Globalization and Liberalization and their Effect on the Indian Business Environment
Last updated on 01/05/2020Globalization
It means to integrate the economy of one country with the global economy. During Globalization the main focus is on foreign trade & private and institutional foreign investment. It is the last policy of LPG to be implemented.
Globalization is the free movement of people, goods, and services across boundaries. This movement is managed in a unified and integrated manner. Further, it can be seen as a scheme to open the global economy as well as the associated growth in trade (global). Hence, when the countries that were previously shut to foreign investment and trade have now burned down barriers.
Considering a precise definition, countries that abide by the rules and regulations set by WTO (World Trade Organization) are part of globalization. These procedures include oversees trade conditions among countries. Apart from this, there are other organizations such as the UN and different arbitration bodies available for supervision. Under this, non-discriminatory policies of trade are also enclosed.
Globalization as a term has a very complex phenomenon. The main aim is to transform the world towards independence and integration of the world as a whole by setting various strategic policies. Globalization is attempting to create a borderless world, wherein the need of one country can be driven from across the globe and turning into one large economy.
Effect of Globalization on the Indian Business Environment
Globalization has its impact on India which is a developing country. The impact of globalization can be analyzed as follows:
- Access to Technology
Globalization has drastically, improved the access to technology. Internet facility has enabled India to gain access to knowledge and services from around the world. Use of Mobile telephone has revolution used communication with other countries.
- Growth of international trade
Tariff barriers have been removed which has resulted in the growth of trade among nations. Global trade has been facilitated by GATT, WTO etc.
- Increase in production
Globalization has resulted in increase in the production of a variety of goods. MNCs have established manufacturing plants all over the world.
- Employment opportunities
Establishment of MNCs have resulted in the increase of employment opportunities.
- Free flow of foreign capital
Globalization has encouraged free flow of capital which has improved the economy of developing countries to some extent. It has increased the capital formation.
Negative effect of globalization on the Indian Business Environment
Globalization is not free from negative effects. They can be summed up as follows:
- Inequalities within countries
Globalization has increased inequalities among the countries. Some of the policies of Globalization (liberalization, WTO policies etc.) are more beneficial to developed countries. The countries which have adopted the free trade agenda have become highly successful. E.g.: China is a classic example of success of globalization. But a country like India is not able to overcome the problem.
- Financial Instability
As a consequence of globalization there is free flow of foreign capital poured into developing countries. But the economy is subject to constant fluctuations. On account of variations in the flow of foreign capital.
- Impact on workers
Globalization has opened up employment opportunities. But there is no job security for employees. The nature of work has created new pressures on workers. Workers are not permitted to organize trade unions.
- Impact on farmers
Indian farmers are facing a lot of threat from global markets. They are facing a serious competition from powerful agricultural industries quite often cheaply produced agro products in developed countries are being dumped into India.
- Impact on Environment
Globalization has led to 50% rise in the volume of world trade. Mass movement of goods across the world has resulted in gas emission. Some of the projects financed by World Bank are potentially devastating to ecological balance. E.g.: Extensive import or export of meat.
- Domination by MNCs
MNCs are the driving force behind globalization. They are in a position to dictate powers. Multinational companies are emerging as growing corporate power. They are exploiting the cheap labour and natural resources of the host countries.
- Threat to national sovereignty
Globalizations results in shift of economic power from independent countries to international organizations, like WTO United Nations etc. The sovereignty of the elected governments are naturally undermined, as the policies are formulated in favour of globalization. Thus globalization has its own positive and negative consequences. According to Peter F Drucker Globalization for better or worse has changed the way the world does business. It is unstoppable. Thus Globalization is inevitable, but India should acquire global competitiveness in all fields.
Liberalization
The basic aim of liberalization was to put an end to those restrictions which became hindrances in the development and growth of the nation. The loosening of government control in a country and when private sector companies’ start working without or with fewer restrictions and government allow private players to expand for the growth of the country depicts liberalization in a country.
Objectives of Liberalization Policy
- To increase competition amongst domestic industries.
- To encourage foreign trade with other countries with regulated imports and exports.
- Enhancement of foreign capital and technology.
- To expand global market frontiers of the country.
- To diminish the debt burden of the country.
India has taken many efforts for liberalization which are as follows:
New economic policy 1991
Objectives of the new economic policy
- To achieve higher economic growth rate.
- To reduce inflation
- To rebuild foreign exchange reserves.
FEMA
Foreign exchange Regulation Act 1973 was repealed and Foreign exchange Management Act was passed. The enactment has incorporated clauses which have facilitated easy entry of MNCs.
- Joint ventures with foreign companies. E.g.: TVS Suzuki
- Reduction of import tariffs
- Removal of export subsidies
- Full convertibility of Rupee on current account
- Encouraging foreign direct investments
The effect of liberalization is that the companies of developing countries are facing a tough competition from powerful corporations of developed countries.
The local communities are exploited by multinational companies on account of removal of regulations governing the activities of MNCs.