Globalisation - Challenges And Opportunities

INTRODUCTION

Globalisation has become the need of the day for every country of the world - be it small or big, developed or developing nation, Globalisation, which started as back as 1980, has spurred due to technological advancement in the areas of transport and communication and by the selection of big developing nations to bring necessary improvement in investment climate and to open up to international trade and investment. The most encouraging aspect is that for the first time, poor nations are trying hard with desire and commitment to harness the potential and opportunities of their huge labour to break into world markets for manufactured products and services. Since the initiation of globalisation, manufactures have witnessed a rise from less than 25 percent to 80 percent. The major contribution to this increase is made out by Brazil, China, Hungry, India and Mexico.

GLOBALISATION AND INDIAN ECONOMY

24 developing nations, which cover 3 billion people, have doubled their ratio of trade to income over the last two decades. Countries that undertook globalisation at a faster rate have increased their per capita income from 1 percent in the decade of 60s to 3 percent in the decade of 70s, 4 percent in the decade of 80s, and 5 percent in the decade of 90s.

According to the World Bank, in the past decade, the number of the poor in the world (excluding China) rose by more than 100 million. Another study found that during 1990-98, 36 countries had average annual growth of 2.3 percent, 34 countries had a growth of 1.9 percent and 39 countries had no growth with 15 countries experiencing falling living standards.

The World Bank holds the view that the impact of growth on poverty has varied according to the pattern of investment. For example, in India, a given growth rate has cut poverty in some states by four to five times as much as in others. Those states which invested heavily in education and health saw a much higher rate of reduction in poverty. This point of view has been adopted by almost all donors for the disbursement of their assistance to developing countries.

The free trade and investment policies continue to be under attack from many quarters, in that the realities of the developing world are not taken into account. Under attack also are the blatant hypocrisy and double standards that govern the behaviour of rich countries towards the poor countries.

The developing world has not received a fair share of benefits because the rich countries have not kept their part of the agreement reached at the Uruguay Round, under which they had pledged to reduce subsidies to their agriculture by 36 percent in return for the lowering of tariffs on agricultural imports by the developing countries. While the developing countries reduced their tariffs by 50 percent, the rich countries subsidies remained unchanged.

Similarly, the industrial countries had agreed to phase out the protectionist Multi-Fibre Agreement by 2005, But 30 percent of textiles and clothing skills face significant restrictions even in 2004. The average tariff on these goods is 11 percent, which is three times as high as on other industrial goods. South Asia alone loses $2 billion a year due to these tariffs.

Agriculture and textiles together account for 70 percent of the poor world's exports. Developing countries lose nearly $100 billion a year due to rich countries' export subsidies and trade barriers. In rich countries, tariffs on goods from poor countries are four times higher than on goods from rich countries. If poor countries' goods get free access to rich country markets, and if the later remove all subsidies, it would add $1.5 billion by 2015 to poor countries' income, and lift 300 million people from the rank of the poor.

WHY INDIA HAS BEEN LAGGING BEHIND?

It is generally said that India has failed in globalising its economy and therefore, real fruits of globalisation have not been reaped out by the common man. Development economists of India put two arguments in this respect. First, inability of Indian economy to contain fiscal deficit is resulting into stagnation of the country's economy. Second, failure to reform the structure of Indian economy so that sustainable growth is ensured in the future. These issues have far reaching effect on the globalisation of Indian economy. There are two emerging parameters on the basis of which failure could be judged. First, a relatively small change in the components of exports away from agricultural to sophisticated manufactures. Second, decrease in the inflow of FDI.

During the year 1990-91 i.e. pre-liberalisation, agriculture had contributed 24 percent in India's total exports. The share of sophisticated manufactures was 21.8 percent and remaining share i.e. 54.2 percent was of light manufactures. On the other side of it, in the year 1999-2000, the relative share of agriculture was 17 percent ( a decline of 7 percent). The relative share of sophisticated manufactures stood at 29.8 percent (a rise of 7 percent). The relative share of light manufactures remained at 54.2 percent. This means during a span of ten years there was only 7 percent increase in sophisticated manufactures and from that it could be concluded there has been no appreciable degree of globalisation in Indian economy.

Added to this, if these trends are compared with economic transformation in East Asia during the period under review, India is nowhere and it proves to be a 'glimmer'. The major factor attributed to these trends is insignificant role played by foreign and joint ventures in the promotion of India's exports during the period under reference.

Foreign direct investment (FDI), one of the most vital instruments for globalising Indian economy, is partially responsible for the failure of globalisation in India. This is because FDI inflows to India never exceeded from a level of US$3.3 billion as against a minimum need of at least US$ 10 billion annually. India is being considered a nation inveterately hostile to FDI to India in comparison to total FDI approved. From the year 1991 to 2001 only 21.7 percent has been actual inflow to India. This is due to lack of proper initiation and implementation of 'second generation' reforms. These reforms relate to factor market and administrative system under which firms have to work.

Indian economy has also failed to link to global economy. It is essential on the part of Indian economy to attract investment not only to strategic industries but also to simple industries. China did a right thing by inviting investment in simple industries.

The other viewpoint in regard to globalisation of Indian economy is that Indian economy globalisation is a 'mixed blessing'. A better alternative is not to opt out of the process of globalisation, but to come out and evolve an appropriate framework to have maximum benefits from the existing international trade and investment scenario. In this regard, it has become imperative to understand the gains and losses on one hand and to study the benefits and dangers on the other hand.

There is an urgent need to cooperate with other developing nations to bring the desired change in the existing international trade environment. Simultaneously, India must identify and strengthen its comparative advantages. This would result into spirit of meeting the challenges of globalisation. India has miles to go to reap out the benefits of globalisation for all its inhabitants. Globalisation of Indian economy must be based on the premise of equality of opportunities for all.

CHALLENGES AND OPPORTUNITIES

It is true that the present -day world does not give us any option except to join the process of globalisation, we should along with other developing countries, find ways and means of devising policies and programmers which really help the poor nations and the poor among these nations. We should fight for a more just and equitable world order and develop the strength and unity to resist imposition of unequal treaties and discriminatory trade policies. India signed the WTO accord but the Indian industry as well as trade circles are not fully aware even today of the commitments made by the country.

In fact, the problem with globalisation is that a few may benefit and majority may be worse off. As such, it is necessary that government takes an active part in managing and tackling it. In recent times, an important aspect of globalisation has been outsourcing of jobs, particularly hi-tech jobs, by developed countries like America to developing countries like India. This has been favourable to America as it can now specialise in areas of competitive advantage involving skilled labour and advanced technology. It is, however, argued that today America is producing lesser number of engineers than, say, India or China even as they may e to some disadvantage either because of poor training or such other factors. But then, this disadvantage is more than offset by the wage differentials, causing unemployment amongst American engineers.

It is thus that America has to grapple with the challenges of adjusting to globalisation and at the same time, be more sensitive to the plight of developing countries. No wonder, globalisation can also boomerang, limiting the growth process in developed countries in case workers are unemployed or their living condition become worse off because of outsourcing.

What is more, the main driving forces of present-day globalisation are the market and the return on investment. Only countries with high growth and good prospects or attractive returns have been drawn within the fold of global trade and investment flows. Developing countries attract only 30 percent of global investment flows, but just 20 countries in the developing world attract over 85 percent of total foreign direct investment flows and 94 percent of portfolio investment. Globalisation has thus eluded the rest of the developing countries inspite of drastic liberalisation of their economic policies.

It can also be said that as a result of globalisation, there has been large concentration of activities within certain geographical confines like those of the Asia pacific Economic Cooperation Forum (APEC) and the European Union (EU) and this has widened the disparity between the rich and the poor countries. The income-gap between the top 20 percent of the world's population in the highest-income countries and bottom 20 percent of world's Gross Domestic Product (GDP), the latter accounts for only one percent. And there is no guarantee that more liberalisation by the developing countries will help to narrow this gap.

As part of trade reforms, the tariff and non-tariff barriers have been lowered gradually. India's agreement with the WTO norms has resulted in the country removing the quantitative restrictions on various items and from April 2003 free import of various items has been allowed.

No doubt, an impression has been gaining ground that many an economic ill are due to globalisation. Also, it is felt that increased cross-border trade will adversely affect Indian economy. Moreover, Indian companies fear that they are going to be easy targets for takeover by foreign companies. There may be an element of truth in these perceptions but not all of them may be real.

It is also true that liberalisation of trade and investments increased capital flows and the resultant competition also leads to higher economic growth. Evidence suggests that open economies have prospered better than those economies which have adopted protective practices, as in the case of many of the South East Asian economies.

Therefore, India should rise to avail itself of the opportunities of globalisation. Indian business cannot perpetually live behind protective barriers. It is necessary to push Indian companies into global competition and break their lethargy. To withdraw from globalisation would be an opportunity lost.

No wonder then, however, a first class infrastructure network has to be provided for Indian industry and business so that they become effectively competitive in the global market. Along with that, some law pertaining to labour and production need to be changed while some new have to be introduced keeping in view the global standards that need to be achieved. Surely, by leaving these and other problems unattended, it cannot be expected that Indian industry and business will be able to rise to meet the global challenges.

Of no less concern is the fact that huge global corporations enjoy sufficient financial cloud to erode the regulatory powers of nations and ride roughshod over the rights of individuals to determine their future. Whereas the post-colonialism had held out the promise of an equlitarian world order and globalisation was supposed to deliver economic equality among nations, the reality is to the contrary. In the post-globalisation world in which we live today, inequality is on the increase.

It is said globalisation's driving idea is free market capitalism. Like the cold war, globalisation also has its own set of economic rules which revolve around opening deregulation and privatisation of economic activities. In the era of globalisation, we are all connected as we reach for the internet but nobody is totally in charge. If the defining perspective of cold war was division, it was integration for globalisation. Once a country makes the leap into the system of globalisation, its elites try to locate themselves in a global context.

The financial sector reforms have been particularly significant and banks are now reorienting their strategy to compete with international players. The insurance sector has been opened up only recently and the forces of competition are already coming into play. Industrial licensing has been more or less abolished and the role of private capital has been enhanced in various sectors.

Also, in India's corporate sector some kind of discontinuity is visible as global competition is knocking at their doors. Foreign investments are sometimes looked upon with suspicion and yet they seem to be crucial for modernisation. Now time has come when we should aim at making Indian companies as global companies with the vast pool of trained manpower and skills available in the country. The objective should be to build Indian brands and products which are recognised through out the world.

Nevertheless, all this calls for restructuring on a scale, which has been untried till now in so far as the economy and corporate sector are concerned. The level of performance would need not be sustained by constant innovation, cost reduction and better quality. It has to be recognised that as a consequence of globalistion, free roaming across the global economy by multinationals has encouraged many developing nations to liberalize at great speed. Therefore, mergers and acquisitions have eroded competition and developed monopolistic tendencies, vitiating all fruitful results of a global environment.

INDIA SHOULD CAPITALISE ON ITS STRENGTH

Understanding the current status of globalisation is necessary for setting the course for the future. The main point here is that globalisation is still an evolving concept, and up to now it has been shaped largely by the rich and the powerful countries to assert their advantages in the fields of manufacturing, services and finance. The developing countries have not been able to secure as much benefit from their primary strengths in agriculture and labour as they should have. Although India took the initiative to echo its concern in the Cancun agenda, this subject is yet to again its rightful attention.

It is to be noted that developing countries are not homogeneous. Each country has its own unique strengths, weaknesses and concerns, and each needs to frame its policies accordingly. For India to secure its due share of gains from the globalisation process, it needs to capitalise on its strengths.

India is the second largest country and the largest democracy in the world. Its record on freedom of speech, association and worship is quite impressive. It has well-developed legal and financial institutions and infrastructure, and a large industrial and sophisticated scientific base. Its higher education system is large and capable of achieving excellence.

The most important strength of India is its well-trained but surplus man power which is English-speaking and Western-oriented. It also has a vast surplus of low-skill and unskilled manpower. India's gain could be enormous if it were allowed to export this manpower freely. There would also be other significant economic, political and social gains.

1. International trade tends to grow between manpower sending and receiving countries.

2. When the number of immigrants from a country/region becomes noticeably large and/or economically powerful, they tend to become a political force in their new country.

3. Out sourcing tends to encourage people to obtain education and learn about other countries. As a result, significant outsourcing can become a powerful force for the spread of education.

CONCLUSION

During 1990 and 2003 the volume of world trade has increased and the high and middle income countries have managed to increase their share in world trade. This has happened mainly because of opening up of economies and globalisation. Moreover, the middle income countries have invited more Foreign Direct Investment during the period. In contrast with this, the per capita GDP of the low income countries has marginally increased. The economic inequality has widened between different income groups. Therefore one may be tempted to conclude that the globalisation has not trickled down to the low income countries. In other words globalisation has been confined to developed countries and developing countries have been able to participate in the process.

However, globalisation should not be accused for losing share of the low income countries. These countries suffer from internal problems like rapid rise in population, infrastructure bottle necks, weak financial markets and so on. More access to globalisation and its benefits demand that developing countries first put in place a conducive environment necessary to ensure higher returns and larger markets for foreign investors. To get a share of global capital, technology and output, developing countries have to upgrade their social and economic institutions through administrative, legislative and legal reforms.

Globalisation should not be thought of as a solution to everything. It merely provides opportunities. Those who take advantage, they flourish and those who do not they sink. Globalisation is not supposed to produce equality of outcome but it produces equality of opportunity for those with right mindset. Hence the developing countries have to focus on economic restructuring building market supporting institutions and creating efficient regulatory mechanisms.

Left to themselves the low income countries cannot travel long. What in fact needed is the international assistance and a support mechanism so as to facilitate their participation in the process of globalisation. The challenge of the hour is to make globalisation work towards global prosperity through disaggregate development. The critically necessity in this context are the collective and cooperative actions which should be realized by all countries of the world and particularly the developed ones.