Economics-II Unit-V

Lecture Note

Globalization

1. Introduction

Globalization refers to the increasing interconnectedness and interdependence of countries

through the exchange of goods, services, capital, technology, ideas, and people. Driven by
advances in transport, communication, and liberalization policies since the late 20th
century.

2. Dimensions of Globalization

A. Economic Globalization

➢ Integration of national economies into the global economy through trade, FDI, capital
flows, etc.

➢ Example: Multinational companies operating globally (e.g., Apple, Toyota).

B. Cultural Globalization

➢ Spread of ideas, languages, values, media, and consumer culture.

➢ Example: Global popularity of Hollywood, fast-food chains like McDonald's.

C. Political Globalization

➢ Growth of international and supranational organizations like UN, WTO, IMF, EU.

➢ Global cooperation on issues like climate change, human rights.

D. Technological Globalization

➢ Rapid spread of technology and innovation.

➢ Internet, smartphones, and digital platforms enabling real-time global interaction.

3. Drivers of Globalization

➢ Technological Advancements: Internet, satellites, transport.

➢ Liberalization Policies: Reduction in trade barriers, deregulation.

 ➢ MNCs and Global Supply Chains

➢ International Institutions: WTO, World Bank, IMF promoting trade and

development.

➢ Rise of Emerging Markets: China, India as key players in global economy.

4. Impacts of Globalization

Positive Effects

➢ Economic growth and job creation.

➢ Access to international markets and investment.

➢ Technology transfer and innovation.

➢ Cultural exchange and global awareness.

➢ Reduction in global poverty (in some regions).

Negative Effects

➢ Widening inequality within and between nations.

➢ Job losses in certain sectors due to outsourcing.

➢ Cultural homogenization and loss of local identity.

➢ Environmental degradation.

➢ Vulnerability to global financial crises.

5. Globalization and India

➢ Post-1991 Liberalization: India opened up its economy under LPG (Liberalization,

Privatization, Globalization).

➢ Increase in FDI, trade, and services export (especially IT sector).

➢ Emergence of Indian MNCs like Tata, Reliance, Infosys etc.

➢ Challenges: Jobless growth, inequality, dependence on global capital.

6. Anti-Globalization Movements

➢ Protests against WTO, IMF policies (e.g., Seattle protests).

 ➢ Demand for fair trade, environmental justice, and local sovereignty.

➢ Rise of protectionist policies in developed nations.

7. The Future of Globalization

➢ Deglobalization trends post-COVID-19 and due to geopolitical tensions.

➢ Rise of regionalism and self-reliance movements (e.g., "Atmanirbhar Bharat").

➢ Shift toward sustainable and inclusive globalization.

Summary

Globalization has reshaped the modern world—economically, politically, and culturally. While
it offers significant opportunities, it also presents complex challenges that require global
cooperation and balanced policy-making.
 New Industrial Policy, 1991 – India

1. Introduction

➢ Announced on 24th July 1991 by Dr. Manmohan Singh, then Finance Minister, under
the leadership of Prime Minister P.V. Narasimha Rao.

➢ Aimed to liberalize the Indian economy and shift from a license-raj and
protectionist regime to a market-oriented liberal economic framework.

➢ A response to the Balance of Payments (BoP) crisis and rising inefficiencies in the
public sector.

2. Objectives of the Policy

➢ Increase industrial efficiency and international competitiveness.

➢ Encourage private sector participation.

➢ Attract foreign investment and technology.

➢ Reduce the role of bureaucracy and red tape in industrial growth.

➢ Integrate Indian economy with the global economy.

3. Key Features of the New Industrial Policy, 1991

A. Liberalization

➢ Abolition of Industrial Licensing for most industries (except a few in security and
environmental concern).

➢ Freedom to set up new units, expand and modernize without prior government
approval.

B. Privatization

➢ Reduced role of Public Sector Enterprises (PSEs).

➢ Disinvestment of shares in select public sector undertakings (PSUs).

➢ PSUs encouraged to improve performance and competitiveness.

C. Globalization
 ➢ Automatic approval for Foreign Direct Investment (FDI) up to 51% in high-priority
industries (now increased over time).

➢ Encouragement to import foreign technology.

➢ Reduction in tariffs, import duties, and easing of export-import procedures.

D. MRTP Act Amendments

➢ The Monopolies and Restrictive Trade Practices (MRTP) Act was diluted.

➢ Removed asset thresholds for MRTP companies, allowing large firms to expand freely.

➢ Focus shifted from company size to restrictive trade practices.

E. Public Sector Policy

➢ PSU investment was to be focused on strategic sectors (defense, atomic energy,

railways).

➢ Sick PSUs to be referred to BIFR (Board for Industrial and Financial

Reconstruction) for restructuring or closure.

4. Impact of the Policy

Positive Outcomes

➢ Boosted industrial growth and efficiency.

➢ Increased private and foreign investment.

➢ Development of sectors like IT, telecom, and automotive.

➢ Enhanced exports and integration with the global economy.

➢ Growth of Indian multinational corporations (MNCs).

Criticisms and Challenges

➢ Neglect of small-scale industries and traditional sectors.

➢ Rising income inequality and regional imbalances.

➢ Over-dependence on foreign capital.

➢ Jobless growth in some sectors.

 ➢ Limited success in disinvestment due to political resistance.

5. Summary

The New Industrial Policy of 1991 marked a paradigm shift in India's economic history. It
dismantled the license-permit-quota raj and laid the foundation for a liberalized, privatized,
and globalized economy. While it brought remarkable transformation, it also posed new
challenges requiring balanced and inclusive policy approaches.
 Multinational Corporations (MNCs) and Their Impact on the Indian Economy

1. Introduction

➢ Multinational Corporations (MNCs) are companies that have production or service

operations in more than one country.

➢ They have headquarters in one country and operate subsidiaries or branches

globally.

➢ Examples: Apple, Toyota, Nestlé, Unilever, Tata Group (Indian MNC).

2. Characteristics of MNCs

➢ Large-scale operations and investment capacity.

➢ Advanced technology and R&D.

➢ Global supply chains.

➢ Centralized control with decentralized operations.

➢ Skilled managerial and professional workforce.

3. MNCs in the Indian Context

➢ Entered India significantly post the New Economic Policy of 1991.

➢ Active in sectors like automobile, FMCG, IT, electronics, banking, and

pharmaceuticals.

➢ Examples in India: Microsoft, Samsung, Honda, Amazon, Nestlé, Coca-Cola.

Positive Impacts of MNCs on the Indian Economy

Economic Growth and Investment

➢ FDI inflows have contributed to GDP growth.

➢ Boosted the capital formation and industrial development.

Employment Generation

➢ Direct and indirect job creation in manufacturing, services, and IT sectors.

➢ Transfer of management practices and skills.

Technology Transfer

➢ Introduction of modern technology, production techniques, and innovation.

➢ Development of R&D centers (e.g., Microsoft, Google in India).

Export Promotion

➢ MNCs have enhanced India’s global trade competitiveness.

➢ Many Indian branches serve as export hubs (e.g., Hyundai cars from Chennai).

Consumer Benefits

➢ Increased product variety and improved quality.

➢ Competitive pricing due to market competition.

5. Negative Impacts of MNCs on the Indian Economy

Market Domination

➢ MNCs often overshadow local firms and small-scale industries.

➢ Risk of monopolistic or oligopolistic behavior.

Profit Repatriation

➢ Profits earned in India are often repatriated to the parent country.

➢ Limits long-term capital accumulation in the host economy.

Cultural and Ethical Concerns

➢ Promotion of consumerist culture and Western values.

➢ Accusations of unethical practices (e.g., environmental damage, labor exploitation).

Dependency

➢ Over-reliance on foreign capital and technology.

➢ Vulnerability to global economic fluctuations.

Neglect of Social Responsibility

➢ Some MNCs avoid investing in backward regions or ignore inclusive development.

6. Government Policies Toward MNCs in India

➢ FDI liberalization in various sectors (e.g., telecom, defense, retail).

➢ Incentives under Make in India, Production-Linked Incentive (PLI) schemes.

➢ Regulatory frameworks by RBI, SEBI, Competition Commission of India.

7. Summary

Multinational Corporations have become key players in the Indian economy. While they bring
investment, jobs, and technology, it is essential to regulate them for ensuring inclusive,
equitable, and sustainable growth. A balanced policy approach is needed to maximize
benefits and minimize risks.
 Consequences of Policy Regime on the Indian Economy

1. Introduction

➢ Policy regime refers to the set of rules, laws, and strategies adopted by the government
to manage the economy.

➢ In India, two distinct regimes:

✓ Pre-1991: Protectionist, socialist-oriented model.

✓ Post-1991: Liberalization, Privatization, Globalization (LPG) model.

2. Pre-1991 Policy Regime and Its Consequences

Features:

➢ Heavy regulation and licensing (License Raj).

➢ Dominant public sector, limited private role.

➢ Import substitution and protectionist trade policies.

➢ High tariffs and restrictive FDI norms.

Consequences:

➢ Low economic growth ("Hindu rate of growth").

➢ Inefficient public sector enterprises with low productivity.

➢ Limited competition and innovation.

➢ Shortages and slow technology adoption.

➢ Frequent Balance of Payments (BoP) crises.

➢ Bureaucratic delays and corruption.

3. Post-1991 Policy Regime and Its Consequences

Features of the New Economic Policy:

➢ Deregulation of industries.

➢ Liberalization of trade and capital flows.

➢ Privatization of public enterprises.

 ➢ Promotion of foreign investment and global integration.

Positive Consequences:

➢ Higher GDP growth rates (average 6–7% post-1991).

➢ Increased FDI inflows and exports.

➢ Expansion of service sector and IT industry.

➢ Development of a consumer-driven economy.

➢ Financial sector modernization.

➢ Integration with global markets.

Negative Consequences:

➢ Rising income inequality and urban-rural divide.

➢ Growth without proportionate employment generation.

➢ Vulnerability to global economic shocks.

➢ Neglect of agriculture and informal sectors.

➢ Over-dependence on foreign capital and imports in some sectors.

4. Sector-wise Impact

Sector Positive Impact Negative Impact

Industry Technology, productivity, global Closure of small-scale units
brands
Services Boomed (IT, telecom, finance) Skewed toward urban, educated
population
Agriculture Some reforms, but relatively Stagnation, farmer distress
neglected
Trade Export diversification, global Trade deficits and dependence on
linkages imports

5. Summary
The shift in India’s policy regime has brought transformational changes—from a slow,
inward-looking economy to a dynamic, globally integrated one. While it has spurred growth
and modernization, challenges remain in ensuring that growth is inclusive, equitable, and
sustainable.