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Globalization In India Essay

3401 words - 14 pages

Human being have travelled, traded and interacted across borders and great distances for thousands of years. Globalization is the term ascribed to the interaction of economics and societies all over the world. Globalization involves technological, economic, political and cultural exchanges made possible largely by advances in communication, transportation and infrastructure[1]. Globalization bring people are the world more choices and opportunities and can have a significant impact in developing countries such as India. India has made a substantial amount of progress in the last two decades in terms of its economic development. Development is a qualitative measure of progress in an economy ...view middle of the document...

After independence in 1947, Jawaharlal Nehru, India’s first prime minister introduced a system of industrial licensing, know as the “license raj” to control the pace and pattern of industrial development across the country[3]. The license raj resulted from India’s decision to have a planned economy where the sate controlled all aspects of the economy granted licenses to a select few (wiki). Nehru’s advisors, which included a small group of Stalinist economists lent by the Soviet Union, advised Nehru to put this act into place in order to construct a modernized, heavy industry sector that would traverse India from its massive amount of poverty (5.88). The intent of State control over industrial development by means of licensing was to accelerate industrialization and economic growth and to reduce regional disparities in income and wealth (3.5). In 1956, following the introduction of the act, all industries fell into one of three categories: those that the state exclusively responsible for, those that were to be progressively state-owned and those left to private enterprise. However, virtually every heavy industry was included in the first two categories (4.224). Under the license raj, a license was required to establish a new factory, carry on business in an existing unlicensed factory, significantly an existing factory’s capacity, start a new product line and change location. The policies made it very difficult for new industries to enter the economy as there were indetermined waiting periods for applications to be processed. Producers were also uncertain whether they would receive approval on their license applications. The government rejected 35% of applicants between 1959 and 1960. The government also required businesses to get approval to lay off workers and shut down. When a business was losing money, the government would prevent them from shutting down in hopes that production would once again reach the levels it was at before decreasing rates began to set in. One can imagine how chaotic and unproductive a business would be under such conditions (6.50). By the 1970s it was blatantly obvious that industrial licensing had failed to bring about the rapid industrial development that was anticipated in the 1950s (3.5). It was in 1990 that the Indian government realized they were near bankruptcy. It could not meet its external debt obligations, foreign-exchange reserves were at a meager US 2.2 billion and the money supply was going to last less than two weeks (7.262). The only viable option was to completely restructure the economy and receive help of a balance of payments from the International Monetary Fund (IMF).

In 1991, India faced an unprecedented balance of payments crisis. For a decade prior to 1991, the government had borrowed heavily to support an economic strategy that relied on expansionary public spending to finance growth. During the period from 1980 to 1991 India’s external debt tripled to 70 billion (12). This did...

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