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Globalisation & Economic Development: India and Australia

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Globalisation refers to the increasing level of economic integration between countries, leading to the emergence of a global market place or a single world market. Globalisation has played an important part in the economic development of countries around the world but has also led to increased damage to the environment. To illustrate this, India and Australia will be used as examples.

India's economic development strategies built up a number of problems over the period 1965 to the late 1980s. A key problem was declining investment expenditure from an average growth of 5% to 3.7% over the course of two decades and the fact that the government sector was spending much more than it taxed. In response to this, the Indian government of Narasimha Rao in 1991 introduced significant reforms in the Indian economic system by following globalisation trends across the world and making India a more active participant in the global economy. India began to move away from 'self-reliance' as it liberalised its protection policies e.g. reducing tariffs. India became more involved in global capital markets which brought in funding and capital as well as intellectual knowledge. India's currency was floated in 1991 which resulted in significant depreciation of the rupee (approximately 20%). This made its exports more competitive, provided cheaper labour for foreign companies and encouraged foreign investment.

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Since 2000 the Indian economy achieved higher rates of economic growth than those of the 1990s. Not only has economic growth been extremely strong, levels of investment are very strong with much of the investment being private sector investment. However, widespread discontent was present in the lagging rural areas where infrastructure is ineffective or non-existent and standards of living remain very poor. Although economic growth has occurred, poverty and unequal distribution of wealth is an issue that globalisation has not addressed. Globalisation has not improved lifted living standards in two-thirds of the country. The table below highlights the regional differences in income in Modern India.

TABLE

Five large states average less than US$1 per day per person – roughly the international poverty line. Urban Indians such as those in Delhi are affording a better standard of living. Data has shown that there is a significant living standard gap opening up between substantial groups within India.

The ramifications of rapid economic development in India on the environment have been critical. Strong economic growth has caused various environmental negative externalities. Tragedy of the commons is occurring because the price mechanism does not account for the wider social costs borne by all of society. With cost of environmental degradation at US$80 billion or 5.6% of GDP in 2009, the environment could become a major constraint in sustaining future economic growth. Deforestation, especially in the Himalayan watershed areas increases the risk of flooding. Due to uncontrolled dumping of chemical and industrial waste, fertilisers and pesticides, 70% of the surface water in India is polluted. Air pollution caused by car emissions and industries is rising rapidly. Scientists have analysed that air pollution has become so severe that yields of crops are being cut by almost half. Particle pollution from the burning of fossil fuels has serious health consequences amounting up to 3% of GDP. A World Bank study has found that there are low-cost policy options that could significantly reduce environmental damage without compromising long-term growth objectives. The report states that “on the other hand, failure to act at the current rates of environmental degradation could constraint long-term productivity and hence growth prospects.

Australia and Globalisation
Australia’s trade policies since the 1980s have been geared towards opening domestic industries to the global market. In 1983 the Australia financial system was deregulated and foreign exchange controls removed. That same year the Australian dollar was floated. Financial deregulation led to much greater accessibility of Australian firms to world capital markets and reduced the cost of exports. Australia’s increasing integration with global capital markets has led to rapid growth in foreign exchange turnover with increased trading of the Australia dollar. The major structural change in the Australian economy between 2003 and 2010 was the impact of the global resources boom, which led to rising commodity prices for mining exports and a large improvement in terms of trade, helping to increase the value and volume of mineral exports. With greater internationalisation of the Australian economy, exports and imports of goods and services as a percentage of GDP rose form 12% in the mid 1980s to 23% in the 2000s.

Australia has recorded over 20 years of consecutive economic growth. However there is a trade-off between economic growth and development.

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Economic growth and development involve the exploitation of natural resources. Through activities such as agriculture, mining, manufacturing and commercial and residential development, many natural environments and ecosystems are damaged, sometimes permanently. In the long term, the economy is unable to sustain growth if the environment is degraded and quality of life is also reduced as human health and the health of ecosystems are compromised.

In Australia land and soil degradation have been problematic particularly in farming areas which have been subject to overuse or misuse of irrigation in the Murray-Darling Basin, causing issues such as soil erosion and salinity. In the Murray-Darling Basin water flows have so reduced by agriculture that it is under threat for use by current and future generations. In order to rectify this, the government has spent billions.
In order to curb Australia’s greenhouse gas emissions particularly by the mining industry that contribute to global warming, the Federal government in 2012 introduced a tax on carbon emissions. The tax aimed to internalise the externalities associated, requiring the firms and companies responsible to pay for some of its costs to the environment. Unfortunately the Australian environment is exploited heavily by ‘free-riders’, who contribute to economic growth but benefit without contributing to the cost of supplying a clean, sustainable environment. An example is a fishing company that benefits from clean oceans without paying the cost of cleaning up ocean pollution.

Despite the negative nature of economic development on the environment, in our increasingly globalised world with many countries experiencing rapid economic growth, the price mechanism fails to account for these environmental impacts and due to the characteristic of the environment being a public good, it creates opportunities for free rider behaviour and avoidance of environmental responsibility. If environmental exploitation continues, intergenerational equality would not be achieved and economic growth and standard of living will also not be sustainable.…...

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