Globalization in India Part 1

1. History of Globalization

Theodore Levitt is the person who created the term “Globalization”

He was a Harvard Business School professor. He invented term in Harvard Business School review in 1983 the article named as “Globalization of the Market.”

Meaning of Globalization in Cambridge Dictionary –

                    “The increase of trade around the world, especially by large companies producing and trading goods in many different countries.”   

Meaning of Globalization –

“The process of interaction and integration among the people, companies and government of different nations, a process driven by international trade and investment and aided by information technology.”

In simple words, Globalization refers to the increasingly global relationship of culture, people, and economic activity. It generally used to refer to economic globalization. The global distribution of the production of goods and services through the reduction of various taxes and tariffs.

The 19^th century witnessed the advent of globalization approaching its modern form.

According to most people, Globalization is Morden term, but there is some evidence that shows globalization was way back in history. The Sumerian Civilization and Indus Valley Civilization has a trade link between them and after there were some trade links between India, Egypt Greece and the Roman Empire

2. Globalization in India

    
               India was Largely and intentionally isolated from the world markets, to protect its fledgling economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes, and quantitative restrictions on another hand, FDI was restricted its essential limit on technology, export restrictions, and govt. the approval which led to limiting FDI average only up to $200 Million annually between 1985 to 1991.  

Indian international trade was 12.15 billion rupees in 1950-51.

During the British phase India’s share of world income decline from 22.3% in 1700 AD to 3.8% in 1952.

Introduction on Globalization

In India Globalization was introduce in 1991 by the Finance Minister of that time Manmohan Singh  

"The grave economic the crisis now facing our country requires determined action on the part of Government. I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome."

This is the words from him on June 1991

 On August 15, 1947, the Republic of India stuck to socialistic economic strategies. In the 1980s, Rajiv Gandhi, the then Prime Minister of India, started several financial restructuring measures. In 1991, the country experienced a balance of payments dilemma following the Gulf War and the downfall of the erstwhile Soviet Union. The state had to make a deposit of 47 tons of gold to the Bank of England and 20 tons to the Union Bank of Switzerland. This was necessary under a recovery pact with the IMF or International Monetary Fund. Furthermore, the International Monetary Fund necessitated India to assume a sequence of systematic economic reorganizations. Consequently, the then Prime Minister of the country, P V Narasimha Rao initiated groundbreaking economic reforms. However, the Committee formed by Narasimha Rao did not put into operation several changes which the International Monetary Fund looked for.

Dr. Manmohan Singh, the present Prime Minister of India, was then the Finance Minister of the Government of India. He assisted. Narasimha Rao and played a key role in implementing these reform policies.

Narasimha Rao Committee's Recommendations
The recommendations of the Narasimha Rao Committee were as follows:

·         Bringing in the Security Regulations (Modified) and the SEBI Act of 1992 which rendered the legitimate power to the Securities Exchange Board of India to record and control all the mediators in the capital market.

·         Doing away with the Controller of Capital matters in 1992 that determined the rates and number of stocks that companies were supposed to issue in the market.

·         Launching of the National Stock Exchange in 1994 in the form of a computerized share buying and selling system which acted as a tool to influence The restructuring of the other stock exchanges in the country. By the year 1996, the National Stock Exchange surfaced as the biggest stock exchange in India.

·         In 1992, the equity markets of the country were made available for Investment through overseas corporate investors. The companies were allowed to raise funds from foreign markets through the issuance of GDRs or Global Depository Receipts.

·         Promoting FDI  using raising the highest cap on the contribution of international capital in business ventures or partnerships to 51 percent from 40 percent. In top priority industries, 100 percent of global equity was allowed.

·         Cutting down duties from a mean level of 85 percent to 25 percent, and withdrawing quantitative regulations. The rupee or the official Indian currency was turned into a convertible currency on the trading account.

·         The recognition of the methods for sanction of FDI in 35 sectors. The boundaries for international investment and involvement were demarcated.

The outcome of these reorganizations can be estimated by the fact that the overall amount of overseas investment (comprising portfolio investment, FDI, and investment collected from foreign equity capital markets ) rose to $5.3 billion in 1995-1996 in the country) from the microscopic US $132 million in 1991-1992. Narasimha Rao started industrial guideline changes with the production zones. He did away with the License Raj, leaving just 18 sectors which required licensing. Control on industries was moderated. 

Steps were taken for Globalization

(i) Reduction in tariffs:

Customs duties and taxes imposed on imports and exports are reduced gradually just to make India economy attractive to the global investors.

(ii) Long term Trade Policy:

Forcing trade policy was enforced for a longer duration.

Main features of the policy are:

(a) Liberal policy

(b) All controls on foreign trade have been removed

(c) Open competition has been encouraged.

(iii) Partial Convertibility of Indian currency:

Partial convertibility can be defined as to convert Indian Coin (up to a specific extent) in the currency of other countries. So that the flow of foreign investment in terms of Foreign Institutional Investment (FII) and Foreign Direct Investment (FDI).

This convertibility stood valid for the following transaction:

(a) Remittances to meet family expenses

(b) Payment of interest

(c) Import and export of goods and services.

(iv) Increase in Equity Limit of Foreign Investment:

Equity limit of foreign capital investment has been raised From 40% to 100% percent. In 47 high priority industries foreign direct investment (FDI) to the extent of 100% will be allowed without any restriction. In this regard, the Foreign Exchange Management Act (FEMA) will be enforced.

If the Indian Economy is shining at the world map currently, its sole attribution goes to the implementation of the new economic policy in 1991.

(i) The rupee was devalued by 20% in July 1990-91. The devaluation was made to encourage
exports and discourage imports.

(ii) The government offered partial convertibility j of rupee through the budget of 1992-93. Full convertibility was provided in 1993-94. Convert¬. the ability of rupee was aimed at encouraging
export earnings.
(iii) The government announced a foreign trade policy for five years, i.e., 1992-97. The sole purpose of this policy was liberalization.
(iv)  To build up our competitive strength, customs, and tariff policies were modified to promote international trade.

The second part of this blog will be posted soon.