Globalisation and the Indian Economy
What made globalisation possible
Explain the factors that enabled globalisation.
1. Better transport. Over the past fifty years, transport technology has made it possible to deliver goods faster and cheaper over long distances.
- Containers: goods are packed into big boxes that can be loaded intact onto ships, trains, planes and trucks. This hugely cut port handling costs and sped up exports.
- Air transport has become cheaper, so airlines carry far more goods.
2. Information and communication technology (IT). Telecommunications (telephones, mobile phones, fax), computers and the Internet, helped by satellites, let people reach each other, get information instantly, and send email or talk across the world at almost no cost. IT has spread the production of services across countries. Example: a news magazine for London readers is designed and printed in Delhi: the text arrives by Internet, the designers get instructions by telecom, the copies fly to London, and payment moves from a London bank to a Delhi bank instantly online.
Trade barriers. Suppose India put a tax on imported toys. Importers would pay the tax, so Chinese toys would cost more, imports would fall, and Indian toy makers would prosper. A tax on imports is a trade barrier: a restriction the government sets. Another is a quota: a fixed limit on how many of a good may be imported. Governments use trade barriers to regulate foreign trade: which goods may come in, and in what amounts.
Why India had barriers. After Independence, India put barriers on foreign trade and foreign investment to protect its own producers from foreign competition. Industries were just starting in the 1950s and 1960s and could not have survived it. So India imported only essentials like machinery, fertilisers and petroleum. All developed countries also protected their producers in their early stages of development.
3. Liberalisation (from 1991). Around 1991, India decided its producers should now compete with producers around the world, believing competition would improve their quality. Powerful international organisations supported this. Most barriers on trade and investment were taken away: importing and exporting became easy, and foreign firms were free to open factories and offices in India. Removing government barriers or restrictions is called liberalisation: businesses decide freely what to import or export.
4. The WTO. The World Trade Organisation works to free up trade between countries. Developed countries took the lead in starting it; it sets rules for trade and checks they are obeyed; about 160 countries are members. But in practice:
- developed countries have unfairly kept their own trade barriers;
- WTO rules have forced developing countries to remove theirs.
Example: in the US, agriculture is about 1% of GDP and 0.5% of jobs, yet US farmers get massive government payments. So they sell farm products abroad at abnormally low prices, hurting farmers in other countries. Developing countries ask: we lowered our barriers as the rules said, but you still pay your farmers. 'Is this free and fair trade?'
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