Let us make an in-depth study of the Impact of Globalisation on Indian Economy.

No country can afford to remain isolated. Before 1990s, India followed an inward-looking strategy or import substitution of growth rather than outward growth strategy.

The economic reforms were introduced in 1991 in the wake of macroeconomic crises.

These reform measures sought to improve the efficiency of resource allocation and expand the productive capacity of the economy, included trade and exchange rate liberalisation, a more market-oriented industrial policy, and taxation reform.


These measures were supplemented by reforms of the financial and capital markets. The process of globalisation is one such element of our outward-looking growth strategy. Almost two decades of these new economic policy measures have passed. Now we will review these performance of the Indian economy in the light of globalisation.

India is a small player in international trade. As time passes, her share of world trade declines. India’s share of world trade at the time of independence was roughly 2 p.c. and by 2006-07 it went down to 1 p.c. Anyway, the economy of the country is globalizing at a faster rate.

This is evidenced from the following facts:

The ratio of international trade to India’s GDP has gone up from 15.6 p.c. in 1990-91 to 20.8 p.c. in 1999-2000. Imports and exports together currently (2004-05) account for 23 p.c. of GDP as against 15 p.c. in 1990-91. India’s engineering goods like automobiles and motorbikes are now competing with the industrialized countries of the world both in terms of quality and price. Currently, the world economy and in particular Asian countries are expanding rapidly. This is expected to give a spur to India’s growth prospect.


Current account balance for the last two years (i.e., 2002-03, 2003-04) has turned surplus (0.7 p.c. in 2002-2003) compared to a deficit of 3.1 p.c. of GDP in 1990-91. All these suggest that current external receipts pay for current external liabilities. In addition, there has been an unprecedented accumulation of foreign exchange reserves.

There has been a spectacular jump in the ratio of foreign investment to exports from just 0.6 p.c. in 1990-91 to 13.4 p.c. in 1999-2000. Although direct investment showed a significant decline, the portfolio investment showed a substantial increase.

In this connection, Prof. R. S. Bawa’s remarks deserve mention:

“The stock market indices in the country are moving in line with those of other parts of the world. The corporate sector of the country are getting aligned with those in other countries. The exchange rate adjusts to the pressure from the international market. The financial market of the country is much more integrated with global finance today than a decade back. The volatile nature of private capital flows and development elsewhere in the world have started impinging more on the economy of the country. The behaviour of the producers and consumers is changing fast. The strong winds of globalisation have made the Indian corporate sector feel shy of manufacturing sector and they are now attracted more towards the service sector.”


Annual growth rates of national income rose from 5.7 p.c. during 1985-90 to 7.9 p.c. during 2002-07. This rise in GDP is attributed mainly to the remarkable growth of the service sector at the expense of both primary and secondary sectors. As a result, occupation pattern has tilted more in favour of the service sector.

It is argued by the reformists that the reduction in inequalities in income distribution and poverty in recent years may be attributed to a shift of employment in favour of the tertiary sector and construction as well as informal/unorganised sector. The rate of inflation fell to a record level of 1.5 p.c. in February, 2002. But, it rose to 3.9 p.c. in January 2008. However, the later months saw inflation rate to rise to as high as almost 13 p.c. in September, 2008.

It has come down to less than 3.5 p.c. in 12 February, 2009. Food grains production reached a record level of 212 million tonnes in 2001-02. Though food grains production fell in 2004-05 and 2005-06, it again rose to a record level of 217 million tonnes in 2007-08. As a result, despite global food crisis prevailing in mid-2008, India did not experience such food crisis. Thanks to good performance of the agricultural sector!

As far as external sector is concerned, balance of trade position has shown some improvement and the country’s foreign exchange reserves have risen to all-time high of Rs. 10,85,056 crore in November 2007. Although, export growth is not steady, it grew at the rate of 15 p.c. in 2003-04. It climbed up to 28 p.c. in the next year, but grew at the rate of 25.3 p.c. in 2006-07.

It is true that although exports now finance roughly 70 p.c. of imports, growth is inadequate. Number of foreign collaborations increased from 289 involving foreign investment of Rs. 534 crore in 1991 to 2,270 involving foreign investments of Rs. 26,875 crore in 2001. The quality of business is changing rapidly showing greater profitability, competitiveness, efficiency and technology up-gradation.

There are some glaring dark sides of globalisation. There has been a steady widening of trade deficit as well as current account deficit. The commodity composition of exports has remained almost the same. Direction of exports is also unchanged. What is worrisome is that there has been an increase in the import intensity of exports.

Despite massive rise in foreign investments, export sector is lagging far behind. India’s outstanding external debt rose from $ 85,285 million in 1992 to $ 155,033 million in March, 2007. Debt service payment in terms of US $ billion rose from 8.2 to 11.9 during the same time period. However, debt-service ratio that rose as high as 30.1 p.c. in 1992, has been showing a great decelerating trend since the late 1990s. In March 2007, this ratio fell as low as 4.8 p.c.

India is yet to gain from integrating the domestic economy with the world economy. She is facing stiff competition with the MNCs. In the midst of competition, Indian firms are being driven out. In the process, imports to turnover ratio ‘have been increasing’ resulting in a great strain on external payments for India. Indian firms are yet to make any significant dent outside the country.

As it is a competition among unequal, poor developing countries like India are definitely at a disadvantageous position. In addition, there are pressures from the IMF, World Bank—as well as the USA—to go for more globalisation and removal of all sorts of rigidities, controls and restrictions.



Thus, our performances during the reform years are a mixed bag. The country over the last 17-18 years has seen both quantitative and qualitative changes. Economic growth rate in a market-led economy is surely worth emulating. India is considered as one of the great economic powers of the world. It is hoped that she would sooner be a prospective international power. In spite of this development, the economy has not been able to adjust with a human face. We see some adverse, inadequate and counterproductive results which may be attributed to economic reforms/globalization, etc.

During this period, there has been a decline in social expenditure from 28.26 p.c. in 2001-02 to 27.19 p.c. in 2006-07. The country spends much below the required amount on education, health, etc. Injustices are meted out to a vast number of people. Number of people living below the poverty line in 2004-03 stood at 27.5 p.c. Per capita availability of cereals and pulses per day for an Indian has declined from 510.1 gms in 1991 to 422.4 gms in 2005. It however, rose to 444.5 gms per days in 2006.

During the reform period, nearly 15,000 farmers all over the country committed suicides because of debt, malnutrition, etc. On the other hand, there are at least three Indians who belong to top 10 richest men of the world. They are: Lakshmi Mittal (4th), Mukesh Ambani (5th) and Anil Ambani (6th). Further, child manutrition in India is unparalled in the world. More than 304 million people lack what is called ‘entitlement to basic education’, as there are as many as 35 p.c. of the total population are illiterate.


So we can conclude that a large section of the Indian population is feeling insecure. Development that has taken place is called ‘exclusive development. Reforms have not made people ‘inclusive’ in the sense that its benefits did not reach ordinary people who constitute the bulk of the country. This is not called economic reforms with a human face. We want ‘inclusive growth’ so that the needs of the people are not ignored.