Globalization is the most important geo-political and ...



Globalization in India: Surging Economy versus

Improving Domestic Needs

Joshua E. Montesinos

Professor Ahmad Kamal

New York University

March 22, 2004

NYU-G-JEM-A1

Index of Contents

I. Introduction……………………………………………………………... 2

II. Facts…………………………………………………………………..... 2

India’s Population and Need for a Vibrant Economy…………………... 2 India’s Economic Growth……………………………………………..... 3

Poverty in India……………………………………………………….... 5

Additional Domestic Problems Plaguing India…………………………. 5

III. Analysis………………………………………………………………….. 6

Domestic Spending on National Infrastructure………………………… 6

IV. Conclusion………………………………………………………………. 7

V. Bibliography……………………………………………………………… 8

I) Introduction

To date, globalization is arguably the most important geo-political and economic issue of the twenty-first century. Globalization, the process of seeing the world as a shrinking and singular entity with no obstacles, is often associated with the increased communication and interdependence among nations and citizens.[1] Globalization, in its current state, is a process that is changing the political and economic relationships of developed and developing nations.

New economic relationships and interdependence between nations is at the heart of globalization and is an important factor in all other aspects this phenomenon.

Current global economic activity is in continuous influx. Vastly improved and evolving digital technology allows companies to perform work such as manufacturing, service provision, and research and development anywhere in the world. India is an important country in the globalization process. While many praise and view India as a developing nation’s model for economic success, this success must be viewed in context to how domestic problems of the nation have improved such as poverty, gender inequality, housing, and access to education.

This essay will summarize India’s critical role in this new period of globalization and review how this movement has altered the country’s economic activity, public service provision, poverty, women’s rights and access to education. The essay will show that globalization is making India an economic power, an essential step in improving all other quality of life aspects for all Indian citizens. However, as in all countries, domestic problems are still a reality. A summary of India in the context of globalization proves that global economic interdependence is successful only if nations adopt policies equally based on pro-growth and addressing domestic needs.

II) Facts: India and Globalization

India’s Population and Need for a Vibrant Economy

India has a population of roughly 1 billion and adds approximately between 15 and 20 million people per year. It has the second largest population in the world, and is growing at rates between 1.5 and 1.7% since the late 1990’s.[2] Moreover, India has the largest working age population in the world. Approximately one out of every three workers is in the working age range of 15 to 59. By 2020, close to one-half of India’s population will be in this age range. India graduates about three million students annually and that rate is expected to double by the start of the next decade. Thus, India is on pace to be an economic hotbed owning the largest for skilled workers and consumers.[3]

A diverse national economy that can employ many people in a variety of industries is critical to India. Experts and academics highlight the turning point of India’s economy to 1991 with the implementation of the New Industrial Policy. India began employing policies emphasizing privatizations of markets, expansion of businesses, expansion of trade, and industry diversity.[4] This was a shift from its economy that was agrarian-based and centered on regional economic activity. India began a privatization movement that looked to expand its businesses beyond the national level.

India’s Economic Growth

The late 1990s saw the rise of India’s economy and the beginning of continuous years of enormous national economic growth. The World Bank reports that India’s economy has experienced average GDP growth of 6.0 between 1992-2002. Moreover, the World Bank estimates that throughout until 2006, GDP growth is likely to grow at a 6.2% annual rate. [5] This year alone, 2004, India expects to see national economic growth of 7.5 percent.[6]

The reason for this growth has been India’s acceptance of economic globalization and the digital economy. India has become a rival to China as the most favored nations for Foreign Direct Investments (FDI). From 1998 to 2002 FDI into India has increased from $2.6 billion to $3.4 billion.[7] This figure rose significantly in 2003 to about $5.5 billion with the upward trend continuing well into this decade.[8] The reasons for great FDI investment is that India’s economy is much more diverse and its increasingly emphasizing service sector industries. According to the World Bank, in 2002, India’s service sector has grown to 50.7% of the GDP while Industry and Manufacturing make up another 26.6%. Moreover, growth in these two sectors has been on par with the overall GDP growth at around 6.5% to 7% in 2001 and 2002.[9]

Indian economic policies have led to increased FDI that has resulted in the creation of continuously expanding sectors that focus on the digital economy. In the global economy many countries strength is manufacturing like China and Brazil. India’s strength, however, is services and information technology. India has accepted and embraced information technology as part of its infrastructure in all non-agriculture industries.[10] This is the reason that the FDI is booming in India. They have discovered an economic niche within the global economy that attracts global economic powers like the United States to invest and produce capital ventures in India.

Today, India has been the benefactor of white-collar outsourcing. American businesses have set up operations for research and development, financial services and accounting, information technology, customer service, and software development.[11] These core economic activities for the global economy are producing employment opportunities for India’s growing professional class.

India is ideal for FDI in service sector industries because of its cheaper labor costs and abundance of educated citizens. As an example of the country’s attractive labor pool, “India produces 3.1 million college graduates per year, but that’s expected to double by 2010. The number of engineering colleges is slated to grow 50%, nearly 1,600, in 4 years.”[12]Overall, globalization can be linked to the diversification of India’s economy, decreased reliance agriculture for its overall GDP, an increase in GDP per Capital to $500 (US dollars), and an increase in imports and exports of goods and services.[13]

Poverty in India

While the prior section summarized the positive aspects of the Indian national economy because of globalization, persistent domestic problems are still present. Throughout its independent history, India has been plagued with a high poverty rate that is exacerbated by the large population and growth trend. As of 2002, the World Bank reports that India has a poverty rate of 34 percent.[14] While the service and industry sectors have experienced large booms, approximately 60% of the labor force works in agriculture. This sector only produces 25% of the GDP showing that those agricultural workers do not earn high wages maintaining the poverty level high.[15] Small-scale farming dominates the agriculture economy that gluts the market and decreases crop prices for farmers. Accordingly, “the price farmers get for their crops has been dropping since 1996, and farm incomes have become increasingly unreliable.”[16] Unlike the service and industry sectors that are diverse and efficient, agriculture production in India is restricted by lack of production diversity, rural differences, and lack of local and state monies to implement and modernization campaign.[17] Thus, the majority of Indians work in the most unstable and least profitable economic sector causing high unemployment.

Additional Domestic Problems Plaguing India

India has improved some aspects of its infrastructure in the past decade but still lacks the complex transportation and utility systems that developed nations use to thrive economically. Beyond the major cities, India is a very rural country. Presently, “India remains very Third World. . . .Per-capita income is just $460 and 300 million Indians subsist on $1 a day or less. . . . Highways in Bombay are choked, crumbling roads lines with slums, . . . and just 60% of the homes have electricity.”[18]

India is plagued with income and education disparities. While India’s most valuable economic asset is its human capital and professional workers, only about 60% of the adult population is literate.[19] Illiteracy, poor access to education, and low-wages plagues the rural states in the north and east of India.[20] Women suffer from unequal access to education and the workforce. Seventy-six percent of men as compared to 55% of women are literate. Only 40% of females are in enrolled in secondary-level schools. This trend continues in the workplace as men dominate India’s labor market. Women only represent 36% of the total labor force and that number has been stagnant throughout the 1990 and 2000s.[21] Thus, there are persistent domestic problems like lack of education, poor infrastructure, and an unstable agricultural sector that maintain problematic social indicators like poverty and illiteracy high. Globalization has proven to improve the economic capabilities of India as a whole, however, India, through policy-making, has to utilize its economic success of globalization to positively impact more Indian citizens, especially those in rural areas.

III) Analysis: How Does Globalization Affect the Poor in India?

Below is a summary of what India can do to implement the positive economic affects of globalization to improve the quality of lives of its rural and poor citizens.

Domestic Spending on National Infrastructure

In economic terms, globalization can alleviate India’s poverty under the following conditions. First, India must be proactive in maintaining intense domestic spending on infrastructure improvements and other essential domestic spending needs. Infrastructure, such as transportation networks, utilities, and water and sewage systems is essential to attracting more business ventures and expansion of local economic activity in India. According to author, Benjamin Soi, “The governments would do better by restricting the fiscal deficit through a reduction in subsidies rather than cutting expenditure on capital outlays for infrastructure thereby adversely affecting GDP growth.”[22] India needs these essential systems to improve quality of life, the country’s desirability for investors, and for businesses to establish offices, research facilities, and manufacturing plants.

Second, India needs heavy investment in its agriculture economy to modernize processes and diversify production. While India’s economic strength is the services, agriculture can be a powerful and useful economic sector. However, India needs to invest monies and develop policies that merges small farms and allows for modern food production processes. The emphasis should be on modernization of the entire economy not simply industry and the service sector.

Finally, India needs to increase its spending and effectiveness on public services, especially education. Illiteracy rates are too high and women are poorly represented in secondary schools and above. As stated earlier, human capital is the strength of the Indian economy. Education for all allows for a more equitable society where Indians are not limited to how they are employed based on region and access to schooling. All three of these domestic spending initiatives can increase FDI investment that will allow India’s economy to continue its ascension into one of the largest in the world. While globalization has altered the economy and quality of life in India, only domestic policies can alleviate poverty and make that society more equitable.

IV) Conclusion: The Potential Benefits of Globalization in India

A developing country has to become a vital member of the global economy in order to be competitive as a nation and relieve the domestic social ills that exist. India has embraced economic globalization and that entails adjusting its national economy to meet the needs of the global superpowers that can invest in the country. Globalization has its drawback in that a developing nation can look to improve only various aspects or sections of its population and country to attract foreign investment and forget it about its domestic needs.

While investment and venture capital is crucial to sustaining growth and diversity, India cannot lose sight of the fact that domestic spending is always a priority for a nation. Not only does it improve the quality of life for Indian citizens but it makes India more attractive for foreign investment. Thus, in order for globalization to have a positive impact on nations like India, policies must be implemented that redistribute the positive outcomes of globalization for domestic needs. This is the only way to manage economic investment in foreign capital and adhere to the domestic needs of the people.

Bibliography

1. Dahiya, Shri Bhagwan and Gupta, Desh. “Foreign Investments and Issues of Corporate Governance in India.” The Australian University Research School of Pacific and Asian Studies, Canberra, Aug 2001

2. Fischer, Stanley “Globalization and Its Challenges” American Economic Association, Washington DC, 3 January 2003.

3. Kripalani, Manjeet and Engardio, Pete. “The Rise of India: Growth is only just starting, but the country’s brainpower is already reshaping Corporate America.” Business Week 8 December 2003: 66-76.

4. Soi, Benjamin C. “Towards a Sound Economy.” Finance India June 2002: 585-600.

5. Stokes, Bruce. “Shining India.” National Journal 6 March 2001: 704-710

6. The World Bank Group. Countries at a Glance Tables: India Data Profile Aug 2003. ()

7. The World Bank Group. GenderStats: India 2002. ()

8. Waldman, Amy. “Sizzling economy revitalizes India.” New York Times. 20 Oct 2003: A1

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[1] Fischer, Stanley “Globalization and Its Challenges” American Economic Association, Washington DC, 3 January 2003.

[2] Stokes, Bruce. “Shining India.” National Journal 6 March 2001: 704-710

[3] Kripalani, Manjeet and Engardio, Pete. “The Rise of India: Growth is only just starting, but the country’s brainpower is already reshaping Corporate America.” Business Week 8 Dec 2003: 66-76.

[4] Dahiya, Shri Bhagwan andGupta, Desh. “Foreign Investments and Issues of Corporate Governance in India.” The Australian University Research School of Pacific and Asian Studies, Canberra, Aug 2001

[5] The World Bank Group. Countries at a Glance Tables: India Data Profile Aug 2003. ()

[6] Stokes, Bruce. “Shining India.” National Journal 6 March 2001: 704-710

[7] The World Bank Group. Countries at a Glance Tables: India Data Profile Aug 2003. ()

[8] Waldman, Amy. “Sizzling economy revitalizes India.” New York Times. 20 Oct 2003: A1

[9] The World Bank Group. Countries at a Glance Tables: India Data Profile Aug 2003. ()

[10] Kripalani, Manjeet and Engardio, Pete. “The Rise of India: Growth is only just starting, but the country’s brainpower is already reshaping Corporate America.” Business Week 8 December 2003: 66-76.

[11] Kripalani, Manjeet and Engardio, Pete. “The Rise of India: Growth is only just starting, but the country’s brainpower is already reshaping Corporate America.” Business Week 8 December 2003: 66-76.

[12] Kripalani, Manjeet and Engardio, Pete. “The Rise of India: Growth is only just starting, but the country’s brainpower is already reshaping Corporate America.” Business Week 8 December 2003: 66-76.

[13] The World Bank Group. Countries at a Glance Tables: India Data Profile Aug 2003. ()

[14] The World Bank Group. Countries at a Glance Tables: India Data Profile Aug 2003. ()

[15] Stokes, Bruce. “Shining India.” National Journal 6 March 2001: 704-710

[16] Stokes, Bruce. “Shining India.” National Journal 6 March 2001: 704-710

[17] Stokes, Bruce. “Shining India.” National Journal 6 March 2001: 704-710

[18] Kripalani, Manjeet and Engardio, Pete. “The Rise of India: Growth is only just starting, but the country’s brainpower is already reshaping Corporate America.” Business Week 8 December 2003: 66-76.

[19] The World Bank Group. Countries at a Glance Tables: India Data Profile 3 Oct 2003. ()

[20] Stokes, Bruce. “Shining India.” National Journal 6 March 2001: 704-710

[21] The World Bank Group. GenderStats: India 2002. ()

[22] Soi, Benjamin C. “Towards a Sound Economy.” Finance India June 2002: 585-600.

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