Q1 What is Liberalization | unit 1 globalization and indian society

FC2

Unit 1Globalization and Indian Society

Q1) What is Liberalization? Give some Reforms taken during liberalization and Impact of these reforms? A1) Liberalization of the economy means to free it from direct or physical controls imposed by the government. Economic reforms were based on the assumption that market forces could guide the economy in a more effective manner than government control. Examples of one of other undeveloped countries like Korea, Thailand, Singapore, etc. that had achieved rapid economic development as a result of liberalization were kept in consideration.

A Balance of Payments crisis in 1991 which pushed the country to near bankruptcy.

Rupee devalued and economic reforms were forced upon India.

India central bank had refused new credit and foreign exchange reserves had reduced to the point that India could barely finance three weeks’ worth of imports

Reforms taken during liberalization

Abolition of industrial licensing and registration

Liberalizing the MRTP act

Freedom for expansion and production

Increase in the investment limit of the small industries

Freedom to import capital goods

Freedom to import technology

Free determination of interest rates

Impact of these reforms

Annual growth in GDP

A rate of growth that will double average income in a decade

Rapid Growth in all sectors.

Exports of information technology enabled services particularly strong.

Q2) What are the components of liberalization? Explain any 3. A2)

Industrial Liberalization

Industrial Sector was among the first sectors to be liberalized in India in a series of measures. Industrial licensing has been abolished except in a small number of sectors where it has been retained on strategic considerations.

Abolition of industrial licensing

Reduction in d reservation of public sector

Facilitated easy access to foreign technology

Restriction were removed on expansion

Opening the economy to FDI

Foreign Direct Investment in IndiaForeign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries. Foreign Investment Promotion Board (FIPB) is a competent body to consider and recommend foreign direct investment. 2. Trade LiberalizationTrade policy allowing domestic providers (of goods and/or services) to compete more freely in world markets and foreign providers to compete more freely in domestic market.

3. Financial LiberalizationFinancial liberalization (FL) refers to the deregulation of domestic financial markets and the liberalization of the capital account. In one view, it strengthens financial development and contributes to higher long-run growth. In another view, it induces excessive risk-taking, increases macroeconomic volatility and leads to more frequent crises

Q3) What Fiscal Sector Reforms of Liberalization? Show a graphical representation of Import Duty Reductions after liberalization? A3)

India's fiscal sector reforms help to raise the rate of savings and investment in India. This further helps to enhance the productivity of public expenditures

India has established itself as one of the fastest growing economies in the world. India is also advancing towards the economical growth and improvement in literacy.

During 1999-2000, India's domestic savings and investment was estimated to grow by 23% and Indian economy was expected to grow by 6.4% although the average growth rate declined to 6.0% in comparison to earlier year

In the first five year plan, India had attained an average annual growth rate by 3.5%.

Indian economy showed an average growth rate of 6.4%, which was 5.9% in the 80's. At the end of the 8th Five Year Plan, the annual growth rate of India reached 6.9 percent.

During the period from 1991-92 the Indian economy passed through a tough time. The overall economic growth in this period declined to 1.1% and the total fiscal deficit became 8% of the GDP.

Q4) What is Privatisation? Give arguments in favor against of privatisaton? A4) It refers to the transfer of assets or service functions from public to private ownership or control and the opening of the hitherto closed areas to private sector entry. Privatisation can be achieved in many ways- franchising, leasing, contracting and divesture. Conditions for privatisaton

Liberalisation and de-regulation of the economy is an essential pre- requisite if privatisation is to take off and help realize higher productivity and profits.

Capital markets should be sufficiently developed to be able to absorb the disinvested public sector shares.

Arguments In Favor of privatisaton

Privatisation will help reducing the burden on exchequer.

It will help the profit making public sector units to modernize and diversify their business.

It will help in making public sector units more competitive.

It will help in improving the quality of decision-making of managers because their decisions will be made without any political interference.

Privatisation may help in reviving sick units which have become a liability on the public sector.

Without government financial backing, capital market and international market will force public sector to be efficient

Arguments against privatisation

Privatisation will encourage growth monopoly power in the hands of big business house. It will result in greater disparities in income and wealth.

Private enterprise may not show any interest in buying shares of loss- making and sick enterprises

Privatisation may result in lop-sided development of industries in the country.

The limited resources of the private individuals cannot meet some of the vital tasks which alter the very character of the economy.

The private sector may not uphold the principles of social justice and public welfare.

Privatization offers both opportunities and threats to the economy. We have to privatize in such a manner that we make the maximum opportunities while at the same time minimizing the threats to the economy. Q5) What is Globalisation? What measures towards globalisation has been taken? A5) Globalisation means integrating the domestic economy with the world economy. It is a process which draws countries out of their insulation and makes them join rest of the world in its march towards a new world economic order.It involves increasing interaction among national economic system, more integrated financial markets, economies of trade, higher factor mobility, free flow of technology and spread of knowledge throughout the world. Measures towards Globalisation:

Convertibility of Rupee: To make the currency fully convertible i.e., allow it to determine its own exchange rate in the international market without any official intervention.

Import Liberalisation: As per the recommendation of the World Bank, free trade of all items except negative list of imports and exports has been allowed.

Opening the economy to foreign capital: The government has taken a number of measures to encourage foreign capital in India. Many facilities and incentives have been offered to the foreign investors and non-resident Indians in the new economic policy

Main organisation for facilitating GlobalisationThere are many international organisation which have facilitated the process of globalisation. We shall study three main organisations here. These are:

International Monetary Fund (IMF)

World Bank

World Trade Organisation (WTO)

Q6) Explain Information Technology in India? Give some government Initiatives and its achivements. A6) Information Technology in India is an industry consisting of two major components: IT services and business process outsourcing (BPO)The sector has increased its contribution to India's GDP from 1.2% in 1998 to 7.7% in 2017. According to NASSCOM, the sector aggregated revenues of US$180 billion in 2019 with export revenue standing at US$99 billion and domestic revenue at US$48 billion, growing by over 13%. As of 2020, India's IT workforce accounts for 4.36 million employees. The United States accounts for two-thirds of India's IT services exportsIndia’s IT industry contributed around 7.7% to the country’s GDP and is expected to contribute 10% to India’s GDP by 2025. Government InitiativesSome of the major initiatives taken by the Government to promote IT and ITeS sector in India are as follows:

On May 2019, the Ministry of Electronics and Information Technology (MeitY) launched the MeitY Startup Hub (MSH) portal.

In February 2019, Government released the National Policy on Software Products 2019 to develop India as a software product nation.

The Government has identified Information Technology as one of 12 champion service sectors for which an action plan is being developed. Also, the Government has set up a Rs. 5,000 crore (US$ 745.82 million) fund for realising the potential of these champion service sectors.

As part of Union Budget 2018-19, NITI Aayog was to set up a national level programme to enable efforts in AI^ and leverage AI^ technology for developing the country.

In the Interim Budget 2019-20, the Government announced plans to launch a national programme on AI* and setting up of a National AI* portal.

National Policy on Software Products-2019 was passed by the Union Cabinet to develop India as a software product nation.

AchievementsFollowing are the achievements of the Government during 2019-20:

About 200 Indian IT firms are present in around 80 countries.

Total export revenue of the industry is expected to grow 8.1% y-o-y to US$ 147 billion in FY20. IT-BPM sector accounted for the largest share in the Indian services export at 45%.

Total number of employees grew to 1.02 million cumulatively for four Indian IT majors (including TCS, Infosys, Wipro, HCL Tech) as on December 31, 2019.

Q7) What is Impact Information Technology & Communication? A7) India is the world's largest sourcing destination with largest qualified talent pool of technical graduates in the world. The country has the low-cost advantage, being 5-6 times inexpensive than the US. India is the second-fastest digitising economy among 17 leading economies in the world.According to Cloud Next Wave of Growth in India report, India’s cloud market is expected to grow three-fold to Rs. 49,621 crore (US$ 7.1 billion) by 2022, driven by the demand for Big Data, Data Analytics, Artificial Intelligence (AI) and Internet of Things (IoT).India’s IT industry contributed around 7.7% to country’s GDP (Gross Domestic Product) and is expected to contribute 10% to India’s GDP by 2025. As of FY20, the IT industry employed 4.3 million people. In FY20, the sector added 205,000 jobs, up from 185,000 jobs added in FY19. Total number of employees grew to 1.02 million cumulatively for four Indian IT majors (including TCS, Infosys, Wipro, HCL Tech) as on December 31, 2019. Indian IT industry employed 205,000 new hires and had 884,000 digitally skilled talent in 2019.IT & BPM industry revenue was estimated at around US$ 191 billion in FY20 at 7.7% growth y-o-y and is estimated that it will grow to US$ 350 billion by 2025. Moreover, revenue from the digital segment is expected to form 38% of the total industry revenue by 2025. Digital economy is estimated to reach Rs. 69,89,000 crore (US$ 1 trillion) by 2025. The domestic revenue of the IT industry was estimated at US$ 44 billion and export revenue was estimated at US$ 147 billion in FY20.Artificial Intelligence (AI) is expected to boost India's annual growth rate by 1.3% by 2035, as per NITI Aayog. A substantial increase in AI by Indian firms can result in a 2.5% increase in India’s Gross Domestic Product (GDP) in the immediate term.The computer software and hardware sector in India attracted cumulative foreign direct investment (FDI) inflow worth US$ 45.97 billion between April 2000 and June 2020. The sector ranked 2nd in FDI inflows as per the data released by Department for Promotion of Industry and Internal Trade (DPIIT).PE (Private Equity) investment in the sector stood at US$ 11.8 billion across 493 deals in 2019. Venture Capital (VC) investment in the IT & BPM sector stood at US$ 67.0 million during Q3FY19.The Government of India has extended tax holidays to the IT sector for Software Technology Parks of India (STPI) and Special Economic Zones (SEZs). As of February 2020, there were 421 approved SEZs across the country, with 276 of them from IT & BPM and 145 as exporting SEZs.Further, the country is providing procedural ease and single window clearance for setting up facilities. On May 2019, the Ministry of Electronics and Information Technology (MeitY) launched the MeitY Startup Hub (MSH) portal.Also, the Government has identified IT as one of the 12 champion service sectors for which an action plan is being developed. It is setting up a Rs. 5,000 crore (US$ 745.82 million) fund for realising the potential of these champion service sectors. Q8) What were the changes in agrarian sector due to Globalization? A8) Globalization has allowed agricultural production to grow much faster than in the past. A few decades ago fast growth was somewhat over 3 percent per year. Now it is 4 to 6 percent. However, these higher rates of growth involve a substantial change in its composition. The bulk of growth initially came from basic food staples when the scope for export markets is limited, whereas there is now a swing towards much higher value commodities. Explosive growth in income of high-income countries means that large aggregates of production can now occur in what were previously small niche markets. High quality coffee and tea are examples. The market for horticulture exports has also grown immensely and can continue to grow.As exports of high-value agricultural commodities increase and the multipliers to per capita income develop, domestic demand for high-value livestock and horticulture will increase rapidly. Thus, even in quite low-income countries, around half the increments to agricultural production will be in high value horticulture and livestock for both export and domestic use. As a result, the role of cereal production will become relatively less important.As the production mix moves more towards export crops and high-value crops and livestock, the rate of return to investments that reduce transaction costs will increase rapidly. The same is true for investments in all the value-added enterprises. There is however a caveat on value added. Much of such activity is through capital-intensive processes. There are also complexities in marketing. Both will give comparative advantage to high-income countries. Low-income countries need to pay attention to comparative advantage at every step in the chain from producer to consumer and should not attempt components in which they lack a comparative advantage.Cereals play an important role in food security in a global economy. The cost of shipping is declining. Two forces in developing countries may lead to increased cereal imports. First, globalization and specialization may lead to an increase in the area planted to high-value commodities and potentially result in a decline in the area planted to cereals if either increased intensity of production (i.e. double cropping) or extensification are not possible. Second, any shift of income distribution towards the low-income, food insecure, will shift the demand schedule upwards. Thus, low-income countries may be beneficiaries of declining cereal prices, even while they lose from declining prices of other agricultural commodities. Q9) How did the rise in corporate farming lead to Farmer’s suicide ?A9)

The surge in input costs: A major cause of the farmers’ suicides in India has been the increasing burden on the farmers due to inflated prices of agricultural inputs. The culmination of these factors is seen in the overall increase in the cost of cultivation, for wheat, the cost at present is three times than it was in 2005.

Cost of chemicals and seeds: Be it the fertilisers, crop protection chemicals or even the seeds for cultivation, farming has become expensive for the already indebted farmers.
Costs of Agricultural equipment: The input costs, moreover, aren’t limited to the basic raw materials. Using agricultural equipment and machinery like tractors, submersible pumps etc adds to the already surging costs. Besides, these secondary inputs have themselves become less affordable for the small and marginal farmers.
Labour costs: Likewise, hiring labourers and animals is getting costlier too. While this may reflect an improvement in the socio-economic status of the labourers, driven primarily by MGNERGA and hike in minimum basic income, this has not gone too well with boosting the agriculture sector

Distressed due to loans:

NCRB data points out that in 2474 suicides out of the studied 3000 farmer suicides in 2015 the victims had unpaid loans from local banks. This is clear enough an indication for drawing correlations between the two. Whether or not the banks had been harassing them, however, is a long-drawn debate and needs more specific empirical evidence.

Moreover, a shift away from the usual trend also revealed that of the loans taken by these farmers, only 9.8% were loaned from money-lenders. Thus the pressure or muscle-power of money-lenders could be far from being a major driving force, as is otherwise perceived.

Another source of strong linkages between farmer suicides and indebtedness is reflected from the spread of the two. While Maharashtra had 1293 suicides for indebtedness, Karnataka had 946. Note that both these states saw one of the highest incidences of farmer suicides as well as indebtedness.

Lack of direct integration with the market: Although initiatives like the National Agricultural Market and contract farming are helping integrate the farmers’ produce directly with the market, cutting the role of intermediaries, the reality is still lagging behind.

Lack of awareness: The digital divide, as well as the literacy gap, has made the marginal and small farmers particularly vulnerable due to their inability to utilise the positives of government policies. This is reflected in the continued unsustainable cropping practices – like cultivating sugarcane in water-deficit regions.

Water crisis: The concentration of these suicides in the water-deficit regions of states like Maharashtra, Karnataka is a manifestation of how the water crisis and thereby failure to meet production demands have intensified the menace. This is particularly true in the backdrop of continued failed monsoons.

Interstate water disputes: What has added to the already prevalent crisis is the unwillingness to cater to each other’s water needs amongst the states. A case in point is the recently resurfaced Kaveri dispute that saw Karnataka and Tamil Nadu battle out water shortage both in and outside the tribunal even to the extent of non-compliance with the tribunal award.

Climate change has acted as the last nail in the coffin by resulting in furthering of the uncertainties associated with the already uncertain monsoon system and hence agricultural production. While incidents like flash floods have led to crop losses, deferred monsoons have seen production shortfall year-in and year-out

India’s urban consumer-driven economic policies: The political economy of India is driven more by urban consumers than rural producers. This is reflected in the urgency to impose price controls in case of price rise (imposing Minimum Export Prices, bringing items under Essential Commodities etc) and a lacklustre withdrawal once the price is under control. Contrast this with how we have been imposing a minimum import price to secure our steel sector. This differential treatment to primary sector also limits profit margin and thereby hinders farmers’ chances of breaking free from the cycle of indebtedness.

Loan waivers instead of restructuring, re-investment measures: Our approach of handling farmer indebtedness and hence farmer suicides have been appeasement politics like the recent move by the UP government to waive off Rs 36000 crore worth of loans. Surprisingly this comes at a time when the agricultural yield is expected to be better in the wake of a good monsoon.

In essence, the factors sum up to crop failure, unsustainable production and subsequent farmer indebtedness leading to failure of strengthening the economic state of the farmer as the driving force behind these suicides.

Sign Up