potential benefits of globalisation, india is in a very different position than would have been the case 50 or even 20 years ago. this is because the sources of what economists call “ comparative advantage ” have changed dramatically in india ’ s favour in the 1990s because of the technological revolution. in the old days, comparative advantage was largely determined by “ factor endowments ”, i. e. land, labour and capital. geographical location and early starts in industry also conferred greater advantages. thus, at one time, a country ’ s trade pattern, was determined by its natural resources and the productivity of its land. leaving aside political and institutional factors, a country ’ s level of income was also largely determined by the global demand for its natural resources and its relative efficiency in exploiting them. the importance of land as a source of comparative advantage, however, changed dramatically after the industrial revolution. today, it is almost insignificant. thus, except for the united states, countries accounting for a predominant share of the world gdp have a relatively small share of global land area. after the industrial revolution, the availability of “ capital ” or investible resources became the most dominant source of comparative advantage. at this institute, established by the great prof. p. c. mahalonobis, i hardly need to elaborate on the importance that was attached to domestic capital accumulation in early development economics. in fact, scarcity of capital and low domestic savings were considered to be, and rightly so, as principal causes of a country ’ s underdevelopment. today, availability of capital and productivity are still crucial in determining a country ’ s growth rate. however, there has been a dramatic change in the global mobility of capital, and national boundaries are no longer important determinants of sources and uses of capital. a dramatic illustration of this is the fact that the most developed country in the world, which enjoyed unprecedented growth during the 1990s, is actually a capital - importing country, i. e. the united states. similarly, the fastest growing developing country, i. e. china, is one of the largest recipients of capital from outside. similary, labour is no longer an important element in cost of production and in determining a country ’ s comparative advantage. in most manufacturing industries in the world, it is no higher than 1 / 8th of total costs. in india, it may be somewhat higher because of our domestic laws, but the important fact to note is that india no longer needs to specialise only in

the cost structure of skill - based services. • it is now feasible to “ unbundle ” production of different types of goods and services. india does not necessarily have to be a low - cost producer of certain types of goods ( e. g., computers or discs ) before it can become an efficient supplier of services embodied in them ( e. g., software or music ). at the same time, it must be recognised that the “ death of distance ” and the growing integration of global product, services and financial markets in recent years have also presented new challenges for management of the national economy – not only in india but all over the world. the trend towards integration of markets, particularly financial markets, is by no means an unmixed blessing. unlike the old days, a heavy price may have to be paid by national economies for somnolence, sloth and non - conformity to generally accepted international norms and standards of macro - economic management, disclosure, transparency and financial accountability. another consequence of recent global trends is the greater vulnerability of national economies to developments outside their own borders. a crisis in any one or a group of countries, can be transmitted to other countries – including countries which may not have any strong economic linkages with crisis - affected countries. thus, the ’ nineties have been marked by a large number of currency crises ( for example, in mexico, russia, east asia and brazil – and currently argentina and turkey ) ; substantial swings in exchange rates ( including the exchange rate of three leading currencies – the dollar, the euro and the yen ) ; and run ups in asset prices followed by sharp collapse ( for example in japan and east asia earlier and the united states last year ). while the crises initially occur in one or two specific countries, their adverse effects are felt across the world. while we must be careful, on the whole, in my view, – the death of distance, the services revolution, and the mobility of capital – which characterise globalisation – present unprecedented opportunities for india. the primary source of comparative advantages today are : skills and ability to adapt and change. and, india has the advantage – of skills, of entrepreneurship and of managerial competence in taking advantage of these changes. if what i have said is correct, then, why are we not jumping with joy and optimism? why are we so “ unglobalised ” in terms of our share in trade, investment or communication? transition from a closed to a