Globalization Its Impact On Labor In India. 6p4f6h

A Project Report On “Globalization: It’s Impact on Labor in India” Submitted In Partial Fulfillment of the Requirement for the Degree Of Master of Business istration (2010-2012)

Submitted By: Harsh Swetabh Mandira Rai Rohit Kumar Singh Sharfa Nishat Ahmed Sharifuddin Mallick Shweta Kumari Gupta

Submitted To: Prof. Senjuti Goswami

Executive Summary Title of the Project – Globalization: It’s Impact on Labor in India. The impact of globalization on Indian labor markets has re-emerged as an important policy issue, reflecting the broader public debate about the interrelated concerns of downward pressure on wages, increased job insecurity, and jobs moving from Organization for Economic Co-operation and Development countries to developing countries with lower wages.

Labor is the basic creative power, next only to nature. It leaves its imprint on everything that man makes- from the simplest to the most complex. All technology is the creation of labor. So are the tools that labor himself uses. A Shop floor labor, a farm labor, a mason, a manager, a scientist or a computer designer- all are labors in their own worthy ways. Quite appropriately, labor has been honored as Vishwakarma- Architect of the World in the Indian Tradition.

It is only the nature of labor and the context in which it operates to produce socially useful goods and services that change from time to time. A Society‘s needs are best fulfilled, and a nation‘s aspirations are best served by responding to such changes with periodic revisions in laws and regulations so that labor creative power may always remain unfettered.

Of Course, in doing so, the needs and interests of labor have to be adequately safeguarded. It is within these universal guiding principles that I would like to touch upon the issueGlobalization: It’s Impact on Labor in India.

Globalization, the concept being used generally since the 1990s to describe the latest changes in the world economy, implies a particular geographical conception of the world. Globalization as a process is still evolving and hence the space is also evolving. Labor when combined with other factors of production will be able to generate wealth. But a large share of such wealth generated is taken over by the capitalists and a very meager portion is shared with the laborers. Due to several reasons ―Trickle-Down‖ policy has failed in India to large extent.

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Objectives 1) To study the impact of Globalization on Indian masses and especially the workforce. 2) To highlight the changing scenario in the post-Globalization era and its implications on the workforce. 3) To know the Employment growth and Elasticity in the Indian market

The Impact of globalization on the world workforce relating to few important aspects, which are also its consequences and that is affecting the people of the world adversely as a whole is highlighted before examining the impact of globalization the people of India.In both poor and rich countries, dislocations from economic and corporate restricting and dismantled social protection have meant heavy job losses and worsening employment conditions. With an increase in labor market flexibility, casualization of labor will increase further in India.

This project throws light on the emerging trends in the globalised labor market and the problems connected to it on the backdrop of globalization India.

Importance of the Topic 1) Greater mobility of Human Resources across countries. 2) Civil society-An important trend in globalization is the increasing influence and broadening scope of the global civil society.

Keywords: Globalization, Labor, India, Economy, workforce and Government.

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Contents

1)

Executive Summary

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2)

Acknowledgement

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3)

Introduction

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4)

Methodology

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5)

Impact of Globalization on the world workforce

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6)

Globalization and Uneven Development in India

9 - 10

7)

India – China

11 - 12

8)

Globalization in Indian Economy

13 - 15

9)

Labor Market in India

16 - 18

10) Gains From Globalization

19 - 22

11) India’s Stance

23 - 24

12) Action By India

25 - 27

13) Globalization and the Indian Labor

28 - 32

14) Emerging Challenge and the Agenda for Action

33 - 34

15) Conclusion

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16) Bibliography

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ACKNOWLEDGEMENT In the course of this project we got an insight into Globalization: It‘s Impact on Labor in India

First and foremost we are very proud to be a student of Indian Institute of Planning and Management (IIPM), Kolkata and we are also grateful for having been given the opportunity to do a Research study on Globalization: It‘s Impact on Labor in India

We avail this opportunity to convey our sincere thanks to Mr. Amlan Ray, Dean of Indian Institute of Planning and Management. We are thankful to Prof. Senjuti Goswami, our project guide for recommending us the necessary information for the report and providing us an opportunity to interact with professional people in the real corporate world. Her instilling and enthusiasm, expert guidance and insight have lent my project a unique touch. We forward our gratitude for the compulsion of this most wonderful aspect of our MBA curriculum without which knowledge of management is incomplete and futile.

Our acknowledgement would be incomplete if we don‘t thank our team mates. During the research period we have developed a camaraderie which was very healthy and enjoyable. We are grateful for everyone‘s and help when needed. Without them this project would not have been the same.

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Introduction The impact of globalization on labor markets has re-emerged as an important policy issue, reflecting the broader public debate about the interrelated concerns of downward pressure on wages, increased job insecurity, and jobs moving from OECD countries to developing countries with lower wages.

Two relatively recent phenomena are at play here. One is the accelerating participation in world trade of many developing and transition countries, particularly the large, vastly populated economies of India. India increased trade and foreign direct investment have, according to IMF estimates, contributed to a fourfold rise in the effective global labor workforce over the past two decades.

The second phenomenon is that the nature of globalization is changing. Technological advances, and particularly sharp reductions in communication and coordination costs, have allowed the emergence of global supply chains that are increasingly fragmented geographically. To feed these supply chains, international trade is increasingly in intermediate inputs rather than in final goods services or commodities. Moreover, often these intermediate inputs are business services that were previously non-tradable but are now, with technological advances, tradable. This type of international trade, whether in services or other intermediate inputs, is referred to as off shoring. Here India have been key the players.

Globalization is the new buzzword that has come to dominate the world since the nineties of the last century with the end of the cold war and the break-up of the former Soviet Union and the global trend towards the rolling ball. \Also Globalization has brought in new opportunities to developing countries. Greater access to developed country markets and technology transfer hold out promise improved productivity and higher living standard. But globalization has also thrown up new challenges like growing inequality across and within nations, volatility in financial market and environmental deteriorations. Another negative aspect of globalization is that a great majority of developing countries remain removed from the process. Till the nineties the process of globalization of the Indian economy was constrained by the barriers to trade and investment liberalization of trade, investment and financial flows initiated in the nineties has progressively lowered the barriers to competition and hastened the pace of globalization.

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METHODOLOGY The research methodology that we undertook for the project:

Secondary Research

This consists of the sources from where we took various data that were useful for the project. The sources include internet and presentations.

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Impact of Globalization on the World Workforce The impact of globalization on the world workforce relating to few important aspects, which are also its consequences and that it‘s affecting the people of the world adversely as a whole is highlighted before examining the impact of globalization on the people of India.

Sources: For OECD Nations except : OECD, Department of Economics and Statistics, Labor Force Statistics, 1967-1987.An important aspect of globalization has been the expansion of the global workforce. Above Table 1.1 gives the growth of the workforce during the period 1970 to 2000. It shows that the global proletariat nearly doubled in number during 1970-2000 to reach 2.75 billion. But most important fact that reveals is the particular nature of the expansion. Between 1970- 2000 labor force in the developed countries (OECD) expanded by one-third while that of the developing regions the labor force nearly doubled. It is clear, work is expanding and so are the working classes. 8

Globalization and Uneven Development in India The formal entry of India into the globalization phase of capitalist development came with the declaration of the ―New Industrial Policy‖ in 1991. Since then more than two decades has ed with still more economic reforms that has integrated Indian economy into global system of accumulation. The impact of globalization is already there for all of us to see.

In any country the impact of any policy should be evaluated with reference to its effects on the quality of life of the people and one of the ways of examining it in a neo-colonial country is to examine how many or what proportion of the population have been able to improve their standard of living. In India this comes down to examining whether the policies has led to increase or decrease in the levels of poverty.

The analysis of the NSS data indicate the percentage share of backward states such as Bihar, Orissa, Madhya Pradesh and Uttar Pradesh in the rural poor rose from 53 per cent in 1993-1994 to 61 per cent in 1990-2000 whereas the share of agriculturally prosperous north-western states such as Punjab, Haryana and Himachal Pradesh declined from 3.03 per cent to 1.26 per cent and that of southern states from 15.12 per cent to 11.43 per cent.

Surprisingly, some of the better off states such as Maharashtra, Gujarat and West Bengal had a relatively higher share in rural poverty. These three states ed for one-fifth of the rural poor in 1999-2000. Urban poor were getting concentrated in Uttar Pradesh, Maharashtra, West Bengal, Madhya Pradesh and Andhra Pradesh. Their share in all India urban poor rose from 56 per cent in 1993-1994 to 60 percent in 1999-2000. The study is based on 55thround of NSS (Radhakrishna R. et al 2004, p. 3123). In a similar study Abhijit Banerjee and Thomas Picketty presented evidence of the growing inequality between the rich and the poor in India. Analyzing data on individual tax returns from 1956 to 1998; they found that after 1987-1988, and particularly after 1993 the incomes of the richest Indians grew very rapidly. Gujarat is seen to be an industrially advanced state, with a growth rate of more than 8 percent in the second half of the 1990s. The corresponding figure for the 14 major states in India was 5.5 percent.

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OECD (2007a) concludes that globalization increases the urgency of implementing a comprehensive policy programme to reap the associated benefits while addressing adjustment and distributional concerns. The IMF‘s conclusions are similar: IMF (2007a) states that policies should seek to improve the functioning of labor markets, strengthen access to education and training, and ensure adequate social safety nets that cushion the impact on those adversely affected without obstructing the process of adjustment. These policy conclusions are familiar. More detailed policy recommendations are set out in the so-called ―Restated OECD Jobs Strategy‖ (OECD (2006)). While the strategy has been refined to put more weight on promoting labor market participation and employment and to take into concerns about low incomes of certain groups, the broad lines are consistent with the original 1994 OECD Jobs Study. This is reassuring, not least because it bolsters confidence in the pertinence of the analysis of labor market policies by the OECD and the IMF during the past 10 to 15 years. But it is noteworthy that there are no specific recommendations related to the emergence of China and India as major trading nations and key players in the segmentation of value chains and the growth of off shoring. This paper looks more closely at the question of whether there are special employment policy issues or other, more general, policy implications stemming from the emergence of China and India.

The process of globalisation not only includes opening up of world trade, development of advanced means of communication, internationalisation of financial markets, growing importance of MNC's, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution

India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organisations. The new policy regime radically pushed forward in favour of a more open and market oriented economy.

Major measures initiated as a part of the liberalisation and globalisation strategy in the early nineties included scrapping of the industrial licensing regime, reduction in the number of areas reserved for the public sector, amendment of the monopolies and the restrictive trade practices act, start of the privatisation programme, reduction in tariff rates and change over to market determined exchange rates.

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India and China

India and China are different from other developing and transition countries. The most obvious difference is their enormous size: they are the only countries in the world with Populations exceeding a billion- 1.1 billion and 1.3 billion, respectively- together they 38% of world population. Not only they have also been among the fastest growing economies in the world during 10 years to 2207, economic growth has averaged about 9 ½ % a year in China and 7% in India, compared with about s 2½ % in advanced countries (IMF 2007b).

Rapid economic growth means that India and China are catching up. But both remain relatively poor, with per capita incomes of D 730 and 1,740, respectively, in 2005, well below average per capita incomes of D 43, 560 in the United States and USD 32, 097 in the euro area. This Income disparity points to potentially large gains from trade with industrial countries to take advantage of the gap in wage levels adjusted for productivity.In both countries, however these possible gains from trade have only recently started to be exploited in China, this started with the open-door policy in the late 1970s; in India, with the pro-market reforms of the early 1990s.When countries this large rapidly increase their integration into the world economy, it is bound to have major impacts on trade and the pace of globalization.

Another way that China and India differ from most other developing and transition countries is that they both have large, entrepreneurial Diasporas. Investors from China‘s large and wealthy Diaspora in East Asia were the first to seize the opportunity offered by China‘s open-door policy contributing more than half of China‘s FDI during the 1990s India, after keeping the Diaspora at arm‘s length prior to the 1990s, now embraces it, although its contribution may prove to be more intellectual than financial. Both countries have large, highly educated, and prosperous Diasporas in Silicon Valley, the technological epicenter of the world‘s technological leader, and there has been a steady flow of highly educated and trained professionals returning home from the West.The Chinese and Indian Diasporas have played key roles in adopting new technologies that have facilitated the fragmentation of global Value chains, including the growth of outsourcing, what Baldwin (2006) has referred to as the ―second great unbundling. Despite the reforms and the continued economic growth in India, a team of leading American economists from Harvard and Columbia have lead a comparative study with Chinese economic growth during the same period and have noted that India did not succeed in linking foreign investors, capital and expertise with a large and low-cost labor force by assuring investors of the basic quality infrastructure, physical security, adequate power, decent logistics and other key conditions for profitability. 11

While China did provide same to investors as far back as the early 80‘s, India did not provide them with adequate infrastructure and logistical and links to airports coupled with government red-tape thus failing in basic policy strategy. The centralization of power with New Delhi, a highly regulated labor market and government approval for exit policy even for lossmaking firms and regulations against full foreign ownership are further impediments which discourage FDI despite the government‘s effort to promote foreign investment. As in China, there are similar problems whereby State Enterprises that have borrowed heavily from creditors mainly public sector banks finally default on debt repayment and government many a times have to rescue such Public bodies by providing them subsidies.

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Globalization and the Indian Economy The World Bank defines globalization as ―Freedom and ability of individuals and firms to initiate voluntary economic transactions with residents of other countries‖. The International Monetary Fund (IMF) defines as ―the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, freer international capital flows, and more rapid and widespread diffusion of technology‖. According to Stiglitz ―Globalization is the closer integration of the countries and peoples of the World which has been brought about by the enormous reduction of costs of transportation and communications, and the breaking down of artificial barriers to the flow of goods and services, capital knowledge and (in a lesser extent) people across borders.‖ In the words of Jagdish Bhagwati ―Economic Globalization constitutes integration of national economies into the international economy through trade, direct foreign investment (by corporations and multi-nationals), short term capital flows, international flows of workers and humanity generally, and flows of technology‖. In a broad sense, the term ‗globalization‘ refers to integration of economies and societies through cross country flows of information, ideas, technologies, goods, services, capital, finance and people.

The cross-border integration or connectivity aspect of globalization has several dimensions such as social, economic, cultural, environmental and political. Needless to state that globalization is a deliberately adopted economic strategy that stands on trade and technology (2 T‘s). But, the effects of globalization are not just economic; they are social, cultural, environmental and political. While social or cultural or political integration is inevitable in the process of economic globalization, they are to be treated as the effects and not the cause. The elements such as trade in goods and services, movement of capital, flow of finance and movement of people ensure the economic integration.

Historically speaking, globalization is not a new concept. There are several evidences of integration across countries through several forms and flows of goods and services, transfer of capital and technology, and migration of people.

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The 18 and 19 century evidences are more of imperialist nation‘s efforts towards the colonies and they laid their base on military or political power. The present form of globalization is basically trade and technology based and driven by market power. In fact, globalization perceives the economy and politics i.e. market and state, as autonomous units and the nation13

state as a minimalist entity. And therefore, the process of globalization envisages liberalization, privatization, minimizing economic regulations, rolling back welfare, reducing expenditures on public goods, tightening fiscal discipline, favoring free flows of capital, strict controls on organizedlabor, tax reductions and unrestricted currency repatriation. In this process, as nations come together some sacrifice of sovereignty is inevitable, but it need not lead to surrender of nation‘s objectives and individuality.

The players of globalization could be broadly grouped as pro-globalization and antiglobalization players. The pro-globalization players include international organizations such as World Trade Organization, World Bank, International Monetary Fund, The World Economic Forum, United Nations Conference on Trade and Development, Organization for Economic Development and Cooperation; public affairs organizations like World Growth, Institute of Economic Affairs, International Policy Network, Competitive Enterprise Institute and World Business Council for Sustainable Development; and countries, institutions and individuals receiving benefits due to globalization. The anti-globalization players include anti-free trade NGOs, Environmentalists, Cultural Nationalists; Business Groups threatened by international competition and left critics of capitalism.

The ers of globalization argue that globalization as the engine of growth, technical advancement, access to international resources and their optimal use, raising productivity, enlarging employment, increasing choice on commodities, lowering of costs, improving standard of living, and bringing out poverty reduction along with modernization. Whereas, the critics argue that the causality is more and severe, widens the gap within and between nations, exploitation of resources, decay of environment and loss of national sovereignty.

It is the challenge of every nation to take efforts towards maximizing the benefits of globalization and minimizing the evils of globalization. To achieve the goals of globalization, countries are forced to orient their policies towards exports and outward oriented growth.

As you are aware, the winds of globalization have started blowing over the country strongly in the wake of the unprecedented balance of payments crisis of 1991 and leading to a host of structural reforms. Our participation in the globalization process was reaffirmed with the establishment of the World Trade Organization in 1995 with India as one of its founding . Since then, the country has come a long way in opening up the economy to private and foreign participation, leaving behind the dreaded license-raj regime of the 14

past. Today only six items are subject to industrial licensing, of which only three are reserved for the public sector. Practically, there is now no quantitative restriction on the import of any industrial goods – consumer, capital or otherwise. Simultaneously, the customs duty structure has been scaled down considerably with the average import duty ruling at 35 per cent in 2001-02 as against 73 per cent in 1991-92. FDI is now permitted under the automatic route with the foreign ownership cap raised to 100 per cent for majority of the sectors. Since 1994, Rupee has been rendered convertible on the current . While the capital convertibility is virtually in place for the foreign nationals and non-residents, there has been progressive move towards its liberalization for the domestic resident as well.

In sequel, there has been some evidence of the business cycles in advancedcountries impacting India‘s industrial sector in the 1990s (Chitre, 2003). However, the country has remained largely insulated vis-à-vis its peer competitors as demonstrated in successful prevention of the East Asian contagion, the present current surplus even in the face of global slowdown and the significant build-up of international reserves. Today, India stands out as one of the ten fastest growing countries in the world with the GDP growth placed at 6.1 per cent in the post-reform period (1992-2002) as against 5.7 per cent in the 1980s.

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Labor Market In India The Indian labor market can be categorized into three sectors: a)

Rural workers , who constitute about 60% of the workforce b) Organized of the formal sector, that constitutes about 8% of the workforce; and c) Urban unorganized or informal structure which represents the 32% of the workforce. The chart below describes the estimated increase in the number of labors from 197778 to 2004-05. The labor force has grown from 276.3 million to 385.5 million between 1977-78 and1993-94 showing an annual growth rate of 2.1%. During the year 1999-2000, the workforce was estimated to be 407 million. In 2004-05 the labor market consisted of 430 million workers and has grown up to 500 million in 2006. .

Two-third of India‘s workforce is employed in agriculture and rural industries. Onethird of rural households are agricultural labor households, subsisting on wage employment. Only about 9 percent of the total workforce is in the organized sector; the remaining 91 percent are in the unorganized sector, self-employed, or employed as casual wage laborers. The labor force in year 2006 has grown up to 509.3 million out of which 60% are in agriculture, 12% are employed in industries and the residual 28% are 16

in services.

Labor force can be divided into four categories: self employed workers, wage and salary earners, casual workers and unemployed. Of these, self-employed are most loosely connected to labor market because of the possibilities of work-sharing and work spreading in a self-employed enterprise. Non-contractual casual laborers have the closest connection to labor market on almost day-to day basis. Same is the case with those unemployed who are actively seeking work. Contractual and hence stable hired employment (with the same employer and/or in the same job) on a regular basis is covered in the description wage and salary workers. Persons who are engaged in their own farm or non- farm enterprises are defined as self employed. The employees in an enterprise can be either regular salaried/ wage employees or casual wage employees who are normally engaged on a day today basis. The casual wage workers both in public work and other types of work don‘t have any job security or social security. These workers, either in formal or informal sector or in private households, are informal workers. The regular salaried/wage employees are those working in others farm or nonfarm enterprises and getting in return salary or wages on a regular basis and not on the basis of daily or periodic renewal of work contract. This category includes those getting time wage as well as those receiving piece wage or salary and paid apprentices, both full time and part time. This category of persons may, therefore, include persons engaged regularly on an hourly basis, temporary workers, out- workers, etc.

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The table given above classifies labor force across male-female and rural-urban dimensions. It is clear that Self-employment and casual labor statuses are more prevalent among rural than urban labor force and among female than male workers. b) The Incidence of unemployment is higher in the urban than in the rural labor force with nearly 48 per cent of the total unemployed persons coming from aggregate urban labor force whose share in total (rural plus urban) work force is 22 per cent. c) Those reporting wage and salary earning dominate in the urban labor force, their share being around 62 per cent (lines 10 to 12 of Table). a)

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Gains from Globalization The gains from globalization can be analyzed in the context of the three types of channels of economic globalization identified earlier.

Trade in Goods and Services According to the standard theory, international trade leads to allocation of resources that is consistent with comparative advantage. This results in specialization which enhances productivity. It is accepted that international trade, in general, is beneficial and that restrictive trade practices impede growth. That is the reason why many of the emerging economies, which originally depended on a growth model of import substitution, have moved over to a policy of outward orientation. However, in relation to trade in goods and services, there is one major concern. Emerging economies will reap the benefits of international trade only if they reach the full potential of their resource availability. This will probably require time. That is why international trade agreements make exceptions by allowing longer time to developing economies in of reduction in tariff and non-tariff barriers. ―Special and differentiated treatment‖, as it is very often called has become an accepted principle.

Movement of Capital Capital flows across countries have played an important role in enhancing the production base. 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 current deficit of some of these countries had exceeded 5 per cent of the GDP in most of the period when growth was rapid. Capital flows can take either the form of foreign direct investment or portfolio investment. For developing countries the preferred alternative is foreign direct investment. Portfolio investment does not directly lead to expansion of productive capacity.

Financial Flows The rapid development of the capital market has been one of the important features of the current process of globalization. While the growth in capital and foreign exchange markets have facilitated the transfer of resources across borders, the gross turnover in foreign exchange 19

markets has been extremely large. It is estimated that the gross turnover is around $ 1.5 trillion per day worldwide (Frankel, 2000). This is of the order of hundred times greater than the volume of trade in goods and services. Currency trade has become an end in itself. The expansion in foreign exchange markets and capital markets is a necessary pre-requisite for international transfer of capital. However, the volatility in the foreign exchange market and the ease with which funds can be withdrawn from countries have created often times panic situations.

The most recent example of this was the East Asian crisis. Contagion of financial crises is a worrying phenomenon. When one country faces a crisis, it affects others. It is not as if financial crises are solely caused by foreign exchange traders. What the financial markets tend to do is to exaggerate weaknesses. Herd instinct is not uncommon in financial markets. When an economy becomes more open to capital and financial flows, there is even greater compulsion to ensure that factors relating to macro-economic stability are not ignored. This is a lesson all developing countries have to learn from East Asian crisis. As one commentator aptly said ―The trigger was sentiment, but vulnerability was due to fundamentals‖.

Concerns and Fears On the impact of globalization, there are two major concerns. These may be described as even fears. Under each major concern there are many related anxieties. The first major concern is that globalization leads to a more iniquitous distribution of income among countries and within countries. The second fear is that globalization leads to loss of national sovereignty and those countries are finding it increasingly difficult to follow independent domestic policies. These two issues have to be addressed both theoretically and empirically.

The argument that globalization leads to inequality is based on the premise that since globalization emphasizes efficiency, gains will accrue to countries which are favorably endowed with natural and human resources. Advanced countries have had a head start over the other countries by at least three centuries. The technological base of these countries is not only wide but highly sophisticated. While trade benefits all countries, greater gains accrue to the industrially advanced countries. This is the reason why even in the present trade agreements, a case has been built up for special and differential treatment in relation to developing countries. By and large, this treatment provides for longer transition periods in relation to adjustment. However, there are two changes with respect to international trade which may work to the advantage of the developing 20

countries. First, for a variety of reasons, the industrially advanced countries are vacating certain areas of production. These can be filled in by developing countries. A good example of this is what the East Asian countries did in the 1970s and 1980s. Second, international trade is no longer determined by the distribution of natural resources. With the advent of information technology, the role of human resources has emerged as more important. Specialized human skills will become the determining factor in the coming decades. Productive activities are becoming ―knowledge intensive‖ rather than ―resource intensive‖. While there is a divide between developing and the advanced countries even in this area – some people call it the digital divide - it is a gap which can be bridged. A globalized economy with increased specialization can lead to improved productivity and faster growth. What will be required is a balancing mechanism to ensure that the handicaps of the developing countries are overcome. Apart from the possible iniquitous distribution of income among countries, it has also been argued that globalization leads to widening income gaps within the countries as well. This can happen both in the developed and developing economies. The argument is the same as was advanced in relation to iniquitous distribution among countries. Globalization may benefit even within a country those who have the skills and the technology. The higher growth rate achieved by an economy can be at the expense of declining incomes of people who may be rendered redundant. In this context, it has to be noted that while globalization may accelerate the process of technology substitution in developing economies, these countries even without globalization will face the problem associated with moving from lower to higher technology. If the growth rate of the economy accelerates sufficiently, then part of the resources can be diverted by the state to modernize and re-equip people who may be affected by the process of technology up gradation.

The second concern relates to the loss of autonomy in the pursuit of economic policies. In a highly integrated world economy, it is true that one country cannot pursue policies which are not in consonance with the worldwide trends. Capital and technology are fluid and they will move where the benefits are greater. As the nations come together whether it be in the political, social or economic arena, some sacrifice of sovereignty is inevitable. The constraints of a globalised economic system on the pursuit of domestic policies have to be recognized. However, it need not result in the abdication of domestic objectives. Another fear associated with globalization is insecurity and volatility. When countries are interrelated strongly, a small spark can start a large conflagration. Panic and fear spread fast. The downside to globalization essentially emphasizes the need to create countervailing forces in the form of institutions and policies at the international level. Global governance cannot be pushed to the periphery, as integration gathers speed. Empirical evidence on the impact of globalization on inequality is not very clear. The share in aggregate world exports and in world output of the developing countries has been increasing. In 21

aggregate world exports, the share of developing countries increased from 20.6 per cent in 1988-90 to 29.9 per cent in 2000. Similarly the share in aggregate world output of developing countries has increased from 17.9 per cent in 1988-90 to 40.4 per cent in 2000. The growth rate of the developing countries both in of GDP and per capita GDP has been higher than those of the industrial countries. These growth rates have been in fact higher in the 1990s than in the 1980s. All these data do not indicate that the developing countries as a group have suffered in the process of globalization. In fact, there have been substantial gains but within developing countries, Africa has not done well and some of the South Asian countries have done better only in the 1990s. While the growth rate in per capita income of the developing countries in the 1990s is nearly two times higher than that of industrialized countries, in absolute the gap in per capita income has widened. As for income distribution within the countries, it is difficult to judge whether globalization is the primary factor responsible for any deterioration in the distribution of income. We have had considerable controversies in our country on what happened to the poverty ratio in the second half of 1990s. Most analysts even for India would agree that the poverty ratio has declined in the 1990s. Differences may exist as to what rate at which this has fallen. Nevertheless, whether it is in India or any other country, it is very difficult to trace the changes in the distribution of income within the countries directly to globalization.

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India’s Stance What should be India‘s attitude in this environment of growing globalization? At the outset it must be mentioned that opting out of globalization is not a viable choice. There are at present 149 in the World Trade Organization (WTO). Some 25 countries are waiting to the WTO. China has recently been itted as a member. What is needed is to evolve an appropriate framework to wrest maximum benefits out of international trade and investment. This framework should include (a) making explicit the list of demands that India would like to make on the multilateral trade system, and (b) steps that India should take to realize the full potential from globalization.

Demands on the Trading System Without being exhaustive, 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, 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. The purpose of the new trading system must be to ensure ―free and fair‖ trade among countries. The emphasis so far has been on ―free‖ rather than ―fair‖ trade. It is in this context that the rich industrially advanced countries have an obligation. They have often indulged in ―double speak‖. While requiring developing countries to dismantle barriers and the main stream of international trade, they have been raising significant tariff and non-tariff barriers on trade from developing countries. Very often, this has been the consequence of heavy lobbying in the advanced countries to protect ‗labor‘. Although average tariffs in the United States, Canada, European Union and Japan – the so called Quad countries – range from only 4.3 per cent in Japan to 8.3 per cent in Canada, their tariff and trade barriers remain much higher on many products exported by developing countries. 23

Major agricultural food products such as meat, sugar and dairy products attract tariff rates exceeding 100 per cent. Fruits and vegetables such as bananas are hit with a 180 per cent tariff by the European Union, once they exceed quotas. The tariffs collected by the US on $ 2 billion worth of imports from Bangladesh are higher than those imposed on imports worth $ 30 billion from . In fact, these trade barriers impose a serious burden on the developing countries. It is important that if the rich countries want a trading system that is truly fair, they should come forward to reduce the trade barriers and subsidies that prevent the products of developing countries from reaching their markets. Otherwise the pleas of these countries for a competitive system will sound hollow.

To some extent, conflicts among countries on trade matters are endemic. Until recently, agriculture was a major bone of contention between U.S. and E.U. countries. Frictions are also bound to arise among developing countries as well. When import tariffs on edible oil were increased in India, the most severe protest came from Malaysia which was a major exporter of Palm Oil. Entrepreneurs in India complain of cheaper imports from China. In the export of rice, a major competitor of India is Thailand. If development is accepted as the major objective of trade as the Doha declaration proclaimed, it should be possible to work out a trading arrangement that is beneficial to all countries.

There have been protracted negotiations at WTO in reforming the trade system. ittedly, the tariff and non-tariff barriers are coming down. However, there are apprehensions that the concerns of developing countries are not being addressed adequately. Looked at from this angle, the recent Hong Kong Ministerial is a modest success. Despite reservations, we must acknowledge that it is a step forward. Domestic to agriculture by developed countries constitutes a major stumbling block to third world trade expansion. However, India‘s stand in relation to agriculture has been `defensive‘. We are not a major player in the world agricultural market. The impact of what has been accepted in relation to Non-Agricultural Market Access and services will vary from country to country. Despite some contrarian opinion, the gain to India from services can be significant. However, the Hong Kong Ministerial is only a broad statement of intentions. Much will depend upon how these ideas are translated into concrete actions.

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Actions by India The second set of measures that should form part of the action plan must relate to strengthening India‘s position in international trade. India has much strength which several developing countries lack. In that sense, India is different and is in a stronger position to gain from international trade and investment. India‘s rise to the top of the IT industry in the world is a reflection of the abundance of skilled manpower in our country. It is, therefore, in India‘s interest to ensure that there is a greater freedom of movement of skilled manpower.

At the same time, we should attempt to take all efforts to ensure that we continue to remain a frontline country in the area of skilled manpower. 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 s. 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 fact, we had taken a long time to the Protection of Plant Varieties and Farmers‘ Rights Act. We must also be active in ensuring that our firms make effective use of the new patent rights. South Korea has been able to file in recent years as many as 5000 patent applications in the United States whereas in 1986, the country filed only 162. China has also been very active in this area. We need a truly active agency in India to encourage Indian firms to file patent applications. In effect, we must build the complementary institutions necessary for maximizing the benefits from international trade and investment.

Changes in the foreign trade and foreign investment policies have altered the environment in which Indian industries have to operate. The path of transition is, no doubt, difficult. A greater integration of the Indian economy with the rest of the world is unavoidable. It is important that Indian industry be forward looking and get organized to compete with the rest of the world at levels of tariff comparable to those of other developing countries. Obviously, the Indian Government should be alert to ensure that Indian industries are not the victims of unfair trade practices. The safeguards available in the WTO agreement must be fully utilized to protect the interests of Indian industries.

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Indian industry has a right to demand that the macroeconomic policy environment should be conducive to rapid economic growth. The configuration of policy decisions in the recent period has been attempting to do that. It is, however, time for Indian industrial units to recognize that the challenges of the new century demand greater action at the enterprise level. They have to learn to swim in the tempestuous waters of competition and away from the protected waters of the swimming pools. India is no longer a country producing goods and services for the domestic market alone. Indian firms are becoming and have to become global players. At the minimum, they must be able to meet global competition. The search for identifying new competitive advantages must begin earnestly. India‘s ascendancy in Information Technology (IT) is only partly by design. However, it must be said to the credit of policy makers that once the potential in this area was discovered, the policy environment became strongly industry friendly.

Over a wide spectrum of activities, India‘s advantage, actual and that which can be realized in a short span of time must be drawn up. Of course, in a number of cases, it will require building plants on a global scale. But, this need not necessarily be so in all cases. In fact the advent of IT is modifying the industrial structure. The revolution in telecommunications and IT is simultaneously creating a huge single market economy, while making the parts smaller and more powerful. What we need today is a road map for the Indian industry. It must delineate the path different industries must take to achieve productivity and efficiency levels comparable to the best in the world.

Globalization, in a fundamental sense, is not a new phenomenon. Its roots extend farther and deeper than the visible part of the plant. It is as old as history, starting with the great migrations of people across the great landmasses. Only recent developments in computer and communication technologies have accelerated the process of integration, with geographic distances becoming less of a factor. Is this 'end of geography' a boon or a bane? Borders have become porous and the sky is open. With modern technologies which do not recognize geography, it is not possible to hold back ideas either in the political, economic or cultural spheres. Each country must prepare itself to meet the new challenges so that it is not being byed by this huge wave of technological and institutional changes. Nothing is an unmixed blessing. Globalization in its present form though spurred by far reaching technological changes is not a pure technological phenomenon. It has many dimensions including ideological. To deal with this phenomenon, we must understand the gains and losses, the benefits as well as dangers. To be forewarned, as the saying goes, is to be forearmed. But we should not throw the baby with bath water. We should also resist the temptation to blame globalization for all our failures. Most often, as the poet said, the fault is in ourselves.

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Risks of an open economy are well known. We must not, nevertheless, miss the opportunities that the global system can offer. As an eminent critic put it, the world cannot marginalize India. But India, if it chooses, can marginalize itself. We must guard ourselves against this danger. More than many other developing countries, India is in a position to wrest significant gains from globalization. However, we must voice our concerns and in cooperation with other developing countries modify the international trading arrangements to take care of the special needs of such countries. At the same time, we must identify and strengthen our comparative advantages. It is this two-fold approach which will enable us to meet the challenges of globalization which may be the defining characteristic of the new millennium.

The key to India‘s growth lies in improving productivity and efficiency. This has to permeate all walks of our life. Contrary to the general impression, the natural resources of our country are not large. India s for 16.7 per cent of world‘s population whereas it has only 2.0 per cent of world‘s land area. While China‘s population is 30 per cent higher than that of India‘s, it has a land area which is three times that of India. In fact, from the point of view of long-range sustainability, the need for greater efficiency in the management of natural resources like land, water and minerals has become urgent. In a capital-scarce economy like ours, efficient utilization of our capacity becomes even more critical. For all of these things to happen, we need well-trained and highly skilled people. In the world of today, competition in any field is competition in knowledge. That is why we need to build institutions of excellence. I am, therefore, happy that the Ahmadabad Management Association, besides other functions, is also focusing on excellence in education. Increased productivity flowing from improved skills is the real answer to globalization.

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Globalization and the Indian Labor Employment Growth and the Indian Labour The globalization process turns out to have performed a double-edged sword for the Indian Labour. In of ―current daily status‖ estimates brought out by the National Sample Survey Organization, there has been a significant deceleration in labour force participation rate to 1.3 percent per annum during 1993-2000 from 2.4 percent during 1883-1994. Notwithstanding a higher GDP growth in the latter phase, employment growth declined to 1.1 percent from 2.7 percent in the backdrop of decline in employment elasticity to 0.16 from 0.52 over the same period. The sharp deceleration in employment growth has raised fears that economic growth in the 1990s has been a ‗Jobless‘ variety. Besides, there is evidence of increasing capital intensity almost in all sectors including small un-organized ones and services particularly in the latter half of the 1990s.

Unemployment Rate The significant reduction in labor force participation rate during 1993-2000 has been mainly on of lower workforce participation by women particularly in rural areas. In fact, the number of unemployed stood at nearly 27 million in 1990-2000 as compared to about 20 million in 1993-1994, taking the unemployment rate to 7.3 percent of labor force from 6.0 percent.

In evaluating the state of unemployment, it is important to recognize that some degree of unemployment is normal in any labor market. Even full employment is conventionally defined not as zero unemployment but as that level of employment when unemployment falls to the irreducible minimum. However, such level of unemployment has not been defined so far in the Indian context. Nevertheless, a cross-country comparison indicates that India‘s current unemployment rate remains significantly lower than several countries like Australia, Philippines, Pakistan and Sri Lanka and is comparable to Indonesia. However, it remains higher than the rate for China and Bangladesh (ILO‘s World Development Report 2000). Nevertheless, one encouraging development has been the noticeable decline in educated unemployment rate across rural and urban sectors both among the technically educated as well as those having secondary education and above.

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State-Wise Unemployment and Maharashtra State-wise, while the highest unemployment rate was observed in Kerala (21 percent), the lowest unemployment rate was noticed in Himachal Pradesh (3 percent) with hardly any change in ranking of the states between 1993-1994 and 1990-2000. However, the coefficient of variation across states increased significantly in the 1990s. The unemployment rate for Maharashtra, which is albeit lower than the all India average, increased sharply to 7 percent from 5 percent during the period.

For Maharashtra, the key observations about unemployment situation are outlined below:

a) The rural unemployment rate among the male youth (11.3 percent) was marginality higher in Maharashtra than the all India average (of 11.1 percent). b) For the female youth, the rural unemployment rate (at 9 percent) turned out to be lower than the all-India average (11 percent). c) On the whole, rural unemployment rate among the youth at 10.4 percent stood lower in Maharashtra than the all India average of 11 percent. d) On the other hand, urban unemployment rate among the youth (male, female, and the average) was found to be higher in Maharashtra than the all India average as also its own rural unemployment rate.

This underscores the need for proactive policies to generate employment in the urban sector and especially among the youth, educated and skilled, particularly when the organized activity, which dominates the urban sector is suffering from a near jobless growth.

Sectoral Employment While the commodity producing sectors have uniformly decline in employment elasticity during 1993-2000 over 1983-1994, certain services sectors, viz., transport, storage and communication‘ and ‗ financing, insurance, real estate and business services‘ turned out higher in the latter period. Although, the absolute level of employment in agriculture remained almost unchanged at 190 million, its share in overall employment declined in the latter period while those of industry and services indicated sustained improvement. This has been in keeping with the experience of the rest of the world.

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Casualization and Quality of Employment Casualization of labor, often feared in certain circles in the aftermath of globalization, witnessed only one percent increases in 1990-2000 over 1993-1994 coupled with a marginal improvement in the regular salaried class. Real wages of casual labor also increased faster than in the past both among agricultural and industrial workers. Further, the employment share of the unorganized sector was almost maintained in 1990-00. Furthermore, higher growth of rural nonfarm sector vis-à-vis agriculture facilitated absorption of excess labor from agriculture in the rural non-farm sector. All these things taken together imply that there might not have been any deterioration in the quality of employment in the country.

Skilled Labor and Wage Inequalities Yet another healthy trend witnessed in the post-reform period has been the shift in the composition of labor force in favor of the skilled labors, in general, and more significantly in the unorganized sector. The dramatic expansion in software exports has certainly contributed to this development. As a natural consequence, labor productivity indicated faster improvement both in organized and unorganized sectors. While the larger absorption of skilled labors in the unorganized sector vis-à-vis the organized sector might have brought down the wage gap across, the same might have widened within the organized sector itself with de-emphasis of wage parity and narrow gap between the lowest and the highest paid employees. For example, over 100 out of about 240 PSUs have reportedly not had any pay revision since 1992 (National Commission on Labor, 2002, art. 4.286)

Organized Employment While the employment share of organized sector remained almost the same at around eight percent in 1999-2000 as in 1993-94, its employment elasticity came down close to zero. In particular, public sector, underwent a drastic decline in employment elasticity primarily on of pursuit of rightsizing in the context of hard budget constraint. On the other hand, private sector, which is closely intertwined with the developments in the rest of the world, demonstrated considerable dynamism in of improvement in growth and elasticity of employment even in the face of slowdown in output. This is contrary to the popular pessimistic projections for the post-reform period but in the line with the enhanced role of the private sector in a market economy.

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International Mobility of Labor The migration of labors across international boundaries is one of the most striking features of globalization worldwide. Since Independence, migration from India has been characterized by movement of persons with technical skills and professional expertise to the industrialized countries, and flow of unskilled and semi-skilled workers to the oil exporting countries of the Middle East. During the 1990s, however, there has been a clear shift in the pattern of labor demand in the Middle East away from unskilled and semi-skilled categories towards service, operations and maintenance workers requiring high skills. Besides, there has been a runway growth in exports of IT and Software services in India-both on-site and business process outsourcing (BPO) in the 1990s. One direct benefit for the employees in the IT sector is in the form of Employee Stock Option Plan offered by the employers which has led to the growing attractiveness of the sector. All these have enhanced the employment opportunities for the Indian labor, particularly when the country boasts to have very large pool of English speaking people as well as the second largest pool of scientific and technical manpower in the world. In the process, sustained remittances from the Indian Diaspora, which is in fact the largest in the world, have imparted an element of stability in the country‘s balance of payments.

Woman Labor Globalization is found to have led to greater feminization of the workforce both in the developed and developing world. The issue has assumed considerable importance in view of then acute gender disparity in the country. Here, however, the signals are not unequivocal with evidence of increased youth unemployment rate among rural females coupled with a reverse tendency among urban females in 1990-00 over 1993-94. Nevertheless, the coincident increase in youth unemployment rate among both rural and urban males points to a possible feminization of the workforce at least in short duration urban informal activities. Increased flexibility in the labor market may be needed if the country is to engage women in the work force fully and compete better in international markets.

Child Labor Child labor, though undesirable, persists primarily in rural and agricultural activities on of socio-economic compulsions. One of the positive features of the recent employment growth has been the definite decline in the participation of children aged five to fourteen years in the workforce. One fall-out of the decline in child labor has been the substitution effect, which favors the employability of adult females. While the existing literature often identifies poverty as a major determinant of child labor, evidence across Indian stated indicates that the correlation between poverty and child labor is very weak. Therefore, one should possibly go beyond the poverty issues and look at areas such as quality if schooling and spread of primary education. 31

Industrial Relation The phase of globalization has witnessed silent and significant metamorphosis of the labor lmanagement relations despite the industrial inertia on the front of labor laws and regulations. The erstwhile centralized and tripartite industrial relation (IR) system has slowly given way to many local bipartite IR systems. Increasingly, consultation, co-operation and consensus are taking the place of coercion and confrontation. This is reflected in the reduced number of man days lost at 210 million during 1991-2000 as against 402 million during 1981-90. One of the striking features during this period is that more man days were lost in lock-outs on the initiatives of the management than strikes affected by the employees. The new industrial climate has also encouraged the employers to right-size the workforce by way of closures, technological change and restructuring. Thus, the process of globalization has set in motion myriads of forces, which are operating at multiple channels to transform the landscape of labor in the country beyond recognition. Let me now turn to the emerging challenges for Indian labor in a globalized world and the appropriate agenda for action.

Offshoring Offshoring describes the relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or ing processes, such as ing. Even state governments employ offshoring. More recently, offshoring has been associated primarily with the sourcing of technical and istrative services ing domestic and global operations from outside the home country, by means of internal (captive) or external (outsourcing) delivery models. The economic logic is to reduce costs. If some people can use some of their skills more cheaply than others, those people have the comparative advantage. The idea is that countries should freely trade the items that cost the least for them to produce. Labor Market Effects of Offshoring a) Trade will increasingly affect workers doing particular tasks rather than workers in particular firms, sectors, or skill groups. b) Whereas globalization has in the past had a disproportionately large effect on lowskilled production or assembly workers, offshoring may increasingly also affect skilled workers, including in the service sector. c) In the long run, offshoring is likely to have beneficial economic effects for both the offshoring economies, although not all workers, industries, or sectors will be affected the same. 32

Emerging Challenges and the Agenda for Action Globalization has brought the issue of education and skills development to the centre of the employment scene. The scope for absorption of labor in manufacturing or services would depend on educational attainments and skills acquired. As of now, the skilled labor force s for hardly around six to eight percent of the total, compared to more than 60 percent in most of the developed and developing countries. It is, therefore, necessary to orient the educational and training system towards skill requirements in both formal and informal sectors.

The participation rate of women in the labor market is as low as 18 percent in India as compared to 44 percent in China. The participation rate needs to be raised with thrust on educational levels, enabling the women labor to reach up in the value chain. Besides, action by the government and civil society is required to contain the gender disparity.

With globalization and demands from the developed world for adherence to the international labor standards, developing countries including India would be increasingly under pressure to reduce the incidence if child labor. Therefore, efforts should be directed towards poverty reduction and improvement in the quality of schooling. Making education compulsory for children is a necessary condition for the reduction and abolition of child labor.

The Trade unions as institutions or labors are placed in a soul-searching mode in the new environment. They need to come up with new types of services for their and form new alliances. They should be ready to deal with increasingly heterogeneous labor force such as part timers and contract workers. They need to make a successful transition from currently fragmented and political party d system with overdependence on delayed, legalistic and adjudicatory resolution of industrial disputes to healthy and strong trade union movement wherein dispute settlement would be based on collective bargaining and arbitration at the enterprise level.

India‘s labor laws have evolved in manner, which has greatly reduced the flexibility available to employers to adjust the labor force in the light of changing economic circumstances. In a globalized world, persisting with labor laws that are much ore rigid than those prevailing in other countries only makes us uncompetitive not only in exports market itself. Appropriate changes in the laws are therefore necessary if we want to see rapid growth. 33

For instance, the Industrial Disputes Act (Section 5B), which now mandates that companies with more than 300 workers should obtain State Government approval to rationalize the workforce, has in practice made closures or retrenchment layoffs virtually impossible. To by it, the ―mutually agreed‖ Voluntarily Retirement Schemes have been increasingly resorted to some companies in recent times, although it works out to be more costly. The provision for State Government permission should therefore be suitably modified to provide flexibility in restricting. Similarly, the Contract Labor Act, which presently allows contract labor only for activities of a temporary nature, should be amended to undertake contract labor for all activities.

Another Issue that has to be addressed in parallel with efforts at labor market reforms is the need for a social safety net in the form of unemployment compensation or insurance in the event of retrenchment. Industrial countries, and even some developing countries like China, are able to provide employers with greater flexibility to hire and fire labor retrenched in the process of restructuring has the benefit of unemployment insurance. In this context, it may be mentioned that as part of the initial reform measures in the early 1990s, a National Renewal Fund was set up for addressing labor retraining and retrenchment. However, the miniscule corpus of the fund as well as its poor utilization has not really served the purpose of putting in place a social security net for the working class. To reinvigorate the Fund, it may be necessary to earmark certain proportion of the disinvestments proceeds of both the central PSUs and state PSUs. In a move towards laying the foundations for social safety net, a new social scheme has been recently launched by the Central Government for the Informal sector. These efforts need to be strengthened.

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Conclusion Globalization has widened the disparities between the capitalist class and the labor class in the society. Under the pretext of cost cutting and impact of recessionary trends it has been times immemorial that the labor class is always exploited. At the initial stages management used to win the hearts of workers in the name of labor welfare but now in the long run workers are being exploited in the name of forced overtime, hire and fire policy, casual workers system, contract labor, union less organizations, etc. and the workers who are the voiceless exploited class don‘t have any strong hand to , back-up and help in uniting together.

Clearly, globalization stands for challenge and opportunities. The onus is now on all of us to demonstrate the resolve to turn the challenges too, into opportunities for the progress and prosperity of the nation.

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Bibliography 1) www.google.com 2) www.wekipedia.com 3) http://labour.nic.in/ 4) www.idoub.com 5) http://industrialrelations.naukrihub.com/labor-market.html

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