GLOBALIZATION AND ITS EFFECTS ON INDUSTRIAL...
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227 CHAPTER –IV GLOBALIZATION AND ITS EFFECTS ON INDUSTRIAL RELATIONS
Transcript of GLOBALIZATION AND ITS EFFECTS ON INDUSTRIAL...
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CHAPTER –IV
GLOBALIZATION AND ITS EFFECTS ON
INDUSTRIAL RELATIONS
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Globalization and its effects on Industrial Relations:
4.1 Introduction :
i. Globalization
The term Globalization has many dimensions to describe and has no fixed
definition, which could be followed universally. As per their own understanding
and knowledge, there were different definitions. Out of all this, a few definitions
draw justification as follows.
The word Global denotes one world as a single unit. It is a process by
which the people of this entire world are unified into a single society to function
together. It is a kind of international integration by the combination of all the
economic, technological, socio- cultural and political forces. Simply speaking it is
a kind of international integration.
According to “Branko Milanovic” , an economist at the Carnegie
Endowment for International Peace-- Globalization means free movement of
capital, goods, technology, ideas and people. Any globalization that omits the last
one is partial and not sustainable.
Globalization represents the triumph of a capitalist world economy tied together
by a global division of labour1.
1 R. J. Holton, Globalization and the Nation-State (London: Macmillan Press, 1998), p. 11.
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Globalization is the process of integrating various economies of the world
without creating any hindrances in the free flow of goods and services,
technology, labour or human capital.
According to Stiglitz “globalization is the closer integration of the
countries and people of the world which has been brought about the enormous
reduction of costs of transportation and communication and the breaking down of
artificial barriers to the flow of goods and services, capital, knowledge, and
people across boarders1
Jagdish Bhagwati defines globalization in the following words
“Economic globalization constitutes integration of national economies into the
international economy through trade, direct foreign investment, short term capital
flows, international flows of workers and humanity generally and flows of
technology.
Globalization may be defined in simple terms as the growing economic
interdependence of countries world wide through increasing volume and variety
of cross boarder transactions in goods and services and of international capital
flows and also through the more rapid and widespread diffusion of technology.
Globalization its literal sense is the process or transformation of local or
regional phenomena in into global ones. It can be described as a process by which
the people of the world are unified into a single society and function together.
1 . Stiglitz 2002 b. pp9
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This process is a combination of economic, technological, socio cultural
and political forces. Globalization is often used to refer to economic globalization,
that is, integration of national economies into the international economy through
trade, foreign direct investment, capital flows, migration, and the spread of
technology.
Globalization defined, as “it is the closer integration of the countries and
peoples of the world brought about by the enormous reduction of costs of
transportation and communication, and the breaking down of artificial barriers to
the flows of goods, services, capital, knowledge, and people across borders1.
Globalization can thus be defined as the intensification of worldwide social
relations which link distant localities in such a way that local happenings are
shaped by events occurring many miles away and vice versa2.
4.2 Globalization is having the four parameters and four views:
A. Reduction of trade barriers to permit free flow of goods and services
among the Nation-States.
B. Creation of environment in which free flow of capital can takes place
among the Nation-States.
C. Creation of environment permitting free flow of technology.
D. Free movement of labour.
The careful analysis of the term “globalization “reveals the following.
1 Joseph Stiglitz, an economist and winner of the Nobel Prize
2 The Consequences of Modernity by Anthony Giddens , (Cambridge: Polity Press, 1990), p. 64.
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The reduction of the trade barriers with a view to allowing free flow of goods
between counties. Free flow of the technology and the foreign capital in the form
of investment. Free movement of the labour and manpower between the countries
of the world. India has adopted the policy through economic reforms since 1991.
It started the process of removing and dismantling the trade barriers and
abolishing quantitative restrictions in a gradual manner. In brief, Globalization is
considered as the engine of growth, technical advancement, raising productivity
enlarging employment and bringing about poverty reduction along with
modernization.
This term refers to the opening up of the economy for the world market. It
is a kind of exposure to the competition with the world leader, which definitely
includes free trade of goods and services among the nations together with free
international mobility of factors of the production.
Globalization is the growth, or more precisely the accelerated growth, of
economic activity across national and regional political boundaries. It finds
expression in the increased movement of tangible and intangible goods and
services, including ownership rights, via trade and investment, and often of
people, via migration. It can be and often is facilitated by a lowering of
government impediments to that movement, and/or by technological progress,
notably in transportation and communications. The actions of individual
economic actors, firms, banks, people, drive it, usually in the pursuit of profit,
often spurred by the pressures of competition. Globalization is thus a centrifugal
process, a process of economic outreach, and a microeconomic phenomenon1.
1 Charles Oman, “The Policy Challenges of Globalization and Regionalization”, OECD Development Centre, Policy Brief No. 11, 1996, p. 5.
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Globalization will promote direct foreign investment and thus it enables
developing countries to raises capital without recourse to international
indebtedness. Globalization enables the developing countries to make use of
technology developed by advance countries with out investments in research and
development. Globalization widens the access of developing countries to export
their produce in the developed countries. Simultaneously, it enables the
consumers of developing countries to obtain quality consumer gods, especially
consumer durables, at relatively much lower prices.
Globalization introduces faster diffusion of knowledge and thus enables
developing countries to raise their level of production and productivity. It
therefore generates the momentum to reach international standards of
productivity. Globalization reduces the costs of transport and communication. It
also reduces tariffs and thus enlarges the share of foreign trade as percentage of
GDP.
i Globalization refers internationalization:
“Globalization refers to global economic integration of many formerly
national economies into one global economy, mainly by free trade and free capital
mobility, but also by easy or uncontrolled migration. It is the effective erasure of
national boundaries for economic purposes. International trade (governed by
comparative advantage) becomes interregional trade (governed by absolute
advantage). What was many becomes one1.
1 http://www.globalpolicy.org/globaliz/econ/herman2.htm.
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Here globalization is viewed 'as simply another adjective to describe
cross-border relations between countries'. It describes the growth in international
exchange and interdependence. With growing flows of trade and capital
investment, there is the possibility of moving beyond an inter-national
economy, (where 'the principle entities are national economies') to a 'stronger'
version - the globalized economy in which, 'distinct national economies are
subsumed and rearticulated into the system by international processes and
transactions. Globalization is ‘qualitatively different’ from internationalization, it
represents ‘a more advanced and complex form of internationalization which
implies a degree of functional integration between internationally dispersed
economic activities, the degree of interdependence and integration between
national economies1.
The characteristics of the globalization trend include the internationalizing
of production, the new international division of labor, new migratory movements
from South to North, the new competitive environment that accelerates these
processes, and the internationalizing of the state…making states into agencies of
the globalizing world2.
1Global Shift: by Peter Dicken ,The Internationalization of Economic Activity (London: Guilford Press, 1992), p. 1, p. 87, as cited in I. Clark, Globalization and International Relations Theory (New York: Oxford University Press, 1999), p. 38. 2 The Globalization of World Politics”, in J. Baylis and S. Smith (eds.), The Globalization of World Politics, An Introduction to International Relations (New York: Oxford University Press, 1999), p. 15.
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ii. Globalization refers liberalization:
In this broad set of definitions, 'globalization' refers to 'a process of
removing government-imposed restrictions on movements between countries in
order to create an "open", "borderless" world economy'. Those who have argued
with some success for the abolition of regulatory trade barriers and capital
controls have sometimes clothed this in the mantle of 'globalization'.
iii. Globalization refers universalization:
In this use, 'global' is used in the sense of being 'worldwide' and
'globalization' is 'the process of spreading various objects and experiences to
people at all corners of the earth'. A classic example of this would be the spread of
computing, television etc. and this is also viewed as westernization or
modernization (especially in an 'Americanized' form).
Here 'globalization' is understood as a dynamic, 'whereby the social
structures of modernity (capitalism, rationalism, industrialism, bureaucratism,
etc.) are spread the world over, normally destroying pre-existent cultures and
local self-determination in the process. The world is shrinking, thanks to
advancing technology. Depending on what you read, this increasingly
interconnected global marketplace is either the best or the worst thing to happen.
Meetings of bodies such as G8 summit, the International Monetary Fund and the
World Bank often generate large demonstrations1.
1 BBC News, “Financial Terms E-J”, April 15, 2004
http://news.bbc.co.uk/1/hi/programmes/working_lunch/guides/glossary/1496844.stm.
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iv. Globalization refers deterritorialization (or as the spread of
supraterritoriality):
Here 'globalization' entails a 'reconfiguration of geography, so that social
space is no longer wholly mapped in terms of territorial places, territorial
distances and territorial borders. Thus, it is nothing but the intensification of
economic, political, social and cultural relations across borders1.
Anthony Giddens' has thus defined globalization as ' the intensification of
worldwide social relations which link distant localities in such a way that local
happenings are shaped by events occurring many miles away and vice versa. It is
a de-territorialization or the growth of ‘supraterritorial’ relations between people2
4.3 Historical Phases and origins of Globalization:
Globalization of the world economy is achieved quite obviously by
globalizing the national economies. Globalization of the economies and
globalization of business are interdependent. Globalization may be considered at
two levels.Viz. At the macro level i.e. Globalization of the world economy and at
the micro level i.e. globalization of the business and the firm.
A brief analysis of the historical phases of origins of globalization in Europe
could be identified under five phases.
1 R. J. Holton, Globalization and the Nation-State (London: Macmillan Press, 1998), p. 11. 2 Jan Aart Scholte, Globalization – A Critical Introduction (London: Macmillan Press, 2000), p. 46.
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i. The germinal phase as -the First Phase:
(Approximately counting from 1400 to 1750):
In this phase of global exploration the development of generalization of
humanity started. After the dissolution of the Christendom there was a spread of
universal catholic churches .With, the advent of modern geography with sun-
centered universe the universal calendar in the west was finalized. With the
growth of national communities and European exploration of Africa, Asia and the
America, the colonialism and emergence of the State communities started.
ii The incipient phase as -the Second Phase:
(Counting from 1750to 1875):
In this phase a kind of formal diplomacy between the states started leading
to the establishment of nation –State .citizenships and passports, international
exhibitions and communication agreements. The idea of internationalism and
universalism started leading to the international legal conventions and non-
European countries began to be admitted to the Europe –dominated international
relations thus making the single international society concept has crept in.
iii The take-off phase as- the Third Phase:
(Counting from 1875 to 1925):
This phase is marked by advancement of sporting (Olympic movement,
cultural links and the international communications and formation of the universal
calendar. Many mass international migrations took place. This phase is also note
worthy for the world conflict (the first ever world war.)
iv The dominance or struggle for hegemony phase as- the Fourth Phase:
(Counting from 1925 to 1969):
This period was the Starting period of the Second World War.
Preponderance of one state among the others is very clearly traced during this
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phase. In fact, this is a kind of predominance stage of the world. A great lot of
struggle for the leadership took place during this phase. Traces of war crimes and
crimes against the humanity the formation of the League of Nations leading to the
United Nations and other organizations .On the other hand the threat of atomic
bomb to the entire Universe leading to the emergence of the third world took
place during this phase.
v The uncertainty phase as – the Fifth Phase:
Counting from 1969 to 1992):
During this phase exploration of space , landing on the moon,
international relations, identification of the global environmental problems, world
communities based on race, gender, sex, and ethnicity took place. On 9thof
November 1989, the Border separating Western from Eastern Germany was
effectively opened. Improvement of technology through space via satellite,
television etc. A list of global issues that has been the subject of the UN
declaration or conference like Global warming, acid rains and other kinds of
pollutions affecting the atmosphere, deterioration of ozone layer, Terrorism,
human trafficking, child labour, slavery, flesh trade, Chemical plants, nuclear
reactors, radio active wastes Poverty, Traces of deadly deceases like AIDS (which
has no cure at all), swain flue, dengue fever, Anthrax etc.
4. 4 Globalization in terms of Paradigm Shifts:
Thomas Friedman, political reporter for the New York Times, defines
Globalization in terms of paradigm shift. We can compare the contemporary
world to the world of the Cold War prior to the fall of Communism (1989).
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Paradigm shifts from the Cold war to the Age of Globalization1
Table - 4.1
Sl.no Phases Cold War Globalization
1.
Phase-I
Division
Integration
(of nations, markets and
technologies)
2.
Phase-II
The Wall
The Web
3.
Phase-III
8% of world's
countries
have free markets
28% of world's countries
have free markets
4.
Phase-IV
Different cultures Global culture
5
-Then
onwards
Weight (megatons) Speed (megabits)
6
-Then
onwards
Power of nations Power of individuals, markets
According to Thomas Friedman at present Globalization differs from the
previous eras and is empowering every individual. According to his, there are ten
1 Source: A partial list of contrasts derived from Thomas Friedman's book “The Lexus and the Olive Tree.”
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levelers of events happened in the recent decades. They can be summarized as
here under:
A. The Berlin Wall has been breached after nearly three decades keeping East
and West Berliners apart. At midnight, East Germany's Communist rulers gave
permission for gates along the Wall to be opened after hundreds of people
converged on crossing points.
B. Massive investment in the fiber optic cables
C. Closer coordination among the far-flung employees around the world
D. Emergence of self-organizing communities.
E Business functions being migrated in the form of outsourcing resulting in
the saving of world economy
F The country of China economic prominence was so elevated by the process
of contract manufacturing business.
G. Robust networks of suppliers, retailers and customers increased
business efficiency during a period.
H. In sourcing
I . usage of internet as a personal knowledge source
J. Tremendous increase of wireless technologies established
collaboration. Observing the business of a company in a nation, it undergoes
in four basic levels of globalization1
1 Source----Gist matter from Sales and Marketing Management by Jennifer Derry berry
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The first level
This is a multi domestic one. This can very well be compared unto the
basic level of the globalization. At this level, the business relation consists of
several independent units that operate in various different countries with less
communicating process between their independent units.
The second level
This is the next basic level of globalization and is an international
companies/ Industries, containing branches. The head quarters being in one
country and the various branches in other countries. At this stage, the
company/Industry may impose its home country bias on other markets rather than
making a true effort to integrate into the global economy, in short it is the
integration of the world economy1.
The third level
At this level of globalization, there arises a transnational national
company/industry having its loosely integrated business units in several countries.
At this level, the company/industry puts all its efforts to address the local needs of
operations in all such countries.
1 Robert Gilpin, Global Political Economy (Princeton: Princeton University Press, 2001), p. 364,
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The fourth level
At this level of globalization, there arises, a finally a true global
company/industry. At this stage the company/industry and its business views the
world, a single market and it always tries to develop an overall strategy for its
various operations around the world to develop its business and implements the
various methods and lessons and strategies of each country to bring the global
success to its business. Therefore, this is the actual and ideal level of
globalization of any organization/ company/Industry that is very hard to achieve
without proper planning and implementation of its process.
4.5 The concept of Globalization:
Just as no individual can live out side the society and in the similar
fashion, no state can live out side the international community. Therefore,
international relationship is as much a product of necessity as social existence
itself. Frankly speaking, with the industrial revolution, the world shrank and the
distances were reduced. Globalization is a conceptualization of the international
political economy, which suggests and believes essentially that all economic
activity, whether local, regional or national, must be conducted within a
perspective and attitude that constantly is global and worldwide in its scope1.
1 Robert Spich, “Globalization Folklore: Problems of Myth and Ideology in the Discourse on Globalization”, Journal of Organizational Change Management, Vol. 8, No. 4, 1995, pp. 6-29, p. 7.
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In an other sense Globalization is the integration of national economies in
to the international economy through international trade and foreign direct
investment, migrations and wide spread of the technology and free flow of the
capital. Globalization is a feature of changing world. It is no more a recent
phenomenon in the world. Globalization is the process of integrating world’s
economies through free flow of the goods and services and technology and
capital. It can be facilitated through reduction of the trade barriers and creation of
the favorable environment for such free flow. It warrants simultaneous operation
of liberalization and internalization. It is the modern version of “theory of
comparative costs advantage1, which dictates business to places where resources
are available at favorable terms and making use of it. It is just like a situation that
collecting money from Europe, getting the technical expertise from the country of
Japan, manufacturing in India and marketing in USA --is globalization, in true
sense it has no national barrier.
Globalization is defended as an engine of the growth, technological
advancement, increased productivity, and enlarged employment in bringing about
poverty reduction along with modernization. The World commission on the
Social Dimension of Globalization, setup by the ILO reported, as “Our primary
concerns are that globalization should benefit all countries and should raise the
welfare of all people throughout the world. These imply that it should raise the
rate of economic growth in poor countries and reduce world poverty, and that it
should not increase inequalities or undermines socio-economic security within
countries.”2
1 Theory propagated by the classical economist to support unrestricted free flow of the goods from the Britain to its colonies. 2 Report of WCSDG(2004 ) as cited in Ruddar Datt and K.P.M.Sundaram op cit. , (2007).p.248
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The 19th century, is sometimes called “The First Era of Globalization"
and during this period, there was a rapid growth of international trade and
investment. In modern times, no state can afford to live in isolation. It has to
cultivate relations with other states of the world out of sheer necessity and the
situation has so necessary to invite the Globalization because of the rapid
shrinking of time and distance across the globe invites the faster communication,
speedier transportation, growing financial flows and rapid technological changes.
The domestic markets are no longer adequately rich. It is necessary to
search for the international markets and to set up overseas production facilities.
Companies/industries may choose for going international to find stability. To get
technology and managerial know how. Companies/industries often set up
overseas plants to reduce high transportation costs. Some companies/industries
are set up overseas to be close to their raw materials supply and to the market for
their finished products. Globalization in the economic aspect reveals the true
picture that the freedom of exchanging the goods and capital with each other
country in the entire world due to the realization of the common global market.
Frankly speaking, it is a social process in which the constraints of
geography on social and cultural arrangements recede and in which people
become increasingly aware that they are receding1.
1 Malcolm Waters, Globalization (London: Routledge, 1995), p. 3, as cited in I. Clark, Globalization and International Relations Theory (New York: Oxford University Press, 1999), p. 48
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Globalization in the industrial aspect reveals that the worldwide
production markets and smooth access to the range of foreign products for the
consumers and companies. Globalization in the financial aspect discloses the out
come of the worldwide financial markets and with the direct access to the
international financing sources for the corporate sectors of the nation and to the
sub national borrowing organizations.
On the other hand, the globalization in the political aspect indicates the
creation of the world government, which will, regulates and coordinates the
relationship among the nations. Globalization in the informational aspect
increases the information flows among the nations, geographically remote
locations and the territories, which is necessary and required for the development
of any country. Globalization in the cultural aspect develop the world culture, the
desire to adopt the new technology .Thus the growth of the global cultural
contacts will certainly benefit any country.
The historical transformation constituted by the sum of particular forms
and instances of making or being made global (i) by the active dissemination of
practices, values, technology and other human products throughout the globe (ii)
when global practices and so on exercise an increasing influence over people’s
lives (iii) when the globe serves as a focus for, or a premise in shaping, human
activities1.
The history of our globe is reaching its final destination. From a chaotic
amalgam of competing and rival nations, the world is evolving towards a unitary
framework, where different organized communities cooperate to prevent conflicts
and promote the progress of humanity. Ancient globalization differs from modern 1 http://www.globalizacija.com/doc_en/e0013glo.htm.
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globalization because the first was aimed to the conquest of lands and was carried
out by military invasion, while the second is aimed to the expansion of commerce
and its instrument is the international agreement1
In brief, Globalization is considered as the engine of growth, technical
advancement, raising productivity enlarging employment and bringing about
poverty reduction along with modernization.
4.6 India and the Globalization :
Industry plays a vital role in building the economic structure of a society.
Therefore, the importance of labour and industrial laws in shaping the economy of
a country cannot be ignored. We in our country are mainly embarking upon the
industrial and technological advancement but mere technological advancement is
likely to widen the social imbalance.
It is the process in which the production and financial structures of countries
are becoming interlinked by an increasing number of cross-border transactions to
create an international division of labour in which national wealth creation comes,
increasingly, to depend on economic agents in other countries, and the ultimate
stage of economic integration where such dependence has reached its spatial
limit 2.
Industrialization has a major role to play in the economic development of the
underdeveloped countries. The gap in per capita incomes between the developed
1World Federalist Manifesto – a guide to the political globalization by Dr. Francesco Stipo (2007) 2 http://www.unctad.org/en/docs/dp_113.en.pdf.
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and underdeveloped countries is largely reflected in the disparity in the structure
of their economies, the former are largely industrial economies while in the later
production is confined predominantly to agriculture.
Due to globalization, not only the GDP has increased but also the direction of
growth in the sectors has also been changed. Earlier the maximum part of the
GDP in the economy was generated from the Primary sector but now the service
industry is devoting the maximum part of the GDP. The services sector remains
the growth driver of the economy with a contribution of more than 57 per cent of
GDP.
India is ranked 18th among the world’s leading exporters of services with a
share of 1.3 per cent in world exports. The services sector is expected to benefit
from the ongoing liberalization of the foreign investment regime into the sector.
Software and the ITES-BPO sectors have recorded an exponential growth in
recent years.
Growth rate in the GDP from major sectors of the economy can be seen from the
following Table.
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Table: 4.2
Gross Domestic Product by Industry:
Sector.
Year 1999-00
Year 2003-04
Year 2004 -05
Year 2009-10
Year 2010-11
(RE)
Year 2011-12 (RE )
1 .Agriculture, Forestry & fishing Mining & quarrying
4,88,109 ( 27.3 )
5,31,302 ( 23.9)
6,50,454 ( 21.9 )
7,64,817 ( 16.9 )
8,22,415 ( 16.7 )
8,47,744 (16.2 )
2 .Manufacturing, Construction,electricity Gas and water supply
4,10,646 (23.0 )
5,19,322 ( 23.4 )
7,44,755 ( 25.1 )
11,73,089 ( 26.0 )
12,84,041 ( 26.0 )
13,34,249 ( 25.4 )
3. Trade ,Hotels, Transport And communications.
3,87,514 ( 21.7)
5,56,370 ( 25.0 )
7,27,720 ( 24.5 )
11,97,891 ( 26.5 )
13,45,660 ( 27.3 )
14,40,312 ( 27.5 )
4. Financing, Insurance, Real estate and BusinessServices .
2,33,550 ( 13.1)
2,97,250 ( 13.4)
4,37,174 ( 14.7 )
7,71,905 ( 17.1 )
8,49,632 ( 17.2 )
9,48,808 ( 18.1 )
5. Public Administration & Defence and other services.
2,66,707 ( 14.9)
3,18,514 ( 14.3 )
4,11,361 ( 13.8 )
6,08,369 ( 13.5 )
6,34,358 ( 12.8 )
6,72,469 ( 12.8 )
6. Gross Domestic Product At factor cost.
17,86,525 (100.0 )
22,32,578 ( 100.0 )
29,71,464 ( 100.0 )
45,16,071 ( 100.0 )
49,37,006 (100.0)
52,43,582 ( 100.0 )
Source: Central Statistical Organization, (Note: fig. in brackets are
percentage of total GDP for the respective year.
*at 1999-00 prices. (RE= Revised Estimate.).
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India has adopted the policy through economic reforms since 1991. It
started the process of removing and dismantling the trade barriers and abolishing
quantitative restrictions in a gradual manner. India signed the General Agreement
on Tariffs and Trade (GATT) on October 30th , 1947 .This is an agreement signed
at Geneva by 23 countries which includes India with an aim to reduce tariff
barriers and quota restrictions and to liberalize trade in a progressive manner
between the participant countries. Under this India has received and extended
significant tariff concessions from various countries. The principal purpose of the
GATT was to end sure competition in commodity trade through the removal or
reduction of the trade barriers.
Almost all the member countries signed the new Charter of GATT,
accepted on November 26, 1965, in January 1996. As a result, developing
countries to find markets for their new manufactured products. Further, the
developed countries are asked to refrain from imposing any new tariffs or other
disabilities on present or potential imports from developing countries.
However, what constitutes the most important change is the provision that
the developing countries need not reciprocate the concessions the developed
countries grant them. The URUGUAY round of negotiations contained the
mandate to have negotiations in fifteen areas (Part I –Negotiations on trade in
goods and Part II – negotiations on trade in services were to be carried
on).Besides these subjects certain new areas of subjects such as Trade Related
aspects of Intellectual Property Rights (TRIPS), Trade Related Investment
Measures (TRIMS) were included in the negotiations for the first time. Due to
some differences in the participating countries the agreement was not concluded
At this stage , Mr.Arthur Dunkel , Director General of GATT proposed a detailed
document , popularly known as Dunkel Proposals , culminated in to an Final Act
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on Dec. 15th ,1993 and India signed the agreement along with the 117 nations on
April 15th ,1994.
Thus, India is getting double benefits-tariff concessions by some of the
mature GATT member-countries are stepping up Indian exports but, at the same
time, India is being permitted to pursue a policy of quantitative import restrictions
to preserve her slender foreign exchange reserves. Regarding the prohibition of
export subsidies, GATT agreement stipulates that countries like India with per
capita income less than $ 1,000 are exempt from the removal of such subsidies for
products where their share in world trade is less than 3.25 per cent.
Table - 4.3
Indian Exports in 2001 covered by GATT agreement.
Item
World
India
India’s Share in %
Rice Tea and Mate Spices Iron ore Leather Manufactures Gems and Jewellery
7,530
2,978
2,440
8,750
24,082
56,135
631
415
252
321
779
6.242
8.4
13.9
10.3
3.7
3.2
11.1
--Source: Compiled from Economic Survey (2003 -2004)
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Basing on the above criterion, India’s share exceeds in the above items.
All these items taken together account for only 22.8 per cent of India’s exports.
This implies that 77 per cent of exports are not covered by GATT agreement.
Thus reduction of export subsidies or their removal is not likely to produce any
disastrous effect on our exports as alleged by many critics ( a great agitation
launched by the Left Parties, Janata Dal, Bharatiya Janata Party against the
acceptance of Dunkel Proposals saying that the Indian Government is
surrendering its sovereignty under the pressure from the US Government )
There was a strong opinion that the Trade- Related Intellectual Property
Rights (TRIPS), which was embodied in GATT agreement, will have disastrous
effects on the Indian economy, especially in pharmaceuticals and agriculture.
Infact a country like India which does not recognize product patents in the field
of drugs, food products and chemicals has been allowed a transition period of 10
years for the establishing a product patent regime for such items. The fears
regarding inordinate rise in the price of patent drugs after the introduction of
product patents are also not quite justified because under the agreement,
government would be able to undertake compulsory licensing for non-commercial
public use as well as to prevent situation of either inadequate availability or
exorbitant pricing. Besides, government retains the right to institute price control
on the drugs.
Trade Related Investment Measures (TRIMS), which was initiated by the
US in 1980. The main provisions provided in the TRIMS text ensure that the
Governments shall not discriminate against foreign capital. In other words, the
TRIMS text compels member countries to give national treatment to foreign
capital. The Government of India already under the New Economic Policy and
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the Structural Adjustment Programme initiated since 1991 has been over
bending to woo foreign direct investment and consequently, several changes in
the Foreign Exchange Regulations Act and Industrial Policy have been
undertaken. The difference under the GATT treaty is that these changes will
become apart of the multilateral trade treaty and WTO will in future be able to
impose discipline. In that sense, TRIMS agreement abrogates our freedom to
become selective in the areas of foreign investment. This militates against our
goal of self-reliance. It would have been better if such proviso had been inserted
in the TRIMS clause.
Anyhow, one redeeming feature of the GATT is that there is the principle
of one country, one vote. However, the developed countries are able to pressurize
the developing countries by various new devices, more especially through
intellectual property rights and TRIMS. Although the Government of India is
claiming that very substantial benefits are likely to accrue as Consequence of
GATT agreement, but it is premature to reach any definite conclusion. The Final
Act is such a big document that it has wheels with in wheels and the thrust of the
Act is to be the line of developed nations.
The main features of TRIMS text is all the restrictions on the foreign
capital/investors/companies should be scrapped. The foreign investor shall be
given the same rights in the matter of investment as a national investor. No
restrictions will be imposed on any area of investment. There shall not be any
limitation on the extent of foreign investment. Even 100% foreign equity will be
permitted. Foreign investors will not be obliged to use local products and
materials. Export of part of the output will no longer be mandatory. Imports of
raw materials and components will be allowed freely. Restriction on repatriation
of dividend, interest and royalty will be eliminated. There will be a complete
253
exclusion of provisions like phased manufacturing programme, which is intended
to increase the indigenous content in manufacture. Mr. Khurana of the India
International Centre has opined that “The consensus, however, is that the Uruguay
Round has been a game in which the more powerful nations lay down the rules,
unfortunately, India is not one among the powerful trading nations and it is,
therefore doubtful if the country could have achieved any thing significantly more
that what our negotiation have managed,”1 TRIMs treaty abrogates our freedom to
become selective in the areas of foreign investment. This militates against our
goal of self-reliance. It would have been better if such a proviso had been inserted
in the TRIMs clause.
Foreign investment like Pepsi Foods was encouraged with the hope and
the company would export its products to earn foreign exchange for India and
progressively utilize indigenous material in its production programme. Once India
becomes the signatory to the GATT agreement -1994, these are not possible to
follow. Once foreign investments are allowed in some area, India will loose its
freedom to restrict even it is harmful to the local industries and effects adversely
over the Indian economy even2.
1 By R.K. Khurana, some synthesizing thoughts Op. cit. p 51. 2 1.N.K. Chowdhury and J.C. Aggarwal (1994) . The Uruguay Round and the Dunkel Draft ,ed Malcolm S.Adiseshiah (1994) p. 8
254
4.7 WTO – Its effects on Indian Industry:
WTO has been urging India, the founder member of it, following the WTO’s
decisions, to lower import duties, remove controls on consumer goods imports.
Since India scrupulously followed the agreement, the tariffs have been reduced
year after year to conform to the WTO provisions. As the protection afforded by
the import duties gradually disappeared, Indian industry had to face increasing
competition from foreign goods. Confederation of Indian Industry (CII), the apex
body expressed its disapproval against duty free status of the capital goods sector.
As a result, CII estimated that indigenous capital goods industry on a conservative
estimate lost orders worth Rs. 5000 crores from foreign countries. Instead of
ensuring level playing field, indigenous industry has to pay excise, sales tax,
octroi, turnover tax, while imported goods are allowed duty free access to our
market. Not only the entire manufacturing industry is faced with crises, even
machine tools industry, gensets and boiler producers are put at a serious
disadvantage, consequently, imports of finished products are displacing
indigenously produced products. As a result, many industrial units are being
closed and cheap imports have become an important cause of recession in the
Indian Industry. India was maintaining quantitative restrictions in the form of
quotas, import and export licenses on 2,700 agricultural commodities, textile and
industrial products. United States along with Australia, New Zealand,
Switzerland, European Economic Community and Canada complained to the
WTO Dispute Settlement Machinery that these QRS were inconsistent with WTO
norms. The dispute settlement panel gave its verdict against India. India went in
appeal, but the WTO panel on 23rd August, 1999 rejected India’s appeal against
QRS. As a result, although India could continue QRS until March 2003, the
process was hastened and QRS on all items were removed. This has opened the
255
floodgates for the foreign consumer goods to enter the Indian market, thereby
seriously damaging Indian industry.
The Government of India allowed the import of second hand cars into India.
This policy has seriously hit Indian automobile industry. Mr. Rahul Bajaj
described it as anti-national act. In recent years, Chinese goods are flooding the
Indian markets. They include battery cells, cigarette lighters, locks, car stereos,
energy saving lamps, VCD players, wristwatches, toys, fans, electric ovens and
large variety of consumer articles. Since China has become a member of the
WTO.
This is going to create an other problem because action against Chinese
dumping of the goods can be taken only with WTO provisions. The regular china
imports are making serious effects on the Indian markets, hitting the consumer
goods industry. In WTO regime , reservations may have to be withdrawn,
preferential purchase and other support measures may not be available and thus
Small Scale Industries have to compete not only with the large units within the
country, but also with cheap imported products. Small Scale Industries are thus
losing their markets to cheap imported products. Due to this situation, a large
number of Small Scale Units are becoming sick or have closed down. Thus, the
Small Scale Industries, which accounts for the 40% of the manufacturing output,
50% of employment and over 33% of the exports, are in jeopardy. Next to
agriculture, this sector is the principal source of employment accommodating 18
million people. Dumping of the Chinese goods has seriously affected the Small
Scale Industry Sector. The real difficulty with the Small Scale Sector is that it
does not have adequate resources to prepare the case for anti dumping duties in
view of the prohibitive costs of anti dumping investigation. The SSI cannot
collect detailed information on individual products required by the anti dumping
256
directorate to establish a complete case; consequently, small industries continue to
suffer due to such dumping policy. Not only that, the entry of multinationals in
ordinary consumer goods like ice cream, agarbatti manufacture, food processing,
mineral water etc. is also adversely affecting the SSI sector since these were the
traditional areas of this sector. In soft drinks, the entry of powerful Coca Cola and
Pepsi have eliminated practically all small units engaged in the manufacture of
aerated water. MNCs are not interested in hi-tech products. Rather they prefer low
technology, quick profit yielding and large volume products with regular demand
throughout the year. In the name of consumer interests. MNCs continue to
swallow SSIs and eliminate them from the market.
India is quite competitive in textiles. However, developed countries
through various protectionists. These measures take the form of anti dumping anti
dumping duties. , unilateral change in the rule of origin and unjustifiable foisting
of environmental issues. All these measures are taken to protect domestic industry
in developed countries and thus, these measures hamper free flow of Indian textile
exports. Developed countries have proposed ten long years to reduce quotas in
their domestic textile industries. However, they pressurize the developing
countries to reduce their tariffs, remove quantitative restrictions, introduce the
Intellectual Property Rights (IPRs) etc. immediately. Obvious developed countries
play an unfair game so for as textile agreements are concerned.
The United States has signed WTO agreements with the proviso that all such
agreements will have to be passed by the US congress, being a severing body.
There is another assurance given by the US President to the congress.
257
In case, the decisions of Dispute Settlement Machinery of WTO go against
the United States, the US justices will review them. If they find the decisions
unfair, the US has unilaterally reserved for itself right to walk out of the WTO.
Criticizing this big brother like attitude some commentators believe that the rule
makers are not going to tolerate being over ruled. Many of the US laws like
Section 301 of US Trade Act is clearly a violation to the WTO agreement. In fact,
this matter was considered by the Dispute Settlement Panel of WTO, which gave
its verdict, that those laws are WTO complaint. This has emboldened US to
continue to use unilateral action against countries that are not considered by the
US administration as complaint with US trading interests. It passes one’s
compression how the US congress should be considered as a super body over the
WTO, while the parliaments of other members of the WTO, especially the
developing countries, are denied this right. Although sixteen countries petitioned
against the US, but since the WTO has supported the US position, all this
countries which include besides India ,Argentina, Egypt, Greece, Poland, Korea,
Russia can do very little against the US unilateral action since it has the WTO in
its pocket. Though patently unjustified, yet Section 107 of the Uruguay Round
Agreement provides that nothing g in the Uruguay Round Agreement shall be
construed to limit any authority conferred under any law of the United States
including Section 301-310 of the Trade Act of 1974.
i. Anti dumping Act and Copy Right Act of US are against the WTO
principles
The country of Japan very recently complained against the US Anti
Dumping Act as a violation WTO principles. A series of investigations carried out
regarding Japan’s steel exports to United States revealed that the US Anti
Dumping Act was inconsistent with WTO principles. The decision of the WTO
258
favoring Japan was delivered on 29th of May 2000. In the similar fashion, the
European Economic Community complained against the US Copy Right Act
since it militated against the WTO principles as provided for under Berne
Convention for the protection of literacy and artistic works. The WTO decision
delivered on 15th of June 2000 also went against the United States.
ii. Child Labour
When imports from developing countries hurt the interest of United States,
a number of environmental and human rights issues were raised with the objective
of imposing a ban on the import of Indian carpets, chemicals handicrafts, and
ready-made garments on the plea that in their manufacture child labour was
involved. The United States banned imports of several products from India on the
pleas of child labour. In fact, many American companies have shifted their
factories to remote areas in Mexico, Indonesia and some other countries. Children
are employed in these factories in large numbers and they have to work for more
than 12 hours. Recently a study conducted by Rugar University has revealed that
2,90,200 child workers are sweating in shopping malls, factories and farms in the
United States.
4.8 Globalization – its effects on Indian Industry:
Globalization is not a single set of processes and does not lead in a single
direction. It produces solidarities in some places and destroys them in others. It
has quite different consequences on one side of the world from the other. In other
words, it is a contradictory process. It is not just about fragmentation: I see it
259
more as a shakeout of institutions in which new forms of unity go along with new
forms of fragmentation1.
Globalization must be understood as the condition whereby localizing
strategies become systematically connected to global concerns…Thus,
globalization appears as a dialectical (and therefore contradictory) process: what
is being globalized is the tendency to stress ‘locality’ and ‘difference’, yet
‘locality’ and ‘difference’ presuppose the very development of worldwide
dynamics of institutional communication and legitimating.2.
India’s economic integration with the rest of the world was very limited
because of the restrictive economic policies followed until 1991. Actually Indian
firms confined themselves to the home market. Foreign investment by the Indian
firms was very insignificant. With the new economic policy ushered in 1991,
there has however been change.
In the early times of 1990s, the effects of globalization started when the
Government of India gave way to the foreign investments in to the Indian market.
The government of India made changes in its economic policy in the year 1991
under which India has allowed the direct foreign investment in the country. As a
result of this, globalization of the Indian Industry took place on a major scale.
1 M. Findlay, The Globalization of Crime, Understanding Transitional Relationships in Context (Cambridge: Cambridge University Press, 2000), p. 169.
2 V. S. A. Kumar, “A Critical Methodology of Globalization: Politics of the 21st
Century?”, Indiana Journal of Global Legal Studies, Vol. 10, Issue 2, Summer 2003, pp. 87-111, p. 95.
260
Capital flows across countries have played an important role in enhancing
the production base of our Indian industry. This was very much true in 19th and
20th centuries. Capital mobility enables the total savings of the world to be
distributed among countries, which have the highest investment potential. Under
these circumstances, one country’s growth is not constrained by its own domestic
savings. The inflow of foreign capital has played a significant role in the
development in the recent period of the East Asian countries.
The Indian industry experienced various benefits due to globalization.
There were many foreign companies set up industries in India, which brought
huge amounts of foreign direct investments in to the Indian industry especially in
the fields of BPO, Pharmaceutical industry, Chemical sectors, Petroleum industry
and the Manufacturing industries, which really boosted the economy of our
country in a significant manner. In this connection, many people got employment
opportunities in India and this is a factor for the reduction of the unemployment as
well as poverty conditions of the country.
The Indian industry is also benefited in an other aspect as the foreign
companies that brought huge amounts as direct investments brought the latest and
highly advanced technology with them there by the Indian Industry became more
advanced in the technology.
We must maintain a competitive environment domestically so that we can
take full advantage of wider market access. We must make good use of the
extended time given to developing countries to dismantle trade barriers. Wherever
legislations are required to protect sectors like agriculture, they need to be enacted
quickly. In a capital-scarce economy like ours, efficient utilization of our
capacity becomes even more critical. In the current process of globalization, there
261
are traces of rapid development of the capital market; the foreign exchange
markets have really facilitated the transfer of resources across the borders. This
has helped the Indian industry. India has to strengthen its position in the
international trade. India can attract greater foreign investment, if we can
accelerate our growth with stability. Stability, in this context, means reasonable
balance on the fiscal and external accounts. International trade leads to the
allocation of resources that is consistent with comparative advantage.
Restrictions on trade impede growth therefore international trade through
globalization has helped a lot in the enhancement of the growth of the Indian
industry1. Emerging economies will reap the benefits of international trade only if
they reach the full potential of their resource availability. This will certainly take
time. The international trade agreements make exceptions and allow the terms of
reduction in tariff and non-tariff barriers, which is a special and differentiated
treatment.
Considering the twelve –year period (1990 to 2002) India’s merchandise
exports increased at the rate of 8.8 per cent per annum (from $ 17.97 billion to $
49.25 billion). It is a real benefit for the Indian Industry in the era of globalization
in increasing its exports growth rate. Unfortunately, only very minimum
improvement from 0.52 % in the year 1990 to 0.76 % in the year 2002 is traced
with regard to the India’s share in the world merchandise exports, which is very
marginal.
1Fourth Ramanbhai Patel Memorial Lecturer Dated Feb, 25th, 2006 – Responding to the Globalization –India’s answer ---By Dr. C . Rangarajan, Chairman Economic Advisory Council to the Prime Minister.
262
In case of the service sector exports , India’s performance is much better It
has shown an increase from $4.6 billion in the year 1990 to $ 24.5 billion in the
year 2002 indicating an annual average growth rate of 15 % during the twelve
year period.
The shares of the soft ware exports, which were only 42.7 % in the year
1990 in the total service exports of the India, raised up to 75.9 % in the year 2002.
We can observe here that India was benefited substantially in this service sector
exports.
All together India’s exports of the goods and services increased from
$22.58 billion in the year 1990 to $ 73.8 billions in the year 2002. This is an
indication of an annual growth rate of 10.4 %.When we take into consideration of
India’s share in the world exports in goods and services, it gives a picture that it is
a clear improvement from 0.54 % in the year 1990 to 0.93 % in the year 2002.
In this globalization era , there is no doubt that India has gained in
improving its share of world exports of goods and services to 0.93 % .But when
compared to the size of the economy the gain is much smaller.
263
Table 4.4
Exports of the Merchandise and Services of the selected countries of the
world – (-out of which India is taken in the data).
Merchandise Exports of
India
Exports of the Merchandise US $million
Percentage Of World
export
Average Annual Growth Rate.
Year
1990 2002
1990 2002
%
Merchandise exports
17969 49251
0.52 0.76
8.8
Exports of Services
4,610 24,553
0.61 1.62
15.0
Exports of
Merchandise And Services
22,579 73,804
0.54 0.93
10.4
Source: Compiled and computed from the data provided in the World
Bank ---- World Development Indicator (2004) .The Indian
Export data, the table of exports of Merchandise and Services
Of the selected Countries of the world.
264
4.9 The impact of Globalization on the Employment situation:
It is evident that the picture of employment situation is very worst in the
era of globalization. During the period 1983-1994, the rate of the growth of the
employment was 2.04 %. However, during the period 1994 -2000 the rate of
growth of the employment was traced to be declined to 0.98 %. There was a sharp
decline in the community, social and personal services (0.55 % in 1994-2000,
which was actually 2.90 % in the period 1983-1994.
It was also noticed that there was a negative growth rate of employment
in the agricultural sector. This was largely due to the neglect of the agricultural
sector and keeping the burden of the over employment on the public sector. The
employers, trade unions and government in each country are facing a number of
significant challenges from globalization.
The increasing decentralization of industrial relations implies that
governments must devolve more power and responsibility to managers and
workers at industry and enterprise level to enable them to resolve issues of direct
concern at the workplace. There will need to be a re-affirmation of freedom of
association, the rights of workers, and pluralism. The roles of the "actors" in the
IR system are subject to scrutiny in the future, so will their underlying values.
It will be necessary for IR legislation and supporting rules and institutions
to be reviewed, on a continuing basis. The labour legislation in many countries in
the region reflects a now outdated approach based on minimization of industrial
conflict. Greater priority should be given to how legislation can be used to
establish a framework for managers, workers and trade unions to pursue improved
productivity and flexibility on a participative basis, while still providing
265
appropriate protections for workers and a share in the benefits of growth, and
emphasizing prevention of industrial disputes through greater workplace
cooperation. Dispute settlement machinery (including processes and
administration) also needs to be made more effective in a number of countries.
Some countries in the region have already attempted to reform labour legislation
in this direction in recent years, and others are considering similar action. At the
same time, further attention must be given to who is covered by labour legislation.
During the period of Globalization, workers from the organized sector
swell the ranks of workers in the unorganized sectors. Frankly speaking, the
workers of the organized sectors will have job security, better payment and other
benefits than the unorganized sectors. The public sector receives much higher
wages and benefits than the private sector.
During the period 1994-2000, employment growth in the organized sector
was merely 0.53 %. The growth of employment in the public sector was negative
(0.03 %) and of the private sector was (1.87 %). Since the share of public sector
in the organized sector, employment was of the order of 69 %, enlargement of
private sector employment failed to effectively offset the deceleration in the
public sector as a result of which the share of the organized sector, which was
7.93 % in the year 1983, declined to 7.08 % in the year 1999-2000.As per the
Ninth and Tenth Five Year Plans, the estimates of unemployment in India may
briefly be summarized as here under;
266
Annual Employment Growth in Organized
Sector in India (In percent)
Table 4.5 :
Sector
1983-94
1993-2004
2004-2009
Public
Sector
1.52
-0.60
-0.56
Private
Sector
0.45
+0.36
+3.58
Source: Government of India Economic Survey,
2006-07 2009-10, Statistical
and out line of India, 2005.
In a study over ten states in India comprising of nine manufacturing
industry groups (both public and private sectors) which were included in 1300
firms, the result of the study revealed that the total employment increased by over
2 % between 1991-1998, most of the increase was accounted for by temporary,
causal, contract and other flexible categories of workers.
267
To save the workers from the job losses ,the trade unions are forced to
accept cuts in wages and salaries because the bargaining power has been
considerably reduced and there is no exaggeration in saying that the collective
bargaining power has modified in to concession bargaining.
Table 4.6
Employment in the Public Sector by Industry-2011.
Sectors ( In Lakhs )
1. Agricultural Sector 4.77
2 Mining and quarrying 10.90
3. Manufacturing 10.16
4 Electricity, gas and water Supply. 8.31
5 Construction 8.47
6 Whole Sale and Retail Trade 1.70
7 Transport, storage and Communication. 23.84
8 Financial Insurance and Real Estates etc. 13.61
9 Community Social and personal services. 90.95
Total 172.71
Source: Complied and Computed from Government of India,
Economic Survey (2011-12 )
The various negative Effects of Globalization on Indian Industry are that it
increased competition in the Indian market between the foreign companies and
domestic companies. With the foreign goods being better than the Indian goods,
the consumer preferred to buy the foreign goods. This reduced the amount of
268
profit of the Indian Industry companies. This happened mainly in the
pharmaceutical, manufacturing, chemical, and steel industries. The negative
effects of Globalization on Indian Industry are that with the coming of technology
the number of labor required decreased and this resulted in many people being
removed from their jobs. This happened mainly in the pharmaceutical, chemical,
manufacturing, and cement industries. With highly advanced technology entering
the Indian Industrial Sector, the number of labor required in the sector reduced.
The number of labor in the Indian Industrial Sector in 1990-1991 was 81, 62,504
and in 2003-2004, the figure has decreased to 78, 70,081.
The effects of globalization on Indian Industry have proved to be positive
as well as negative. The government of India must try to make such economic
policies with regard to Indian Industry's Globalization that are beneficial and not
harmful. In addition to the above, two major issues lead to anxiety. One is that
globalization always leads to more iniquitous distribution of income among the
countries and within the country.
The second major issue is that globalization leads to loss of national
sovereignty and those countries are finding it increasingly difficult to follow
independent domestic policies. Globalization leads to widening income gaps
within the countries as well. This can happen both in the developed and
developing economies. Capital and technology are fluid and they will move where
the benefits are greater. As the nations come together whether it is in the political,
social or economic arena, some sacrifice of sovereignty is inevitable.
There should be some demands on the trading system. The demands of the
developing countries on the multilateral trading system should include (1)
establishing symmetry as between the movement of capital and natural persons,
269
(2) delinking environmental standards and labour related considerations from
trade negotiations, (3) zero tariffs in industrialized countries on labour intensive
exports of developing countries, (4) adequate protection to genetic or biological
material and traditional knowledge of developing countries, (5) prohibition of
unilateral trade action and extra territorial application of national laws and
regulations, and (6) effective restraint on industrialized countries in initiating anti-
dumping and countervailing action against exports from developing countries.
4.10 Globalization -Economic Planning and the Industrial Policies:
Globalization is a process that has been going on for the past 5000 years,
but it has significantly accelerated since the demise of the Soviet Union in 1991.
Elements of globalization include transborder capital, labor, management, news,
images, and data flows. The main engines of globalization are the transnational
corporations (TNCs), transnational media organizations (TMCs),
intergovernmental organizations (IGOs), nongovernmental organizations (NGOs),
and alternative government organizations (AGOs). From a humanist perspective,
globalization entails both positive and negative consequences: it is both narrowing
and widening the income gaps among and within nations, intensifying and
diminishing political domination, and homogenizing and pluralizing cultural
identities1.
Planning is a method of decision-making that proposes or identifies goals
or ends, determines the means or programmes, which achieve or thought to
achieve these ends, and does so by the application of analytical techniques to
1 http://www2.hawaii.edu/~fredr/glotexts.
270
discover the fit between ends and means and the consequences of implementing
alternative ends and means1. Planning is needed for the economic growth. The
Soviet Russia had achieved it through making a genuine attempt in planning in
the year 1914itself2.
The first industrial policy resolution was adopted in 1948 and the first
economic planning commenced in the 1951, ( launching of first five year plan –
1951 – 1956 , up to tenth five year plan ( 2002-07) and the Eleventh five year plan
commenced from April, 1st , 2007 and would be completing by March ,31st 2012
In the similar fashion , various Industrial policies have been framed and
implemented from time to time vis-à-vis Industrial Policy Resolutions of 1948 ,
1956, 1977, 1980, 1991.
The planning process and industrial polices were adopted on the socialistic
pattern in the earlier years of 1947. But after 1990, the same sprit is transformed
to a market driven economy base of liberalization- Privatization- Globalization
This swift to the market driven economy is popularly known as a paradigm shift
by the economists.
4.11 :Globalization and Structural Changes in the Indian Industrial Sector:
Globalization implies the dismantling of trade barriers between nations
and the integration of the economies of the nations through financial flow; trade
in services and goods, and corporate investments between nations.
The World Commission on the Social Dimension of Globalization (set up
by the ILO) reported, “Our primary concerns are that globalization should benefit
all the countries and should raise the welfare of all the people throughout the
1Herbert .J. Gans , “ Regional and Urban Planning , International Encyclopedia of the Social Science Vol. 12 Mac Millian and Free Press, USA (1968) p. 129. 2V.B Singh Capitalism, Socialism in India, Steering Publichsers Pvt. Ltd. New Delhi, p.
271
world. This implies that it should raise the rate of economic growth in poor
countries and reduces world poverty and that it should not increase inequalities or
undermines socio-economic security within countries.”1
Globalization has increased in the recent years due to the rapid progress
that has been made in the area of technology especially in communications and
transport. The Indian policies with regard to the industrial sector before
globalization had imposed many restrictions on the sector with regard to the use
and procurement of capital and raw material, type and nature of industry where
the entry of private sector was allowed, the operation scale, and the various
markets where they could supply. The Indian industrial policies favored firms of
small size that were labor intensive.
Some economic reforms were introduced by the Rajiv Gandhi government
(1985-89), it was the Narasimha Rao Government that gave a definite shape and
start to the new economic reforms of globalization in India. Presenting the 1991-
92 Budget, Finance Minister Manmohan Singh said: After four decades of
planning for industrialization, we have now reached a stage where we should
welcome, rather fear, foreign investment. Direct foreign investment would
provide access to capital, technology and market.
The Government of India wanted to encourage growth and decide to open
the gates to the foreign investments .In the Indian Industrial Sector , Structural
changes were brought in the early 90s and by New Economic Policy , 1991 which
could remove many barriers of regulations as well as the restrictions and through
which huge amounts of foreign investments ,highly technology machines were
brought in to the Indian market. Reduction of the poverty in India through major
1Report of the WCSDG (2004) as cited in Ruddar Datt and K.P.M. Sundaram op. cit., (2007) , p . 248.
272
employment opportunities through the various companies that entered the India
.The number of Factories in the year 1990-91 was only 1,10,179 which came up
to the increase of 1,29,074 in the year 2003-04.
4.12 Industrial relations and the New Economic Policy (1991):
In the year 1991, the Government of India announced various reforms
relating to the industrial, fiscal and trade matters through the New Economic
Policy, 1991 presuming that these would certainly bring a sharp activeness and
remove the mismanagement. Through this New Economic Policy, 1991 it is
clearly noticed that a new business environment is generated in which the
liberation of the Private Sector from the monopoly of the Public Sector (PSU) and
excessive supervision of the Government. Now, under this Policy, the industries
were freed from the custom duties and tariffs, the considerable removal of the
MRTP limits and relaxations of FERA are the new changes. Access with the
foreign capital has become easy now. Some Economists found that the benefits of
the economic reforms materialized only due to the recovery of the world trade and
investment. Further findings revealed that the radical change expected under the
New Economic Policy, 1991 is not witnessed in the Indian industry. The expected
objectives of the Globalization, liberalization are not fulfilled, however the
growth is very slow which may lead to stagnation and the growth in the export
areas are becoming a discouragement1.India’s imports in 2004-05 stood at US$
107 billion recording an increase of 35.62 percent compared with US$ 79 billion
in the previous fiscal
1P.Gupta, Post Reform India- Emerging Trends, 1997, Allied Publishers, New Delhi, p. 214.
273
Table 4.7 India’s Trade Balance during 1990-91 to 2011-12
Foreign Trade (Export- Import):
Year
Exports
Imports
Trade
Balance
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
18,145
17,865
18,537
22,238
26,330
31,795
33,470
35,006
33,219
36,822
44,560
43,827
52,719
63,843
83,536
1,03,092
1,26,414
1,62,132
1,85,295
1,78,662
2,50,468
3,09,774
24,073
19,410
21,882
23,306
28,654
36,675
39,132
41,484
42,389
49,671
50,536
51,413
6,412
78,149
1,11,517
1,49,167
1,85,735
2,51,654
3,03,696
2,88,373
3,81,061
4,99,533
-5,928
-1,545
-3,345
-1,068
2,324
-4,880
-5,662
-6,478
-9,170
-12,848
-5,976
-7,856
-8,693
-14,306
-27,981
-46,076
-59,321
-88,522
-1,18,401
-1,09,622
-1,30,593
-1,89,759
Source: Complied and computed from the data provided by Hand book of
Statistics on Indian Economy 2011-12, Economic Survey 2011-12, RBI Bulleting,
274
.
Export also increased by 24 percent as compared to previous
Year. It stood at US $ 79 billion in 2004-05 compared with US $ 63 billion in the
previous year. Oil imports zoomed by 19 percent with the import bill being US $
29.08 billion against USD 20.59 billion in the corresponding period last year.
Non-oil imports during 2004-05 are estimated at USD 77.036 billion, which is
33.62 percent higher than previous year's imports of US $ 57.651 billion in 2003-
04.
Thus we find that the economic reforms in the Indian economy initiated
since July 1991 have led to fiscal consolidation, control of inflation to some
extent, increase in foreign exchange reserve and greater foreign investment and
technology towards India.
i. Failures of New Economic Policy
The New Economic Policy has made remarkable achievements in many fields
still it failed in certain aspects. The New Economic Policy is pointed out by the
critics as an adverse effect over the Indian economy and mainly on the Indian
industry basing on the below mentioned ones.
A. . Declining impact on the agricultural sectors:
The Planning Commission of India estimates base on NSS data shows that the
growth rate of employment in the agricultural sector from 1983 to 1993-94 was at
a rate of 1.51% per annum. During the period of Economic reforms, the same has
been negative (-0.34 %). The capital formation in the agricultural sector has
declined.
275
Agriculture has been and remains the backbone of the Indian economy. It
plays a vital role in not only providing food and nutrition to the people, but also in
the supply of raw material to industries and to export trade. In 1951, agriculture
provided employment to 72% of the population and contributed 59% of the gross
domestic product. However, by 2001 the population depending upon agriculture
came to 58% whereas the share of agriculture in the GDP went down drastically
to 24 per cent and further to 22% in 2006-07. This has resulted in a lowering the
per capita income of the farmers and increasing the rural indebtedness.
The agricultural growth of 3.2% observed from 1980 to 1997 decelerated
to two per cent subsequently. The Approach to the Eleventh Five Year Plan
released in December 2006 stated that the growth rate of agricultural GDP
including forestry and fishing is likely to be below two per cent in the Tenth Plan
period. The reasons for the deceleration of the growth of agriculture are given in
the Economic Survey 2006-07:
Low investment, imbalance in fertilizer use, low seeds replacement rate, a
distorted incentive system and low post-harvest value addition continued to be a
drag on the sectors performance. With more than half the population directly
depending on this sector, low agricultural growth has serious implications for the
inclusiveness of growth.
The number of rural landless families increased from 35 %in 1987 to 45 %
in 1999, further to 55% in 2005. The farmers are destined to die of starvation or
suicide, that roughly 1, 00,000 farmers committed suicide during the period 1993-
2003 mainly due to indebtedness1. The farming community has been ignored in
this country and especially so over the last eight to ten years. The total investment
in the agriculture sector is going down. In the last few years, the average
1Information supplied by the then Agriculture Minister Mr. Sharad Pawar , in a reply to the short duration discussion on import of wheat and Agrarian Distress on May18,2006
276
budgetary provision from the Indian Government for irrigation is less than
0.35%.1
During the post-reform period, India has been shining brilliantly with a
growing number of billionaires. Nobody has taken note of the sufferings of the
family members of those unfortunate hundred thousand farmers. Further, the
proportion of people depending in India on agriculture is about 60 % whereas the
same for the UK is 2 %,
USA2 % and Japan 3 %. The developed countries, having a low proportion of
population in agriculture, have readily adopted globalization, which favors more
the growth of the manufacturing and service sectors
B. Decline in the labour employment:
The Ninth Five Year Plan has estimated the incidence of unemployment an
under-employment as 10.45 % of the labour force. Similarly, poverty reduction
has decline in the post reform period than the earlier decade. The Government
claimed that 26% of the people are below the poverty line in the country but the
World Development Report 2000 calculated that 44.2% of the population was
living below the poverty line in India.9 using $ 1 per days the measure of
International poverty line.)
C ...Discouragement of the Foreign Direct Investment‘s flow:
According to the World Development Report 2000, the inflow of the
Foreign Direct Investment in India in 1998 was 1.5 % of the total global foreign
1 The Indian Express on November 15, 2005- the then Minister for Agriculture, Mr. Sharad Pawar’s interview.
277
direct investment. Where as China attracted 24.4% of the world foreign direct
investment, Korea attracted better inflow of foreign direct investment than our
country.
D .Wrong implementation of the disinvestment policy:
Disinvestment is one of the methods of privatization. It means reducing of
investment in public sector. The process of disinvestment or selling off
Government equity in public sector units began during 1992-1993 in the wake of
this New Industrial Policy of 1991which adopted the policy of liberalization,
privatization and globalization (LPG). The two committees set up by the
Government of India recommended the policy of disinvestment1. A five member
Public sector Disinvestment Commission was constituted to look for a long–term
disinvestment programme for the public sector undertakings referred to the
commission under the Chairmanship of G.K. Ramakrishna.
This commission submitted its report covering 50 enterprises out of 70
enterprises referred to it by the Government. The commission was abolished in
the month of November, 1999.To expedite the process of disinvestment in the
public sector enterprises, Government decided to set up a new department. The
Industrial Policy Statement of 1991 envisaged disinvestment of apart of
Government holdings in the share capital of selected public Sector Enterprises
(PSEs) in order to provide the market discipline and to improve the performance
1Krishna Murthy Committee set up in the year 1991. and
Rangarajan Committee set up in the year 1992.
278
of public sector enterprises. The Government decided to disinvest Public Sector
Enterprises shares in some selected unit phase.
Table 4.8
Table showing Disinvestment in the Public Sector Undertakings since 1991.
___________________________________________________________
Year Target ( Rs. Crore ) Achievement ( Rs. Crore)
___________________________________________________________
1991-92 2500 3, 038
1995-96 7000 362
2000-01 10,000 1, 860
2001-02 12,000 1, 871
2002-03 12,000 3, 348
2003-04 14,500 15, 547
2010-11 40,000 22,144
___________________________________________________________
Source: Economic Survey of India 2005-2006.
279
From the above data it is clear that during 1991-92 the achievement of the
disinvestment of Public Sector Enterprise shares was more as against the target of
Rs. 2500 crore . But in the year 1995-96 only 362 crore was disinvested as against
the target of Rs. 7000 crore. The Government of India could raise resources
through disinvestment to the extent of Rs. 26,080 crore from 1951-52 to 200-01,
which is just 39.33 percent of its target. It is Rs. 66,300 crore . Anyhow, it has
achieved Rs. 15,547 crore in the year 2003-04.
Experts opine that the disinvestment policy of the Government of India
has failed in its perfect way of implementation. One of the significant critic views
was that the total State’s assets that have been collected by the Government of
India over the years of independence are now put up for the sale. As it is evident
from the various occasions, no one is ready to buy any sick Public Sector Units;
efforts are being made to sell the healthy and profitable Units. In fact, a healthy
Public Sector Unit requires no State support and they are efficiently running well.
Therefore, the dilemma of the Government was to go ahead for selling the
profitable units or leave the sick units only for the situation.
Recently, the Standing conference on Public Enterprise (SCOPE) found
that the Government’s disinvestment programme is totally un- planned and not
benefited any Public Sector Units. This is nothing but a simply exercise of
budgetary gap. An other group of experts observed that the programme should be
done in a transparent manner to get better results.
It was also criticized that the process should go with the profitable
companies to create market interest in the privatization programme. The Public
280
Sector Units should take a bolder step towards disinvestment and the Government
should go ahead in a programmed and planned manner.
It appears that the politics of our country over powered the country’s
economic situation. There is a wrong implementation of the disinvestment policy.
The major profit making petroleum industry was also no exception for the
situation. The tendency is such that the public sector enterprises established with
massive investment are being sold to the private sector at a throw away price. The
Supreme Court of India interfered in this matter as this type of attitude is against
the nation’s economic situation.
ii. Fiscal Deficit:
The New Economic Policy reforms have failed to reduce the fiscal deficit.
According to budget proposal of 2003-2004, fiscal deficit was 5.6 % of the GDP
while according to revised estimate of the same was 5.9 % which was predicted
by the Reserve Bank of India.
iii .Liberal Concession :
It can be noted that the New Economic Policy has given liberal
Concessions to the foreign investors. This was traced out to be always harmful
to the interest of the country in the long run. In the similar fashion, liberal attitude
towards the importing of the consumer goods was also found which is not safe to
the economic conditions of the country. It is also found that the New Economic
Policy has given much
281
Stress on the stock market. Import of gold and silver has been permitted which is
a clear failure of check (famous Hawala case.).
4.13: New Industrial Policy 1991:
The Government of India announced New Industrial Policy, in two parts
under the Prime Ministership of late. Sri. P.V. Narasimha Rao .The first part was
announced in the month of July 1991, concerning the large industries, including
the medium industries. The second part was announced on 6th Aug, 1991 which
deals with small industries. This is treated to be the major landmark in the history
of the Industrial world and in the economic world. The New Industrial Policy,
1991 is a total shift from the earlier policy resolutions. This policy increased the
role of the private sector and opening up the economy to the global trade and
foreign investment. , which is also in favour of the delicensing and deregulations
of the industries, revoking the governmental control over the domestic industry.
i. The Main features of the New Industrial Policy, 1991:
Industrial licensing has been done away for all the industries except for a
few and the private sector is free to enter any industrial and manufacturing
activities. Compulsory licensing system for only some industries. Public sector’s
monopoly in only 8 sectors. Continuance of the reservation of items for the small-
scale units. Import of the capital goods shall be automatically approved (the cost-
insurance-freight value is less than 25% of the total vale of the plant machinery
with limit of 2 crore.) Exemption from licensing to all the substantial expansions
of the existing units. Raise from 40% to 51% of the limit of foreign investment in
equity in high priority industries. Companies with foreign equity up to 51%to act
as trading houses primarily engaged in export process. Automatic clearance for
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the foreign technology agreements in high priority industries up t o a lump sum
payment of Rs.1 crore,8% royalty for the exports an 5% for domestic sales,
subject to some conditions.Foreign equity proposals by companies with foreign
technology agreements.
The Government’s shareholdings in the public sector units to be offered to
mutual funds, financial institutions, general public and workers, in consonance
with the partial disinvestments policy to be implemented in phase-wise manner.
Revival of the sick units and the worker’s participation is to be encouraged well.
MRTP Act to be amended to remove the threshold asset limits in respect of the
MRTP companies and dominant undertakings, and to eliminate requirement of
prior approval of Central Government for establishment of new undertakings ,
expansions, mergers, amalgamations and takeovers and appointment of Directors
under certain circumstances.
Dividends to be expatiated by companies with foreign equity to be met through
export earnings over a period of time. The important spheres were embarked to
bring the changes with expected results may be noted in short as
A. Liberalization of the Industrial Licensing
B. Foreign Investment policy
C. Automatic approval of Foreign Technology Agreements
D. Reformative policy of the Public Sector
E. MRTP Act- relaxations
F. Promoting of the Small Scale Industries.
283
The New Industrial Policy, 1991 has been so designed as to impart a new
meaning and orientation to the Indian Industry, especially to the Indian economy
in general to strengthen the competitive edge in the international trade and
monetary sense. According to the World Bank projections, India would become
the fourth largest economy by 20201. The floodgates are opened to the private
entrepreneurs and captains of private business .Regarding its disinvestment, the
rationale given by the Ministry of disinvestment was that it would release large
amount of public funds locked up in non strategic public sector enterprise and
would enable the government to deploy them in social sector such as basic health,
family welfare, primary education and other socio-economic infrastructure2.
4. 14. Globalization – Indian Traditional Large Scale Industries:
There are some traditional industries and large-scale industries, these
industries occupy an important position in the economy of the country. The
growth of these industries provides a fair understanding of the industrial growth
of the country.
i. Indian Manufacturing Sector
The development of globalization of the Indian manufacturing sector
helped India to shed its age-old tag of being 'an agriculture based country'. The
main growth driver of the Indian manufacturing sector are Information
Technology and hardware, telecommunication hardware, automobile,
1C.Lakshmi Narayana Pillai , Globalization of the Indian Economy :A Spot analysis. (ed) Gupta and Srivastava, Liberalization – Economic Challenges. 2Ruddar Dutt and K.P.M. Sundaram , op cit (2007) , p . 202.
284
pharmaceutical, biotechnology, infrastructure, electronic, electrical, textiles, etc.
The effect of globalization of Indian manufacturing industry is reflected in the
GDP's share of Indian manufacturing sector, which has grown considerably over
the years.
The positive effect of the globalization on the Indian manufacturing sector can be
traced out from the following facts –
1. Manufacturing growth rate exceeded 12 %.
2. The Indian industrial growth exceeded 10%.
3.Manufacturing of consumer durables and non-durables have also
recorded upswings.
4. Telecommunication sector with inflows of US$ 405 million has registered
the maximum growth.
5. Merchandise exports recorded strong growth.
6. The automotive industry achieved a growth rate of over 20%
in 2006-07.
7. The biotechnology industry witnessed another good year in 2006-07
and registering more than 40% of growth.
8. The US$ 47 billion Indian textile industry is expected to grow to
US$ 115 billion by the year 2012.
285
9. The US$6.4 billion Indian retail industry is expected to grow over
20% annually to US$ 23 billion by 2010.
10. The robust pharmaceutical market in India ranks 4th worldwide and
is expected to cross business worth Rs 1, 00,000 crore in.
The share of Indian manufacturing industry towards India GDP has grown from
25.38% in 1991 to 27% in 2004. Further, the contribution of the Indian
manufacturing sector to the Indian export sector has increased from 52% in 1970
to 59% in 1980 and 71% in 1990 and 77% in 2000-01. Furthermore, the Indian
manufacturing exports accounted for a little over 5% (in 1990) of the value of
output of the Indian manufacturing sector but today it is close to 10%.
A. Steel Industry
The India steel industry is one of the major industries in India. By the
beginning of the sixth Plan (1980-85), the capacity utilization of the integrated
steel plants had declined rapidly from 90 % (in 1977-78) to 69% ( in 1979-80) ,
this is primarily due to infrastructure constraints in terms of availability of coal,
power and rail transport . Shortage of power is an other constraint. The production
of steel ingots was 23 million tones in 1998-99.
286
Table no.4.9 :
Production of the Steel Industry.
Year
Finished Steel
1950-51
1980-81
1990-91
2000-01
2007-08
2008-09
2009-10
2010-11
2011-12
1.0
6.8
9.6
30.3
56.1
57.2
60.6
66.0
73.4
Source: Economic Survey - 2012-13,
RBI Hand Book of Statistics on
the Indian Economy 2009-10
The production of the Steel increased remarkably during the last decade.
The government played a very important role in the development of the steel
industry in India. The India steel industry is experiencing a slow but steady
growth. The steel industry in India has huge scopes in the future with massive
scale of infrastructural development happening all across the country. The steel
industry in India caters to many other industrial sectors such as construction
287
industry, mining industry, transportation industry, automobile industry,
engineering industry, chemical industry, etc. The steel segment includes the
manufacturing of three different kinds of steel such as carbon steel, Ferro-chrome
steel, and stainless steel.
The Seventh and Eighth Plans provided for the comprehensive planning in the
sphere of iron and steel industry involving modernization, up gradation of
technologies, replacement of obsolete equipment, Provision of balancing
facilities, removal of the technological imbalances. Considerable capital
restructuring of the Public Sector Undertakings was taken up during the Ninth
Plan.(1997-2002).
Table : 4.10 :
Production in Million tones
Country Year 2005 Year 2006 Year 2012
China
Japan
United States
Russia
India
355.8
112.5
94.9
70.8
49.4
422.7 716.5
116.2 107.2
98.6 88.6
66.1 70.6
45.7 76.8
Source: Annual Report , Ministry of Steel 2012-13
288
India stood among the top 10 producers of crude iron steel .This is a good
achievement in the era of globalization.
Due to the recent reforms of liberalization, the steel industry has
performed very well in the recent years , like abolition of Steel Development
Fund (SDF) ,steady reduction of import tariff , the modernization and up
gradation of technology, the compulsory cost reduction through quality
improvement and optimum capacity utilization.
The effects of Globalization on Indian steel industry are not same
throughout the country. The effects depend on the different regions, the type of
raw materials used, the condition of the markets, technological advancements, the
policies of the governmental authorities pertaining to the trade and business
activities of the Indian steel industry, etc. In this age of the globalization, as the
other industries of the developing countries, the Indian steel manufacturing sector
needs to restructure itself, in order to have a sustainable growth. This will be very
helpful for providing the correct strategies for the steel industry in India. The
restructuring should depend on the different requirements of the steel industry. In
order to survive the immense competition under the globalization, the Indian steel
industry plans a reversal of the production of steel industry.
The reduction of the cost is another major factor in the survival of the
Indian steel industry in the age of globalization. During 1990 and till 2003-04
average annul imports of iron and steel ranged between Rs. 4000 crore to 7,000
crore. In the recent years reforms in the iron and steel sector consisted of
liberalization import and export of steel materials, abolition of price and
distribution controls and successive reduction of import duties on iron and steel
products.
289
Now the industry is in the tight competition, which will certainly increase
in the further liberalizations process. Due to the recent liberalization measures,
such as the abolition of the steel development fund (SDF), steady reduction of the
import tariff, the modernization and up gradation of the present technology,
compulsory cost reduction through quality improvement, the steel industry has
performed well in the recent years.
B. Cement Industry
India is the 7th largest producer of cement in the world. The Indian cement
industry is one of the oldest industries. It has been catering to India's cement
requirements since its emergence. The per capita consumption of cement in India,
however, is one of the lowest in the whole world. The cement industry has
recorded continuous growth since planning started. The average annual growth
rate of production of cement has fluctuated violently due to unimaginative
Government’s policy on control and distribution of cement. However, the industry
has maintained an upward trend throughout. In the 90s, the annual rate of growth
has been over 9 percent .The Public Sector, the ACC, the Dalmia Jain and the
Birlas control bulk of the cement units.
i. The Globalization of Indian Cement Industry has helped the industry to
restructure itself to coop up with the alterations in the global economic and
trading system. With the rapid growth rate of the Indian economy after the 1990s,
the infrastructural developments within the country has been tremendous. The
increase in the construction activities has led to the increase in the demand for
updated quality building materials and other allied products. Cement being one of
the major elements in the construction work, there is a growth in the cement
industry in India. The consumption of cement has increased in India by nearly
290
7.5%. With the globalization of Indian cement industry, many foreign cement
manufacturers are engaging themselves in agreements and deals with their India
counter parts to have a share of the growth. In recent years, mergers and
acquisitions have been quite significant in the cement industry. Globalization of
Indian Cement Industry includes several foreign companies engaging in mergers
and acquisitions of Indian cement companies. The leaders in the industry have
found it economical to acquire an existing under-utilized or ill-managed company
rather than float a new company.
For example, Heidelberg Cement - Indorama Cement Ltd. Heidelberg
Cement Company entered into an agreement for a 50% joint venture with the
Indorama Cement Ltd., situated in Mumbai, originally possessed by the Indorama
S P Lohia Group. Heidelberg Cement Company is the leading German cement
manufacturing company. The Heidelberg Cement was set up in 1873 and has a
long and prosperous history. Being one of the best in the world the Heidelberg
Cement Company has its bases in different countries. The Heidelberg Cement
Company has two manufacturing units in India. A grinding plant in Mumbai and a
cement terminal near Mumbai harbor. A clinker plant is coming up in the state on
Gujarat Holcim Cement - Gujarat Ambuja Cements(GACL) Holcim Cement
signed an agreement of 14.8% take over with the Gujarat Ambuja Cements
(GACL). With new products, skilled personnel, superb management, and an
outstanding market strategy gives this tie up good edge over the other
competitors. Holcim Cement Company is among the leading cement
manufacturing and supplying companies in the world. It is one of the major
employers in the world; having a work force of 90,000.The, Holcim Cement
Company has units in excess of 70 countries all over the world. Italcementi
cement - Zuari Cement Limited Italcementi Cement Company with the help of the
Ciments Francais, a subsidiary for its global activities, has acquired shares of the
291
famous Indian cement manufacturer - Zuari Cement Limited. The acquisition was
of 50% Shareholding and the deal was of about 100 million Euros. Italcementi
Cement is the 5th largest cement manufacturing company in the world. The
production capacity of the Italcementi cement company is about 70 million tons in
a year.
With the construction boom in India the company looks for a stable future.
In 2001, the Italcementi cement entered the Indian market scenario. It took over
the plant of the Zuari Cement Limited in Andhra Pradesh in southern India. The
joint venture earned revenues of around 100 million Euros and an operating profit
of 4 million Euros.
Lafarge India is the subsidiary of the Lafarge Cement Company of France. It
was established in 1999 in India with the acquisition of the Tisco and the
Raymond cement plants. Lafarge Cement presently has three cement-
manufacturing units in India. One of them is in Jharkhand, which is used for
grinding, and the other two are in Chhattisgarh used for manufacturing. Leon
Pavin set up the Lafarge Cement Company in the year 1833. Lafarge Cement
Company situated in France is the leading cement producing company in the
world.
It has plans for increasing the cement production through technological
innovations and maximization of the capacity of the plant. It has a large network
of distributors in the eastern part of India. The Lafarge Cement Company is
presently producing nearly 5.5 million tons of cement for the Indian cement
market.
292
Table: 4.11 :
The performance of the cement Industry
Year
Installed Capacity (Million tones)
Production (Million tones)
Production as Percentage of capacity
1950-51 1970-71 1990-91 2003-04 2007-08 2008-09 2011-12
3.30 17.30 64.00
151.70 184.20 230.27 330.00
2.7 14.3 48.8 117.0 167.6 181.4 223.5
82 83 76 77 91 79 68
Source: RBI Report on Currency and Finance 1997-98,
Economic Survey, 2012-13,
Hand Book of Statistics on Indian
Economy 2011-12
According to the above table, the cement industry has recorded continuous
growth since Planning started. In recent years, the Government of India has given
both direct and indirect encouragement to the cement industry. The indirect
benefits have been the form of demand push by the given priority to the
infrastructure and housing sectors. Besides, the Government makes imports of
cement unviable and there is no fear of dumping of foreign cement in India.
293
C. Petroleum Industry:
The Indian Petroleum Industry's Globalization took place since foreign
involvement in the various important stages such as production, refining,
exploration, and transportation increased over the years. In order to further
encourage the Globalization of the Indian Petroleum Industry, the government of
India took certain measures in the early 1990s when the country opened its
markets to foreign Investments. The government of India has taken several
measures in order to ensure that the Globalization of the Indian Petroleum
Industry is successful for the industry.
The government in an effort to encourage Indian Petroleum Industry's
Globalization has offered the contract of discovered fields to foreign and private
companies. The various companies that have helped in the Globalization of the
Indian Petroleum Industry are Enron Oil and Gas Company, Videocon Petroleum
Ltd, Reliance Industries Ltd., Ravva Oil Ltd., and Command Petroleum. The
Indian government in an attempt to further boost the Globalization of the Indian
Petroleum Industry formed the Exploration Licensing Policy by which it tried to
attract the foreign and Indian companies to production and exploration.
D Textile Industry:
The textile industry is one in which India has an opportunity for success
on a global scale, given the low cost of labour. The initiation and development of
globalization and Indian textile industry took place simultaneously in the 1990s.
294
The Indian textile industry is one of the largest textile industries in the
world and India earns around 27% of the foreign exchange from exports of
textiles and its related products. Further, globalization of India textile Industry
has seen a paradigm increase in the 'total industrial production' factor of this
Industry, which presently stands at 14%. Furthermore, the contribution of the
Indian textile Industry towards the gross domestic product (GDP) of India is
around 3% and the numbers are steadily increasing.
India is a leading exporter of cotton textile fabrics and apparel. In 1960-61
export of the textile, yarn and fabrics came to a modest Rs. 65 crores but in 2003-
2004, it has risen to Rs. 15,600 crores. The value of the ready made garment in
1960-61 was Rs. 1 crore., But in 1990—91 it exceeded 4,000 crores. In the year
2003-2004 it touched 28,630 crores The Government of India announced the New
Textile Policy in November 2, 2000.
This Policy envisaged taking up the following issues.
1. Increased global competition in the post 2005 trade regime
under WTO.
2. Huge import volume of cheap textiles from other Asian neighbors
3. High production cost with respect to other Asian competitors.
4. Use of outdated manufacturing technology.
5. Poor supply chain management and huge transit cost.
6. Huge unorganized and decentralized sector.
295
Today, the Indian textile industry employs around 35 million personnel
directly and it accounts for 21% of the total employment generated in the
economy. Globalization of the Indian textile industry has also facilitated
introduction of modern and efficient manufacturing machineries and techniques in
the Indian textile sector.
Thus, much of India's economic growth is largely dependent on textile
manufacturing and exports.Globalization of the Indian textile industry has also
facilitated introduction of modern and efficient manufacturing machineries and
techniques in the Indian textile sector. Thus, much of India's economic growth is
largely dependent on textile manufacturing and exports. Today, the Indian textile
industry employs around 35 million personnel directly and it accounts for 21% of
the total employment generated in the economy.1
E. Chemical Industry:
Indian chemical industry suffered due to the absolute monopoly of the
Government of India enterprises. However, with the opening of the Indian
markets to Foreign Institutional Investors (FII) and Foreign Direct Investments
(FDI) the monopoly of these Government institutions were curtailed substantially.
This gave rise to the opening up of the Indian chemical industry to host of
untapped opportunities. With the introduction of the open-market economic
policy by the Government of India the process of globalization of Indian chemical
industry took a steady rise.
1 Source: Economic Survey 2012-2013, Annual Report , Ministry of Textiles 2008-09
296
The relevant Acts and Rules
Which governs the various type of chemical industry in India are as follows –
1. The Water (Prevention and Control of Pollution) Act, 1974.
2. The Water Prevention and Control of Pollution Cess Act, 1977.
3. The Air (Prevention and Control of Pollution) Act, 1981.
4. The Environment (Protection) Act, 1986.
5. The Batteries (Management and Handling) Rules, 2001.
6. The Municipal Solid Wastes (Management and Handling) Rules, 2000.
7. The Recycled Plastics Manufacture and Usage Rules, 1999.
8. The Rules for the Manufacture, Use, Import and Export and Storage
of Hazardous microorganisms.
9. Genetically engineered organisms or cells, 1989 The Manufacture, Storage
and Import of Hazardous Chemical Rules, 1989
10. The Hazardous Wastes (Management and Handling)
Rules, 1989.
11. The Bio-Medical Waste (Management and Handling) Rules, 1998.
12. Dumping and disposal of fly ash discharged from coal or
lignite based Thermal power plants on land, 1999.
13. Noise Pollution (Regulation and Control) Rules, 2000.
14. The Ozone Depleting Substances (Regulation and Control)
Rules, 2000.
15. The 2-T Oil (Regulation of Supply and Distribution) Order, 1998.
16. The Public Liability Insurance Act, 1991.
17. The National Environment Appellate Authority Act, 1997.
18. The National Environment Tribunal Act, 1995.
19. Forest (Conservation) Act, 1980.
20. The Biological Diversity Act, 2002.
297
The process of the globalization of the Indian Chemical Industry was
initiated in the early 1990s. The chemical Industry of India is at par with world
standard and it shares a good portion of chemical business in world market.
India's low cost and high-end chemical products manufacturing expertise coupled
with world class manufacturing infrastructure is the main leveraging factor for the
rise of this industry.
E. Pharmaceutical Industry:
The government of India opened its economy to foreign companies
through changes in its economic policy in 1991 and this led to the Globalization
of Indian Pharmaceutical Industry. . Globalization has increased the world over
in recent years due to the rapid progress that has been made in the field of
technology especially in communications and transport. Globalization of Indian
Pharmaceutical Industry brought in huge amounts of foreign currency into the
industry, which in its turn helped to boost the Indian economy. With many foreign
pharmaceutical companies entering the Indian Pharmaceutical Industry, it
increased the number of jobs that were available to the people of the country. The
benefits of Globalization of Indian Pharmaceutical Industry are that the foreign
pharmaceutical companies also brought in highly advanced technology into the
industry and this improved the quality of medicines that were available to the
people. Many Indian pharmaceutical companies took over international
pharmaceutical companies such as Ranbaxy merged with Croslands, Wockhardt
with Merind, and Nicholas Piramal with Sumitra Pharma. This helped the Indian
pharmaceutical companies to grow and make even more profits.
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G. Information Technology ( IT ) Industry:
The term Information Technology includes computers and communication
technology with associated soft ware. Information Technology for some time was
used as synonymous to computers. But with the rapid advancement in various
information delivery systems, it refers to the entire gamut of media and devices
used to transmit and process information for use by various target groups in the
society. Thus, the Information Industry has pervaded a wide range of industries.
Viz. manufacturing, education, entertainment, defense, trade, communication etc.
Table: 4.13 :
The table showing the total revenues earned by the Information Technology
Industry market.
YEAR RS. CRORES US $ MILLIONS AS PERCENT OF GDP
1994-95 6,345 2,041 0.63
1997-98 18,641 5,021 1.22
1998-99 25,307 6,014 1.45
1999-00 36,179 8,357 1.87
2000-01 56,592 12,410 2.66
2001-02 65,768 13,783 2.87
2002-03 79,337 16,494 3.15
2009-10 4.15,520 87,631 6.8
2010-11 4,76,180 1,04,478 6.6
2011-12 5,67,835 1,18,499 6.8
Source: NASSCOM-IT industry in India2003 review, IT –BPO
sector in India Strategic review 2010,Ministry of
Telecom 2000-01to 2011-12.
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The Information Technology has integrated the world by the use of internet. The
growth of the IT industry took place only after the International Treaty of
1994.The revenues earned by the Information Technology Industry in the
domestic market and in the export market includes the income from soft wares,
hard wares, peripherals, maintenance and networking.
The Tenth Plan has shown remarkable progress in the IT sector. This is the
consequence of the joint efforts of public and private sectors.
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Table 4.14 :
Production of IT industry
Year Hardware Software
For export
Domestic
Software
Total
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
22,100
25,250
28,100
30,700
32,750
37,500
43,800
50,500
56,600
66,000
84,410
97,260
1,10,720
1,28,870
1,43,300
6,500
10,940
17,150
28,350
36,500
46,100
58,240
78,230
1,03,200
1,41,000
1,64,400
2,16,190
2,37,000
2,68,610
3.32.769
3,470
4,950
7,200
9,400
10,874
13,400
16,250
19,630
26,460
37,000
47,010
59,000
67,800
78,700
91,766
32,070
41,140
52,450
68,450
80,124
97,000
1,18,290
1,48,360
1,86,260
2,44,000
2,95,820
3,72,450
4,15,520
4,76,180
5,67,835
Source: Planning Commission –Tenth Five Year Plan-Vol-II and
Economic survey (2006-07),Ministry of Information
Technology ,Annual Report 2012
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Special economic zones
4.15 Introduction:
India a fast developing country needs to survive and compete with rest of the
world in international trade. To compete and increase the volume of international
trade output is to be increased for which huge capital investment for
industrialization is needed. The SEZs come with capital and technology, which is
deficient in India. However, the way for SEZs is not so clear due to some specific
reasons.
The studies in this field are quite essential to study the performance of the
SEZs in the economy in attaining the goals and make suggestions improving their
performance in the interest of the nation. India a fast developing country needs to
survive and compete with rest of the world in international trade. To compete and
increase the volume of international trade output is to be increased for which huge
capital investment for industrialization is needed.
SEZ is a trade capacity development tool, with the goal to promote rapid
economic growth by using lax and business incentives to attract foreign
investment and technology. Special Economic Zones/Export Processing Zones are
being established as industrial enclaves for expediting the process of
industrialization.
Most developing countries in the world have recognized the importance of
facilitating international trade for the sustained growth of the economy and
increased contribution to the GDP of the nation. As part of its continuing
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commitment to liberalization, the Government of India has also, since the last
decade, adopted a multi-pronged approach to promote foreign investment in India.
Special Economic Zones in India are being established in an attempt to deal with
infrastructural deficiencies, procedural complexities, bureaucratic hassles and
barriers raised by monetary, trade, fiscal, taxation, tariff and labour policies. The
Government of India has pushed ahead with second-generation reforms and has
made several policy changes to achieve this objective.
The SEZ policy was first introduced in April 2000, as a part of the Export-
Import (“EXIM”) policy of India. The objective was to provide an internationally
competitive environment for exports that would in turn earn precious foreign
exchange for India. However, in its initial form the concept was not able to inspire
sufficient confidence in the investors. To provide a stable economic environment
for the promotion of export-import of goods in a quick, efficient and hassle-free
manner, Government of India enacted the SEZ Act, which received the assent of
the President of India on June 23, 2005. The SEZ Act and the SEZ Rules, 2006
(“SEZ Rules”) were notified on February 10th , 2006.The SEZ Act is expected to
give a big push to exports and consequently to the foreign direct investment
(“FDI”) inflows into India, and is considered to be one of the finest pieces of
legislation that may well represent the future of the industrial development
strategy in India.
The new law is aimed at encouraging public-private partnership to develop
excellent infrastructure and attract private investment (domestic and foreign),
boosting economic growth, exports and employment.
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This policy intended to make SEZs an engine for economic growth
supported by quality infrastructure complemented by an attractive fiscal package,
both at the Centre and the State level, with the minimum possible regulations.
SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of
the Foreign Trade Policy and fiscal incentives were made effective through the
provisions of relevant statutes.
4.16 Historical background:
India was one of the first in Asia to recognize the effectiveness of the
Export Processing Zone (EPZ) model in promoting exports, with Asia’s first EPZ
set up in Kandla in 1965.
According to Pandit Nehru1 “We do not believe in rigid autarchy, but we
do want to make India a self-sufficient in regard to her needs as far as this is
possible. We want to develop international trade, importing articles, which we
cannot easily produce, and exporting such articles as the rest of the world wants
from us. We do not propose to submit to the economic imperialism of any other
country or to impose our own on others. We believe that the nations of the world
can co-operate together in building a world economy that is advantageous for all
and in this work, we shall gladly co-operate .But this economy cannot be based on
the individual profit motive, nor can it subsists within the framework of
imperialist system. It means a new world order, both politically and economically,
and frees nations co-operating together for their own as well as the larger good.”
His above commentary is encouraging and appears to be a prophecy of
establishment of Special Economic Zones in India that the under developed
1 Pandit.Jawahar Lal Nehru on October 4th , 1940 in his deliberations on the country’s self reliance and Globalization ---
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country at one stage would definitely become one among the developed countries
by adopting the principle of self -Reliance and Globalization.
With a view to overcome the shortcomings experienced on account of the
multiplicity of controls and clearances; absence of world-class infrastructure, and
an unstable fiscal regime and with a view to attract larger foreign investments in
India, the Special Economic Zones (SEZs) Policy was announced by the
Government of India in April 2000 with a sole aim to provide an internationally
competitive environment for exports, it includes making available goods and
services free of taxes and duties supported by integrated infrastructure for export
production, expeditious and single window approval mechanism and a package of
incentives to attract foreign and domestic investments for promoting export led
growth. The Ministries implemented .the facilities and incentives to the investors
of the Special Economic Zones that are offered and Departments concerned
through various notifications and circulars only.
Therefore, the system was not giving enough confidence to the persons
coming forward in the capacity of the investors to invest their huge funds for the
development of infrastructures and setting up of units for the export of goods and
services in the Special Economic Zones .This was felt as a complex process for
the investor which needs utmost confidence for the investors or the developers
who wanted to invest in that and must also have the hope of getting the profit in
the near future including security to their fund. Now it has been found to be
necessary to have a Central Act for the Special Economic Zones to give long term
and stable policy with minimum regulatory regime and to provide an expeditious
and single window mechanism to achieve this purpose the Special Economic
Zones Bill, 2005 was passed with the above objects resulting The Special
Economic Zones Act, 2005 which came into effect from 23rd June, 2005.
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4.17 SALIENT FEATURES AND OBJECTIVES OF SEZS;
SEZs are specifically delineated duty-free enclaves and are deemed
foreign territory for the purposes of trade operations, duties and tariffs. The
principal goal is to increase foreign investment. Through the introduction of
SEZs, India also wants to enhance its somewhat dismal infrastructural
requirements, which, once they have been improved, will invite even more
foreign direct investment1. On the other hand, put in the government’s own
words.
Some of the salient features are:
• Designated duty free enclave and to be treated as foreign territory for trade
Operations, duties, and tariffs.
• No license required for import.
• Exemption from customs duty on import of capital goods, raw materials,
consumables, spares etc.
• Exemption from Central Excise duty on procurement of capital goods, raw
materials Consumable spares etc. from the domestic market. Supplies
from DTA to SEZ Units treated as deemed exports.
• Reimbursement of Central Sales Tax paid on domestic purchases. 100%
income tax exemption for a block of five years, 50% tax exemptions for
two years and up to 50% of the Profits ploughed back for next 3 years
under section 10-A of Income tax Act. F. Supplies from DTA to SEZ to
be treated as exports under 80HHC of the IT Act Carry forward of losses
1 International Journal of Research in Finance & Marketing Volume 2, Issue 3 (March 2012)
306
100% Income-tax exemption for 3 years & 50% for 2 years under section
80-LA of the Income-tax Act for offshore banking units.
• Reimbursement of duty paid on furnace oil, procured from domestic oil
companies to SEZ units as per the rate of Drawback notified by the
Directorate General of Foreign Trade.
• SEZ units may be for manufacturing, trading or service activity.
• SEZ unit to be positive net foreign exchange earner within three years.
Performance of the units to be monitored by a Committee headed by
Development Commissioner and consisting of Customs.
• 100% Foreign Direct Investment in manufacturing, sector allowed through
automatic route barring a few sectors.
• Facility to retain 100% foreign exchange receipts in EEFC Account.
Facility to realize and repatriate export proceeds within 12 months.
• Re-export imported goods found defective, goods imported from foreign
suppliers on loan basis etc. without Waiver under intimation to the
Development Commissioner. "Write-off" of unrealized exports bills up to
5%. Commodity hedging by SEZ units permitted Capitalization of import
payables.
• No cap on foreign investment for SSI reserved items. Exemption from
industrial licensing requirement for items reserved for SSI sector.
• Profits allowed to be repatriated freely without any dividend-balancing
requirement.
• Domestic Sales on full duty subject to import policy in force.
• No fixed wastage norms. Full freedom for subcontracting including
subcontracting abroad. Subcontracting facility available to jewellery units.
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• Duty free goods to be utilized in 5 years. Job work on behalf of domestic
exporters for direct export allowed. No routine examination by Customs of
exports and import cargo.
• No separate documentation required for customs and Exim- Policy.
• In house customs Clearance. Support services like banking, post office
clearing agents etc. provided in Zone Complex.
• Developed plots and ready to use built up space Exemption from
Custom/Excise Duty on goods for setting up units in the zone.
Objectives:
The Act is understood as having the following objectives –
(a) Generation of additional economic activity,
(b) Promotion of exports of goods and services;
(c) Promotion of investment from domestic and foreign sources;
(d) Creation of employment opportunities; and
(e) Development of infrastructure facilities.
4.18 Labour laws and SEZ and their export growth rate: (In India)
The fundamental principle of labour legislation is to guarantee the weaker party in
the labour market protection and basic rights in order to be in a fair position when
negotiating salary and working conditions .”labour law seeks to correct the basic
inequality between employer and employee.”
The explanations for the purpose of labour law are that workers’
representatives can feel immediately comfortable with: to correct the imbalance of
308
power between the worker and the employer: by protecting workers’ right to
organize in trade unions and to bargain collectively, and to putting in place
safeguards which prevent the employer from dismissing the worker without good
cause, labour law sets up and preserves the processes by which workers are
empowered to negotiate from a position of “equality” (or, at least, of less
inequality). to prevent working conditions being pushed below levels society
deems acceptable: by placing restrictions on the contracting partners’ freedom to
contract on whatever terms they wish, and setting minimum standards over issues
such as working time, health and safety, and pay, the law limits the degree to
which the more powerful party can exploit the weaker.
Special Economic Zones Primarily aim at developing export potentials of
the country through export oriented individual complexes or industrial
agglomerates. The special economic zones in India were established with a view
to bring expertise for the country's exports sector. For this, a policy was
introduced on 01.04.2006. As to these policies, the Government has set up SEZ's
in the public, private, joint sector or by State Governments. In this regard, some of
the existing Export processing zones were converted in to Special economic
zones. Fiscal incentives financial assistance, infrastructural support and
environment free of bureaucratic interference, underlies the economic policy
parameters promoting these zones. These incentives and assistance schemes
increase indirect competitive strength in the units in these zones to face
adequately the international competition in the world market.
The valuable foreign exchange earned by the units in the SEZs provides
the needed investment resources and thus help the economic development of the
country. Exports from the functioning SEZs during the last few years has
increased to Rs. 66,638 crore in 2007-08 from Rs. 13,854 crore in 2003-04. The
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value of exports was Rs. 18,314crore in 2004-05, Rs. 22,840 crore in 2005-06 and
Rs. 34,615 crore in 2006-07. The total amount of exports of Indian SEZ was Rs.
2.2 Trillion in 2009-10 fiscal. It grew by a 43 percent and reached Rs. 3.16
Trillion in 2010-11 fiscal. By 2010-11 SEZs in Indian has created over 840,000
jobs. The following table No. 3 gives details.
Table 4.16 :
Exports from the
functioning SEZs
during 2003 to 2009-
10 Year
Value (Rs. Crore)
Growth Rate over
previous year
2003-2004 13,854 39%
2004-2005 18,314 32%
2005-2006 22 840 25%
2006-2007 34,615 52%
2007-2008 66,638 93%
2008-2009 99,689 50%
2009-2010 2,20,711.39 121.40%
Source : http://sezindia.nic.in
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4.19: SEZ-- Insecurity of labour:
SEZs display the labour insecurity and violations of labour rights.
According to estimates provided by the Ministry of Commerce, more million jobs
will be created through SEZs. However, about 60 per cent of the approved SEZs
are in the IT sector. It, therefore, appears that SEZs only facilitate the
displacement of labour into ‘safe zones`.
Special Economic Zone is a specifically delineated duty free enclave and
shall be deemed foreign territory for the purposes of trade operations and duties
and tariffs. In order to exempt such zones and to provide more facilities for the
speedy development and for their trade expanding turnovers there are more
changes in the Labour legislations. The Special Economic Zones have inspired
and intended amendments in the labour legislations with a view to exempt the
Special Economic Zones from the less flexible labour laws in India.
Accordingly, the labour law requirements are simplified and relaxed. But
unfortunately these changes in the labour legislation in the Special Economic
Zones leading to the insecurity to the worker and not only that it is paving ways
for the gross human rights abuse weakening the trade union movement . The
open market or free market argument with no boundaries are putting the workers
at the mercy of the employers or the developers who never bothered for the
welfare of the worker and for their security. Indian Special Economic Zone will
have to comply with labour laws. However, a state government can declare units
with the Special Economic Zone as public utility. It can also delegate powers of
the labour commissioner to another officer exclusively for Special Economic
311
Zone or even to development commissioner of Special Economic Zone so that
resolution of disputes can be expedited.
In India, the labour laws which provide good working conditions and
reasonable wages and security are acceptable to all. However in the context of
international trade or open market system or free market system that are emerging
as Special Economic Zones in India, are posing a threat to the labour rights.
Clause 5(f) of chapter 2 of the SEZ rules confers on the Development
Commissioner (DC) the right to handle workmen-employer relations. The
functions of the Labour Commissioner have also been handed over to the DC.
When the specific role of the DC is the development and propagation of SEZs,
one can not expect the DC to uphold labour laws in SEZs.
This increases indiscipline and thus becomes the root cause of the
reduction in the production and will go up to such an extent that Indian goods
become uncompetitive. Previously the labour commissioner and various boards
had the power under various labour law statutes. There has been an actual and
proposed delegation of these powers to the development commissioner. The
development commissioner is expected to be an agent of the corporations. It is he
who grants them all their permissions to operate and all the benefits and
exemptions under the various statutes. One cannot expect such an officer to play
an impartial role while adjudicating disputes between employers and workmen.
Yet in all the states studied, the development commissioner has been appointed
with the powers of the labour commissioner in respect to the Special Economic
Zones, and in some Special Economic Zones, he has also been appointed as the
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conciliation officer. Now the management of these Special Economic Zones will
be under the designated development commissioner.
The development commissioner will grant all the permission, as single
point clearance from his office. These will include registration of the unit,
allocation of land, permission for construction of building and approval of
building plan, power connection, environmental clearance, water requirement, etc.
Special Economic Zones in the state will be declared as Industrial Township
(Notified Area).The powers of the labour commissioner, Government shall be
delegated to the development commissioner in respect of the area within the
SEZs. An officer will be designated and placed under the supervision and, control
of development commissioner, Special Economic Zone. He will function as
registration officer, conciliation officer as well as inspector under various labour
laws to provide single window service.
As a part of liberalization process for filing returns, a consolidated annual
report (CAR) has been designed, consolidating various periodical returns
(quarterly, half-yearly etc.) under the following Acts.
1.Workman Compensation Act 1923
2.Payment of Wages Act 1936
3.Factories Act 1948
4.Minimum Wages Act 1948
5.Maternity Benefit Act 1961
6.Payment of Bonus Act 1965
7.Contract Labour (Regulation and Abolition) Act 1970
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The Units in Special Economic Zones will be required to file annually
consolidated annual report (CAR) to development commissioner, Special
Economic Zones.
The units in Special Economic Zones will not be required to file
periodically separate returns. All industrial units and other establishments in
Special Economic Zones will be declared as “public utility service” under the
provisions of Industrial Dispute Act. For inspections relating to workers’ health
and safety, units will be permitted for obtaining inspection reports from accredited
agencies as may be notified by the state government.
Section 49 of the SEZ act 2005 empowers the government to exempt any
or all S.E.Zs from the operation of any central law through a notification. It puts
S.E.Zs, theoretically at least, out side the pale of the constitution .A wide range of
services from water supply to disease control and vital certification (birth, deaths)
will be provided by private companies, which are not accountable to the
people.Several provision of the Industrial Disputes Act, Contract Labor Act etc
amended by the states have put labor on notice. Maharashtra has declared all units
in S.E.Zs as public utility services.In the SEZ, none of the laws pertaining to
minimum wages, provident fund, contract labor and employees’ State insurance
will be implemented. No environmental Impact assessment for industries in
S.E.Zs, wich are also exempt from the environmental public hearing. Power
supply can get messy as generating companies in S.E.Zs can bypass the state
electricity regulatory commission. No mechanism for de notifying unsuccessful
S.E.Zs, which leaves units located in such zones in a limbo and large tracts of
land locked in. The question is what happens when large S.E.Zs eventually
become townships whose population could run into millions. There is the
constitutional tenability of private monopolies running local government for the
314
sizable clusters of the urban population without being elected. The S.E.Zs, thus,
turn into sovereign states accountable to none. A super bureaucrat vested with
enormous power. Since SEZ are being designated industrial townships by the
states, the DC would work independently with no municipality or the third rung of
governance to oversee his functioning. Environmental Impact assessment--- SEZ
units are exempted from environmental impact analysis under the provision of the
Environment (Protection) Act. Further, the development commissioner will be
empowered to issue consent and no objection letters in consultation with the
officers of the state pollution control board. The units, which are classified as
non-polluting industries, do not require a consent letter. The development
commissioner can give clearance without consulting the pollution control board.
The units are permitted to submit a compliance report for maintaining prescribed
pollution standards. Although the development commissioner has powers for a
random check, the units within the SEZ are free to follow their own methods to
maintain environmental standards.
The quality and quantity of electricity, an important and crucial public
utility, has been given top priority in the SEZ. The SEZ can have its own captive
power plant to generate and distribute power. The water supply and solid and
sewage waste management is the responsibility of the SEZ authority. An
overview of the industries located in other S.E.Zs in the country reveals that there
are all types of industries such as software, electronics and hardware, ready-made
garments, engineering, leather products, chemicals and allied products.
Development of the SEZ would involve a large amount of construction activity
that is expected to have adverse impact on the environment albeit temporarily
during the construction phase. However if the environmental issues are not
addressed during the construction phase, it could lead to irreversible damage to
the environment. The water body is expected to be sensitive to changes in quality
315
due to proposed disposal of treated effluent and sewage --- all these in toto
definitely effect the health and hygene of the entire labour that are in the SEZs.
Few Specific observations of exemption sought for certain Acts in SEZs and
their effect on labour:
Under Section 2(n) of Industrial Disputes Act, 1947: Public utility service
means –
i. Any railway service (or any transport service for the carriage of passengers or
goods by air).
ii. Any service in or in connection with the working of any major port or dock.
iii. Any postal or telegraph or telephone service.
iv Any industry which supplies power light or water to the public,
v. Any system of public conservancy or sanitation
vi Any industry specified in the (First schedule ) which the appropriate
Government may , if satisfied that public emergency or public interest so requires,
by notification in the Official Gazette, declare to be a public utility service for
the purposes of this Act, for such period as may be specified in the notification.
But to consider a Gem and Jewelry Park a public utility service is not
proper this amended omnibus provision considers all industries situated within
these zones, regardless of their actual public utility. It should be invalid to the
extent that an industry that is not a public utility service cannot be treated as one.
As per Section 22 of Industrial Disputes Act, 1947,
14-day notice has to be given before the employees’ undertake a strike or the
employers’ a lock-out. The state government may ban the strike or lock-out.
At one time the proposals by Maharashtra State seeking to avoid the application
of Chapter V-A to industries in the Special Economic Zones gives the clear
316
meaning that the implication of such a move will be , in a Special Economic Zone
when a workman reports for work, and the employer fails to provide any work, no
lay-off compensation shall be payable. On the other hand , there will be no
protection against retrenchment, in the form of notice and compensation. When an
undertaking or its management is transferred, no compensation shall be payable.
When the closure of an undertaking with less than a 100 workers takes place,
Employers will victimize trade union activists as the procedure for retrenchment,
including the ‘last come, first go’ principle may not be applicable.
The situation also reveals that there shall be no requirement that
retrenched workers be given priority once the employer begins hiring again. A
number of states have proposed that Special Economic Zones or at least
undertakings in Special Economic Zones with less than 300 workmen, be
exempted from Chapter V-B of the ID Act. Under Chapter V-B, when in a factory
with more than a 100 workers the employer considers lay-off, retrenchment or
closure, the permission of the state government is required. In the absence of such
a requirement, it shall be the sole discretion of the employer whether to undertake
lay-off, retrenchment or closure.A problematic amendment that has already been
made to the ID Act 4 is that employers in the Special Economic Zones no longer
have to give workmen, likely to be affected by a change in conditions of service,
any notice before making such a change.
This means that employers will have the power to affect immediate,
unilateral changes in the conditions of service, and workmen shall be helpless.
Before the amendment, if workmen had notice of any change in their conditions
of service that would be to their detriment, they could institute legal proceedings,
and obtain stay on detrimental changes.
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As per Section 22 of Trade Unions Act, 1947 : Not less than one-half of the
total number of the office-bearers of every registered trade union in an
unorganized sector shall be persons actually engaged or employed in an industry
with which the trade union is concerned, has been amended by two states, and is
proposed to be amended by another two, so as to exclude outsiders from
becoming office-bearers of trade unions.
Actually, under the complex factory system unlike in the agricultural
sector where the employer and the employees are in direct contact, personal and
immediate contact between the employer and the employees or workers are not
easily possible .So there is a very good need of labour unions. In the process of
industrialization, the entrepreneurs want to get maximum profits. For that
purpose, they started practicing various evils such as prolonged working hours,
low wages, and exploitation of workers and intensification of the labour. In these
circumstances where the freedom and the security of the individual worker is
threatened, trade unions emerged in order to mitigate such evils.
There are various stages in the emergence of trade union movements and
their development where the establishment of ILO in 1919 was a significant
event, which really gave new strength to the advancement of labour movement
and trade unionism.
Therefore, in the SEZs , this exclusion of outsiders is in breach of the ILO
Convention, which does not permit governmental or employer interference with
the right of workers to form a union in the manner they deem fit, and appoint
office-bearers of their choice. It is ironic that while corporations operating in
Special Economic Zones may have directors from outside the Special Economic
Zones, who are not employed within the Special Economic Zones; trade unions in
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Special Economic Zones cannot have office-bearers who are trade union activists
or persons working outside the Special Economic Zones
The implication of this amendment is that union-movement will become
further fragmented, and as general trade union will not be possible. It will lead to
establishment-wise unions. Thus, the very purpose of the trade unionism and its
objectives are constrained and the democratic views of the trade unionism are
curtailed. The strength of the collective bargaining is weakened before the master,
i.e. the employer or the developer in this case.
Under Factories Act, 1948:
Amendments to various provisions of the Factories Act, 1948 have been
affected and proposed in SEZs. The essence of these amendments is that: There
will be no restriction on the length of time that workers are required to work in
Special Economic Zone, on a daily or weekly basis. A worker will not be able to
challenge any amount of overwork
Minimum Wages Act, 1948: Under Section 13 of this Act, in regard to any
scheduled employment minimum rate of wages in respect of which have been
fixed under the Act, the appropriate Government May (a) fix the number of hours
of work which shall constitute a normal working day, inclusive of one or more
specified intervals
(b) Provide for day of rest in every period of seven days which shall be allowed to
all employees or to any specified class of employees and for the payment of
remuneration in respect of such day or rest.
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(c) Provide for payment for work on a day of at rest not less than the overtime
rate.
The above provisions shall apply to the following as per
Sec.13 (2)
(a)Employees engaged on urgent work, or in any emergency which could no have
been foreseen or prevented
(b) Employees engaged in the work in the nature of preparatory or complementary
work, which must necessarily be carried on out side the limits laid down for the
general working in the employment concerned.
(c) Employees whose employment is essentially intermittent.
(d) Employees engaged in any work, which for technical reasons has to be
completed before the duty is over.
(e) Employees engaged in a work, which could not be carried on except at times
dependent on the irregular action of natural forces.
Thus Section 13 of Minimum Wages Act, 1948 is giving a clear picture
by contemplating the fixation of working hours of a normal working day and the
minimum rate of wages, its intervals , rest periods and its payment with in the
conditions applicable i.e. under what circumstances , its urgency, under irregular
actions of nature and its related purview. Amendments to Section .13 of the
Minimum Wages Act, 1948, in SEZs are that the appropriate government no
longer has the power to fix the hours in a normal workday. There will be no
guaranteed weekly holiday. There could thus be seven working days week. There
will be no restrictions on the employment of women. It is an amendment that has
been proposed by Madhya Pradesh, Maharashtra and Uttar Pradesh. This is the
only amendment that is not problematic in the least, as long as women have
transportation to and from work during nighttime. This amendment has been
made by Andhra Pradesh, which has also exempt Special Economic Zones from
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Section 11 of the Minimum Wages Act, 1948 ,this provides for wages being paid
wholly or partly in kind, and authorizes the supply of commodities at concession
rates.
As per Section 18 of the Minimum Wages Act, 1948 the employer shall
maintain all such registers and records giving all such particulars of employees
employed by him, the work performed by them , the wages paid to them, the
receipts given by them and all such other particulars in the prescribed manner. It
is the duty of the employer to keep those exhibited at the work place of the
employee in the prescribed manner and as per Section 18 (3) of the Act; the
Government provides the wage books or slips indicating the minimum rate of
wages.
But Special Economic Zones have been exempted from Section .18 of the
Minimum Wages Act, which mean that employers in Special Economic Zones
shall not have to maintain registers and records giving the particulars of
employees employed, the work performed by them, wages paid by them, receipts
given by them, etc. This will decrease the actual justifiability of the Act, as
allegation of wages below the minimum cannot be proved in the absence of
records. This amendment has been made by Andhra Pradesh.
At one time Madhya Pradesh has made the most shocking proposal of all:
It proposed to exempt Special Economic Zones from the operation of the Act, No
doubt , it is a fact that it opens up the possibility of gross human rights abuse.
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Under the Contract Labour (Regulation and Abolition) Act, 1970:
The Contract Labour (Regulation and Abolition) Act, 1970 aims at the
abolition of contract labour of some categories as may be notified by the
appropriate Government in the light of certain criteria and regulates when or
wherever the abolition is not possible .Under this scheme of the Act the provision
and maintenance of certain basic welfare amenities for contract labour, like
drinking water, first aid facilities, rest rooms. Provisions have also been made to
guard against delays in matters of wage payment. It provides for the setting up of
advisory Boards of a tripartite character, representing various interests, to advise
the central and State Governments in administering the legislation and
registrations of establishments and contractors. Central and State advisory boards
are there to advise the Central and the State Governments respectively on such
matters arising out of the administration this Act as may be referred to those and
to carry out the other functions assigned to them.
They got power to give directions, power to remove the difficulties, power
to make the rules to carry the actual purpose of the Act. , power to exempt some
cases as special cases. The inspecting staff appointed under the Act shall exercise
their powers under the Act .Under this the employer is under an obligation to
maintain the registers and all the records that provide the full particulars of the
contract laobour employed, their nature of work, their wages and all other
relevant particulars in the appropriate forms according to the prescription. The
principal employer shall have to keep it exhibited in the manner under the Act.
Thus, there are various provisions giving protection and security to the worker
under the Act in a consolidated specific manner.
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The Contract Labour (Regulation and Abolition) Act, 1970 (CLA), is an
Act that enables persons working as contract labour to approach the contract
labour board and the labour court for permanency or for registration of their
conditions of service. Uttar Pradesh has exempted Special Economic Zones from
the operation of the Contract Labour (Regulation and Abolition) Act, 1970 that
means the contract workers in an Special Economic Zones in Noida, for
example, will have no status in labour law. Other states seek to limit the
application of Contract Labour (Regulation and Abolition ) Act, 1970 by
declaring certain activities such as sanitation, and running of canteens, as non-
core activities, while providing that the prohibition of contract labour is applicable
to “core activities” alone. States have also sought to limit the application of
Contract Labour (Regulation and Abolition ) Act, 1970 by tinkering with Section
.31 of the Contract labour ( Regulation and Abolition ) , Act,1970 which gives
to the appropriate Government that in case of emergency , it may direct , by
notification in the Official Gazette that subject to such conditions and restrictions
, if any and for such period or periods, as may be specified in the notification , all
or any of the provisions of this Act or the rule made there under shall not apply to
any establishment or class of establishments or any class of contractors to allow
for the state government to declare Special Economic Zones as exempt from
Contract Labour (Regulation and Abolition ) Act,1970
Under Apprentices Act, 1991:
The object of the Act is to meet an increasing demand for the skilled
craftsmen, in the development of the country. The Act provide for the regulation
and control of training of apprentices in trades and for matters connected
therewith. It was shocking that the Madhya Pradesh State has made a proposal to
exempt Special Economic Zones from the application of the Apprentices Act,
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1991. The Act casts a duty on the employer to provide regular training for
apprentices. The Act creates a distinction between trainees and regular workmen.
In the absence of the Act, the employer may keep regular workmen in the guise of
trainees/apprentices, and pay them only a pittance. Alternatively, the employer
may keep trainees without really providing them with any formal training.
Under Employees Provident funds and miscellaneous provisions Act, 1952:
The object of the Employees Provident Funds Act is to provide for the
institution of provident funds, pension fund and deposit linked insurance funds for
employees in factories and other establishments. The principal duty is laid upon
the employer to put the Provident Fund Scheme into operation and to make
contribution of both the employee’s and employer’s share to the fund then and
there and deduct the employee’s share from their wages. . The Act was
accordingly extended to many additional industries to cover millions of
employees working in more than thousands and thousands of factories.
Employees Provident funds (Amendment) Act, 1956 empowered the
Government to extend the Act to non-factory establishments. Under Section 12
of the Act. , the employer is not supposed to reduce the wages of the employee
whether directly or indirectly .Penalties were also imposed under the Act. When
observed carefully the Act aims at the social security and protection even at the
stage of his old age and if implemented perfectly the employee is under the strong
protection. With regards to the Special Economic Zones, the States of Maharshtra
and Madhya Pradesh have proposed that the principal employer be exempt under
the Employees Provident Fund and Miscellaneous Provisions Act, so that the
principal employer will not have to give permanent and regular workmen a
provident fund.
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Under Employees’ State Insurance Act, 1948 :
The Employees’ State Insurance Act, 1948 is a legislation, which aims a
bringing social and economic justice to the poor labour class of the land. It aims at
the labour welfare. Labour welfare is a very comprehensive term and included
every thing under taken by the State, employers and associations workers for the
improvement of workers standard of living and promotion of their social and
economic well-being. Thus all the welfare activities need to be considerably,
extended to cover worker of every factory, industry, mines, plants and
communication etc. Definite minimum standard welfare should be laid down,
which has to be observed by all the employers.
But unfortunately some states like Maharashtra and Madhya Pradesh have
also proposed that principal employers in Special Economic zones be exempt
from any liability under Employees State Insurance Act, 1948, towards employees
employed indirectly. This will mean that contract workers shall not be able to
avail of the Act in cases of accident, illness or occupational diseases.
Under Employment Exchanges (Compulsory Notification of Vacancies) Act,
1959:
The State of Madhya Pradesh has proposed the amendment of the
Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959 to
exempt Special Economic Zones. Under the Act, unemployed persons are to be
called for interviews. The Act does not compel the employer to take on a person
who is unsuitable for employment. It is strange that though the Act causes no
inconvenience to the employer whatsoever, and should not pose a “problem” even
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in the liberal, flexible labour environment of a Special Economic Zones, such a
proposal has been made. This proposal has been made despite the million who
seek and find employment through employment exchanges.
4.20 : Summary:
Industrial relations and labour laws constitute an essential component of
Labour Policy in India aimed at imparting certain basic rights to workers as
enshrined in our Constitution. Labour law reforms are an ongoing and continuous
process and the Government has been introducing new laws and amending the
existing ones in response to the emerging needs of the workers in a constantly
dynamic economic environment.
Industrial Relations in connection with and under the Constitution of
India, Labour are a subject in the concurrent list where both the Central and State
Governments are competent to enact legislations. As a result, a large number of
labour laws have been enacted catering to different aspects of labour namely,
occupational health, safety, employment, training of apprentices, fixation, review
and revision of minimum wages, mode of payment of wages, payment of
compensation to workmen who suffer injuries as a result of accidents or causing
death or disablement, bonded labour, contract labour, women labour and child
labour, resolution and adjudication of industrial disputes, provision of social
security such as provident fund, employees’ state insurance, gratuity, provision
for payment of bonus, regulating the working conditions of certain specific
categories of workmen such as plantation labour, beedi workers etc.
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Globalization is a process, which generates flows and connections, not
simply across nation-states and national territorial boundaries, but between global
regions, continents and civilizations. This invites a definition of globalization as
an historical process which engenders a significant shift in the spatial reach of
networks and systems of social relations to transcontinental or interregional
patterns of human organization, activity and the exercise of power.
In this era of globalization, it is more and more important to protect the
interest of workers more effectively, especially in the unorganized sector. The
concept of globalization should be to promote growth of industry, employment
and productivity of workers while ensuring protection of workers’ rights and
maintaining healthy industrial relations. Actually to meet the dialogue and to
ensure that the globalization can really become pro-worker, the law must locate
perfectly which are the labour laws that need to be repealed or amended, how to
improve the coverage of labour laws, and how to improve enforcement /
implementation of labour laws. These issues must be given prime importance in
the present era.
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