Post Globalization Scenario

By: Dr. Chabbi Sinha Chavan

Flashback-The Big Move Toward Protectionist Posture

Swadeshi movement:

The Indian independence movement in 1940s, led by Mahatma Gandhi, was based on the general dislike of anything and everything foreign, especially the one originating from Britain.

AVOID- FOREIGN DOMINANCE

Multi-national corporations were seen as the exploitative entities that merely benefit from cheap labor in the country, and were believed to be the ones that take the profits back home to better their lavish living and conspicuous standard of living. Existence Of Extreme Nationalism :The export and import were so low that they formed less than one percent of the total world trade. These low figures of trade were by the country that has had roughly 15% of world population.

Indias Trade: 1965-1985

Merchandise Exports 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 129.4 139.3 98.9 82.5 107.1 146.2 150.8 191.7 291.0 329.4 306.5 402.0 512.6 640.3 779.6 919.8 896.4 685.5 742.0 743.2 814.0 Services Merchandise Services Exports Imports Imports 62.1 69.1 74.8 67.0 69.3 85.1 97.2 99.8 118.9 140.7 182.5 172.5 212.1 262.0 2 92.8 279.8 302.8 340.6 342.5 347.1 394.3 125.3 146.5 152.1 130.6 107.0 143.5 200.6 215.5 326.0 476.7 441.9 427.9 564.7 618.4 754.1 899.9 925.5 837.6 721.6 756.6 814.3 57.5 66.2 73.2 63.0 56.8 71.3 85.0 84.0 93.2 125.3 118.3 117.2 149.8 192.1 253.5 262.8 282.0 308.5 280.7 310.9 362.9 Trade Balance 4.9 -8.6 -57.3 -51.2 .9 2.1 -49.0 -25.8 -16.2 -160.4 -102.7 -22.8 -48.3 18.9 -21.2 -79.1 -147.9 -263.2 -56.9 -131.3 -115.1

Source: International Financial Statistics Yearbook 1994, International Monetary Fund, Washington D.C. All figures are expressed in millions of US dollars at the current prices.

Indian Economy Jolted By Shocks

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Early 1970s and onwards..

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The poor monsoons created agricultural production short-fall leading to severe droughts in some parts of the country. pressure on the industrial production which was not progressing very well in the first place. Due to the additional burden exerted by the Indo-Pakistan War of 1971, the economy started suffering miserably. 1973, came the OPEC oil price shock and the things really went out of control. The protectionism was to the highest level. Consider the 350% import tariff rate on automobiles and average tariff rate of 152%. Academicians learned several lessons of how protectionism can ruin the economy and policy makers watched economy reaching to a real low point while they searched for the solutions.

Transition Begins
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In early 1980s the monsoon god was nice to India. While agricultural sector that was in desperate need to prosper, received a big boost, the industrial sector invented few new technological advances and grew much more rapidly than before. India also realized that she can do much better in service sector. All in all, the economy started prospering at a slow rate but definitely much better than in 1970s

Beginning Of The Wave..

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The wave of globalization appeared on Indias shores only in 1991. Much after Chinas and some other Southeast Asian countries such as Malaysia, Singapore and Hong Kong. The awareness of need for opening up countrys borders was started in late 1980s, when Mr. Rajiv Gandhi was at the helm of policy design. With almost 20% devaluation of the Indian rupee in 1991, the process began that for a while slowed down a little but rarely anyone was in doubt about its existence.

Macro Economic Imbalance

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As Aggarwal (2004) puts it The Macroeconomic crisis reached its peak in 1990 with combined fiscal deficit of Centre and State governments standing at 10% as percentage of GDP, current account balance at 3.3% of GDP backed by a rate of inflation 9.9% despite Indias record economic performance measured in terms of rate of growth of GDP, 6.0 percent, due to high rates of industrial growth of 5.9% and domestic saving ratio of 21.9% of the GDP.

First Jolt..
` In June of 1991, when the current Prime

Minister Dr. Manmohan Singh was the Finance Minister (and Mr. Narasinha Rao was the Prime Minister), country received first significant shock of globalization and liberalization

Immediate Impact..

Quick Recovery-Post Globalization

The real GDP in 1990s increased at an annual rate of 6% which is even more impressive because the rest of the world was going through a minor recession. The highest increase in real GDP was e perienced in 1996-199 with . % (e pected to be surpassed in 00 ) Increased production had its effect on the prices. Inflation rate of 13.6 percent in 1991 was reduced to 1.3 percent in 001- 00 , a remarkable achievement by any standard.

Macroeconomic Performance in Post 1991 Years Year Real GDP Inflation Interest Unemployment Money Supply Growth Rate Rate No. in Millions Billions of Rs 1991 .96 8.9 17.88 36.3 1046.1 1992 2.3 13.7 18.92 36.75 1120.9 1993 1.5 10.1 16.25 36.27 1330.2 1994 5.9 8.4 14.75 36.69 1695.0 1995 7.3 10.9 15.46 36.74 1883.5 1996 7.3 7.7 15.96 37.43 2148.9 1997 7.8 6.4 13.83 39.14 2419.3 1998 6.5 4.8 13.54 40.01 2703.5 1999 6.5 6.9 12.54 40.37 3161.2 2000 6.1 3.3 12.29 40.34 3495.9 2001 4.0 7.1 12.08 41.99 3846.0 2002 6.2 4.7 11.92 42.36 4318.6 2003 5.5 5.1 11.50 43.10 4822.3 2004 8.0 4.5 10.60 42.50 5402.3 Source: Some figures are from Aggarwal (2004) and some are from IMFs publication, International Financial Statistics Yearbook, 2003.

IMPORTANT OBSERVATIONS..
in 1994 while the real GDP increased by 5.9%, the inflation rate declined from 13.7% in 1992 to 8.4%. While the interest was still very high, it had some downward pressure. The official unemployment number was very high (36.69 million) but it remained steady, a mild achievement in an increasing population. For several years, the Indian unemployment is beyond the reported figures of unemployed labor.
It consists of heavy under-employment, it is marred by extreme poverty partly due to illiteracy. The so called full-time employment in India is concentrated mainly in urban sector with very limited industrialization in rural or semi-rural areas of extreme backwardness.

Post 2004..
In 2004 it became official that Indian economy was second fastest growing in the world, second only to the Chinese economy. In fact, the Chinese economys growth is also primarily explained by her newly found affection for openness. The Indian economy, much like the world economy, went through technological change.
While the computer mega cities such as Bangalore (that now has 1500 foreign company offices), Hyderabad and Pune grew at a unprecedented rates, the repercussions of this industrial growth was felt in many of the adjacent rural areas. In fact in April 2005, it was confirmed that India officially achieved 8 percent growth in 2004 (Times of India, April 28, 2005)

POVERTY LEVEL HAS DECLINED SIGNIFICANTLY POST GLOBALISATION

1973-74 54.9 1977-78 51.3 44.5 38.9 36 26.1 21.8 1983 1987-88 1993-94 1999-00 2004-2005

Poverty ratio (%)

Poverty is deprivation in terms of living standards, health, and education. Poverty Ratio is calculated (in terms of PPP $ 1.25 a day )

WE HAVE OPENED UP THE EXTERNAL SECTOR

40.0 30.0 20.0 10.0 0.0 31.0 14.8 18.1 23.6

1991-92

2003-04

External trade in goods as % of GDP External trade in goods & services as % of GDP

External trade in goods as percentage of GDP is 41 % in 2008-09. External trade in G&S as % of GDP is 54 % Source: www.ibef.org

HIGH INCOME HOUSEHOLD GROUP IS THE FASTEST GROWING SEGMENT IN INDIA TODAY: 2001-2006 Income groups Number of households in 2001 (million) 27 Number of households in 2006 (million) 44 Expected growth CAGR (%) 10%

High income (> $2300per year) Middle income ($1500-2300 per year) Low income (< $1500 per year)

29

40

7%

124

114

(-) 2%

CORPORATE GROWTH AND PROFITS HAVE BEEN VERY BUOYANT

30.0 20.0 10.0 0.0 -10.0 Growth of corporate sales (%) Ratio of gross profits to sales (%) 16.6 11.4 8.6 0.8 1998-99 14.4 12.0 11.6 11.2 9.9 1999-00 2000-01 10.9 2.4 -1.1 2001-02 16.8 11.3 10.8

27.8 18.5 13.4

2002-03

2003-04

Growth of gross corporate profits (%)

MORE THAN 5000 COMPANIES ARE LISTED ON THE STOCK MARKETS

1998-99 No of companies listed Market capitalizati on ($ billion) 1999-00 2000-01 2001-02 2002-03

5663

5693

5774

5769

5668

118

265

141

156

150

In 2009 total number of companies listed on stock Exchange were 4800 and total capitalization of companies listed was $1.11 Trillion.

FOREIGN INVESTMENTS MADE BY INDIAN COMPANIES ARE ON THE RISE

1749 1489 1500 1000 500 0 2000-01 2001-02 2002-03 2003-04 827 1122

2000

Indian investments abroad ($ million)

FDI in July-September 2009 stood at US$ 3.3 billion

SHARP REDUCTION IN IMPORT TARIFFS

120.0 108.0 100.0 80.0 60.0 49.0 40.0 20.0 0.0 19 9192 19 9293 19 9394 19 9495 19 9596 19 9697 19 9798 19 9899 19 9900 20 0001 20 0102 20 0203 20 0304 20 0405 40.0 32.0 29.5 29.4 25.2 28.7 26.3 40.0 39.3 37.4 37.1 32.9

Simple average tariff

Industrial Relations Post Globalization

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Competition on the basis of cheap labor:`

Globalization and increased competition has lead to less strikes, lockouts and less man days lost due to strikes. It changes ownership, which may bring out changes not only in work org and employment but also in trade union (TU) dynamics. It changes the work organization by necessitating retaining and redeployment. It affects the right of workers and Trade unions, including job/union security, income security, and social security.

Disinvestment: `

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INNOVATIVE/ MODEL ARRANGEMENTS ..

Making workers the owners through issue of shares or controlling interests (latter is still not in India). Negotiating higher compensation for voluntary separations Safeguarding e isting enefits Setting up further employment generating programs, and Proposals for setting up new safety nets that not only include unemployment insurance ut also skills provisions for redundant workers

Impact of Deregulation on Labor Welfare

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It is tried to ensure that pubic sector/ government employees receive similar protection as is provided in public/government employment.The worst affected are the pension provisions. This means, usually a reduction in pension benefits and an uncertainty concerning future provision of pension benefit due to :
The absence of government guarantees Falling interest rates Investment of pension funds in stock markets

New Actors And The Emerging Dynamics..

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Earlier IR was mainly concerned with Trade unions, mgt and government but now consumers and the community are also a part of it. There is ban on bandh and restrictions even on protests and dharnas. Increasingly Trade unions are getting isolated and see a future for them only by aligning themselves with the interests of the wider society.

SOME MORE IMPACTS ..

Declining TU density Workers militancy replaced by employer militancy Level of collective bargaining is shrinking day by day

ROAD AHEAD..
 

Stock of over 3 million scientific & technical manpower Today India turns out more than 50,000 computer professionals and 360,000 engineering graduates each year. After US, India is home to largest pool of English speaking scientific manpower.
ALL THESE SUBSTANTIALLY BOOSTS INDIAS CAPABILITY IN SUNRISE KNOWLEDGE INDUSTRIES-Drugs &

Pharmaceuticals, Biotechnology, Information Technology,Space Industry,Speciality Chemicals and Petrochemicals, Entertainment Software, Engineering Products

INDIAN CAPITAL GOODS INDUSTRY: THE GROWTH POTENTIAL

60 50 40 30 20 10 0

51 32 20 1 2001 6 2007 2012 Exports ($ billion) 15

Production ($ billion)

INDIAS DEMOGRAPHIC DIVIDEND WILL CONTINUE TILL 2025

(% share of age groups)

80 70
60 50 40 30 60 62 69 68 65 68

36 33

30

27 25 25
5 5 5 6 6 7

20 10
0

0-14 years
2000 2005

15-64 years
2010 2015 2020

65+
2025

TO CONCLUDE..
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Indias economic growth has received a strong impetus in post 1991 era. This increased economic growth is mainly and directly is a result of countrys better monsoons and the free trade movement that started in that year. The future economic growth therefore depends heavily on the speed of privatization and globalization. As Kulkarni (1996) points out, the country is ready to have a firm plan to get ready for the second wave of freetrade and liberalization movement.

INDIA IS GOING THROUGH AN EPOCHAL TRANSFORMATION TO BECOME ONE OF THE FASTEST GROWING EMERGING ECONOMIES. WE ARE BRACING UP TO FACE THE GLOBAL CHALLENGES IN THE NEW ECONOMY. WE ARE MORE OPTIMISTIC THAN EVER BEFORE. FURTHER POLICY REFORMS IN THE INFRASTRUCTURE SECTOR AND THE LABOR MARKETS AND IMPROVED GOVERNANCE WILL HELP PUSH US UP TO A HIGHER GROWTH PATH