Globalisation, and what India has seen of it since 1991

Meaning of globalisation

Globalisation is the process by which the separate economies of the world are knitted together into a single, connected world economy. Countries interact more and come to depend on one another; distance and national borders stop being a barrier to serving a customer in a far-off market, because technology has advanced quickly and governments have relaxed their trade policies. Trade beyond one's own country is no longer occasional: firms increasingly sell, invest and produce abroad, and the world is often described as a global village.

A completely globalised economy would be close to a world without boundaries. People could move across borders, capital and goods and services would flow freely between nations, information and technology would pass without hindrance, there would be an accepted method of settling disputes, and countries would take a shared view of global governance. No country has reached this point; globalisation is a direction of movement.

Why India changed course in 1991

Until 1991 India regulated imports tightly, in both value and volume. That year the economy met a grave foreign exchange crisis, a high government deficit and rising prices even after good harvests. The fiscal deficit had reached 6.6 per cent of GDP in 1990-91 and reserves would pay for only a few weeks of imports. India turned to the International Monetary Fund, which agreed to lend on the condition that the country made structural changes. In July 1991 the government announced a new industrial policy aimed at liberalisation, a smaller public sector and wider foreign participation, the last being the globalisation strand.

Steps that opened the economy to the world

1. Foreign capital welcomed. The ceiling on foreign equity in a wide range of priority industries went up from 40 to 51 per cent, and in many activities foreign direct investment of 100 per cent was allowed.
2. Easier technology tie-ups. Agreements with foreign firms for technology received automatic approval.
3. A body to attract investors. The Foreign Investment Promotion Board was set up to negotiate with large international firms and speed up clearance of their proposals.
4. Trade and currency reform. Trade policy moved towards import liberalisation, export promotion through a rationalised tariff structure, and reform of foreign exchange rules, so that India would not stay cut off from other economies. Import licensing was abolished for most capital goods, raw materials, intermediates and components, though import controls continued among the early crisis measures, so imports were not left wholly free. The rupee was devalued by 18 per cent in early July 1991 and a dual exchange rate system, with one rate floating in the market, was introduced under LERMS.

India's experience since 1991

Two-way business. Many multinational corporations entered the Indian market, while a number of Indian companies went abroad to sell to foreign customers.

A faster-growing economy. India is now counted among the quicker-growing economies and is a preferred destination for foreign investment; programmes such as Make in India, Skill India and Digital India are expected to support its trade.

A new environment for firms. Indian enterprises have had to adjust to more demanding customers, sharper competition, the need to keep changing and to orient themselves to the market, fast technological change, the need to develop their people, and, for public enterprises, the loss of budget support.

An uneven pace. Reform has slowed at times, yet India remains on the path of joining the world economy.

A bicycle maker in Ludhiana illustrates the change: it now competes at home with imported models, but the same open policy lets it buy components abroad and sell its own cycles in other countries.

Conclusion

Globalisation is the growing integration of national economies. For India, the 1991 crisis turned a closed, controlled economy towards foreign investment, freer trade and a market-set currency. The result has been stronger growth and wider choice, paid for by fiercer competition that Indian firms have had to learn to meet.