Impacts of Globalisation:-

Definition of Globalization :- Its a process(not an outcome) characterized by increasing global Interconnections by gradual removal of barriers to trade and investment between nation and higher economic efficiency through competitiveness.

Various economic, political, social and cultural effects of globalization are as follows:-

Economic:-
  • Breaking down of national economic barriers
  • International spread of Trade, Financial and productive activities
  • Growing power of transnational cooperation and International financial Institutions(WTO, IMF)Through the process of:-

1- Liberalization- relaxation of restrictions, reduction in role of state in economic activities,decline in role of govt in key industries, social and infrastructural sector.

2- Privatization- Public offering of shares and private sale of shares, entry of private sector in public sector and sale of govt enterprises.

3- FDI

4- International regulatory bodies(WTO,IMF)

5- MNC’s

6- Infrastructural development

7- Expansion of information and communication technology and birth of information age.

8- Outsourcing of services- ie BPO and Call Centres.

9- Trade related intellectual property rights(TRIPS)- product based patent rather than process based.

Social effects:-
  • Withdrawal of National govt from social sectors ie declining share of govt in public spending, reducing social benefits for worker(social dumping,pension cuts,subsidies reduction)
  • Labor  reforms and deteriorating Labor welfare:-
    • Labour Market deregulation:-
      • Minimum wage fixing
      • Employment security
      • Modifying tax regulation
      • Relaxed standards of security
    • Increased Mechanization demands skilled labour and thus loss of job for unskilled labour
    • Loss of jobs for traditional workers for example bihar silk workers due to imported Chinese- Korean silk
  • Feminism of Labour ie increased women participation specially in soft industries
  • Trickle down theory of poverty reduction has limited success and in agricultural nations poverty has infect increased.
  • Unsustainable development practices such as:- excessive use of fertilizers, irrigation, fish trawling by mnc’s(Protein flight ),Exploitation of natural resources by MNC’s.
  • Migration and urbanization have lead to problem of slums
  • Commercialization of indigenous knowledge:- patenting
  • Rising inequality in wealth concentration

 

Cultural:-
  • Increased pace of cultural penetration
  • Globalization of culture
  • Development of hybrid culture
  • Resurgence of cultural nationalism ie shivsena opposing valentine day

 

Political:-
  • Globalization of National Policies- Influenced by International agencies
  • Reducing economic role of govt
  • Political lobbying

 

Positive effects of Globalization
  • Increased competition
  • Employment generation
  • Investment and capital flow
  • Foreign trade
  • Spread of technical know how
  • Spread of education
  • Legal and ethical effects
  • Improved status of women in the society
  • Urbanization
  • Agriculture:- greater efficiency,productivity, use of HYV seeds, Future contracts and cooperative farming
  • Higher standard of living

 

 

 

 

 

 

Role of World Bank, IMF WTO & other Important International Organisations in world Economy:-

World Bank

The International Bank for Reconstruction and Development (IBRD), commonly referred to as the World Bank, is an international financial institution whose purposes include assisting the development of its member nation’s territories, promoting and supplementing private foreign investment and promoting long-range balance growth in international trade.

The World Bank was established in December 1945 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. It opened for business in June 1946 and helped in the reconstruction of nations devastated by World War II. Since 1960s the World Bank has shifted its focus from the advanced industrialized nations to developing third-world countries.

Organization and Structure:

The organization of the bank consists of the Board of Governors, the Board of Executive Directors and the Advisory Committee, the Loan Committee and the president and other staff members. All the powers of the bank are vested in the Board of Governors which is the supreme policy making body of the bank.

Capital Resources of World Bank:

The initial authorized capital of the World Bank was $ 10,000 million, which was divided in 1 lakh shares of $ 1 lakh each. The authorized capital of the Bank has been increased from time to time with the approval of member countries.Member countries repay the share amount to the World Bank in the following ways:

  1. 2% of allotted share are repaid in gold, US dollar or Special Drawing Rights (SDR).
  2. Every member country is free to repay 18% of its capital share in its own currency.
  3. The remaining 80% share deposited by the member country only on demand by the World Bank.

Objectives:

The following objectives are assigned by the World Bank:

 

  1. To provide long-run capital to member countries for economic reconstruction and development.

 

  1. To induce long-run capital investment for assuring Balance of Payments (BoP) equilibrium and balanced development of international trade.

 

  1. To provide guarantee for loans granted to small and large units and other projects of member countries.

 

  1. To ensure the implementation of development projects so as to bring about a smooth transference from a war-time to peace economy.

 

  1. To promote capital investment in member countries by the following ways;

 

(a) To provide guarantee on private loans or capital investment.

 

(b) If private capital is not available even after providing guarantee, then IBRD provides loans for productive activities on considerate conditions.

 

Functions:

 

World Bank is playing main role of providing loans for development works to member countries, especially to underdeveloped countries. The World Bank provides long-term loans for various development projects of 5 to 20 years duration.

 

The main functions can be explained with the help of the following points:

 

  1. World Bank provides various technical services to the member countries. For this purpose, the Bank has established “The Economic Development Institute” and a Staff College in Washington.

 

  1. Bank can grant loans to a member country up to 20% of its share in the paid-up capital.

 

  1. The quantities of loans, interest rate and terms and conditions are determined by the Bank itself.

 

  1. Generally, Bank grants loans for a particular project duly submitted to the Bank by the member country.

 

  1. The debtor nation has to repay either in reserve currencies or in the currency in which the loan was sanctioned.

 

  1. Bank also provides loan to private investors belonging to member countries on its own guarantee, but for this loan private investors have to seek prior permission from those counties where this amount will be collected.

International Monetary Fund(IMF)

The major roles of the International Monetary Fund are as follows:

  1. To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
  2. To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.
  3. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
  4. To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
  5. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
  6. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.“Articles of Agreement: Article I—Purposes,” International Monetary Fund
World Trade Organization(WTO)

The important objectives of WTO are:

1. To improve the standard of living of people in the member countries.

2. To ensure full employment and broad increase in effective demand.

3. To enlarge production and trade of goods.

4. To increase the trade of services.

5. To ensure optimum utilization of world resources.

6. To protect the environment.

7. To accept the concept of sustainable development.

Functions:

The main functions of WTO are discussed below:

1. To implement rules and provisions related to trade policy review mechanism.

2. To provide a platform to member countries to decide future strategies related to trade and tariff.

3. To provide facilities for implementation, administration and operation of multilateral and bilateral agreements of the world trade.

4. To administer the rules and processes related to dispute settlement.

5. To ensure the optimum use of world resources.

6. To assist international organizations such as, IMF and IBRD for establishing coherence in Universal Economic Policy determination.


 

Role and Functions of Reserve Bank of India

Role of RBI

Pre-reform Post-reform
Developmental Role: the developmental role has increased in view of the changing structure of the economy with a focus on SMEs and financial inclusion Priority Sector Lending: Introduced from 1974 with public sector banks. Extended to all commercial banks by 1992 In the revised guidelines for PSL the thrust is on ensuring adequate flow of bank credit to those sectors that impact large segments of the population and weaker sections, and to the sectors which are employment intensive such as agriculture and small enterprises
Lead Bank Scheme Special Agricultural Credit Plan introduced.
Kisan Credit Card scheme (1998-99)
Focus on credit flow to micro, small and  medium enterprises development
Financial Inclusion
Monetary Policy: the role of RBI has changed from regulating credit and money flow directly to using market mechanisms for achieving policy targets. MP framework has changed to promote financial deregulations and market development. Role as a facilitator rather than as principal actor. M3 as an intermediary target Multiple Indicator Approach
Regulation of foreign exchange Management of foreign exchange
Direct credit control Open Market Operations, MSS, LAF
Rupee convertability highly managed Full current ac convertability and some capital account convertability
Banker to the government Monetary policy was linked to the fiscal policy due to automatic monetisation of the deficit Delinking of monetary policy from the fiscal policy. From 2006, under FRBM, RBI ceased to participate in the primary market auctions of the central government’s securities.
As regulator of financial sector: As regulator of the financial sector, RBI has faced the challenge of regulating the increasing financial sector in India. Credit flows have increased. RBI had to make sure that financial institutions are regulated in a way to protect the consumers while not impeding economic growth. Reduction in SLR
Custodian of FOREX reserves Forex reserves have increased drastically. Need to manage it adequately and avoid inflationary impact
Inflation Direct instruments were used Multiple indicators
Financial Stability Closed economy Increased FDI and FII has made financial stability one of the policy objectives.
Money Market Narsimhan Committee (1998) recommended reforms in the money market

 

 

Economic Terms

Depository Receipt

A depositary receipt (DR) is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of equity, that is issued by a foreign publicly listed company. The DR, which is a physical certificate, allows investors to hold shares in equity of other countries. One of the most common types of DRs is the American depositary receipt (ADR), which has been offering companies, investors and traders global investment opportunities since the 1920s.

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Public Economics

Public Economics

Study of economic efficiency, distribution and government economic policy.

Developed out of the original political economy of JS Mill and David Ricardo. It is a very important branch of economics because of the foundation it provides for practical policy analysis.

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POVERTY

 

  • Following elements mainly affect the magnitude of the poverty ration
    • The nutrition norm in the base year
    • Price deflator used to update the poverty line
    • Pro rata adjustment in the number of households in different expenditure classes to determine the number of households below and above poverty line.
  • Agricultural wage earners, small and marginal farmers and casual workers engaged in non-agricultural activities constitute the bulk of the rural poor

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