The document discusses India's growth story before and after economic liberalization in 1991. It describes how India moved from a closed socialist-inspired economy with high import duties and public sector dominance to a more open, privatized and globalized economy after 1991. This economic reform led to significantly higher GDP growth rates, especially in industry and agriculture. However, it also led to rising inequality within India and concerns about whether the benefits of growth are being shared widely enough. The document examines debates around whether globalization and financial liberalization increase or decrease inequality and the various factors that influence this relationship. It emphasizes the need for inclusive growth that broadly distributes the benefits of economic progress.

1. GROWTH STORY:
GLOBALIZATION AND
INEQUALITY

2. Agenda
• India’s Growth Story
• Globalization
• Inequality
• Correlation between Globalization
and Inequality
• Inclusive growth
• Excerpt’s from XIth and XIIth Five-
Year Plan
• Group’s take

3. India’s Growth Story
Era
• Pre-Liberalization
• Post-Liberalization
Global Scenario
Domestic Scenario

4. Pre-liberalization era
Closed system inspired by the economy of the Soviet
Union
Socialist practices, large public sectors, high import
duties and lesser private participation
Credit advanced to the industry players ery much
regulated and varied a lot in cost
The overall economic and monetary system was very
weak with fiscal deficit circles emerging year on year
“Hindu Rate of Growth”- because of the unfavorable
comparison with growth rates in other Asian countries

5. Impacts
Pakistan - 5%,
Low income growth Per capita income
Indonesia-9%, South
rate -3.5% averaged-1.3%
Korea-10%, Taiwan-12%
Only four or five licenses would be given for steel, electrical power and
communications. License owners built up huge powerful empires
A huge public sector emerged. State-owned enterprises made large losses
Poor infrastructure investment because of the public sector monopoly
License Raj established the "irresponsible, self-perpetuating bureaucracy that still
exists throughout much of the country" and corruption flourished under this system

6. Post-liberalization era
Crushed international investor
Liberalization, Privatization
confidence on the economy
and Globalization (LPG model)
lead to serious economic BOP
was implemented
crisis in 1991
Disinvestment in public sector firms. Devaluation of Indian currency by 18-19
Under the privatization scheme, most of percent against major currencies in the
the public sector undertakings have international foreign exchange market
been/ are being sold to private sector mainly to resolve the BOP crisis
Reforms
Allowing Foreign Direct Investment (FDI)
Dismantling of The Industrial across a wide spectrum of industries and
Licensing Regime encouraging non-debt flow -- Insurance
(upto 26%); defense industry (upto 26%)

7. Impact on
Economic India's growth rates in GDP
India's growth rates in GDP
Indicators 9.5 9.6 9.3
8 8.52 8 8.5
7.3 7.5 7.5
6.4 6.8
5.4 5.7 5.81
4.3 4.35 3.84
1.4
Industrial GDP Growth
Industrial GDP Growth
11.6 12.2
10.2 10.3 9.7 9.7
8 7.9
7.1 6.5 6.6 6.6
5.2
4 4.3 4.8 3.6
4.4
*Reference :
http://planningcommission.nic.i
-0.6
n/data/datatable/index.php?da
ta=datatab

8. Agricultural GDP Growth Rate of Inflation (WPI) - Average
Agricultural GDP Growth Rate of Inflation (WPI) - Average
13.7
12.6
10.1 10.3
10.1 9.6
6.22 6.5 6.6 8.4 8 8.1
5.1 5.1 4.2 5.8 7.2
4.1 6.5 6.5
5.5 4.8
4.6 4.4 4.4 3.9
3.3 3.6 3.4
-0.1 -0.4 0.1 -0.1 0.4
-1.85 -1.1
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
-2.8
-8
*Reference :
http://planningcommission.nic.in/data/datatable/in
dex.php?data=datatab & *IMF

9. Global Scenario
India has started falling behind every
other South Asian country (except of
Pakistan) in terms of social
indicators, even as it is doing so well in
terms of per capita income
Bangladesh - India
Per capita income 60 per cent higher than
Bangladesh in 1990, and 98 per cent in
2010. But felt behind during the same
period in life expectancy, child
survival, fertility rates, immunization rates
and even in mean years of schooling.
Most social indicators now look better in
Bangladesh than in India, despite
Bangladesh having barely half of India’s
per capita income

10. Comparing India
to the World

11. If Uttar Pradesh were to
declare independence, it
would be the world’s fifth
most populous country (as
the map below shows, it
has about the same
number of residents as
Brazil. Yet its economy
would only be the size of
Qatar, a tiny oil-rich state
of fewer than 2m people.
That makes it poor on a
per person basis. Despite
India’s two decades of
rapid growth, Uttar
Pradesh’s GDP per head is
close to that of Kenya

12. Globalization at a
Glance

13. The growth story…
The integration of the world economy
through the progressive globalization
of trade and finance has reached
unprecedented levels.
It is particularly difficult to disentangle the effects of technology
and financial globalization since they both work through processes
that raise the demand for skilled workers.
The limited overall impact of globalization reflects two offsetting tendencies: whereas trade
globalization is associated with a reduction in inequality, financial globalization—and foreign
direct investment in particular—is associated with an increase in inequality

14. Globalization…
In 2000 the IMF identified four basic aspects of globalization : Trade and transactions, Capital
and investment movements, Migration and movement of people and Dissemination of
knowledge (and technology)
Theory of Comparative Advantage propounds that free access to trade is beneficial for all the
parties involved (gains from trade)
Thomas L. Friedman popularized the term "flat world”, arguing that globalized
trade, outsourcing had permanently changed the world
Evolution of free trade practices led to the birth of GATT which is now known as WTO
Evolution of bilateral treaties and FTAs

15. Conflicting views on globalization
The debate on the distributional effects of
globalization is often polarized between two points
of view.
One school of thought argues that globalization
leads to a rising tide of income, which raises all boats
and is consistent with Kuznet’s hypothesis
Opposing school argues that although globalization
may improve overall incomes, the benefits are not
shared equally among the citizens

16. Trade liberalizations vs Financial
liberalization
Trade liberalization and export growth are found to be
associated with lower income inequality
Increased financial openness is associated with higher
inequality
However, their combined contribution to rising inequality
has been much lower than that of technological
change, especially in developing countries

17. Trade Globalization
• World trade has grown five
times in real terms since
1980, and its share of world
GDP has risen from 6 percent
to 55 percent over
• Trade integration accelerated
in the 1990s, as former
Eastern bloc countries
integrated into the global
trading system and as
developing Asia—one of the
most closed regions to trade
in 1980—progressively
dismantled barriers to trade.

18. Financial Globalization
Financial Globalization
• Total cross-border financial assets have more than
doubled, from 58 percent of global GDP in 1990 to
percent in 2000.
• The advanced economies continue to be the most
financially integrated, but other regions of the
world have progressively increased their cross-
border asset and liability positions
• Of note, the share of FDI in total liabilities has
risen across all emerging markets—from 7 percent
of their total liabilities in 1990 to 8 percent in 2000
—and far exceeds the share of portfolio equity
liabilities, which rose from 2 percent to percent of
total liabilities over the same period
• Reduced government borrowing needs have also
contributed to changing liability structures, with
the share of debt in total liabilities falling across all
emerging market and developing country regions.
• The share of international reserves in cross-border
assets has also risen, reflecting the accumulation
of reserves among many emerging market and
developing countries in recent years.

19. Gini Index as a tool
The Gini index captures the range between a perfectly egalitarian distribution in which
all income is shared equally (a Gini coefficient of 0) and one where a single person has all
the income (a coefficient of ).
Gini coefficients typically range from 0.20 to 0.65.
One major source of variation is that some Gini indices are based on surveys of
household consumption expenditure, whereas others are based on income surveys—a
difference that can change a country’s observed Gini index on the order of 0. 5 point.
In general, consumption-based Gini indices tend to show lower inequality and are more
commonly used in developing countries in which higher rates of self-employment in
business or agriculture (where income fluctuates throughout the year

20. Inequality

21. Economic inequality
Economic inequality comprises of all disparities in the
distribution of economic assets and income.
Inequality exists among:
• Individuals
• Groups of people
• Countries
Inequality is most often measured using the Gini
coefficient
• The Gini coefficient (0-1): A value of 0 expressing perfect equality
and a value of 1 maximal inequality.

22. Inequality across nations

23. Causes of inequality
Market
Innovative
Globalisation
technology
Inequality
Racism/
Taxes
Gender
Innate
abilities

24. Inequality
• High income groups
consumed more
• Urban consumption is more
than rural consumption
• Less disparities in rural areas
in comparison to urban areas
• Inequality tends to reduce in
rural areas and increase in
urban areas.

25. Mitigating Factors
Government
Market driven
Sponsored
• Education • Propensity to
• Progressive spend
taxation • Unionization
• Minimum
wage
• Subsidization

26. Effect of liberalisation (1991)

27. Variations in Inequality
Variations in ine
• Based on observed movements
in Gini coefficients inequality
has risen in all but the low-
income country aggregates over
the past two decades,
• inequality has risen in
developing Asia, emerging
Europe, Latin America, the
NIEs, and the advanced
economies over the past two
decades, it has declined in sub-
Saharan Africa and the CIS
countries
• This pattern remains broadly
unchanged using population-
weighted averages, except for
emerging market countries in
Latin America, as a
• Among the major emerging
market countries, trends are
more diverse, with sharply rising
inequality in China, little change
in India, and falling inequality in
Brazil, Mexico, and Russia

28. Impact of trade liberalization on
inequality
It implies that in a two country
two-factor framework, increased
trade openness (through tariff
The principal analytical link reduction) in a developing country
between trade liberalization and where low-skilled labor is
income inequality provided by abundant would result in an
economic theory is derived from increase in the wages of low-skilled
the Stolper-Samuelson theorem workers and a reduction in the
compensation of high-skilled
workers, leading to a reduction in
income
After tariffs on imports are
reduced, the price of the
(importable) high skill-intensive
product declines and so does the
compensation of the scarce high-
skilled workers, whereas the price The opposite effect would be
of the (exportable) lowskill- observed in an advanced economy
intensive good for which the
country has relatively abundant
factors increases and so does the
compensation of low-skilled
workers

29. Impact of financial globalization on
inequality
An increase in FDI from advanced economies to developing economies could
increase the relative demand for skilled labor in both countries, increasing
inequality in both the advanced and the developing economy.
In addition to foreign direct investment, there are other important channels
through which capital flows across borders, including cross-border bank
lending, portfolio debt, and equity flows.
Greater capital account liberalization may increase access to financial resources for
the poor, whereas others have suggested that by increasing the likelihood of
financial crises, greater financial openness may disproportionately hurt the poor.
In the context of strong institutions, financial globalization may allow better
consumption smoothing and lower volatility for the poor

30. Why to thrive for equality?
• All citizen are respected and treated
Moral equally
• Promotion of equality of opportunity
• Promotion of better quality of life
Social • Improved health and sanitation
• Better allocation of human resources
Economic • Reduction in social and political instability
• Reduction in opposition to reforms
• Limited role of money in politics
Political • Promotion of societal cohesion

31. Globalization and Inequality

32. Correlation between Globalization
and Inequality
Globalization and Inequality
Direct
Inverse
(Anti-Neoliberal
(Neoliberal View)
View)

33. Anti-Neoliberal View
International Labor Organization
Real wages Wage share Increasing
grew at only declined faster wage
1.9% when the in countries inequality
overall with greater among the
economy grew openness to working
at 4% foreign trade population

34. Change in Inequality levels

35. Anti-Neoliberal View (cont..)
Joseph Stiglitz (2001 Nobel prize) -
“Globalization and its discontents” in 2002
• Number of people living in poverty has been increased by
100 million in the 90’s nevertheless the world GDP grew
at an average rate of 2.5%
Paul Krugman (American Economist, Nobel
Prize winner )
• Domination of unskilled labour force in poor developing
countries leads to minimal benefits of globalization

36. Neoliberal View
World Bank in the report
“Globalization, Growth and Poverty” in 2002
• Poverty reduction due to diffusion of growth from
growing nations to poor ones
• Higher wages to similar skills at different locations
Globalization helping to equalize wages for
the similar productivity levels – Surjeet Bhalla

37. Neoliberal View (cont..)
Competitive cumulative expenditure distribution of
agricultural labour households suggests a small
improvement in their living standards
No evidence of growing disparity between various groups
Welfare schemes contributing to the bargaining power

38. Impact of Globalization on
Inequality
Channels Through Which Globalization Affects
Inequality
• Trade Openness and Stolper-Samuelson theorem
• Non-Competing goods
Other factors
• Technology factor
• Access to Education
• Sectoral Share of Employment

39. Inclusive Growth

40. Inclusive Growth
Defining the concept
Significance of Inclusive Growth
Steps to achieve Inclusive Growth: 11th Plan
Future prospects and policy changes: 12th Plan

41. Sustainable Development
Equity is the guiding principle of development
Reinforced by “double dividend” for the poor
Major policy concerns in implementation
• Redistribution of power and resources
• Trade-offs between equity enhancing and efficiency
increasing
• Policy for growth versus enhancing equity

42. Inclusive Growth
Poverty
Reduction Rapid
Growth
• Perpetual
•Broad-based
Inclusive •Include max
labor force
Growth
Sustainable
Long Term
Development
Growth

43. Towards Inclusive growth: 11th Plan
Goals Reforms Gaps
- Structural
- Poverty Reduction - Bharat Nirmaan Yojna bottlenecks in
- Reduction in - MNREGA agriculture sector
Unemployment
- Food Security Act - Health goals unmet
- Agricultural and
-Right to Education Act - Failure to achieve
Social Sector
- Financial Inclusion target in power
Development
generation

44. Problems with:
Poverty & Agriculture Social Sector
unemployment • Yield growth Development
• More than 300 million • Land and water problems • Slow progress
below poverty line • Vulnerability to world • Significant regional, social
• 80% of the poor are from commodity prices and gender disparities
rural areas • Farmers’ suicides • Low level and slow growth
• Poverty concentrated in few • Disparities in growth across in public expenditures
states regions and crops particularly on health
• Concentrated among • Steeper decline in per capita • Privatization of Health and
agricultural laborers, casual land availability Education
workers, SCs & STs • Shrinking of farm size.

45. Reforms in 11th Plan
Bharat Nirman Food Security Right to Financial
MNREGA
Yojana Act Education Act Inclusion
Enhancing livelihood security Targeted Public Distribution Free and Compulsory No structured payment
Irrigation
of households System education (6-14 yrs) system
Rural Providing at least one
Credit to weaker section at
Roads, Electrification, Water hundred days of guaranteed Antodaya Anna Yojana No Capitation fees
exorbitant rates
Supply, Housing wage employment
Integrated Child Reduce the productivity of
Telephone Connectivity No Screening for admission
Development Scheme liquid fund
specifies
Infrastructure, teaching
Mid Day Meal Scheme standard, student teacher Endanger social security
ratio and formation of school
management committee

46. Prospects : 12th Plan
Create a regulatory Introduce employment Encourage PPP projects in
environment linked incentives key priority areas
Review the current labor
Increase government
law requirements making
Encourage FDI spending on healthcare
them less onerous and
sector
flexible
Introduce comprehensive
measures to include
socially and economically
weaker sections

47. Group’s Take
Serious steps to improve social indicators
Infrastructure and governance key for heading towards continuous growth
Various factors determines the correlation between globalization and
inequality distribution and it is not a necessary linear relation
PPP and encouraging FDI are the way forward for development
Investment and not subsidies and doling out should be encouraged