4:
Globalisation and the Indian Economy
1. Introduction: What is Globalisation?
Today, consumers can buy
products from different countries such as:
- Mobile phones
- Cars
- Televisions
- Clothes
- Processed food items
Earlier, Indian markets had
very limited choices. Due to globalisation, markets now offer a wide variety of
goods from across the world.
Meaning of Globalisation
Globalisation is the process of rapid
integration and interconnection among countries through:
- Foreign trade
- Foreign investment
- Movement of technology
- Expansion of multinational corporations (MNCs)
Definition
Globalisation refers to the
integration of economies of different countries through increased foreign trade
and foreign investment by multinational companies.
2. Production Across Countries
Before Globalisation
Until the middle of the 20th
century:
- Production was mostly organised within
national boundaries.
- Countries exchanged:
- Raw materials
- Food items
- Finished products
Example:
- India exported raw materials.
- India imported finished goods.
Trade was the main link
between countries.
3. Multinational Corporations (MNCs)
Definition
A Multinational Corporation
(MNC) is a company that owns or controls production in more than one
country.
Examples
- Ford Motors
- Coca-Cola
- Pepsi
- Nike
- Honda
Why do MNCs set up production in other countries?
MNCs establish factories
where:
- Labour is cheap
- Raw materials are available
- Skilled workers are available
- Markets are large
- Government policies are favourable
Main Objective
To reduce production cost and
increase profit.
4. How Production is Spread Globally
Production is divided into
different stages and carried out in different countries.
Example
An MNC may:
- Design products in USA
- Manufacture components in China
- Assemble products in Mexico
- Provide customer care through India
This is called:
Global Production Network
Benefits:
- Lower costs
- Better efficiency
- Higher profits
5. Interlinking Production Across Countries
Countries become connected
through production activities.
MNCs interlink production in
several ways.
Method 1: Joint Production with Local Companies
MNCs partner with local
companies.
Benefits to Local Companies
(a) Additional Investment
MNCs provide money for:
- New machines
- Better infrastructure
- Expansion
(b) New Technology
MNCs bring:
- Modern technology
- Better production methods
Method 2: Buying Local Companies
MNCs often buy existing local
companies.
Example
- American MNC Cargill
Foods bought Parakh Foods in India.
Benefits for MNC:
- Existing market network
- Established brand name
- Existing factories
Method 3: Placing Orders with Small Producers
MNCs do not always produce
goods themselves.
They place orders with:
- Small manufacturers
- Local producers
Examples:
- Garments
- Sports goods
- Footwear
The products are sold under
MNC brands.
Power of MNCs
MNCs control:
- Price
- Quality
- Delivery schedule
- Labour conditions
Thus, local production becomes
linked with global markets.
6. Foreign Investment
Definition
Money invested by an MNC to
buy:
- Land
- Buildings
- Machinery
- Equipment
in another country is called Foreign
Investment.
Purpose
To earn profits.
7. Ford Motors Example
Important Facts
- American MNC
- Entered India in 1995
- Invested ₹1700 crore near
Chennai
- Collaborated with
Mahindra & Mahindra
Significance
India offered:
- Large market
- Cheap labour
- Skilled workers
- Auto component suppliers
Ford used India as a
manufacturing and export base.
8. Foreign Trade
Definition
Foreign trade means trade
between countries.
It includes:
- Exports
- Imports
Importance of Foreign Trade
For Producers
Allows them to:
- Sell products beyond domestic
markets
- Expand business globally
For Consumers
Provides:
- Greater choice
- Better quality
- Lower prices
9. Chinese Toys Example
Chinese toy manufacturers
exported toys to India.
Effects on Consumers
Positive:
- More choices
- Lower prices
- New designs
Effects on Indian Producers
Negative:
- Reduced sales
- Losses
- Business closures
10. Foreign Trade and Integration of Markets
Foreign trade connects markets
of different countries.
Effects
- Goods move across countries.
- Choice increases.
- Prices become similar.
- Producers compete internationally.
Definition
Integration of markets means
linking markets of different countries through trade.
11. What is Globalisation?
Globalisation is the result
of:
(a) Increased Foreign Trade
and
(b) Increased Foreign Investment
As a result:
- Production becomes
globally connected.
- Markets become
integrated.
Role of MNCs in Globalisation
MNCs are the major driving
force behind globalisation because they:
- Invest across countries
- Transfer technology
- Organise production
globally
- Expand trade
12. Other Links Between Countries
Countries are connected
through:
Goods
Services
Investment
Technology
Movement of People
People move for:
- Jobs
- Education
- Better income
However, movement of people is
more restricted than movement of goods and capital.
13. Factors That Enabled Globalisation
Three major factors:
- Improvement in Technology
- Liberalisation
- WTO
14. Role of Technology
Technology has greatly
accelerated globalisation.
(A) Improvements in Transportation
Examples:
- Containers
- Faster ships
- Air transport
Benefits:
- Reduced transport cost
- Faster delivery
- Increased trade
(B) Information and Communication Technology (ICT)
Includes:
- Internet
- Computers
- Mobile phones
- Telecommunication
Benefits:
- Instant communication
- E-mail
- E-banking
- Online transfer of
information
Example
A magazine for London readers
can be:
- Designed in Delhi
- Printed in India
- Sent back to London
This is possible because of
ICT.
15. Liberalisation
Meaning
Removal of government restrictions
on:
- Foreign trade
- Foreign investment
is called Liberalisation.
16. Trade Barriers
Meaning
Restrictions imposed by
government on imports.
Example
Tax on imports.
Why are they called barriers?
Because they restrict foreign
trade.
Example: Tax on Chinese Toys
If India imposes import tax:
- Chinese toys become
expensive.
- Imports reduce.
- Indian toy makers
benefit.
17. India's Policy Before 1991
After Independence:
India imposed restrictions on:
- Imports
- Foreign investment
Reason
To protect newly established
industries from foreign competition.
Only essential imports were
allowed:
- Machinery
- Fertilisers
- Petroleum
18. Economic Reforms of 1991
In 1991 India changed its
policies.
Reasons
Government believed:
- Competition improves
efficiency.
- Producers would improve
quality.
- Indian firms should
compete globally.
Result
Trade barriers were removed.
Foreign companies could:
- Invest
- Open factories
- Conduct business easily
This process is called
Liberalisation.
19. World Trade Organisation (WTO)
Definition
An international organisation
that promotes free trade among countries.
Objectives
- Liberalise international trade.
- Remove trade barriers.
- Establish trade rules.
Functions
- Sets rules for international trade.
- Ensures member countries follow these rules.
Members
Around 160 countries.
20. Criticism of WTO
Developing countries argue
that:
Developed countries
- Continue subsidies to
farmers.
- Continue protection
policies.
Developing countries
- Are forced to remove
trade barriers.
Therefore, trade is often not
fully fair.
21. Impact of Globalisation in India
Positive Impacts
1. Benefits to Consumers
Consumers enjoy:
- More choices
- Better quality
- Lower prices
- Higher standard of living
2. Increase in Foreign Investment
MNCs invested heavily in:
- Electronics
- Automobiles
- Banking
- Fast food
- Soft drinks
3. Employment Generation
New jobs created in:
- Factories
- Services
- IT sector
- Call centres
4. Growth of Indian Companies
Indian companies improved by:
- Using new technology
- Improving quality
- Collaborating with
foreign firms
5. Indian Companies Becoming MNCs
Examples:
- Tata Motors
- Infosys
- Ranbaxy
- Asian Paints
- Sundaram Fasteners
6. Growth of Service Sector
India became a major exporter
of services such as:
- Data entry
- Call centres
- Accounting
- Engineering services
- Administrative work
22. Special Economic Zones (SEZs)
Meaning
Industrial zones with
world-class facilities.
Facilities include:
- Electricity
- Roads
- Water supply
- Transport
- Storage
Benefits Given to Companies
- Tax exemptions
- Better infrastructure
- Easier business
operations
Purpose
To attract foreign investment.
23. Negative Impacts of Globalisation
1. Problems for Small Producers
Many small industries faced
severe competition.
Examples:
- Toys
- Batteries
- Tyres
- Plastics
- Dairy products
- Vegetable oil
Result:
- Closures
- Losses
- Unemployment
2. Ravi's Capacitor Industry Example
Ravi started a capacitor
factory in 1992.
After import restrictions were
removed:
- Cheap imported capacitors
entered India.
- Demand for his product
declined.
- Production reduced.
- Workers lost jobs.
3. Uncertain Employment
Companies increasingly hire
workers:
- Temporarily
- On contract basis
This is called flexible
employment.
24. Garment Industry Example (Sushila)
Earlier:
- Permanent job
- Health insurance
- Provident fund
- Overtime benefits
Later:
- Temporary employment
- Lower wages
- No benefits
- Longer working hours
Conclusion
Workers often do not receive a
fair share of globalisation benefits.
25. Fair Globalisation
Meaning
A form of globalisation in
which:
- Opportunities are
available to all.
- Benefits are shared
fairly.
- Workers' rights are
protected.
26. Role of Government in Fair Globalisation
Government should:
Protect workers
- Implement labour laws
- Ensure fair wages
Support small producers
- Better roads
- Electricity
- Water supply
- Credit facilities
- Technology support
Negotiate at WTO
- Demand fair trade rules
- Protect developing
countries' interests
27. Important Definitions (Very Important for
Exams)
Globalisation
Integration of countries
through foreign trade and foreign investment.
MNC
A company owning or
controlling production in more than one country.
Foreign Investment
Investment made by an MNC in
another country.
Foreign Trade
Trade between countries
involving exports and imports.
Investment
Money spent on assets like
land, machinery and buildings to earn profits.
Trade Barrier
Restriction imposed on imports
or exports.
Liberalisation
Removal of government
restrictions on foreign trade and investment.
WTO
International organisation
promoting free trade among countries.
SEZ
Special Economic Zone with
world-class facilities to attract investment.
Integration of Markets
Linking markets of different
countries through trade.
***********
Exercise
Answers
1. What do you understand by globalisation? Explain in your own words.
Answer:
Globalisation is the process
of increasing integration and interdependence among countries through foreign
trade, foreign investment, technology, and the activities of multinational
corporations (MNCs). It connects producers and consumers of different countries
and creates a global market.
2. What were the reasons for putting barriers to foreign trade and foreign
investment by the Indian government? Why did it wish to remove these barriers?
Answer:
Reasons for imposing barriers:
- To protect Indian industries from foreign
competition.
- Indian industries were in their early stages
of development.
- Foreign competition could have prevented
domestic industries from growing.
Reasons for removing barriers:
- To increase competition.
- To improve quality and
efficiency of Indian producers.
- To attract foreign
investment.
- To integrate India's
economy with the world economy.
3. How would flexibility in labour laws help companies?
Answer:
Flexibility in labour laws
helps companies because:
- They can hire workers for
short periods.
- They can reduce labour
costs.
- They do not need to
provide permanent employment benefits.
- They can adjust the
workforce according to production requirements.
- It increases profits and
competitiveness.
4. What are the various ways in which MNCs set up, control or produce in
other countries?
Answer:
MNCs operate in other
countries through:
- Setting up factories and
offices directly.
- Forming joint ventures
with local companies.
- Buying existing local
companies.
- Placing orders with small
producers.
- Using local companies as
suppliers of raw materials and components.
These methods help MNCs
control production across countries.
5. Why do developed countries want developing countries to liberalise their
trade and investment? What do you think should the developing countries demand
in return?
Answer:
Developed countries want liberalisation because:
- It allows their companies
to enter new markets.
- They can sell more
products.
- They can invest easily in
developing countries.
- They can earn higher
profits.
Developing countries should demand:
- Fair trade policies.
- Removal of subsidies
given to farmers in developed countries.
- Equal treatment in
international trade.
- Better access to markets
of developed countries.
- Protection of workers'
and producers' interests.
6. “The impact of globalisation has not been uniform.” Explain this
statement.
Answer:
The impact of globalisation
differs among different groups.
Positive effects:
- Consumers get more
choices and lower prices.
- MNCs and large companies
earn more profits.
- Skilled workers get
better job opportunities.
- The IT sector has
expanded.
Negative effects:
- Small producers face
competition from imports.
- Many small industries
have closed down.
- Workers face job
insecurity.
- Temporary employment has
increased.
Therefore, some people benefit
while others suffer.
7. How has liberalisation of trade and investment policies helped the
globalisation process?
Answer:
Liberalisation has helped
globalisation by:
- Removing restrictions on
imports and exports.
- Encouraging foreign
investment.
- Allowing MNCs to set up
industries.
- Increasing competition.
- Expanding international
trade.
- Connecting Indian markets
with world markets.
Thus, liberalisation has
accelerated globalisation.
8. How does foreign trade lead to integration of markets across countries?
Explain with an example other than those given here.
Answer:
Foreign trade connects markets
of different countries by allowing goods and services to move across borders.
Producers compete internationally and consumers get a wider variety of goods.
Example:
India exports medicines to
African countries.
- Indian pharmaceutical companies gain larger
markets.
- African consumers get medicines at affordable
prices.
- Markets of India and African countries become
interconnected.
Thus, foreign trade integrates
markets.
9. Globalisation will continue in the future. Can you imagine what the
world would be like twenty years from now? Give reasons for your answer.
Answer:
Twenty years from now:
- Countries will be more
interconnected.
- Technology will become
more advanced.
- Online trade and digital
services will increase.
- International business
will expand further.
- Consumers will have
greater choices.
- Global production
networks will become stronger.
These changes are likely
because technology and international trade are growing rapidly.
10. Supposing you find two people arguing: One is saying globalisation has
hurt our country's development. The other is telling globalisation is helping
India develop. How would you respond?
Answer:
Both views are partly correct.
Globalisation has helped India by:
- Increasing foreign investment.
- Creating jobs in many sectors.
- Improving quality of products.
- Giving consumers more choices.
Globalisation has also hurt some groups by:
- Increasing competition
for small producers.
- Causing closure of some
industries.
- Creating job insecurity
for workers.
Therefore, globalisation has
both positive and negative effects. The government should ensure fair
globalisation so that benefits reach everyone.
11. Fill in the blanks
Indian buyers have a greater
choice of goods than they did two decades back. This is closely associated with
the process of globalisation.
Markets in India are selling
goods produced in many other countries. This means there is increasing integration
of markets with other countries.
Moreover, the rising number
of brands that we see in the markets might be produced by MNCs in India. MNCs
are investing in India because India provides cheap labour, large markets
and other favourable conditions.
While consumers have more
choices in the market, the effect of rising foreign trade and foreign
investment has meant greater competition among the producers.
12. Match the Following
|
Column A |
Column B |
|
(i) MNCs buy at cheap rates from small producers |
(b) Garments, footwear, sports items |
|
(ii) Quotas and taxes on imports are used to regulate trade |
(e) Trade barriers |
|
(iii) Indian companies who have invested abroad |
(d) Tata Motors, Infosys, Ranbaxy |
|
(iv) IT has helped in spreading of production of services |
(c) Call centres |
|
(v) Several MNCs have invested in setting up factories in India for
production |
(a) Automobiles |
Correct Matching:
- (i) → (b)
- (ii) → (e)
- (iii) → (d)
- (iv) → (c)
- (v) → (a)
13. Choose the Most Appropriate Option
(i) The past two decades of globalisation has seen rapid movements in
✅ (b) goods, services and
investments between countries
(ii) The most common route for investments by MNCs in countries around the
world is to
✅ (b) buy existing local
companies
(iii) Globalisation has led to improvement in living conditions
✅ (d) none of the above
(Only some sections of people
have benefited, not everyone.)
******