Effects of Globalisation
and Liberalisation Policies on the Indian Economy with Reference to Foreign
Trade, Capital Flows and Technology Transfer
In 1991, India faced a very serious economic
crisis. The country had very little foreign exchange, high inflation, and many
restrictions on business and trade. To deal with this problem, the Government
of India introduced new policies. These policies were called liberalisation, privatisation, and globalisation
(often known together as LPG reforms).
Liberalisation
meant reducing government control over the economy and giving more freedom to
private businesses.
Globalisation meant connecting India’s economy with the world, opening up to
international trade, foreign investment, and global competition.
These reforms
changed the structure of the Indian economy in a big way. They had many effects
on foreign trade, capital flows, and technology transfer.
In this
article, we will discuss these effects in simple words.
1. Liberalisation and Globalisation: What
They Mean
Liberalisation
·
It is the process
of reducing government rules and restrictions on industries and trade.
·
It allowed
businesses to set up industries more easily.
·
It reduced taxes
and import duties.
·
It gave more
freedom to private companies.
Globalisation
·
It means greater
integration of India with the world economy.
·
It allowed free
flow of goods, services, money, and technology across countries.
·
It increased
foreign trade, foreign investment, and international cooperation.
Together, these
policies opened new opportunities for the Indian economy.
2. Effects on Foreign Trade
Before 1991,
India followed a policy of self-reliance. There were strict controls on imports
and exports. Only a few items were exported, and imports required licenses.
After liberalisation
and globalisation, foreign trade grew rapidly.
Positive Effects
1.Increase in
Exports:
o India started exporting more goods like IT services,
textiles, engineering products, and agricultural items.
o Software exports became one of India’s strengths.
2.Diversity of
Imports:
o India could import better machines, raw materials, and
consumer goods.
o Products like mobile phones, laptops, and modern
medicines became easily available.
3.Reduction of Trade
Barriers:
o Import duties were reduced.
o Quotas and licensing systems were removed.
4.Improvement in
Balance of Payments:
o Export earnings helped India earn more foreign
exchange.
o This reduced the pressure of debt.
5.Integration with
World Markets:
o Indian companies became a part of global supply
chains.
o Example: IT companies like Infosys and TCS started
serving clients all over the world.
Negative Effects
1.Rising Trade
Deficit:
o India’s imports, especially oil and electronics, are
much higher than exports.
o This creates a trade imbalance.
2.Dependence on
Foreign Markets:
o Indian economy became dependent on global demand.
o If global markets fall, India’s exports also suffer.
3.Pressure on
Domestic Industries:
o Many small industries in India could not compete with
cheap imported goods.
o This led to unemployment in some sectors.
3. Effects on Capital Flows
Capital flow
means movement of money in and out of the country for investment. After
globalisation, India opened its doors to foreign investors.
Positive Effects
1.Increase in
Foreign Direct Investment (FDI):
o Foreign companies invested in sectors like
automobiles, telecom, banking, retail, and manufacturing.
o Example: Companies like Hyundai, Walmart, and Amazon
came to India.
2.Foreign
Institutional Investment (FII):
o Global investors started investing in Indian stock
markets.
o This increased liquidity and market growth.
3.Development of
Financial Markets:
o Indian stock exchanges like NSE and BSE became more
modern.
o Regulations improved to attract global investors.
4.Creation of Jobs:
o FDI in industries created millions of jobs.
o Call centers, IT companies, and automobile factories
are examples.
5.Rise of Start-ups:
o Venture capital from abroad supported Indian
start-ups.
o Companies like Flipkart, Ola, and Paytm grew with
foreign funding.
Negative Effects
1.Vulnerability to
Global Shocks:
o If foreign investors withdraw money suddenly, Indian
markets crash.
o Example: During the global financial crisis of 2008,
FIIs withdrew funds, and the Indian stock market fell.
2.Profit
Repatriation:
o Many foreign companies send their profits back to
their home countries.
o This reduces India’s foreign exchange earnings.
3.Unequal Growth:
o FDI mostly flows to urban and developed areas, not
rural India.
o This increases regional imbalance.
4. Effects on Technology Transfer
Technology
transfer means adoption of modern methods, machines, knowledge, and innovation
from developed countries.
Positive Effects
1.Modernisation of
Industries:
o Indian industries adopted new machines, tools, and
production methods.
o This improved efficiency and quality.
2.Growth of IT and
Software Sector:
o Globalisation gave India access to world-class
technology.
o The IT sector became globally competitive.
3.Improvement in
Communication:
o Internet, mobile phones, and satellite communication
spread fast.
o India became a hub of digital services.
4.Healthcare and
Pharmaceuticals:
o Advanced medical technologies and medicines entered
India.
o Indian pharma companies also started exporting
medicines abroad.
5.Research and
Innovation:
o Collaboration with foreign universities and companies
improved research.
o Example: ISRO and NASA collaborations in space
technology.
Negative Effects
1.Technology
Dependence:
o India depends heavily on foreign countries for
advanced technologies.
o Example: Defence and electronics sector rely on
imports.
2.High Cost of
Technology:
o Modern technology is costly and not affordable for
small businesses.
3.Threat to
Traditional Skills:
o Old crafts and local industries are losing importance
due to machine-based production.
5. Overall Impact on Indian Economy
Positive Impacts
·
Higher economic
growth rates.
·
More employment
in services and manufacturing.
·
Rise of middle
class and consumer culture.
·
Better infrastructure,
transport, and communication.
·
India became a
respected player in the global economy.
Negative Impacts
·
Widening income
inequality.
·
Pressure on
agriculture sector.
·
Loss of cultural
identity due to western influence.
·
Rural areas still
left behind.
·
Environmental
challenges due to rapid industrialisation.
Globalisation and liberalisation policies
since 1991 have transformed the Indian economy. They opened India to the world,
improved trade, attracted foreign investment, and brought new technologies.
India’s GDP grew, millions of jobs were created, and the country became a
strong part of the global market.
However, there
are also challenges. Rising inequality, dependence on imports, and
vulnerability to global shocks remain major concerns. To ensure balanced
growth, India must strengthen domestic industries, support small businesses,
and invest in rural development.
In short,
globalisation and liberalisation have been both a boon and a challenge. With proper policies, India can
use these opportunities for inclusive and sustainable growth.
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