS)

SUBMITTED TO

MR. GAURAV GUPTA

FACULTY OF LAW
JAMIA MILLIA ISLAMIA
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ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher Mr. Enam Firdous, sir,
who gave me the golden opportunity to do this wonderful project on the topic- Human Rights
in India: Problems and Focus Areas. Which also help me in doing a lot of research and I
came to know about so may new things I am really thankful to them.

Thanking You,
GUFRAN KHAN

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TABLE OF CONTENTS

Sr. No. Content Pg. No.

01 Introduction 03

02 Globalisation- Definition 04

03 Dimensions of Globalisation 05

04 Impact of Globalisation 05

05 Cultural Globalisation 06

06 Global Economic Integration 07

07 Liberalisation 07

08 Economic Reforms of 1991-91 in India 08

09 Impact of Globalisation on Indian Economy 10

10 Obstacles to Globalisation 12

11 Conclusion 15

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INTRODUCTION

Globalisation, since World War II, is largely the result of planning by statesmen to
breakdown borders hampering trade to increase prosperity and interdependence thereby
decreasing the chance of future war. Their work led to the Brettonwoods Conference, an
agreement by the world's leading statesmen to lay down the framework for international
commerce and finance, and the founding of several international institutions intended to
oversee the process of globalisation. These institutions include the International Bank for
Reconstruction and Development (the World Bank), and the International Monetary Fund.

Globalisation, the integration of the world economy – has been a persistent theme of the
past quarter century. Growth of cross border economic activity has changed the structure
of economics and the political and social organisation of countries. Not all effects of
globalisation can be measured directly. But the scope and pace of change can be monitored
along four key dimensions – trade in goods and services, financial blows, movement of
people and communication1.

Globalisation has been facilitated by advances in technology which has reduced the costs
of trade, and trade negotiation rounds, originally under the auspices of the General
Agreement on Tariffs and Trade (GATT), which led to a series of agreements to remove
restrictions on free trade. Free trade and free market are the key factors of globalisation.
Free trade was proceeded by British and French from the seventeenth to eighteenth
centuries. The British did not adopt free trade until the 1840s. But they began imposing
free trade on their colonies including India. The other European Countries were free trading
nations throughout the nineteenth century. The Americans were among the first nine to
start protecting their industries against foreign competition especially from British
products.

1
World Development Indication-World Bank Report 2009.

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1. Globalisation- Definition

The International Monetary Fund (IMF) describes it as ―the growing economic

interdependence of countries worldwide through the 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.

The United Nations ESCWA has written that globalisation ―is a widely used term that
can be defined in a number of ways. When used in economic terms it refers to the
reduction and removal of barriers between national borders in order to facilitate the
flow of goods, capital, services and labour although considerable barriers remain to the
flow of labour.

Friedman (1999) defined Globalisation as the ―inexorable integration of markets,

nation-states and technologies to a degree never before in a way that is enabling
individuals, corporations and nation- states to reach around farther, faster, deeper and
cheaper than ever before and in a way that is enabling the world to reach into
individuals, corporations and nation- states farther, faster, deeper and cheaper than ever
before. This process of globalisation is also producing a powerful backlash from those
brutalized or left behind by this new system.

Globalisation is the integration of national economies leading to the notion of a

borderless global or planetary, an interwoven net of factories, fields and forests,
governments, labouring populations, cities and transports spread over the surface of the
earth.

Jagdish Bhagwati (2004) defines Globalisation - ‘as an integration of national

economies into the international economy through trade, direct foreign investment (by
corporations and multinationals), short-term capital flows, international flows of
workers and humanity generally, and flows of technology’.

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2. Dimensions of Globalisation

Theoretically the concept of globalisation may be viewed as the expansion of the world
system, accompaniment of modernity, creation of a single world market and a resultant
of modernity2.

Globalisation is a phenomenon that has many dimensions in economic, cultural,

environmental and political. Almost every aspect pertaining to the issue of globalisation
is a subject matter of vital academic debate. The term globalisation is widely and
generally applicable in the economic and commercial perspective. Nevertheless, its
impact-range encompasses cultural and philosophical dimensions as much as
fundamental principles pertaining to the culture and philosophy of a particular nation
or society are likely to interact with the changed situations arising in the state of
globalisation.

3. Impact of Globalisation

While governments had no choice but to float their currencies, doing so was just a short-
term fix rather than a long-term solution. In the new economy if countries did not join
in and deregulate their currencies (and economies) they became sitting ducks for global
money speculators, foremost among which are multinational banks. The floating of
national currencies was an inevitable result of the US severance from regulated
currency. It was an offer to weaker economies that could not be refused - either join the
club of globalised currency or be clubbed by globalised currency. The floating of
currencies partly addressed the threat from global money speculators, but it did not fix
the fault in the global monetary system, which continues to hamstring national
economies through debt.

2
JB Valsan Arasu(2008) Globa`lisation and Infrastructural Development in India.

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4. Cultural Globalisation

Since Globalisation has many dimensions it affects not only the economy and politics
of a Nation but potentially can alter its culture, way of life, languages and even
environment. Long before the globalisation measures were initiated. India had cultural
break through which was initiated by the British and had created a readiness to accept
technical and industrial advancements.

Cultural globalisation, driven by communication technology and the worldwide

marketing of western cultural industries, was understood at first as a process of
homogenization, as the global domination of American culture at the expense of
traditional diversity. However, a contrasting trend soon became evident in the
emergence of movements protesting against globalisation and giving new momentum
to the defence of local uniqueness, individuality, and identity. The overpowering and
multifaceted impact of globalisation is very typical and complicated for India as it has
a rich and strong multitude of traditional as well as regional cultures, religions and
philosophies with an earnest desire to preserve and enrich them on the one hand and a
sympathetic and democratic openness on the other hand. In case of Asian countries,
especially India, different endeavours made by UNESCO (United Nations Educational,
Scientific and Cultural Organisation) in building international consensus on newly
required norms and principles to respond to emergency ethical challenges and dilemmas
is noteworthy.

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5. Global Economic Integration

Globalisation has several dimensions arising out of enhanced connectivity among

people across national borders. In particular, economic integration occurs through three
channels, i.e., movement of people, of goods and, of finance or capital (Reddy 2004).
In managing the process of economic integration, developing countries face challenges
from a world order that is particularly burdensome on them. Accumulated international
experience in this regard favours a well-managed and appropriate integration into the
global process, supported by effective- but not necessarily intrusive or extensive
interventions by governments in order to minimize adverse consequences, especially
on the poor, the vulnerable and the underprivileged sections of the society3.

6. Liberalisation

The new economic liberalisation policy of the Government of India announced in 1991
has brought in drastic changes in the way in which business is organized and managed
in our country. Prior to the reforms of 1991, the statesmen had a very firm grip on
factors of production through license and permitraj. After reform, not only this vice
like grip has loosened; many such powers have slipped from their hands and are now
controlled by the market forces19. The process of liberalisation has had maximum
impact on industries, as it had drastically changed the business environment and future
growth dynamics.

3
Rakesh Mohan, “Indian Economy in the Global Setting”, Reserve Bank of India Bulletin, October 2005.

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7. Economic Reforms of 1991-92 in India

The short-term impetus for the reforms announced in July 1991 was the severe balance
of payments (BOP) crisis that occurred in this period. The immediate cause of the loss
of reserves beginning September 1990 was the rise in oil import costs, as result of the
sharp spurt in oil prices after the annexation of Kuwait by Iraq. Indian workers in
Kuwait had to be airlifted and inflows from Non-resident Indians (NRIs) in the Middle
East were reduced considerably. Further, cessation of exports to Iraq and Kuwait also
reduced the inflow of foreign exchange.

The payment crisis was worsened by a deterioration of the capital account. Short-term
credits for imports dipped as creditors were concerned about government’s ability to
manage the situation. Amount of foreign currency medium term loans used by financial
institutions and PSUs to finance imports declined and net outflow of NRI deposits,
which began in October 1990, continued in 1991.

The rapid loss of reserves in the second half of 1990-91 prompted the Government to
take several short-term measures, restricting imports and raising price of petroleum
products. At the same time, there was a significant dip in industrial production, which
was negative for most months of 1991-92. The government presented this as evidence
that the import compression policies were counter-productive; it argued that ―import
compression had reached a stage when it threatened widespread loss of production and
employment, and verged on economic chaos and that ―the economy needed substantial
reforms if the crisis was to be fully overcome‖. The government initiated a program of
structural reforms of the trade, industrial and public sector policies with the objective
of evolving ―an industrial and trade policy frame work which would promote
efficiency, reduce the bias in favour of excessive capital intensity and encourage
employment-oriented pattern of industrialization.

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Another impetus for the reform came from multilateral aid agencies. Consequent to the
BOP crisis, the government had to borrow from the IMF and the World Bank, who
negotiated stabilization measures and structural reforms as part of the loan package.
The tremendous change that took place globally during the second half of eighties
necessitated every nation to incorporate corresponding changes in its economy to
survive and develop in a global market-oriented environment.

Therefore, for obvious reasons India also had to rise to the occasion and adopted a
policy to be part of the emerging global economy.

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8. Impact of Globalisation on Indian Economy

Structural changes in the Indian industrial sector and globalisation were initiated
because the government wanted to encourage growth by doing away with supply
bottlenecks that stopped efficiency and competitiveness.

The structural changes in the Indian industrial sector were brought about by the New
Economic Policy of 1991 which did away with many of the regulations and restrictions.
The various advantages of globalisation and structural changes in the Indian industrial
sector are that it brought in huge amounts of foreign investments and this gave a major
boost to this sector. Many foreign companies entered the Indian market and they
brought in highly technologically advanced machines into the country as a result of
which the Indian industrial sector became technologically advanced. With new
companies being set up in the Indian industrial sector it provided employment
opportunities for many people in the country which in its turn helped to reduce the level
of poverty in the country. The number of factories in India in 1990-1991 stood at
110,179 and in 2003-2004, the figure increased to 129,074.

Structural reforms have increased the competitiveness of Indian industries and this is
reflected quite vividly in the robust merchandise export growth since 2002-03. Exports
have grown (in US $ terms) by more than 20% per annum in each of the last three years.
Concomitantly, the services sector contributes more than one half of GDP, with
growing contributions from new impulses of growth such as the information
technology, telecommunication and transport sectors and tourism, through a revival of
foreign tourist arrivals.

Turning to the industrial sector, reforms which encompassed removal of industrial

licensing, de-reservation, substantial opening of foreign direct investment and trade
liberalisation have imparted a competitive edge to Indian industry. This is reflected in
a resurgence of activity in the manufacturing sector, and the present phase appears to

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be sustainable, in contrast to the exuberance which turned out to be temporary- reflected

in high growth in investment and production in industry during 1993-94 to 1996-97.

The monopoly enjoyed by most of the Indian companies in the protected market
compelled the Indian customer to satisfy his needs with the available products and
services. The new market-oriented business environment offered the Indian customer
new choices of products and services, which delighted his needs and desires. The new
culture transformed the Indian consumers also and which made them demand new and
innovative products. The hitherto reluctant Indian manufacturers had no option but to
search for innovative ideas from among his employees including workers to satisfy
customer demands. An industrial culture that suppressed new ideas and suggestions
gave way to one which promoted and encouraged innovative approaches at different
levels of operations. Incentives and gift schemes for customers, designer products,
personal services etc., were consequential benefits for the customer.

In the market driven free economy the customer is flooded with choices regarding
quality and services, and product quality plays a decisive role in the profitability and
success of an organization. Having appropriate quality certificates, making quality
assurances through guaranty and warranty and announcing systems for compensating
for quality failures etc. are widely used techniques of successful companies for instilling
customer confidence in their products.

Most of the Indian industries had assured and protected markets for their products as a
result of which marketing activities were given a back seat in the pre-liberalized period.
The opening up of market witnessed flooding of products and services into our country
which challenged and threatened the safe markets of Indian companies. This
phenomenon prompted many of them to design and develop marketing divisions or
separate companies for taking up marketing of their products.

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9. Obstacles to Globalisation

The Indian business suffers from a number of disadvantages in respect of globalisation

of business. The important problems are the following-

a) Resistance to Change: There are several socio-political factors that resist change
and this comes in the way of modernization, rationalization and efficiency
improvement. Technological modernization is resisted due to fear of
unemployment. The extent of excess labour employed by the Indian industry is
alarming. Because of this labour productivity is very low and this in some cases
more than offsets the advantages of cheap labour.

b) Government Policy and Procedures: Government policy and procedures in India

are among the most complex, confusing and cumbersome in the world. Even
after the much published liberalisation, they do not present a very conducive
situation. One prerequisite for success in globalisation is swift and efficient
action. Government policy and the bureaucratic culture in India in this respect
are not that encouraging.

c) High cost: High cost of many vital inputs and other factors like raw materials
and intermediates, power, finance, infrastructural facilities like port, etc. tend to
reduce the international competitiveness of the Indian business.

d) Poor Infrastructure: Infrastructure in India is generally inadequate and

inefficient and, therefore, very costly. This is a serious problem affecting the
growth as well as competitiveness.

e) Obsolescence: The technology employed mode and style of operations etc are
in general, obsolete and these seriously affect the competitiveness.

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f) Poor Quality Image: Due to various reasons, the quality of many Indian
products is poor. Even when the quality is good, the poor quality image of India
becomes a handicap.

g) Supply Problems: Due to various reasons like low production capacity, shortage
of raw materials and infrastructure like power and port facilities, Indian
companies in many instances are not able to accept large orders or to keep up
delivery schedules.

h) Small Size: Because of the small size and the low level of resources, in many
cases Indian firms are not able to compete with the giants of other countries.
Even the largest of the Indian companies are small compared to the
multinational giants.

i) Lack of Experience: The general lack of experience in managing international

business is another important problem.

j) Limited R & D and Marketing Research: Marketing Research and R & D in

other areas are vital inputs for development of international business. However,
these are poor in Indian business. Expenditure on R&D in India is less than one
per cent of the GNP while it is two to three per cent in most of the developed
countries. In 1994-95, India’s per capita R&D expenditure was less than $ 3
when it was between $ 100 and $ 825 for most of the developed nations.

k) Growing Competition: The competition is growing not only from the firms in
the developed countries but also from the developing country firms. Indeed, the
growing competition from the developing country firms is a serious challenge
to India’s international business.

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l) Trade Barriers: Although the tariff barriers to trade have been progressively
reduced thanks to the GATT/WTO, the non-tariff barriers have been increasing,
particularly in the developed countries. Further, the trading-blocks like the
NAFTA, EU, etc. could also adversely affect India’s business.

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CONCLUSION

Globalisation is the great economic event of this era. The phenomenon of globalisation
has captured world attention in various ways. Over the last two decades foreign trade
and the cross-border movement of technology, labour and capital have been massive.
The integration of world economies had put pressure on nations for adapting liberalized
economic policies favouring deregulation and liberalisation. Globalisation has also
increased the pressure of competition between economies. The new competitive
environment has awakened the employers on the need to be competitive, effective and
innovative producers of goods and services.

Although India was not strictly a closed economy even before the launch of the reform
process, Indian industry was generally protected from external competition through a
variety of import restrictions and high import duty extending up to 300 % in some cases.
Because of the highly protected domestic market and the practical absence of external
competition, Indian industry was never under pressure to cut cost, improve quality or
to expand to global markets. As a result of the new economic environment, customers
and consumers who were hitherto accepting inefficiency and the cost of inefficiency
started demanding quality products and services at cheaper rates.

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BIBLIOGRAPHY

 Book

A. K. Kaul, Guide to the WTO and GATT: Economics, Law and

Politics, Kluwer Law International, Netherlands.

 Website

shodhganga.inflibnet.ac.in

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