Here we detail about the six benefits of liberalisation and globalization of Indian economy.

Benefit 1# Shift from Import-Substitution to Export-Led Growth Strategy:

The failure of import substitution strategy of industrial growth to achieve sustained growth forced India and other develop­ing countries to pursue export-led growth strategy (which is also called outward looking strategy of development).

It has been argued that by expanding exports to the other countries and getting re­quired imports from them based on their respective comparative costs, developing countries will be able to achieve faster rate of economic growth.

An important argument for trade liberalisation from the viewpoint of the developing countries is that they will gain from it as they have a comparative advantage in abundant, low-cost unskilled labor. If they specialise in the production of those goods which are labor-intensive, greater integration into global markets would increase their exports and production. This will help in generating more employment opportunities for the poor.


The strategy of development focused on export promotion requires that other countries, espe­cially developed countries should not prevent the imports to their countries through imposition of tariffs and non-tariff barriers. This is possible in the framework of a global economy with free move­ments of trade, capital and technology among countries. The setting up of WTO on Jan 1, 1995 was a step towards that direction. Accordingly, the entry of India in WTO in 1995 was a step to further globalize its economy.

Benefit 2# Foreign Capital Inflows:

The globalisation or integration of the Indian economy with the world economy is also beneficial because it would give a boost to foreign capital inflows in the form of portfolio investment and foreign direct investment (FDI). Portfolio investment will bring valuable foreign exchange currencies in India and free us of balance of payments difficulties. With sufficient foreign exchange reserves, balance of payments constraint on accelerating the growth process will be removed.

In the eighties due to shrinkage of foreign assistance, India had to resort to external commercial borrowings (ECB) which carried relatively higher rates of interest and increased the burden of exter­nal public debt. It may be noted that small foreign exchange reserves led to the economic crisis of 1991.

The role of foreign direct investment is more important than portfo­lio foreign investment as it raises the rate of real investment in the economy and helps us to achieve a faster rate of economic growth. Foreign direct investment (FDI), like domestic investment, has a multiplier effect on output and employment.

Benefit 3# Globalisation and Transfer of Technology:


Another benefit flowing from globalisation of the Indian economy is that it acts as a mechanism for the transfer of technology from the developed countries. Due to financial constraints, Indian companies are in a position to invest only a small amount of funds on R & D. Therefore, it is through globalisation of its economy that we will be able to get advanced technology from the developed countries.

The technological up-gradation of the Indian industries will lead to higher productivity and help us to achieve a higher rate of industrial growth. It is worth noting that it is the multinational corporations (MNCs) that are carriers of technology to the developing countries through technological and financial collaboration with domestic enter­prises. Globalisation makes faster diffusion of new ideas and advanced technologies in the world. This will make possible for the developing countries like India to catch up the developed countries more quickly.

Benefit 4# Increased Market Access:

An important benefit of globalisation is increased market access. Long ago Adam Smith wrote in 1776 that division of labor is limited by the size of market. Free trade accompanying globalisation widens the markets for products of industries.

The larger the market in which products can be sold, the greater the benefit that will accrue as a result of economies of scale and specialisation. This will lower unit cost of production and increase the competitiveness of manu­factured products. Thus globalisation will ensure greater gain from trade. In addition, the wider market increases the incentives for investing in new innovations as the potential return on investment in them will increase.

Benefit 5# Faster Economic Growth and Poverty Reduction:


Above all, it has been argued by some prominent economists such as Jagdish Bhagwati, T.N. Srinivasan, Arvind Panagariya, that globalisation will help in faster rate of reduction in poverty through acceleration of economic growth.

To quote professor Arvind Panagariya, “Countries that have achieved significant poverty reduction are gener­ally those that have grown rapidly and have, in turn, been open to trade. The most obvious example are the Newly Industrialized Economies (NIEs) including Hong Kong, Singapore, Republic of Korea and Taiwan that have entirely eliminated poverty according to the dollar-a-day poverty line. On the other hand, countries such as India that remained autarkic and grew at less than 1.5% in per capita terms until late seventies experienced little reduction in the trend poverty ratio. Both India and China achieved poverty reduction after they began to dismantle autarkic policies and began to grow rap­idly”.

Benefit 6# Employment Argument:

An important argument for liberation of trade and capital flows is that it will generate more employment opportunities.

Employment increases on two counts:

First, the growth in exports based on comparative cost advantage will lead to the creation of more employ­ment opportunities.

Secondly, employment opportunities also increase following the removal of restrictions on capital flows.

The greater capital inflows, especially in the form of foreign direct investment (FDI), create not only more direct employment for labour but they have also a multiplier effect on the growth of employment and output.