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12 Economics

Case Study of an Economy Other Than Australia


Task: Select an economy other than Australia and complete the
following:
Outline and evaluate the influence of globalisation on this
economy
Outline and evaluate the government policies and strategies
used to promote growth and development
Find trends and data on GDP, GDP / capita, unemployment,
employment by industry, school retention rates, tertiary
education rates, inflation, literacy, life expectancy, mobile ph /
capita, trade balance, CAD/CAS, main exports and imports,
trade partners, foreign investment, exchange rate, average
wage rate, HDI
Past HSC questions
2014 Sect IV For an economy other than Australia, discuss the
strategies used to promote both economic growth and development.
2012 Sect IV
For an economy other than Australia, discuss the
effects of globalisation on economic growth and the quality of life.
2011 Sect II For an economy other than Australia, analyse the
strategies used by the government in response to the international
business cycle. 5 marks
2010 Sect II Explain the role of trade and investment in promoting
the globalisation process in an economy other than Australia.
5 marks
2009 Sect IV With reference to Australia and at least ONE other
economy, discuss the impact of globalisation on development and
the distribution of global wealth. In your answer, you should refer to
the economic information provided.

Economy: India
Outline the features of globalisation and evaluate the
economic strategies of a country other than Australia in
achieving economic growth and development. (2007)
Globalisation refers to the integration between different
economies as well as the increased impact of international
influences on all aspects of life and economic activity. It is the
process in which each individual country and economy converges
into the global economy prior to factors such as international trade,
capital and labour flows.
The economy of India is currently ranked the seventh largest
(2016) in the world by nominal GDP (has jumped up from being
10th (2012), 8th (2013), and 18th during the 1990s), third
largest by purchasing power parity (PPP) and amongst the top
twenty global traders according to the World Trade
Organisation (WTO). Prior to Indias economic transformation from
a socialist to a more developing country, an economy considered to
be one where the level of material wellbeing is considered to
be low, India has potentially been predicted to be one of the
four largest economies by 2050 (BRIC), outstripping China
and the US in terms of trade. Impact of globalisation on India
however can be seen through economic growth, distribution of
income and wealth, trade, foreign investment (and trade) flows and
transnational corporations, development and quality of life
indicators, financial markets as well as strategies that assist in
promoting economic growth and development within India.
Globalisation has provided India with many benefits over the past
two decades such as the growth in the services and industry
sectors prior to global demand that has contributed to Indias
growth and improvements amongst living standards as well as
increased opportunities (i.e. employment), under the various
reforms of fiscal consolidation by the Indian government. In
addition, globalisation has also brought negative effects upon the
Indian economy such as increases in famine and poverty
impacting upon the sustainability and Human Development
of India.
Indias economic integration prior to globalisation began in the early
1990s due to economic instability where at this time, in particular
the 1991 Solvency Crisis, the countrys deficit was close to $9.7
billion dollars with a population that still currently remains at over
one billion, more than 30% however poverty stricken. Yet, India, a
nation of cultural, social, and economic diversity continues to
remain one of the worlds fastest growing economies giving
economists a perception that a countrys progress depends not only

on the size of its domestic resources, but what it can obtain from
other countries.
Economic Growth refers to the situation in which there is a
sustained increase in a countrys productive capacity over time,
commonly measured by the percentage increase in Real Gross
Domestic Product. Through microeconomic reform, i.e. increasing
employment opportunities for Indian residents, the Indian
government is highly focused on promoting high economic
growth to India with the aim of increasing living standards and
equitable nominal distribution; The annual growth rate of the Indian
economy currently sits at 7.9% (Jan 2016), the International
Monetary Fund (IMF claims this is due to the boom in Indias
services export industry, including telecommunications,
pharmaceuticals, information and software technology, that
has imported a total of $616.7 billion to the economy.
Significant structural adjustments to microeconomic reform has
seen a rapid growth in GDP over the last fourteen years, currently at
2.5 trillion, a Current Account Deficit remaining moderate at 1.3%
of GDP (a 0.3% increase since 2002), also due to the effects of a
sharp decline in oil prices, and inflation remaining at 5.76%
(Apr 2016). Globalisation has therefore enabled India to improve
their economic position through an increase in national output,
income, enhance living standards as continue the
liberalisation of trade and capital/financial flows for over
two decades, in particular supporting economic recovery through
the implementation of fiscal packages since the effects of the GFC
which has contributed significantly to Indias growth, and current
budget deficit of -3.9% (2015-16).

Ideally, globalisation has further enabled India to experience rapid


economic growth through Foreign Direct Investments, strong
domestic demand for merchandise/services exports, as well
as the growth of manufacturing and services sector industries. The

period of economic transition for India under Indias Liberalisation,


Privatisation, and Globalisation reform has aimed to efficiently make
India the fastest growing economy, (economic growth at 5.6% prior
to the implementation, 7.9% now) and globally competitive within
the foreign market.
Additionally, globalisation has provided many benefits to India to
enhance economic growth and living standards through the
increasing integration with other economies, in particular due to
the volatile global demand of Indias fast growing services
sector. However, the rapid growth of service industries for India has
resulted in undesirable impacts upon the working population,
that including the poor health of individuals, deplorable
working conditions (increasing fatality rates), and bondage
(slavery). To reduce these one-off effects of globalisation, Indias
government must maintain the state of its people whilst
implementing accelerated reforms necessary for higher growth and
the development of infrastructure necessary for sustained growth
over decades to come.
Economic Development refers to the economic improvement
across the whole nation, that is, a broad measure of welfare in a
nation that includes indicators of health, education and
environmental quality as well as material living standards. Prior to
recent liberalization of the economy through globalisation, there has
been greater development in the areas of agriculture, industry, and
services (growing respectively by 5.3%, 4.7%, and 6.7%,
2016) under the implementation multiple government economic
reforms, such including the development of the Second National
Commission on Labour to increase the protection of the countrys
millions of workers through ensuring that workers are not
exploited through low wages, unreasonable expectations,
etc. In addition, the government has increased expenditure into
sanitation, housing, social welfare and rural employment by
16% (16.65 trillion rupees), to ensure that those 30% of the
population living under poverty (8.6, 2011) stricken areas
(generally in rural areas), will be provided benefits to a
reasonable standard of living and quality of life. However,
prior to globalisation and the disincentive effects of the Global
Financial Crisis (GFC), the economic development has only
substantially declined as a result of widespread famine, poor
infrastructure, and mortality rates (life expectancy 66.21 prior to
globalisation, an increase post-GFC of 63.7%); this has thereby
influenced Indias rank in the Human Development Index, a measure
of economic development by Gross National Income per capita,
according to the United Nations (UN), 130th (2016) among 188
nations, an increase from 125th (2000s), (HDI- 0.609, current).

Distribution of Income and Wealth refers to the process in


which or how the government distributes nominal across the
population to reduce income inequality and promote sustainable
growth within the economy. Before globalisation, the gap between
the rich and the poor was very wide with more than 25% of the
population (around a quarter of a million) living in the very poor
income range; the development of 29.74 billion jobs to major
trading links to countries such as Australia and the US (i.e.
telecommunication services), saw a rise in Indias economy per
capita from US $882 to US $1282, the average real wages of
unskilled labour also increasing leading to less inequality and higher
standards of living that has thus contributed positively to Indias
development sector of the economy. Differences can also be seen in
the distribution of wealth within the Indian economy through the 60
million people who share the main portion of wealth in the Indian
economy, the lower class however comprising of around 550 million
individuals sharing the smallest portion of the nations income.
Differences between Indias gini coefficient (measure of disparity per
GDP capita) has decreased prior to globalisation from 37.8 (2000) to
33.9 (2013) reflecting the negative impacts that economic growth
(as part of the globalisation process and after effects of the GFC) is
having upon the Indian economy upon the population, factors
including increased rates in famine, poverty, wealthier citizens
benefitting the most from public health, as well as a widening in the
gap between low to high income earners. Indias poorest 10 per
cent and the richest 10 per cent is enormous; Indias richest 10 per
cent holds 370 times the share of wealth that its poorest hold; and
averaging 2% wealth/income share below the rest of the world, a
0.5% contribution to the worlds super rich.
Quality of life refers to the over-all wellbeing of individuals within a
country according to their living standards and a range of other
indicators whereas Quality of life indicators refer to various social
indexes which show whether countries have made economic
progress (i.e. health, education). Globalisation enabled India to
increase its access to health and education facilities, an increase in
literacy rates from 61.3% (2002, almost three quarters of Indias
population) to 74.8% (2012), facilitating improved standards of
living by over a 40% increase over the past decade or so. The
government is also using a proportion of its expenditure on health,
education, water supply, sanitation, etc. resulting in a decline from
56.4% in the 1970s to over 39% (2014) in poverty prior to the
result of foreign job creation to India and developments
implemented methodically under the India government and private
institutions. However, due to widespread famine, 46% of Indias
population living underweight, and a significant rank decrease in
Indias HDI, the Indian government is going to utilize extra income
which has come from economic developments. But with
globalisation in place, the result has had an inverse effect within the

Indian economy, an increase in corruption and poor government


utilization of nominal and resources.
Economic Divergence refers to the process of economic
separation based on global factors. The development of Indias dual
economy has increased regional and rural/urban divergence
enabling India to experience high growth concentrated in new
economy services such as IT, finance, and telecommunications; as
well as declining productivity/output growth in old economy
sectors such as agriculture and textiles. However, economic
divergence has resulted in widened social disparity and slow growth
in more poorer regions such as Bihar and Orissa. In addition,
International Convergence, the increasing similarity of economic
conditions in different countries, have likewise impacted similarly
upon India allowing an increase in FDI flows and continued growth
levels.
One of the many benefits to globalisation is increasing trade which
gives consumers and producers a wider choice through the
incorporation of more advanced technology. Increasing economic
integration allowed the Indian economy to increase its size of the
market through higher trade relations with the US, Hong Kong as
well as Japan, at currently 7.50%, allowing increased international
competition for the nation and a faster rate of development. Prior to
the 1980s, the Indian government undertook major reforms to relax
restrictions on foreign trade and investment resulting in an average
rate increase of 5-6% per year, a significant increase from 3.5%
(1980), in addition to the ability of Indias businesses to access
foreign markets to sell their products too, mainly within the
manufacturing industry, leading to greater efficiency on imports and
better priced quality goods thereby increasing Indias economic
growth. Indias exports take in more than $44.5bn exports while
imports are approximately at $53.8 million. Through globalisation,
India is able to export commodities such as textile goods,
engineering goods, leather manufactures as well as importing
commodities such as crude oil, machinery and chemicals. Indias
contribution as the co-founder of the General Agreement on Tariffs
and Trade (GATT), and a member of the World Trade Organisation,
has furthermore contributed to Indias significant increase in trade,
according to the WTO; Indias export growth is 16.4% against world
export growth of 12.4%. Major government policies have been
implemented to increase Indias trade from 1.4% (2011) to 4% by
2020. Currently, Indias trade comprises of 41% of GDP a 15%
increase prior to globalisation. In addition, financial markets have
further provided India a mechanism to easily buy and sell financial
securities and other commodities to rapidly increase the amount of
FDI flows into the country, the impacts of the Global Financial Crisis
however threatened investment flows in India who are hesitant to
lend money even today. Consequently, the negative impacts of

divergence, financial market collapse and the world recession will


dull the globalisation gloss.
Foreign Direct Investment (FDI), the movement of funds
between economies for the purpose of establishing new entities
within an economy, and transnational corporations (TNCs), global
companies operating in more than one country, have played a major
role in the globalisation of Indias widely developing economy.
Through major foreign investment policies, India has experienced a
majority of foreign equity being injected into several sectors,
including consumer goods and computer goods, in order to allow
easier access for overseas investors to own and manage businesses
in India, Foreign Transnational Corporations such as McDonalds,
Coke and Nestle, have further contributed to efficient resource
allocation through higher employment opportunities as well as
materials boosting economic growth and development within India.
The reduction of tariff rates has further encouraged an average of
85% increase in trade opportunities thus signifying Indias
importance prior to the need for a globally integrated nation. In
addition, a more globalised tax system has offered many
concessions and exemptions to private industrialists and foreign
investors, as well as an increase in the number of bilateral and
multilateral agreements, (i.e. Australia-India Joint Free Trade
Agreement (FTA), allows stronger growth and investment flows), has
resulted in an increase in Indias foreign direct investment from
around $6.4bn (1996-7) to $50bn (April, 2015). Thus, foreign
investments and TNCs has provided India with the greater impact
than any other sector within the Indian economy.
In addition, the unstable nature of the Indian stock market and the
fact that Indias tariffs remain higher than many other Asian
countries, has not benefitted greatly from Foreign Direct Investment.
Foreign investment may promote short term development earned
from business ventures that will move out of the country where
investors may withdraw potential funds may cause additional
volatility and one-off problems for the Indian economy.
Environmental Sustainability refers to actions to protect and
enhance the natural environment such as protecting air quality or
preserving natural environments. Before globalisation, Indias
environmental problems were the major issue of the lack of
development such including poor sanitation, degradation, and local
pollution, having a basis in widespread poverty. Prior to new
globalisation, India has been able to increase its growth rate to over
6%, comprising of over 2% in the worlds land population. India
faces environmental problems as a result of overpopulation and
increased economic development, these including industrial
pollution, ecologically unsound commercial agriculture and the over
exploitation of natural resources. Mismanagement of resources in

terms of Indias rapid economic growth under globalisation has


further resulted in the mismanagement of resources, desertification,
contamination and resource depletion. Like many other economies
relying on natural resources to generate income, Indias alarming
environmental degradation rates have increased concerns over
resource availability over the intergenerational equity due to large
scale industrialisation, for example, Delhi being the fourth most
polluted city in the world. At this point, India faces environmental
problems of two kinds, poverty induced pressures affecting resource
depletion as well as new sources of pressure such as increase use of
polluting sources of energy and imbalanced urbanization having
adverse effects on the health and population of Indians.
Consequently, the enforcement of major regulatory economic
reforms under the globalisation process have been regarded as a
fundamental part of the agenda, the Indian government, even
today, spending millions in expenditure per year on health, water
supply, sanitation, slum development as well as rural regeneration
to revitalise and reorientate the environmental sustainability of India
being ranked 155th (2014) out of 178 countries under the WTO, in
particular, to avoid potential crises in the near future as a result of
poor environmental management and resource depletion.
The International Business Cycle refers to fluctuations in the
levels of economic activity in the global economy over a period of
time. During the globalisation era, as international convergence
increased, so did the impact of the international business cycle on
the world. Initially as an emerging economy transitioning into a
developing nation, India was heavily affected by the 1991 Solvency
Crisis, the countrys inability to pay off a $9.7 billion deficit with over
30% of the population poverty stricken. Globalisation has essentially
enabled India to reduce this trade deficit. Furthermore, the severe
impacts of the Global Financial Crisis during the late 2008-2009
resulted in a major downfall in Indias economy, more than 50% of
its population poverty stricken with billions in debt. As India shifted
to an Open Door shift in economic structures, it has benefitted
India in enhancing economic prosperity however impacting greatly
upon the financial circumstances of the economy.
As globalisation has had a large effect on the Indian economy, the
nations government wishes continue to improve its economic
growth and development in aim for a sustainable economic outlook.
Research orientations implemented have aimed to deepen
understanding of the Indian economy, policy, and society in and
abroad India. In particular, significant research being undertaken in
the areas of:
income inequality
economic reforms
financial consolidation and its issues
Indias growth strategy

foreign direct investment in India

Additional government expenditure has been put forward towards


strategies put in place to promote economic growth and
development, many of the few including:
reducing import tariffs
governments set target of doubling Indias per capita income
by 2020, growth by 2050
restrictions on foreign capital to protect domestic markets
collaboration of social scientists and economists to reduce
major issues of poverty, economic growth and attract foreign
direct investment
In conclusion, the above economic, financial and social areas reflect
the significant impact that globalisation has had on India over the
decades, with advantages/disadvantages being seen though
economic growth and development, trade and investment, as well
as the distribution of income and wealth. The current financial crisis
is raising many issues whether globalisation is benefitting India
however without increasing global economic integration, the
economy of India would be nowhere near as prosperous today
without it.