List the Components of Globalization of India Economy.

Globalization means the economic integration of the country with the rest of the world. This involves four components:

Reduction of trade barriers in the form of custom duties or quantitative restriction or quotas so as to permit free flow of goods and services among different economies

  • Creation of an environment in which free flow of capital (or investment) can take place between nation-states,
  • Creation of an environment for free flow Of technology, and
  • Creation of an environment in which free flow of labour or human resources can take place among different countries of the world.

Advantages of Globalisation:

Globalisation generates many advantages for a developing economy like India. Among these, the more important ones can be briefly summed up as follows

Globalization helps in removing inefficiency: In the absence of globalization prolonged protection of domestic industry has serious damaging effects on cost structure: Industries habitually fall asleep under protective umbrellas and become careless about cost.

Globalization serves to give a boost to the long-run average growth rate of the economy :

  • improving the allocation efficiency of resources,
  • reducing the capital output ratio and
  • increasing the labor productivity.

Globalisation helps to restructure the protoction and trade pattern in favour of labour-intensive goods and labour-intensive techniques.

Foreign capital is attracted to exploit the professional export opportunities along the above lines. With the entry of foreign capital; updated technology also enters the country.

With the entry of foreign competition and the removal of import tariff barriers, domestic industry will be subject to price-reducing and quality-improving effects in the domestic country.

Uneconomic import substitution will slowly disappear and cheaper imports, particularly of capital goods, will reduce the capital-output ratio in manufacturing. Lower prices of manufactured goods will improve the terms of trade in favour of agriculture.

The main effect of globalisation is felt in the consumer goods industries. As there is a large domestic demand for these goods, employment opportunities would expand and over a period of time, the trickle down effect will operate and the proportion of people below:, the poverty ,line will go down.

It is also believed that the efficiency of banking and financial sectors. will increase With the opening up of these areas to foreign capital and foreign banks.

Globalisation of the Indian Economy:

The following measures have been taken towards globalisation of the Indian economy:.

Automatic approval for direct foreign investment up to 51 per cent foreign equity ownerships .in a wide range of industries. Earlier, all foreign investments were limited to 40 per cent.

Automatic permission for foTeign technology agreements royalty payments up to 5 per cent of domestic sales or 8 per cent of export sales or lump sum payment of Rs. 10 million. Automatic approval for all other royalty payments will also be given if the projects can. generate internally the foreign exchange required.

With a view to provide access to international markets, majority foreign equity holdings up to 51 per cent equity would be allowed for trading companies primarily engaged in export activities.

As a part of shift in policy orientation from import substitution to export promotion, tariff rates were reduced and quantitative controls over imports were removed. Quantitative restrictions were replaced by price-hosed system. Other measures include setting up of special economic zones, aligning EXIM procedures with WTO norms, removal of disincentives, export promotion through import entitlement.

Tags: Ba Economics

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