It is a matter of great pleasure to be invited by the Bombay Chamber of Commerce and Industry to participate in the Seminar on ‘Growth Resurgence: Expectations and Strategies’. The Bombay Chamber, being one of the oldest has been on the forefront in promoting the industrial growth of the country through the ages. I am, therefore, particularly delighted to have the opportunity to share some of my views on globalisation and Indian industry. May I underscore that views expressed are entirely my own and should not be attributed to the Reserve Bank of India.
As many of you might agree, ‘Geography is history!’ is the new maxim in today’s milieu. The breath-taking changes in information, communication and technology (ICT) are now redefining the national borders, even rendering them irrelevant. Rapid technological change, shorter product cycles, and developments in ICT have combined with privatization and liberalization of trade and investment to produce a global economy, which is distinctly different. Today, even a localized cyclical downswing could get protracted into a structural one in the wake of global competition (Rajan and Zingales, 2003, p 302).1
Powered by the ICT revolution, trade-capital flows and cross-country exchanges have seen explosive growth in recent times. Indeed, the last two decades have witnessed a policy shift towards openness in a number of emerging market economies – either spontaneously so as to reap the benefits of greater trade and investment or under compulsions out of their unsustainable domestic imbalances. Although the growth performance of Western Europe and Japan was rather lackluster during most of the 1990s, the strong revival of trade was led by the US with support mainly from China and East Asia (especially prior to the 1997 crisis). Principal Adviser, Department of Economic Analysis and Policy, Reserve Bank of India. Dr. Jadhav gratefully acknowledges the assistance of S/Shri Somnath Chatterjee, Sanjay Hansda and Rajeev Jain of the Reserve Bank of India in the preparation of this paper. The views expressed in the paper are entirely personal and should not be attributed to the Reserve Bank of India. 1 Rajan, R. and Zingales, L. (2003), Saving Capitalism from the Capitalists, Crown Business, New York.
The decade of the 1990s has also been marked by a series of financial crisis in several open economies engendered by volatility in capital flows. This has also prompted a re-look into the conventional wisdom of gains from cross-border trade and investment as also the international financial architecture. Be that as it may, the emerging interdependent world has finally shifted the debate on globalisation from the realm of a theoretical possibility to one of inevitability. Surely, globalisation is not a manna from heaven but an outcome of actions of the billions across the boundaries. As the world community at large is learning and grappling with the on-going process, here I’m with you today, not to question the process per se but to focus on the art of calibration so as to harness the genie of globalisation to our advantage. And I believe, globalisation can add a Midas touch to the Indian industry, if wielded properly.
Against this backdrop, the remainder of my presentation is organised in three broad parts. In the first part, I shall take you through the policy and institutional environment, both domestic and international. Next, I shall trace, in some detail, the impact of globalisation in its various dimensions on the Indian industrial sector. I shall then flag a few issues which have assumed increasing significance in the context of the changing industrial environment. Finally, I shall sum up the foregoing discussion and present a few suggestions for policy action. Let me now turn to the policy and institutional environment.
I. Policy and Institutional Environment
India’s New Industrial Policy,...