Impact and Structural changes in Indian economy due to Globalization and Liberalization

Structural changes take place in the development process in a relatively long term. However, their composition and pace can be significantly affected even in the short-term by major policy induced developments. The following structural changes have taken place in the Indian economy in the wake of liberalization:

  • Changes in the share of agriculture, industry and services: While the share of agriculture has continued to consistently decline over the past six decades that of industry and services has increased.
  • Sharp rise in the importance of the external sector: The figure of imports and exports as a percentage of GDP has increased substantially. The import structure has changed in favour of energy and some new export oriented raw materials and intermediate manufacturers. Capital goods have somewhat declined in importance. As far as imports are concerned, the share of agricultural and allied products has continued to decline, while that of manufactured products has increased.
  • Overseas Investment: A significant recent development is that Indian companies have also started undertaking overseas investment.
  • While the share of manufacturing in GDP increased during the first three decades after independence, but it has remained virtually unchanged since then, in spite of significant acceleration in the growth rate, because the growth of services sector has been much faster during this.
  • Saving and investment Performance: Post-reform period has shown a remarkable increase in saving and investment. Since private sector was assigned a new role under the New Economic Policy, the share of private sector in gross domestic capital formation has increased substantially.
  • The inter-state disparity in rates of GSDP growth has increased and the disparity has been even more marked in the growth of per-capita income. The Gini coefficient of inter-state inequality in per-capita income is much higher than it was before the reforms. However in the period after 2000 while some of the poorer states have experienced a faster than average growth, growth of some of the developed states has slowed down.
  • The employment performance has been disappointing in the post-reform economic growth. The experience has been that of a “jobless growth” in the 1990’s and “zero-employment growth” in the new millennium. There has also been increasing informalisation, casualisation and contractualisation. There has also been a disconnect between unemployment and poverty and between employment generation and poverty reduction.
  • There has been an emergence of a certain degree of polarization in urban areas where percentage of people within the middle class has declined and that of the poor and rich has increased. However, in rural areas a levelling seems in operation in so far as there has been a downward shift in some of the rich and an upward shift of some of the poor, resulting into a swelling of the middle.

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