Introduction
Globalization has many meanings depending on the context and on the person who is talking about.
Though the precise definition of globalisation is still unavailable a few definitions are worth viewing,
Guy Brainbant: says that the process of globalisation not only includes opening up of world trade,
development of advanced means of communication, internationalisation of financial markets, growing
importance of MNC’s, population migrations and more generally increased mobility of persons, goods,
capital, data and ideas but also infections, diseases and pollution. The term globalization refers to the
integration of economies of the world through uninhibited trade and financial flows, as also through
mutual exchange of technology and knowledge. Ideally, it also contains free inter-country movement
of labour. In context to India, this implies opening up the economy to foreign direct investment by
International Research Journal of Finance and Economics - Issue 5 (2006) 167
providing facilities to foreign companies to invest in different fields of economic activity in India,
removing constraints and obstacles to the entry of MNCs in India, allowing Indian companies to enter
into foreign collaborations and also encouraging them to set up joint ventures abroad; carrying out
massive import liberalisation programs by switching over from quantitative restrictions to tariffs and
import duties, therefore globalization has been identified with the policy reforms of 1991 in India.
The Important Reform Measures (Step Towards Globalization)
Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to
almost $1 billion; Inflation had roared to an annual rate of 17 percent; fiscal deficit was very high and
had become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. Capital
was flying out of the country and we were close to defaulting on loans. Along with these bottlenecks at
home, many unforeseeable changes swept the economies of nations in Western and Eastern Europe,
South East Asia, Latin America and elsewhere, around the same time. These were the economic
compulsions at home and abroad that called for a complete overhauling of our economic policies and
programs. Major measures initiated as a part of the liberalisation and globalisation strategy in the early
nineties included the following:
• Devaluation: The first step towards globalization was taken with the announcement of the
devaluation of Indian currency by 18-19 percent against major currencies in the international
foreign exchange market. In fact, this measure was taken in order to resolve the BOP crisis
• Disinvestment-In order to make the process of globalization smooth, privatization and
liberalisation policies are moving along as well. Under the privatization scheme, most of the
public sector undertakings have been/ are being sold to private sector
• Dismantling of The Industrial Licensing Regime At present, only six industries are under
compulsory licensing mainly on accounting of environmental safety and strategic
considerations. A significantly amended locational policy in tune with the liberalized licensing
policy is in place. No industrial approval is required from the government for locations not
falling within 25 kms of the periphery of cities having a population of more than one million.
• Allowing Foreign Direct Investment (FDI) across a wide spectrum of industries and
encouraging non-debt flows. The Department has put in place a liberal and transparent foreign
investment regime where most activities are opened to foreign investment on automatic route
without any limit on the extent of foreign ownership. Some of the recent initiatives taken to
further liberalise the FDI regime, inter alias, include opening up of sectors such as Insurance
(upto 26%); development of integrated townships (upto 100%); defence industry (upto 26%);
tea plantation (upto 100% subject to divestment of 26% within five years to FDI); enhancement
of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for
most manufacturing activities in SEZs; opening up B2B e-commerce; Internet Service
Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment
subject to 26% divestment condition; etc. The Department has also strengthened investment
facilitation measures through Foreign Investment Implementation Authority (FIIA).
• Non Resident Indian Scheme the general policy and facilities for foreign direct investment as
available to foreign investors/ Companies are fully applicable to NRIs as well. In addition,
Government has extended some concessions specially for NRIs and overseas corporate bodies
having more than 60% stake by NRIs
• Throwing Open Industries Reserved For The Public Sector to Private Participation. Now
there are only three industries reserved for the public sector
• Abolition of the (MRTP) Act, which necessitated prior approval for capacity expansion
• The removal of quantitative restrictions on imports.
• The reduction of the peak customs tariff from over 300 per cent prior to the 30 per cent rate
that applies now.
Globalization has many meanings depending on the context and on the person who is talking about.
Though the precise definition of globalisation is still unavailable a few definitions are worth viewing,
Guy Brainbant: says that the process of globalisation not only includes opening up of world trade,
development of advanced means of communication, internationalisation of financial markets, growing
importance of MNC’s, population migrations and more generally increased mobility of persons, goods,
capital, data and ideas but also infections, diseases and pollution. The term globalization refers to the
integration of economies of the world through uninhibited trade and financial flows, as also through
mutual exchange of technology and knowledge. Ideally, it also contains free inter-country movement
of labour. In context to India, this implies opening up the economy to foreign direct investment by
International Research Journal of Finance and Economics - Issue 5 (2006) 167
providing facilities to foreign companies to invest in different fields of economic activity in India,
removing constraints and obstacles to the entry of MNCs in India, allowing Indian companies to enter
into foreign collaborations and also encouraging them to set up joint ventures abroad; carrying out
massive import liberalisation programs by switching over from quantitative restrictions to tariffs and
import duties, therefore globalization has been identified with the policy reforms of 1991 in India.
The Important Reform Measures (Step Towards Globalization)
Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to
almost $1 billion; Inflation had roared to an annual rate of 17 percent; fiscal deficit was very high and
had become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. Capital
was flying out of the country and we were close to defaulting on loans. Along with these bottlenecks at
home, many unforeseeable changes swept the economies of nations in Western and Eastern Europe,
South East Asia, Latin America and elsewhere, around the same time. These were the economic
compulsions at home and abroad that called for a complete overhauling of our economic policies and
programs. Major measures initiated as a part of the liberalisation and globalisation strategy in the early
nineties included the following:
• Devaluation: The first step towards globalization was taken with the announcement of the
devaluation of Indian currency by 18-19 percent against major currencies in the international
foreign exchange market. In fact, this measure was taken in order to resolve the BOP crisis
• Disinvestment-In order to make the process of globalization smooth, privatization and
liberalisation policies are moving along as well. Under the privatization scheme, most of the
public sector undertakings have been/ are being sold to private sector
• Dismantling of The Industrial Licensing Regime At present, only six industries are under
compulsory licensing mainly on accounting of environmental safety and strategic
considerations. A significantly amended locational policy in tune with the liberalized licensing
policy is in place. No industrial approval is required from the government for locations not
falling within 25 kms of the periphery of cities having a population of more than one million.
• Allowing Foreign Direct Investment (FDI) across a wide spectrum of industries and
encouraging non-debt flows. The Department has put in place a liberal and transparent foreign
investment regime where most activities are opened to foreign investment on automatic route
without any limit on the extent of foreign ownership. Some of the recent initiatives taken to
further liberalise the FDI regime, inter alias, include opening up of sectors such as Insurance
(upto 26%); development of integrated townships (upto 100%); defence industry (upto 26%);
tea plantation (upto 100% subject to divestment of 26% within five years to FDI); enhancement
of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for
most manufacturing activities in SEZs; opening up B2B e-commerce; Internet Service
Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment
subject to 26% divestment condition; etc. The Department has also strengthened investment
facilitation measures through Foreign Investment Implementation Authority (FIIA).
• Non Resident Indian Scheme the general policy and facilities for foreign direct investment as
available to foreign investors/ Companies are fully applicable to NRIs as well. In addition,
Government has extended some concessions specially for NRIs and overseas corporate bodies
having more than 60% stake by NRIs
• Throwing Open Industries Reserved For The Public Sector to Private Participation. Now
there are only three industries reserved for the public sector
• Abolition of the (MRTP) Act, which necessitated prior approval for capacity expansion
• The removal of quantitative restrictions on imports.
• The reduction of the peak customs tariff from over 300 per cent prior to the 30 per cent rate
that applies now.