ADVERTISEMENTS:
This article provides information about the concept of globalisation and the implications of economic globalisation of India:
Globalisation of the Indian economy means to the integration of the Indian economy with the world economy by way of liberalisation and opening it up I for private investment. These reforms have been introduced to improve and meet the challenges of the Indian economy.
Image Courtesy : i.telegraph.co.uk/multimedia/archive/02656/rupee_2656164b.jpg
ADVERTISEMENTS:
The term “globalisation” in the context of the economy signifies:
i. Reduction of trade barriers with a view to allowing freer flow of goods to (and from) the country;
ii. Free flow of foreign capital for investment;
ADVERTISEMENTS:
iii. Free flow of foreign capital technology; and
iv. Free movement of labour and manpower.
Over the years starting form 1991 there has been a steady liberalisation of Indian economy. International trade has been liberalised and more and more sectors opened up for foreign direct investments and portfolio investments facilitating entry of foreign investors in telecom, roads, sea and airports, insurance and other major sectors.
In 1991, government of India introduced several liberalisation measures relating to trade in various stages. These include automatic approval of up to 51% of equity in high priority industries and trading companies engaged in exporting, 100% equity in export-oriented units subject to some conditions; and NRIs and overseas corporate bodies (OCBs) were allowed to invest up to 100% equity in high priority industries, etc.
In 1996-1997 there was further liberalisation by including 13 more sectors under the 51 % equity automatic approval route, extending up to 50% equity participation in three new areas relating to mining, and enhancing the equity limit to 75% for automatic approval in nine priority areas and reconstitution of the Foreign Investment Promotion Board (FPIB) were announced. In the next year, FDI in financial services was allowed through the FPIB route and fifteen non-banking financial services for FDI were identified.
The automatic route for FDI approval in certain infrastructure activities was simplified. Further liberalisation of FDI was announced in each subsequent year, including permitting up to 26% foreign equity participation in domestic insurance companies in 1999, and in 2000, placing of investment in all sectors except a small negative list under automatic route for FDI approvals.
Foreign portfolio investment was liberalised in 1995- 96, permitting NRIs, OCBs and Foreign Institutional Investors (FIIs) to invest up to 24% equity in Indian companies. This limit was raised to 30% in 1998-99. FIIs were permitted to invest in the India Government’s dated securities from March 1997 and in Treasury Bills from April 1998.
A number of steps liberalising the access to Indian companies of foreign capital through Global Depository Receipts and American Depository Receipts were announced every year since 1995. External Commercial Borrowing rules and procedures were liberalised as well since 1995. Despite these liberalisation measures India could attract much less FDIs compared to China and other Southeast Asian economies such as Indonesia, Malaysia, and Thailand. India’s limited success in long-term capital inflows: particularly FDI might be attributed to three factors. First, heavy regulations have not completely gone after liberalisation. Second, there is resistance to FDI by domestic industry in competing areas. Third, inadequacies in physical and legal infrastructure limit India’s absorptive capacity, and hence its attractiveness to private foreign investors.
As a part of the liberalisation of industrial sector Industrial licensing, irrespective of the level of investment, was abolished in July 1991 for all except 18 industries. In 1998-99, 12 of these have been removed from licensing requirements. The number of industries reserved for development exclusively by the public sector has been reduced from 17 in 1991 -92 to 3 by 2000-01. These two are two major reforms.
ADVERTISEMENTS:
The Monopolies and Restrictive Trade Practices (MRTP) Act of 1969 was amended in 1991-92, removing the threshold limits of assets in respect of application of MRTP and of dominant undertakings. The Competition Bill incorporating a modern competitive law was introduced in Parliament in 2001. On the abolition of reservation of products for production by small-scale industries (SSI), from 1997 until 2003, in all 163 products have been de-reserved.
The main thrust of reforms in the financial sector was on the creation of efficient and stable financial institutions and markets. Reforms in respect of the banking as well as non-banking financial institutions focused on creating a deregulated environment and enabling free play of market forces while at the same time strengthening the prudential norms and the supervisory system.
In the banking sector, the particular focus was on imparting operational flexibility and functional autonomy with a view to enhancing efficiency, productivity and profitability, imparting strength to the system and ensuring financial soundness. Reforms in financial markets focused on removal of structural bottlenecks, introduction of new players/instruments, free pricing of financial assets, relaxation of quantitative restrictions, improvement in trading, clearing and settlement practices, more transparency, etc.