Critically Evaluate Globalisation of Indian Economy

 Q. Critically evaluate globalisation of Indian economy.

Ans. Globalisation means linking the economy of a country with the economies of other countries by means of free trade, free mobility of capital and labour, etc. It also means inviting multinational corporations to invest in India. As a result, there will be unrestricted flow of goods and services, capital, capital, people, technology and expertise among different countries of the world. There will be increased cooperation of Indian economy with different economies across the world. Capital and technology will flow from the developed countries of the world towards India. The ultimate aim of globalisation is to look upon the world as a ‘global village’. 

Evaluation: It is very necessary to have knowledge of effects of globalization in order to make its evaluation. Globalisation has both positive and negative effects on Indian economy. 

(A) Positive Effects of Globalisation:

1. Increase in Foreign Trade: As a result of foreign trade policies adopted in the weak of globalisation, India’s share in the world trade has gone up. 

2. Increase in Foreign Investment: As a consequence of globalisation, there has been a considerable increase in foreign direct investment as well as foreign portfolio investment. 

(a) Foreign Direct Investment (FDI): Foreign direct investment is made by foreign companies in order to establish wholly owned companies in another country and to manage them or to purchase shares of companies in another country for the purpose of managing such companies. The main characteristic of foreign direct investment is that native companies are managed by the foreign companies or new companies are set up in india by foreign companies. In this type of investment, it is the foreign investors who takes risk and is solely responsible for profit/loss of such company. 

(b) Portfolio Investment: Under this type of investment, foreign companies/foreign institutional investors (FIIs) buy shares/debentures of native companies, however management and control remain vested with the native/domestic companies themselves. 

Because of significant increase in foreign investment, India began to experience improvement in foreign exchange reserves. 

3. Increase in Foreign Collaborations: Globalisation has promoted collaboration of foreign companies with many Indian companies. These collaboration agreements can be technical collaboration, financial collaboration or both. In financial collaboration, foreign companies provide financial resources, while in technical collaboration modern foreign technology is provided by foreign companies. Foreign companies are setting up many enterprises in India in collaboration with Indian companies. 

4. Increase in Foreign Exchange Reserves: As a result of globalisation of Indian economy, foreign exchange reserves have also increased substantially. 

5. Expansion of Market: Globalisation has expanded the size of market. It has permitted Indian business units to expand their business in the whole world. Now multinational corporations have no national boundaries. Indian companies like Infosys, Tata Consultancy, Wipro, Tata Steel, Reliance, etc. are doing their business in many countries.

6. Technological Development: Globalisation has enabled the inflow of foreign technology, which is very superior and advanced. Now Indian business units use this modern technology.

7. Brand Development: Globalisation has promoted the use of branded goods. Now not only durable goods are branded but products like garments, juices, snacks, food grains, etc., are also branded. Foreign brands are very popular among Indian consumers. Brand development has  led to quality improvement.

8. Development of Service Sector: Globalisation has helped in development of Indian capital market. Now many foreign investors invest in Indian capital market. There has been substantial increase in inflow of foreign direct investment and portfolio investment. 

9. Development of Service Sector: Globalisation has helped in growth of service sector. With the entry of foreign countries, tremendous improvement has been witnessed in various services like telecommunication, insurance, banking, etc. 

10. Increase in Employment: Globalisation has promoted employment opportunities. Foreign companies are establishing their production and trading units in India. It has increased employment opportunities for Indians, e.g. many Indians are presently employed in foreign insurance companies, mobile companies, etc. 

11. Reduction of Brain Drain: As a result of globalisation, many multinational corporations have set up their business units in India. These MNCs provide attractive salary package and good working conditions to efficient, skilled Indian engineers, managers, professionals, etc. Now Indians get good employment opportunities in India. It has resulted in reduction in brain drain. 

12. Improvement in Standard of Living: As a result of globalisation, the standard of living of Indian population. Now Indians get better quality goods at low prices.  Globalisation has resulted in reduction of prices of many products particularly electronic items like television, AC, mobile phones, refrigerator, etc. Now middle-income group also uses these luxury products, bids were earlier used by rich class only.

(B) Negative Effects of Globalisation:

1. Ĺoss to Domestic Industries: As a consequence of globalisation, foreign competition has increased in india. Now Indian industrial units have to compete with foreign industrial units. Because of better quality and low cost of foreign goods, many industrial units have failed to face competition and have been closed. Small and cottage industries are worst hit by this increased competition. 

2. Unemployment: Foreign companies operating in India use capital intensive technology. Even some Indian companies use imported capital intensive technology. With the increasing use of computers and automatic machines, employment avenues are reduced.

3. Exploitation of Labour: Globalisation is exploiting unskilled workers by giving lower wages, less job security, long working hours. Labourers have to work even in these conditions because bad job and less wages are better than no jobs.

4. Demonstration Effect: With the easy availability of foreign goods, demonstration effect has increased among Indians. Now many consumers are using luxury products by imitating others. It has promoted tendency of wasteful consumption in India. This increasing wasteful expenditure has in turn reduced saving and capital information.

5. Increase in Inequalities: Globalisation has increased inequalities in our economy.  Globalisation has beneftted MNCs and big industrial units but small and cottage industries are adversely hit by it. It has increased income inequalities in India.

6. Dominance of Foreign Institutions: With globalisation domination of foreign institutions has increased in India. Globalisation has helped foreign companies in enlarging their market share.  For example, in Indian cold drink market, a large share is controlled by Pepsi and Coca-Cola, which are foreign companies.

7. Bad Effect on Culture and Value System: Many global companies sell such products as distort our culture and value system. The vulgar advertisements shown by some MNCs pollute the thinking of young generation. Some MNCs indulge in unethical and corrupt practices for their self-interest. These companies do not hesitate to offer bribe to high officials of host nation to allow them to enter into such transactions which only serve their own interest.

8. Less Entry in Strategic Areas: The global companies mostly take entry in consumer goods like readymade garments, cosmetics, processed foods, soft drinks, toothpaste, etc. These goods do not play vital role in the economic development of any nation. The global companies do not invest in strategic areas like power sector, steel industry, fertilizers, etc. The entry in risky projects is also very limited. Similarly, there is insufficient entry of global companies in the area of technology and capital goods. [Strategic means important or essential]

9. Problem of Brain Drain: The global companies recruit qualified and skilled engineers, technicians, experts in the host nations and after sometime, these experts are posted abroad in their foreign subsidiaries/head office. That way, global companies drain talented persons of host nation to other nations.

10. Production of Prohibited Goods: In order to get more profits, global companies indulge in production of even those goods which are harmful for the consumers. Many a times, the global companies indulge in production of such medicines and other products, the production of which is otherwise banned in their parent nation. Thus, global companies earn profit even at the cost of health of consumers. 

11. Political Interference: The global companies prove detrimental to the economic and political freedom of host countries. These companies interfere in the politics of host nation. These global companies make all efforts to bring that political party to power in the host country which is favourably inclined to them.

12. Unbalanced Regional Development: Global companies set up industries in developed cities and towns where infrastructural facilities are easily available and not in backward areas. It leads to further development of already developed areas and backward areas continued to remain backward. As a result, regional disparities increase.

13. Tax Evasion: The host country imposes corporation tax on the income of companies. To avoid this tax, global companies reduce their profits by adopting transfer pricing methods. Under this method, global companies buy intermediate goods from their subsidiaries abroad at high price and thus reduce their local profits. Similarly, global companies export their products to their subsidiaries abroad at lower prices, so as to under-value the exports and thereby show lower local profits. In other words, global companies over-invoice the imports and under-invoice the exports, so as to show less profits. That way through manipulation of bills, global companies evade tax.