Indian Economy | Inward and Outward-Looking Economies Globalization Download PDF

Indian Economy | Inward and Outward-Looking Economies Globalization Download PDF

Closed Economies

In the initial years of development, most economies are inward-looking (closed) economies with a strong focus on domestic demand, domestic population, domestic resources and fulfilling the basic needs in an economy. These economies are characterized by high-levels of insulation from the rest of the world virtually and complete cut-off from trade with imports restricted to essentials not possible to produce in the domestic economy and exports are permitted only of surplus over-domestic demand.
Such economies have a large role in the government as a direct producer of goods and services in the economy, highly regulated (remember India before 1991 reforms), focused on self-reliance and import substitution. However, as economies move up the development ladder, inflexibility, high levels of controls, relative inefficiencies and high-wage cost starts building up of a high-cost economy stifling the economy. ..
This gets compounded by their relative inability to increase growth rates and income because of the inadequacy and misallocation of resources, technology and knowledge. Further, import of goods increases to meet domestic requirements. The inward character of such economies become liability and forces them or pushes them to look outwards not as a matter of choice but as a compulsion, which is looking ‘outwards’ to meet ‘inward’ or domestic requirements of an economy.
Fast-paced global developments over the last two decades have played the role of facilitators to the changed outlook, making this transformation seamless and a natural outcome

What are These Facilitators?

(1) Global Accessibility: The global economy has virtually shrunk with multi-modal fast global accessibility in terms of speed and time taken to travel. Air travel previously meant for ‘elite’ has been brought closer to the ‘common man’ by making it affordable. Travel today is faster, lesser time-consuming, comfortable and also affordable for the people. This has given boost to tourism and more importantly increased the ‘awareness’ of different economies.
(2) Telecommunication Revolution: Telecommunication has undergone a complete revolution in the last two decades, both in terms of global teledensity as well as reach. Technology-intensive telephony is cost-effective and provides cheaper mode of telecommunication. Audio telecommunication is now giving way to visual telecommunication allowing one to view and talk at the same time. Multi-location video conferencing is gaining popularity as it saves time of travel besides providing an alternate way of telecommunication simultaneously across multiple locations. However, the real revolution is mobile telephony which has completely redefined telecommunications globally.
(3) Information Metamorphosis: It is a metamorphosis of the form of information from physical gathering, books, literature, magazines, previously known as ‘information asymmetrical’ (less information) to that of now ‘symmetrical information’ (complete information) through the internet powered by the ‘search engines’ (google, yahoo, etc.). What this has done is ‘global information’ right on your computer cutting across countries, products, services and knowledge. This has not only increased awareness, speed of information gathering but also the knowledge base of people.
(4) Media Transformation: The media transformation has been a gradual shift away from the print media to electronic media with the advent of televisions. Satellite connectivity today allows one to watch global developments right in one’s own drawing room.
(5) Redefined Living Standards: The living standards of people have also undergone a change from ‘hard living’ to ‘soft living’ facilitated by the availability, enlarged choice set with greater stress on convenience and comfort. Increased demands for televisions, refrigerators, washing machines, air conditioners, etc., is not only because of increased income levels but also because of their continuous falling prices making them affordable.
(6) The easy paced lifestyle has paved way to fast-paced lifestyle such as fast foods, convenient goods, etc.
All the above factors have led to integration of the world economy from an economic perspective to what is known as a ‘global village’. Goods and services today are not confined to geographies but are available across the countries. Countries of origin have
• lost relevance with emergence of global brands and global players.
It is difficult to ascertain today that a good being purchased is of which country. For example, Sony, a Japanese company could be selling televisions in India which may have been manufactured in Korea or Taiwan. Today goods and services,’ and their availability not identifiable by geographical boundaries but are driven by markets.
The above facilitators have served as an accelerator to the transformation of an inward- i looking (closed) economy to an outward-looking (open) economy which is known as
the process of globalization. The first thing to understand is that globalization is not an objective but a process or a journey towards opening up of an economy by looking towards the rest of the world and to achieve integration in a rapidly transforming global village

Globalization Indicators

The degree of openness and thus globalization though generic in nature, differs from country to country in the process followed, but has a few common characteristics such as:
(1) Lowering the levels of insulation from the rest of the World.
(2) Easing of restriction on cross borders inflow of goods, services, resources and investment.
(3) Increasing share of exports and imports to GDP of economies.
(4) Greater thrust on exports.
(5) Increasing share of exports of goods and services in GDP.
(6) Increase in foreign currency transactions in relation to the total output.
(7) Focus on competitive forces, greater efficiency levels aiming at achieving global competitiveness.
(8) Globalization is also a reflection of the changed ideology and mind set of the government.
Inward-looking economies like erstwhile USSR or the Soviet Union. China initiated their transformation in the seventies and India still later in the nineties. It can be said that curtains have fallen on the era of closed economies with the largest inward-looking economies which comprises of the erstwhile USSR, China and more recently India having adopted open policies through reforms in the domestic sector.
India’s efforts at globalization, as mentioned previously in the nineties, was a part of Economic Reforms of 1991 centred around the three pillars of liberalization, privatization and globalization also known as the L,P,G of economic reforms. Liberalization and privatization are to achieve domestic competitiveness while globalization is to achieve global competitiveness. Their roles are complimentary reinforcing each other. It is not possible to achieve the global competitiveness unless domestic sector is competitive and efficient.
All of them are processes rather than objectives to achieve better qualitative growth and widespread economic betterment, besides meeting ever expanding domestic requirements of the economy but with the active government interventions. India’s efforts at globalization had two significant aspects—one was the trade-related globalization which was relatively slow, compared to the other aspect of financial integration, with the capital inflows on the current and capital account sharply increasing and exceeding 100 per cent of the GDP Globalization is a relatively new concept, dynamic, continuously evolving, requiring redefinition in terms of need and the most important aspect is, it is driven naturally across economies and could be said to have crossed the stage of ‘as a matter of choice’, but a matter of‘compulsion’ or being driven naturally with the tide.

While Being Driven Into the Global Village, can have its own Fallout too While it is a fact that globalization has been a natural process driven out of need it could also have its own set of fall outs as under:
(1) Coupling of Economies: The relative coupling of economies in a global perspective would not allow decoupling of economies from adverse global fallouts.
(2) The ability of economies to insulate themselves from crisis of one country adversely
impacting their economies was possible till the nineties.
(3) Like the earlier crises of Mexico, Chile, South-east Asia and Argentina, economies did not impact countries like India. It was widely believed that globalization and 1 decoupling theory could co-exist i.e., economies even when following open policies
could remain relatively de-coupled from adverse global fallouts.
However, the world recession of 2008 has exposed the earlier belief. It is not possible for economies to remain as ‘hermit economies’, which is insulated from rest of the world in adverse times. Economies of the world including India, China and other emerging economies were also impacted by the global crisis, though to a lesser degree. However, as they pursue open policies they would increasingly be coupled making them vulnerable and susceptible to adverse global fallouts.
The coupling neither be geographic nor be selective but is global in nature. Problems of Greece and Spain can also impact countries such as India and China.

Globalization Would Also Bring its own set of Challenges

While globalization does provide for means of betterment for economies, it has some inherent challenges which will have to be addressed:
(1) While decisive thrust on exports is required, there would be pressures for liberal imports which could create issues in the domestic sector by making imported goods cheaper threatening domestic goods. Already, the Indian market has a large number of low-priced Chinese goods.
(2) With easing of restrictions on inflows there could be a surge on foreign funds which could have an adverse impact like appreciating home currency and hurting exports especially for a country like India (explained in the section on Exchange Rate later).
(3) It could lead to increase conspicuous consumption or ‘consumerism’ leading India into a consumption-driven from investment-driven economy. This can lead to lopsided development neglecting the interests of the masses. Greater production of goods demanded and lesser production of those which are less-demanded. Any consumerism also leads to lower savings in the economy.
(4) The biggest challenge of globalization would be in making the domestic sector
globally competitive, ability to withstand global competition and make inroads into global markets. –
(5) The other is about expectations from globalization. It is ‘not’ to provide answers for larger issues of poverty, unemployment, reducing regional imbalances or other such issues.
As mentioned previously, it is all about achieving integration with the rest of the world, global competitiveness as the key to globalization. Therein, lies the challenge of the ability of the government to change the misconception of globalization. The Economic Reforms of 1991 comprising of liberalization, privatization and globalization seeking to achieve domestic and global competitiveness, increased share in global trade, efficient and competitive domestic manufacturing base, higher growth driven by manufacturing sector and exports.
The increased growth, would ‘over a period of time’, bring about overall development. And the government in letting economic reforms to deliver should also be conscious of the fact that answers to the larger issues of poverty, unemployment, regional imbalances lie within ‘its’ domain.
A criticism of the economic reforms of not delivering in these areas or not impacting social issues, is an acceptance, by the government, of not being able to clearly delineate deliverables from economic reforms from ‘deliverables falling within government’ own domain.

Impact on Indian Society so Far

Indian society is one among the oldest in the world, varied and complex in its heritage. It has a diverse culture of unity in diversity; having withstood the colonial rule but yet impacted, with society entrenched and weaved around considerations of race, religion, caste, community, language and region. A heterogeneous society with overriding concerns of a low income economy and large-scale poverty inherited post¬Independence. The painstaking rebuilding of the economy was a slow and gradual process, culminating in the process of a series of reforms lifting growth, economic empowerment and improvement in standards of living of its people. This is not to say that poverty is no longer an issue. Higher growth has led to a reduction in poverty levels. But, rural India where the heart of India resides, by and large, has not undergone any significant transformation and a society still, with a traditional outlook and conservative beliefs. ‘
Reforms and their impact on economy and the people have largely been around urban India. The economic perspective has been dealt in the previous sections. An attempt is made here to understand how it has affected lives of urban India.
Growing Middle Class
A direct impact of globalization widely accepted is the growing middle class, especially China and India as a part of Brazil, Russia, India, China and S. Africa (BRICS) economies, a potential market of the future with definite increased income, enhanced purchasing power, demand for better variety of goods and distinct improved and changed life style. This is being observed not only in metro cities but also spreading across tier 2 and 3 cities.
This class is creating a niche for newer goods attracting more foreign companies to set up shops. The ‘mall culture’ as shopping and entertainment under one roof, is gradually spreading across a large number of cities, witnessing a large number of foot falls. ‘Fast food’ is gradually gaining acceptability amongst the middle class. Dining out which was once only for the elite society, has now become a common feature of the growing middle class.

Global Goods and Services

As has been addressed earlier, one of the objectives which globalization seeks to achieve, is to enlarge the ‘choice set* of a wider and diversified basket of goods and services, available globally, at ‘affordable’ prices for the people in India. Today, goods and services are moving pan India, without any nationality but as brands, reaching different sections of people. Another notable feature has been goods and services fit every class of consumer.

Information Symmetry

Globalization has not only increased choice set, but also provided for ‘information symmetry’ enabling them to take informed decisions, on their requirements and the best bet for them. This is complete contrast to the earlier information asymmetry, which often resulted in decisions based on the seller of goods, rather than own perception about goods services. These information gaps have now been sealed. This has raised levels of awareness of the people who are now better informed. It has also raised levels of knowledge of people cutting across different age groups.

Mobile Telephony

One of its biggest contributions has been the spread of affordable mobile telephony even 1 into villages, achieving a penetration level of over 80 per cent in about five years. Villages which were earlier cut-off from the communication links due to adverse topography, difficult and hilly terrains are now well-covered. It has definitely improved communications and also the life style of the people in general.

Social Networking

An outcome of globalization has been the spread of social networking sites which has allowed a novel way to connect with people irrespective of their location. It provides a wide platform for ‘faceless communication’ and ‘free and frank expression’ of views almost instantaneously across the world. It has allowed ‘discovery’ of friends and acquaintances, of connecting with those people who had lost contact or whose whereabouts were not known. This has led to a more ‘open society’ not bound by caste, creed or religion.

Cross Border Cultural Engagement

Thanks to the growing middle class for increasing income, together with air travel becoming cheaper, has promoted cross border tourism, with many Indians travelling abroad for vacations and holidays, increasing their exposure to different people and culture of different countries. Further, there is also an increase ‘in bound tourism’ with more and more foreigners visiting in India which has increased cross border cultural engagement. This has led to better understanding and acceptability of different cultures and developing mutual respect of each other.

Emergence of a Harmonized Culture

Globalization has resulted in not only greater cross border cultural engagement, but also marks emergence of a harmonized culture, with cross border acceptability. This culture can be seen, in the perceived preferences for unisex personal wear, celebrations such as fathers, mother’s and valentine’s day. This harmonized culture cuts across caste and creed, fostering a cohesive society.

Changing Role of Women

Women have always occupied centre stage in society. There are an increasing number of women today who are seeking a career, being independent, leading a life as they wanted, rather than being directed by a family. The more important aspect is acceptance of this fact by the society, of going beyond running homes and marriage as the ultimate for any girl. They today have the same status as their male counter parts, commanding respect from them. Many Indian women have reached the top of the ladder both in India as well as globally. Many jobs which were considered as male bastion are now being performed by women. Flying aircrafts, army, police, etc., now have sizeable women participation. Dowry system which virtually had become institutionalized in the past has seen a decline.
However, can we say that this globalization has not impacted society in any adverse manner? While globalization has been able to expand the middle class, there is now an ‘upper and a lower’ middle class with wide income in equality. It has led to consumerism. But it cannot be attributed to the process of globalization, as in general income levels have increased and as mentioned previously, globalization has only allowed for increase in the ‘choice set for the consumers’. ,,
But the present society has become more materialistic; life styles have become fast tracked, lesser time for relationships, with everyone in a rat race of out doing the other. Satisfaction levels have become relative and craving for more. Nothing wrong with this, except that it has led to increase in health disorders and an early ‘burn out’ of the people.
Even though women have now changed and bigger role, crime against them, in particular has increased. Cases of physical abuse, marital discords leading to divorces have only increased. Newer concepts of ‘live in’ relationships have emerged. Urban India has become more liberal and modern in outlook especially the young generation. Their addiction to the internet and social networking sites has led to their abuse. Extensive use of mobile for purposes, other than communication has increased, resulting in distraction and taking them away from studies.
There is also an exodus of students going abroad for higher studies and seeking employment overseas, resulting in ‘brain drain’ from India.
Can it be said that globalization has been a bane for society? Globalization is not only about India, it has been a wave encompassing the world economy and cannot be seen as a bane either from the economy or societal perspective. It is not about an option but about acceptance as part of global integration. As a process, it cannot be faulted and its abuse is not a fault of the process. Social ills seen as fallout of globalization have always been there only that now they have been highlighted. Globalization is about economic betterment and the benefits of such betterment will always be in the society itself. Yes, some may benefit more others less, but benefits will always be there.
People, society and economy are integral in any development process. Reforms are aimed at not only uplifting the economy as a whole but also provide better standards of living for its people. Globalization is getting the ‘best’ at the door step of people. It is about our people benefiting from others. It is a blend of the world economy looking for newer markets and our people getting the best of the world. The world order is changing, so also has to be our thinking and perceptions. It is about accepting change. The endeavour should be how to reach out to a larger cross section of people? How to overcome the hurdles which come in the way?
Globalization today is not a subject matter of debate, but a natural process driven across economies, as a necessity, for meeting own needs of economies.