Globalization and The Indian Economy

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What is Globalization? What do You Mean by Globalization?

Globalization is a term used to describe the interdependence of economies, populations, and cultures. Although the term connotes cross border trade mainly, it can also refer to cross border assimilation of cultures, identities, and philosophies. In the context of commerce and economics, globalization purely refers to a global economy, where a product created in a country can be sold across the world. In such an economy, a customer has access to products made in their country and has access to products made in other countries.

Salient Features of Globalization

Interconnected Societies

In a highly transparent economy, where all commodities are openly traded, no society exists in a silo. Globalization and the Indian economy is a classic example to cite in this regard. The barriers to trade across countries are becoming more and more obscure. Societies and communities are becoming interconnected now more than ever. The growth of the internet, high internet penetration, thriving e-commerce ecosystem, and growing prosperity in developing countries have contributed to this upsurge in globalization.

Economic Integration

Global production of manufactured goods and local production of goods have been integrated. When a product is made, its parts are manufactured and supplied by various vendors, where these vendors could be from different geographies. A streamlined manufacturing process across geographies creates uniformity and standardization of manufacturing principles and techniques. Product quality is also consistent – this aspect enables a product to retail across countries.

Global Consumerism

Growth of media, the proliferation of digitization, and an ever-expanding information era have created more awareness. Globalization's impact on the Indian economy and many developing countries is directly proportional to commerce's digitization. Consumers understand what to purchase and how. They have multiple options before them. All of this creates competition in the market. Different product manufacturers across the globe create products for the global consumer. Global competition creates global consumerism – which in turn feeds the burgeoning globalization even more.

Global Tourism

An after-effect or side effect of globalization is global tourism. With more expendable income in the hands of the middle class in developing and developed countries, tourism has taken off. More people are travelling across borders. The growth of tourism creates more international trade and more demand for products that cater to an international consumer market.

Transnational Corporations

The days of nationalized corporations are slowly phasing out. In a globalized economy, corporations want to become globalized. They want to tap into a global consumer market. Hence, global conglomerates have a global workforce in manufacturing, verification, sales, pre-sales, and post-sales. The growth of transnational corporations or global companies has contributed to the establishment of globalization as a bare minimum for economies' sustenance.

Globalization KOF Index

This index measures the social dimensions and effects of and on globalization and measures political impacts on globalization. The following set of graphs show the globalization indices of each globalization factor.

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Ways to Measure Globalization

There are four methods to measure globalization:

  • Trade Flows:

The flow of products and services can include merchandise as well as services trade. 

  • Capital Flows:

The quantity and quality of foreign direct investment that is percolating throughout the money markets.

  • Information:

The amount of information consumed across the world and the quantum of information technology consumed by consumers. 

  • People Flow:

The number of people travelling to other countries, be it in immigration, tourists, students, etc.

Tabular Example for Ways to Measure Globalization

Pillar (Weight % of Total)

Depth Component (Weight % of Pillar)

Breadth Component (Weight % of Pillar)

1. Trade (35%)

1.1 Merchandise Trade (75%)

1.1 Merchandise Trade (100%)

1.2 Services Trade (25%)


2. Capital (35%)

2.1 FDI Stocks (25%)

2.1 FDI Stocks (25%)

2.2 FDI Flows (25%)

2.2 FDI Flows (25%)

2.3 Portfolio Equity Stocks (25%)


2.4 Portfolio Equity Flows (25%)


3. Information (15%)

3.1 International Internet Bandwidth (40%)


3.2 Telephone Call Minutes (40%)

3.2 Telephone Call Minutes (67%)

3.3 Trade in Printed Publications (20%)

3.3 Trade in Printed Publications (33%)

4. People (15%)

4.1 Migrants (33%)

4.1 Migrants (33%)

4.2 Tourists (33%)

4.2 Tourists (33%)

4.3 Students (33%)

4.3 Students (33%)

Types of Globalization

  • Political Globalization:

In this type of globalization, the number of cooperating countries contributes to the rise of political globalization. If political relations are not convenient or favourable between countries, then the global economy is not truly politically globalized.

  • Social Globalization:

When countries share ideas and information, then this gives rise to social globalization. Societies can develop relationships with each other irrespective of the geographical distance or geopolitical or geophysical dissimilarities.

  • Economic Globalization:

When economies are interconnected through trade and commerce, then economic globalization increases. There are currently very few national economies that operate in isolation with no dependency on the outside world. Therefore, economic globalization is generally higher than the other types of globalization.

Did you know? Transnational corporations control more than two-thirds of the world economy. Their grip over national economies is higher than the national governments of countries in which they operate. These organizations' substance becomes critical for the job market, employment, and economic success of many countries.

Fun Facts About Globalization

  • The first multilateral global trade agreement was called the General Agreement on Tariffs and Trade (GATT), which was signed in 1948. In 1995, it was replaced by a more structured World Trade Organization. Essentially, the function of WTO is to set a treaty that restricts countries from imposing high import tariffs for globally competing products, thus allowing the growth of economic globalization.

  • Globalization was first referred to as comparative advantage, a phrase created by David Ricardo in the 19th century. Ricardo was a prominent economist. This phrase implied the use of land, capital, and labour to labour activities in which one gets a competitive advantage over others. An organization has a competitive advantage if it has access to natural resources, labour, labour capital, low-cost power source, low-cost energy source, attractive and highly connected geographic location, politically stable geographic location, low barriers for entry, access to the latest technology, etc.

  • There are anti-globalization movements named as Movement of Movements and the Global Justice Movement, to name a few. These entities do not believe in the concept of globalization and being part of the global economy.

FAQ (Frequently Asked Questions)

1. What are the Disadvantages of Globalization?

Ans: Globally distributed manufacturing processes create a loss of control, problems with integration, and loss of visibility into operational efficiencies.

Although decentralization helps distribute power and control, there are various problems associated with it if not done properly. There has been a lot of effort put into standardizing the process of decentralization. When some organizations get it right, some don't. Those who don’t experience loss of control. With the loss of control, the quality of output produced has variances.

Problems of integration are similar, and so is the loss of visibility into globally distributed teams. All of these are interrelated. However, gradually most international workforces are aligning themselves to standards and practices that are widely accepted.

2. Has Globalization Caused the Economic Recession?

Ans: Globalization may cause a recession because when jobs are created in a country by an organization with dependencies on several other countries, then the dependency of this country's employees is the total of the organization's dependencies on all countries.

Globalization can also cause excess production. For example, a plane manufacturer could anticipate business in a particular country and start building aircraft. Soon a backlog of aircraft could be waiting to be sold. If the country in question does not approve any purchases, then the backlog could become a burden for the plane company while they try to sell it to other countries. Such conditions create an economic recession.

3. What is the Impact of Technology on Globalization, and What is Globalization's Meaning in Terms of Technology Impact?

Ans: Technology has lead to the growth of transportation and communication systems. Business operations have become efficient and productive due to this. Faster turnaround times and a streamlined supply chain has created a positive influence on globalization. The proliferation of e-commerce sites, technology, infrastructure, and personnel has created a stronger demand for e-commerce. Now, most commercial activity is via e-commerce sites. Transacting through an online medium provides an opportunity to tap into an international market. Buyers and sellers connect over online media, where geographical distance is of no consequence. Added to this is a strong logistics and supply chain ecosystem, which makes it possible for anyone to access any product produced in any country.