International Environment - Assignment Example

International Environment Table of Contents Introduction 3 2. Neo-Liberalism 4 2 The Rise of Neo-Liberalism 4 Fiscal Policy 5 Public Spending 6 Tax Reform 6 Interest Rates and Exchange Rates 6 Trade Liberalisation 6 Liberalisation 7 Privatisation 7 Deregulation 7 2.2 Criticism 7 Failure of Liberalisation 8 Inequality 8 Feminism 9 Globalisation 9 3. Historical Context of Indian Economy With Respect To Neo-Liberalism Concept 10 4. Current impact of the Neo-Liberalism in Indian Economy 12 5. Conclusion 14 References 17 1. Introduction In the recent years, globalisation has played a vital role in economic development of nation. In the context of globalisation, international integration of national economies has proved to be effective in improving the living standard of people respectively. In addition, the impact of globalisation has also resulted changes in the economic policies adapted by the governing authorities of a nation that in turn has positively contributed in economic development (World Bank, 2015). In this context, the objective of the paper is to focus on the economic development of a nation and further relate it to the theories of growth and development. In this regard, the paper will consider neo-liberalism as the economic policy in order to derive its impact on growth and development of India. The paper would be effective in developing understanding with respect to the new economic policy implemented in the Indian Economy. In this context, the paper also highlights different factors associated with the policy of neo-liberalisation that is turn is likely to influence the growth and development of the concerned nation respectively in the long run. The achievement of independence in India was followed by the implementation of mixed economic system for growth and development in long run. In this regard, it is worth mentioning that the new mixed economic system was introduced with the aim of developing both private and public sectors. However, in contrast neo-liberal policy focuses on replacing the old mixed economic system with developing private sectors respectively. The neo-liberal policies further facilitates global governing authorities of other nations to bring changes to the neoliberal policies of India respectively (World Bank, 2015). The importance of this study is to understand the concept of neo-liberalism and its differences with the other economic policies as well as its effects on the society. Additionally, the study will outline the effects of neo-liberalism in India and its contribution in growth and development. Furthermore, the paper examines the impact of neo-liberal policy on social, cultural and economic policy of India. 2. Neo-Liberalism The concept of ‘Neo-Liberalism’ is associated with approach in economic theories where shift in economic factors can be observed between private sectors as well as public sectors with the aim of enhancing the position of the economy. However, the neo-liberalism policy mainly focuses on the private sector rather than public. The implementation of the new-liberalism policy within the economy enables the government minimise the shortage of monetary resources, amount of loans provided to organisations as subsidies, implementation of new tax rates, removal of fixed exchange rates as well as allowing growth of privatisation within the economy. Neo-Liberalism was the economic policy that emerged from the philosophies of classical liberalism, first introduced in the early 1930 but it was denied and was not accepted until 1980 (Kotz, 2000). The re-introduction of this policy in 1980 got widely popular, but was heavily criticised by many economists around the world. In this context, it is worth mentioning that the uncertainty of accepting such policy is due to the disagreement with the concept of liberalism being related to neo-liberalism, which itself is hard to elaborate. 2.1 The Rise of Neo-Liberalism Neo-liberalism is a great threat to the capitalists because the implementation of this new policy will remove the monopoly market. The most important element of this policy is the economic neo-liberalism which is gaining importance as the government has opted towards the change in economic policy. The term ‘neo’ means new therefore, with the rapid development in globalisation the world is changing with the neo-liberalism policies (Kotz, 2000). Additionally, neo-liberalism supports free market and privatisation that plays a significant role towards the welfare of the society. The new policy mainly emphasises free trade between the nations and further makes operating different activities easier. The advantage of implementing this policy by the government is to maximize the profit as well as increase in the efficiency level of the economic activity. This new policy seeks to the transfer of economy and power to the private sectors from public sectors. Therefore, it removes the causes of trade barriers such as, tariff and non-tariff, which hamper the trade relation between different nations. In this context, Williamson proposed a list of policy termed as ‘Washington Consensus’ which is said to be equal as the neo-liberalism. This Washington Consensus contains 10 policies highly adapted by the government of USA and few organisations like the International Monetary Fund (IMF), World Health Organisation (WHO) and World Bank (World Health Organization, 2015). Fiscal Policy Neo-liberalism policy proposes that the governments should reduce the shortage of money which was to be paid by the citizens previously and this can also have an adverse effect on the employment opportunities of a nation. In addition, gradual increase in the financial deficits can lead to high inflation rate and low productivity in an economy. Therefore, this must be avoided to have a better economy and the deficits are to be used only to stabilise the economy occasionally (World Health Organization, 2015). Public Spending Public spending is generally the government expenditure on an individual or needs of the community. This attribute has a significant role in determining the Gross Domestic Product (GDP) of a nation. Neo-Liberalism tends to increase the standard of living by increasing the per capita income (Willamson, 2003). Tax Reform Tax reform is associated with the change in the ways to manage taxes collected by the government. It can be said as the improvement of the tax policies. Thus neo-liberalism will reduce the marginal tax-rates on the other hand several new tax policies will be introduced (Willamson, 2003). Interest Rates and Exchange Rates The neoliberal policy will adapt the interest rates based on the current scenario of the market. The policy also introduces a new concept in the exchange rates that is the floating exchange rates. The advantage of having floating exchange rates in an economy as it’s fluctuate the value of currency in accordance to the foreign exchange markets (Willamson, 2003). Trade Liberalisation Trade liberalisation helps in the removal of several restrictions associated with trade between the nations. This removes the barriers of trade such as tariff which is generally a tax imposed as well as non-tariff barriers of trade (Willamson, 2003). Liberalisation The new economic policy is somewhat similar to the old economic policy as the newer is derived from the latter. Therefore, it reduces the previous restrictions of the government in the social, economical and political policies implemented respectively (Willamson, 2003). Privatisation Privatisation is also known as State Enterprises. It is the process by which ownership is transferred to the private sectors from the public sector i.e., the government. The private sectors may be a profit organisation or a non-profit organisation. Privatisation simply means outsourcing of the services by the government to the private firms (Willamson, 2003). Deregulation Deregulation simply means the removal of regulations which were previously imposed by the governments. The objective of such is to restrain the factors which hinders the market entry as well as restricts the competition (Willamson, 2003). 2.2 Criticism Despite a number of positive approaches of the Neo-liberalism policy, many economists all over the world have criticised it. In this regard, it can be mentioned that poverty was one of impacts of the new economic policy. Furthermore, the new economic policy has resulted in gradual dissolution in the welfare of the society. Besides, this new structure in the economy generated more diversion between the groups of people belonging to different backgrounds (Krugman, 2009). Failure of Liberalisation There were several arguments in relation to the failure of market after the implementation of the neo-liberal policy due to the consequences of imperfect competition in the market. The discussion in the previous section reveals the fact that the main aim of the concerned policies was to ensure privatisation of different sectors along with to some extent control of the governing authorities of the nation. This in turn signifies the improvement in trade relations between different nations respectively. In this context, it is worth mentioning that the neo-liberalism policy has also resulted further changes in trade policies for instance policies associated with the trade barriers. This in turn signifies increase in more foreign investments that has further resulted into financial outflow that in turn has the potential to negatively influence the growth and development of the economy respectively. Additionally, this situation has resulted decline of power over the control of commodity prices respectively (Krugman, 2009). Inequality This section focuses on the fact that Laws and the rights to access information are not same for every individual residing within the society even though it comes under the liberal democracy because these are not free as the policies of liberals. In this context, it is worth mentioning that the issues associated with rights and laws further is likely to raise problems associated with inequality. There are several issues, which reflect that the poor does not have any right to access the law and the right to information if their income level does not meet the requirements to access such. Thus, there arises the issue of social reforms like class distinctions in the society. In the context, it is worth mentioning that the neo-liberalism policy has more tendencies to generate wealth and thus has the potential to minimise the issues related to inequality to some extent respectively (Krugman, 2009). Feminism The theory of feminism seeks to establish the equal opportunities of the female in the society. Neo-liberalism in this context has a negative impact on the female labor force all over the world. This has created inequality in terms of gender distinction. Several economists has pointed out that the new economic policy has also resulted in the devaluation of famine labors. With the impact of neo-liberalisation, private sectors created more job opportunities, but the female workforce deteriorated due to the lack of safety and insecurity in the working environment of multinational companies (Krugman, 2009). Globalisation The developing countries have fewer rights to penetrate in the foreign markets compared to the developed countries of the world. Therefore, it is for this reason the foreign lenders are more likely to have their investment in the multinational corporations of a host country. In this regard, it is worth mentioning that the implementation of neo-liberalisation also has some positive impact on the economic development of nation as it facilitates international trade between different nations that in turn has the potential to raise additional wealth. Additionally, the negative impact of implementing the policy is that the local firms get an unfair competition from the international firms around the world that in turn reduces sales, profitability as well as is likely to deteriorate the position of the firms. These impacts of the neo-liberalism policies have the potential to hamper the economic condition of a nation because the flow of capital which enters into the nation through the international firms may outflow during the time of recession (Kotz, 2000). 3. Historical Context of Indian Economy With Respect To Neo-Liberalism Concept The earlier scenario of the Indian economy is noted to be in the perilous positions, as the government was following the concept associated with neo-classical approach. In the addition, it is further noted that economy of India has experienced numerous uncertainties during the period since 1990 until the imposition of neo- liberalism. Besides, economical uncertainties the political scenario of India also undergoes through several transformations as government has also intervening in several economical activities. Moreover, during the period of 1990 to 2000 several public sectors have experienced financial deficits that in turn have negatively influenced the growth as well as development of the Indian economy. The prime reason behind huge impact of economic deficits over India is that the government has not effectively implemented the concept neo-liberalism for enhancing as well as reforming its economy. Prior the structured of the Indian economy was designed as a command and control shape, which mainly operated by the government of the country. Furthermore, it is noted that during the period of 1990-1991, the economy of India has been experiences a crisis in balance of payment. Moreover, due to the deficiencies in the balance of payment system, the Indian economy has also experiences huge crisis, which also affected the rising of inflations rate during the year of 1991 (Bajpai, 1991). In order to reduce the burden of loss from the economy, the Indian government introduced different comprehensive monetary construction policies framework, which was noted to be quite orthodox in nature. However, during the period of economic crisis, government has also focused on devaluating the national currency for reforming the monetary packages. In this context, it is worth mentioning that devaluation of currencies limited the monetary flow within the nations, which has also reduced the overall monetary consumption rate within the economy. This particular approach is entirely different from the neo-liberalism concept (Dholakia, 1991). During the period of 1991-1992, the economic growth was slow due to the various reasons, which made huge impact over the economy of India. Furthermore, noted that the breakdown in the agricultural field also decreases the economic growth. Moreover, the huge decrease in industrial growth has also slow down the economic growth of the country. Additionally, in order to bring the inflation rate under control the Indian government has moved towards stabilising the economy. Besides, the restructuring of the monetary policies, the government has also reformed the fiscal policies and brings the stable economic situation within the country. Despite the fact that Indian economy was facing economic crisis during 1991-1992 yet the governing authority had implemented number of policies with the aim of stabilising the position of economy respectively. In this regard, the government emphasised upon strengthening the public sector enterprise for achieving the economic growth. Furthermore, it also elaborated that by strengthening the public sectors, Indian government would enable to promote industrial development for growth of economy in the long run respectively (Nagaraj, 1997). During the period of the 1990-1991, India was following the traditional fiscal policies, which was quite in effective in stabilising the economic condition o the country. The prime objective of these fiscal policies is to transfer the savings of the private sectors to the public sectors for satisfying its investment needs. Besides, the taxes and transfers are also playing an important role in stabilising the economy of the country. Moreover, it also helps the government to ensuring the better economical growth within the nation. Therefore, reduction in tax rate will also enhance the recovery of inflation as well as economic crisis. For reducing the economical crisis the elimination of the income and wealth inequalities is noted to be one of the most significant approaches (Smitha & Sankaranarayanan, 2010). Furthermore, after experiencing the economic crisis during the year of 1991, Indian government has adopted a new policy of liberalisation. Additionally, the policy of economic liberalisation provides increasing opportunity to the country for opening its economy for foreign investment. Furthermore, in order to reduce the economic imparity the government has also encouraged balanced regional development. In this context, it can be further mentioned that previously government was mainly focused upon gaining revenues from the private sectors by increasing the rate of indirect as well as direct tax. Additionally, the revenue gathered was used for funding the public sectors in order to achieve the redistributive goals of the economy respectively (National Informatics Centre, 2013). 4. Current impact of the Neo-Liberalism in Indian Economy Presently, Indian economy has been experiencing more benefits due to its integrated appearance in terms of both current and capital accounts with respect to the world economy. However, in the recent year Indian economy has been experiencing huge losses, which in turn results into economic slowdown. It has also found that imposition of the neo-liberalisation concept within the Indian economy has resulted privatisation of business as well as commodity. However, it has also been argued that the concept of neo-liberalisation has not been successfully implemented within the Indian economy as most of the monetary as well as fiscal policies are based on traditional neo-classical economic policies. The major problem associated with implementation of neo-liberalism approach within the Indian economy is equal distribution of wealth within the nation. For instance, in developing country like India, the unequal distribution of income has a negative impact on the rise in food price as the concerned individuals would face difficulties in satisfying the minimum needs that in turn has the potential to create a vital uncertainty as well as financial instability (Inoue, 2010). Additionally, the imposition of neo-liberalism within the Indian economy initially created an unstable situation that in turn has negative impact on the process of overall growth and development of nation respectively. Furthermore, the volatile situation has also created problem during economic crisis within the country. Additionally, due to inappropriate economic policies the companies within the economy experienced continuous decline in the GDP growth rate. Besides, the International Monetary fund has also projected that the inappropriate use of neo-liberalism approach has also resulted continuous decline in GDP growth. However, the imposition of the neo-liberalism within Indian economy has also able elimination of economic crisis to some extent. The imposition of neo-liberalism concept has influenced the Indian government to reform its fiscal policies by improvising the direct as well as indirect tax rate. Moreover, it is also noted that the prime intention of the neo-liberalism concept is to reduce the proportion of trade tax rate. Recently the imposition of MODVAT in the tax rate has also removed several misconceptions that have been arising within the economy (Bhatt, 2011). Additionally, to reduce the burden of economic crisis the government has also imposed few more new policies. In this context, the government of India has initiated fostering small -scale industries within the country to enhance growth and development. The prime intention behind the promotion of the small -scale industry within the economy is to mobilise the flow of money in an effective manner. It has also been identified that the investment as well as development of the small-scale industry within the economy will reduce the tendency of developing capitalism society. Moreover, the development of the small-scale industry will help the country to mobile the resources in an effective manner, which also restricts the large -scale industry to hold maximum resources under their authority. However, the neo-liberalism concept also enables the economy to run with flexible fiscal as well as monetary policies within the country. In this regards, it has also been identified that the imposition of the neo-liberalism theory has been proved to be quite helpful for recovering from the position of economic crisis after the period of 2008. However, the imposition of the neo-liberalism theory is incapable in meeting the overall crisis but it has resulted in reformation of new taxation (De, 2012). 5. Conclusion Form the above analyses it can be evaluated that that the implementation of neo-liberalisation policies has resulted effective changes within the economy despite the existence of a number of criticisms. In this context, the paper focuses on the analysing the impact of the neo-liberalisation policy on the economic development of nation. For this paper, the Indian economy has been considered to determine the overall impact of implementing the neo-liberal policy. To conclude, Neo-liberalism had a great impact on the society, economic as well as political stability of a nation. In this context, it is worth mentioning that the implementation of neo-liberalisation policy has influenced the trade policies due to various limitations that has developed due to the barriers associated with the international trade.This new policy was actually adapted strongly by the developed nations around the world. However, USA used to successfully dictate the neoliberal policies with the help of International Monetary Fund and World Bank. The neoliberal policy was created to establish free market and trade, maximise the profits as well as to increase the efficiency level. In context to foreign markets, neo-liberalism policy tends to bring freedom in terms of goods and services through free trade as well as free market and circulates the surplus of money throughout the nation. However, these changes do not have much impact especially on the poor ones. The role of the governments for providing a better society and healthy environment are now on the stage of extinction because the applications of the neoliberal policy has lessened the power of he government. In the context of neo-liberalism policy, the rise of private sectors has the potential to raise insecurity even though these sectors tend to increase the wealth of a nation. The adoption of neo-liberal policy in the Indian economy was followed by the implementation of mixed economic system respectively. In this context, the paper analyses that the main fact behind the adoption of neo-liberalism policy in India was the rising economic crisis in year 1991. Moreover, this neoliberal policy has been able to solve the economic crisis India was going through but just like everywhere else around the world the poor ones did not got any advantages of it. Therefore, the neo-liberal policy has also faced opposition by several economists and was further criticised around the world. References Bajpai, N., 1991. Economic Crisis, Structural Reforms, and the Prospects of Growth in India. University of Lucknow, pp. 1-22. Bhatt, R. J., 2011. Recent Global Recession and Indian Economy: An Analysis. International Journal of Trade, Economics and Finance, Vol. 2, No. 3, pp. 212-217. De, S., 2012. Fiscal Policy in India: Trends and Trajectory. Working Paper, pp.1-26. Dholakia, B. H., 1991. Indias Economic Crisis: Nature and Remedies. Indian Institute of Management, Ahmedabad, Vol. 16, No. 3, pp.47-53. Inoue, T., 2010. Effectiveness of the Monetary Policy. IDE Discussion Paper No. 242.pp. 1-16. Kotz, M. D., 2000. Globalization and Neoliberalism. Data. [Online] Available at: http://storage.globalcitizen.net/data/topic/knowledge/uploads/20121107132223123800_Glob_and_NL_02mm.pdf [Accessed July 22, 2015]. Krugman, P., 2009. The Conscience of a Liberal. W. W. Norton. Nagaraj, R., 1997. What Has Happened since 1991? Assessment of Indias Economic Reforms. Economic and Political Weekly, Vol. 32, No. 44/45, pp. 2869-2879. National Informatics Centre, 2013. Fiscal Policy Strategy Statement. Fiscal Policy Review, pp. 1-11. Smitha, T. H. & Sankaranarayanan, K.C., 2010. Impact of Monetary Policy on Indian Economy In The Post-Reform Period. Cochin University of Science and Technology, pp. 1-386. Williamson, J., 2003. From Reform Agenda. 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