Chapter Four

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 GLOBALISATION
 Irreversible Phenomenon, which involves removing
restrictions on foreign trade and foreign investment
to leverage the benefits of comparative advantage

 Restructuring of industries and companies in the

form of privatisation and globalisation

 Based on the concepts ‘comparative advantage’,

‘unity in diversity’ and ‘global village’

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 TRADE LIBERALISATION

 Driving Force of Globalisation

 The process of Globalisation has brought about an

open economy and tariff levels have come down to a
larger extent. Foreign Investment has witnessed
surge in volume.

 Go Global, Grow Global – Strategy of the day and

Need of the Hour.

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GLOBALISATION-MEANING

Globalisation of the economy means reduction of

import duties, removal of Non-Tariff Barriers on
trade such as Exchange control, import licensing
etc., allowing FDI and FPI, allowing companies to
raise capital abroad and grow beyond national
boundaries and encourage exports. Both Foreign
Trade and Foreign investment volume have
grown rapidly over the last few years.

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 TRADE LIBERALISATION AND
GLOBALISATION

 First, When Tariffs are lowered and QRs are

removed, relative prices change and resources
are reallocated to production activities that may
raise output. However, increased import of
manufactured products will have adverse impact
on domestic production.
 Second, larger long run benefits due to the free
flow of technology and new production
structures.
 Exports and Imports - most dynamic factors in
the process of economic growth after 1995.

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 2 VIEWS on Globalisation
 Those stress the Virtues of Import Substitution and
limited openness ie, View against Free Trade and
Globalisation

 Those emphasise the importance of Free Trade.

Arguments a) Achieve International Competitiveness b)
Reduce the price level c)More choice for consumers

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 GLOBALISATION - PHASES

 1870-1914 : First Wave

 1914-1945 : Retreat to Nationalism

 1945-1980 : Second wave of Globalisation

 1980 onwards : Third wave of Globalisation

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 GLOBALISATION

 The term ‘Emerging Markets’ (See The Data)

 Exports play dual role a) Bring income b) Foreign
Exchange Earnings from Exports facilitates
expansion of imports
 SPECIAL Economic Zones
 EXCHANGE EARNERS FOREIGN CURRENCY
ACCOUNT Liberalisation
 FERA has been replaced by FEMA

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 GLOBALISE or PERISH

 Secret of Success of many firms. Eg: Software

companies get major chunk of revenue from
foreign markets,
 Opening up of Markets for Global companies has
sent a shock wave among certain business
circles. Many Industrial Units are trying to catch
up with the words ‘Globalise or Perish’. Many
industries have realised that Globalisation brings
with it many new technologies and Production
structures

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ECONOMIC ENVIRONMENT

 Free Flow of Imports

 Heavy Competition and Influx of New Technology
 Theoretical Foundation for the link between Open
Economy and Higher Economic Growth is not
solid, imports of raw materials, intermediate and
capital goods are not perfectly substitutable by
domestically produced goods.
 Economic Reforms has been transformed into the
process of globalisation

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 BUSINESS ENVIRONMENT

Indian industry (secondary sector) has not

performed very well over the post-reform period.
Though the average Annual real GDP growth
accelerated from 5.4% (1981-82 to 1991-92) to
6.4% (1992-93 to 2000-01), Industrial growth
slowed down to 6.0% during the post-reform
period(1992-93 to 2000-01) as against 7.8% in the
pre-reform period(1981-82 to 1991-92).GDP and
IIP growth(%)- 5.8, 2.7(2001-02), 4, 5.7(02-03), 8.5,
7%(03-04) and 7, 8.4% (2004-05) respectively.

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 REFORMS FOR ECONOMIC GROWTH

 Exchange Market Reforms (Full current account

convertibility etc.)
 Reforms in Foreign Investment Regime (Liberalising
rules for FDI and allowing FII)
 Reforms in Infrastructure (PPP)
 Reforms in the form of EXIM policy(Tariff Rate
reduction, QR removal, EDI system)
 Allowing Indian Mutual Funds to invest in Foreign
companies
 Challenges and Opportunities (Threat to SSIs?)
 Joint Ventures with Foreign Companies in India and
Abroad

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 WTO-Main Agreements

 TRIPS(Trade Related Intellectual Property Rights)

 Bound Rates(Tariff Bindings) and QR removal
 GATS (Services)
 TBT(Technical Barriers to Trade)
 ATC(Agreement on Textiles and Clothing)
 TRIMS (Trade Related Investment Measures)
 Agreement on Agriculture

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 INDIA - GROWTH RATES in %
(1990-91 to 2004-05)

 Industrial Production – 8.2, 0.6, 2.3, 6.0, 8.4, 12.8,

5.6, 6.6, 4.1, 6.6, 5.7, 2.7, 5.7, 7 and 8.4% respectively
 Exports (in USD terms) – 9.2, -1.5, 3.8, 20, 18.4, 20.8,
5.3, 4.6, -5.1, 13.2, 21, -1.6, 20, 21 respectively, 25.6%
(04-05)
 Imports(in USD terms) –13.5, -19.4, 12.7, 6.5, 22.9,
28, 6.7, 6.0, 2.2, 11.4, 14.4, 1.7, 19.4, 27.3
respectively, 34.7% (04-05)
Source: Economic Survey, Ministry of Finance,
Govt.of India

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 QRs: Some Facts
Removal of QRs doesn’t mean duty free imports. It
means that an item can be imported without
license/restriction. Goods are subject to payment
of Customs Duty (tariffs). Applied Duties can be
raised by the Govt. upto Bound level, to protect the
interests of the Domestic industry including SSIs
and agriculture.

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 AGRICULTURAL SECTOR
Agricultural products- Traditional export items of
India. Price of many items like Rubber, coconut
etc. have fallen due to import liberalisation.
Therefore, farmers suffer from low income. Thrust
is given to the export of agricultural items in the
Exim policy/Foreign Trade policy.

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 MINING AND PETROLEUM

Mining and Petroleum- Major policy changes

include automatic permission for foreign equity
participation of upto 50% in the mining of 13
minerals. The Govt.of India has emphasised on
oil exploration to reduce import dependence and
offers tax holidays to companies to invest in
India.

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 MANUFACTURING SECTOR

Reforms have been widespread including

reductions in average. Tariff rates, removal of
import licensing and liberalisation of foreign
investment policies. Sector responded positively
in the Mid 1990s, however, the growth slipped
down after 1996-97 due to constraints like
infrastructure bottleneck, low FDI flow etc.

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 SERVICE SECTOR

 Contribute more than 5% to India’s GDP.

 India has a large pool of well-qualified

professionals capable of providing services
abroad whereas developed countries have
surplus capital to invest.

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BUSINESS ENVIRONMENT – SECTORWISE
ANALYSIS

1. Telecom Sector
2. Insurance Sector
3. Banking and Financial Sector
4. Retail Sector
5. Automobile Sector
6. Textiles Sector

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 TEXTILES SECTOR
TRENDS IN IMPORT OF TEXTILES AND CLOTHING
(in US$ billion)

Year US EU-15 Canada World

1995 51 58 06 237
2000 83 64 08 287
2001 81 65 08 278
2002 84 68 08 290
2003 89 80 09 321
Source: WTO International Trade Statistics, 2004

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 INTERNATIONAL SCENARIO: TEXTILES
SECTOR

Removal of quotas (as per WTO ATC agreement) has

opened up opportunities for the T & C Sector of India to
increase its exports. North America and West Europe
together account for nearly 70% of India’s exports of T
& C and both had enforced strict quota restrictions until
last year. There is scope for increasing exports to
countries like Japan, Australia, Hong Kong an Latin
American countries. Studies have shown that world
trade in T & C is likely to increase substantially in the
coming years.

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