Globalisation in India

India had the distinction of being the world's largest economy in the beginning of Christian era, as it accounted for about 32.9% share of world GDP and about 17% of the world population.^[1] The goods produced in India had long been exported to far off destinations across the world.^[2] Therefore, the concept of globalisation is hardly new to India.

India currently accounts for 2.7% of World Trade (as of 2015), up from 1.2% in 2006 according to the World Trade Organisation (WTO).^[3] Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its fledgling economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector.^[4] The restrictions ensured that FDI averaged only around $200M annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians.^[5]

India's exports were stagnant for the first 15 years after independence, due to the predominance of tea, jute and cotton manufactures, demand for which was generally inelastic. Imports in the same period consisted predominantly of machinery, equipment and raw materials, due to nascent industrialisation. Since liberalisation, the value of India's international trade has become more broad-based and has risen to 63,0801 billion in 2003–04 from 12.50 billion in 1950–51. India's trading partners are China, the US, the UAE, the UK, Japan and the EU.^[6] The exports during April 2007 were $12.31 billion up by 16% and import were $17.68 billion with an increase of 18.06% over the previous year.^[7]

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the World Trade Organisation. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other non-tariff barriers into the WTO policies.^[8]

Despite reducing import restrictions several times in the 2000s,^[9][10] India was evaluated by the World Trade Organisation in 2008 as more restrictive than similar developing economies, such as Brazil, China, and Russia. The WTO also identified electricity shortages and inadequate transportation infrastructure as significant constraints on trade.^[11][12][13] Its restrictiveness has been cited as a factor which has isolated it from the global financial crisis of 2008–2009 more than other countries, even though it has reduced ongoing economic growth.^[14]

Payments

Since independence, India's balance of payments on its current account has been negative. Since liberalisation in the 1990s (precipitated by a balance of payment crisis), India's exports have been consistently rising, covering 80.3% of its imports in 2002–03, up from 66.2% in 1990–91. Although India is still a net importer, since 1996–97, its overall balance of payments (i.e., including the capital account balance), has been positive, largely on account of increased foreign direct investment and deposits from non-resident Indians; until this time, the overall balance was only occasionally positive on account of external assistance and commercial borrowings. As a result, India's foreign currency reserves stood at $285 billion in 2008, which could be used in infrastructural development of the country if used effectively.

India's reliance on external assistance and commercial borrowings has decreased since 1991–92, and since 2002–03, it has gradually been repaying these debts. Declining interest rates and reduced borrowings decreased India's debt service ratio to 4.5% in 2007. In India, External Commercial Borrowings (ECBs) are being permitted by the Government for providing an additional source of funds to Indian corporates. The Ministry of Finance monitors and regulates these borrowings (ECBs) through ECB policy guidelines.

Investment

Share of top five investing countries in FDI inflows. (2000–2007)

Rank	Country	Inflows (Million USD)	Inflows (%)
1	Mauritius	85,178	44.24%[15]
2	United States	18,040	9.37%
3	United Kingdom	15,363	7.98%
4	Netherlands	11,177	5.81%
5	Singapore	9,742	5.06%
Source: FDI in India Statistics[16]

Foreign direct investment in India has reached 2% of GDP, compared with 0.1% in 1990, and Indian investment in other countries rose sharply in 2006.^[17]

As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI);^[18] India has strengths in information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewelry. Despite a surge in foreign investments, rigid FDI policies resulted in a significant hindrance. However, due to some positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region.^[18] India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 50 million and represents a growing consumer market.^[19]

India's liberalised FDI policy as of 2005 allowed up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalised FDI regime. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction business.^[20] This automatic route has been permitted in townships, housing, built-up infrastructure and construction development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.

A number of changes were approved on the FDI policy to remove the caps in most sectors. Fields which require relaxation in FDI restrictions include civil aviation, construction development, industrial parks, petroleum and natural gas, commodity exchanges, credit-information services and mining. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing. FDI inflows into India reached a record US$19.5bn in fiscal year 2006/07 (April–March), according to the government's Secretariat for Industrial Assistance. This was more than double the total of US$7.8bn in the previous fiscal year. The FDI inflow for 2007-08 has been reported as $24bn^[21] and for 2008-09, it is expected to be above $35 billion.^[22] A critical factor in determining India's continued economic growth and realising the potential to be an economic superpower is going to depend on how the government can create incentives for FDI flow across a large number of sectors in India.^[23] In September 2012 the government approved 51% FDI in multi-brand retails despite a lot of pressure from coalition parties.^[24]

Remittances

Remittances to India are money transfers from Indian workers employed outside the country to friends or relatives in India. India is the world's leading receiver of remittances, claiming more than 12% of the world's remittances in 2007.^[25] Remittances to India account for approximately 3% of the country's GDP.^[26][27]

Since 1991, India has experienced sharp remittance growth. In 1991 Indian remittances totaled 2.1 billion USD;^[27][28] in 2006, they were estimated at between $22 billion^[29] and $25.7 billion.^[26] In 2006, remittances from Indian migrants overseas made up $27 billion or about 3% of India's GDP.^[30]

References