Benefits and challenges of globalisation in India

Meaning of globalisation

Globalisation is the joining together of the economies of different countries so that they come to work as one connected world economy, with far more interaction and interdependence among nations than before. Advances in technology and liberal trade policies mean that distance and political borders no longer stop a firm from serving a customer in a faraway market. In a fully global economy goods, services, capital, information, technology and people would all move freely across borders, under a commonly accepted way of settling disputes.

For India the turning point was the new industrial policy of July 1991. Alongside freeing industry from licensing and cutting back the public sector, it set out to welcome foreign private participation in industrial development, and that third strand is what is meant by globalisation. Until 1991 imports were tightly regulated by value and volume; the reforms moved towards import liberalisation, export promotion, a rationalised tariff structure and foreign exchange reform, so that the country would not stay cut off from the world. The opening worked in both directions: many multinational corporations entered the Indian market, and many Indian companies began selling to consumers abroad.

Benefits of globalisation for India

1. Foreign capital and technology. Foreign equity limits were raised, 100 per cent foreign direct investment was allowed in many activities, and technology agreements with foreign companies received automatic permission.
2. Growth and employment. A country that produces only for its home market limits its own growth and jobs; when the domestic market is too small to absorb larger output, selling abroad lets production expand and creates employment.
3. Higher profits and fuller use of capacity for firms. A firm can earn more by selling where prices are higher, and foreign orders let it use capacity that exceeds home demand; producing on a larger scale often yields economies of scale, which cut the cost of each unit and widen the margin on it. A pump maker in Coimbatore that wins orders from East Africa can run its plant on full shifts instead of half.
4. Wider choice for consumers. Trade lets people use goods and services produced in other countries and so enjoy a higher standard of living.
5. Foreign exchange. Exports earn foreign exchange, which pays for imports such as capital goods, technology, petroleum products, fertilisers and medicines.
6. Better use of resources. When each country concentrates on what it produces most efficiently and trades the surplus, total output rises above what each could make alone; if that larger pool of goods and services is shared fairly among nations, every trading nation gains.

Challenges of globalisation for India

1. Fast-changing technology. Indian firms must keep pace with a rapidly changing technological environment.
2. Sharper competition. The reforms brought increasing competition from foreign firms and imports into markets that had been protected.
3. End of support for weak public enterprises. Public sector units lost budgetary support; loss-making and sick units were referred to the Board of Industrial and Financial Reconstruction, and disinvestment reduced the government's stake.
4. More demanding customers. With more choice, buyers expect more, which forces firms to become market-oriented.
5. Need to develop people and to change. Firms have to develop their human resources and accept that change is necessary rather than optional.
6. Harder operations abroad. Indian firms going overseas face political, social, cultural and economic conditions that differ from country to country, so they must adapt product, price, promotion and distribution to each market. Labour and capital also move less freely between countries than within one, because of legal and socio-cultural barriers.

Conclusion

Globalisation has given India capital, technology, markets and choice, but it has also exposed Indian firms and public enterprises to competition and constant change. The gains go to those firms that modernise, understand their customers and invest in their people.