CBSE - Globalisation and the Indian Economy

Globalisation means integrating the economy of a country with the economies of other countries under conditions of free flow of trade, capital and movement of persons across borders. It includes
(i) Increase in foreign trade
(ii) Export and import of techniques of production.
(iii) Flow of capital and finance from one country to another
(iv) Migration of people from one country to another.

The Indian government had put barriers to foreign trade and foreign investment to protect domestic producers from foreign competition, especially when industries had just begun to come up in the 1950s and 1960s. At this time, competition from imports would have been a death blow to growing industries. Hence, India allowed imports of only essential goods.
In New Economic Policy in 1991, the government wished to remove these barriers because it felt that domestic producers were ready to compete with foreign industries. It felt that foreign competition would in fact improve the quality of goods produced by Indian industries. This decision was also supported by powerful international organisations.

Flexibility in labour laws will help companies in being competitive and progressive. By easing up on labour laws, company heads can negotiate wages and terminate employment, depending on market conditions. This will lead to an increase in the company's competitiveness.

Multinational Corporations (MNCs) set up their factories or production units close to markets where they can get desired type of skilled or unskilled labour at low costs along with other factors of production. After ensuring these conditions MNCs set up production units in the following ways :
→ Jointly with some local companies of the existing country.
→ Buy the local companies and then expand its production with the help of modern technology.
→ They place orders for small producers and sell these products under their own brand name to the customers worldwide.

Developed countries want developing countries to liberalise their trade and investment because then the MNCs belonging to the developed countries can set up factories in less-expensive developing nations, and thereby increase profits, with lower manufacturing costs and the same sale price.
In my opinion, the developing countries should demand, in return, for some manner of protection of domestic producers against competition from imports. Also, charges should be levied on MNCs looking to set base in developing nations.

"The impact of globalisation has not been uniform". It has only benefitted skilled and professional person in urban not the unskilled persons. The industrial and service sector has much gained in globalisation than in agriculture. It benefitted MNCs on domestic producers and the industrial working class. Small producers of goods such as batteries, capacitors, plastics, toys, tyres, dairy products and vegetable oil have been hit hard by competition from cheaper imports.

Liberalisation of trade and investment policies has helped the globalisation process by making foreign trade and investment easier. Earlier, several developing countries had placed barriers and restrictions on imports and investments from abroad to protect domestic production. However, to improve the quality of domestic goods, these countries have removed the barriers. Thus, liberalisation has led to a further spread of globalisation because now businesses are allowed to make their own decisions on imports and exports. This has led to a deeper integration of national economies into one conglomerate whole.

Foreign trade provides opportunities for both producers and buyers to reach beyond the markets of their own countries. Goods travel from one country to another.Competition among producers of various countries as well as buyers prevails. Thus foreign trade leads to integration of markets across countries.
For example, during Diwali season, buyers in India have the option of choosing between Indian and Chinese decorative lights and bulbs. So this provides an opportunity to expand business.

After twenty years, world would undergo a positive change which will possess the following features— healthy competition, improved productive efficiency, increased volume of output, income and employment, better living standards, greater availability of information and modern technoloy.
Reason for the views given above : These are the favourable factors for globalisation :
→ Availability of human resources both quantitywise and qualitywise.
→ Broad resource and industrial base of major countries.
→ Growing entrepreneurship
→ Growing domestic market.

Benefits of globalisation of India :
→ Increase in the volume of trade in goods and services
→ Inflow of private foreign capital and export orientation of the economy.
→ Increases volume of output, income and employment.

Negative Impact / Fears of Globalisation.
→ It may not help in achieving sustainable growth.
→ It may lead to widening of income inequalities among various countries.
→ It may lead to aggravation of income inequalities within countries.
Whatever may be the fears of globalisation, I feel that it has now become a process which is catching the fancy of more and more nations. Hence we must become ready to accept globalisation with grace and also maximise economic gains from the world market.

Indian buyers have a greater choice of goods than they did two decades back. This is closely associated with the process of ______________. Markets in India are selling goods produced in many other countries. This means there is increasing ______________ 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 _____________. While consumers have more choices in the market, the effect of rising _______________ and ______________has meant greater ________________among the producers.

Answer

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 trade 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 of cheaper production costs. While consumers have more choices in the market, the effect of rising demand and purchasing power has meant greater competition among the producers.

(i) MNCs buy at cheap rates from small producers	(a) Automobiles
(ii) Quotas and taxes on imports are used to regulate trade	(b) Garments, footwear, sports items
(iii) Indian companies who have invested abroad	(c) Call centres
(iv) IT has helped in spreading of production of services	(d) Tata Motors, Infosys, Ranbaxy
(v) Several MNCs have invested in setting up factories in India for production	(e) Trade barriers

ans (i) b (ii) e(iii) d (iv) c (v) a

(i) The past two decades of globalisation has seen rapid movements in
(a) goods, services and people between countries.
(b) goods, services and investments between countries.
(c) goods, investments and people between countries.
ANS (b) goods, services and investments between countries.

(ii) The most common route for investments by MNCs in countries around the world is to
(a) set up new factories.
(b) buy existing local companies.
(c) form partnerships with local companies.
ANS (b) buy existing local companies.

(iii) Globalisation has led to improvement in living conditions
(a) of all the people
(b) of people in the developed countries
(c) of workers in the developing countries
(d) none of the above
ANS (d) none of the above

1. MNC stands for
(i) Multinational Corporation (ii) Multination Corporation
(iii) Multinational Cities (iv) Multinational Council

2. Investment made by MNCs is called
(i) Investment (ii) Foreign Trade
(iii) Foreign Investment (iv) Disinvestment

3. Process of integration of different countries is called
(i) Liberalisation (ii) Privatisation
(iii) Globalisation (iv) None of the above

4. MNCs do not increase
(i) Competition (ii) Price war (iii) Quality (iv) None of the above

5. This helps to create an opportunity for the producers to reach beyond the domestic market
(i) Foreign trade (ii) Domestic trade (iii) Internal trade (iv)Trade barrier

6. Foreign Trade
(i) Increases choice of goods (ii) Decreases prices of goods
(iii) Increases competition in the market (iv) Decreases earnings

7. Globalisation was stimulated by
(i) Money (ii) Transportation (iii) Population (iv) Computers

8. Production of services across countries has been facilitated by
(i) Money (ii) Machine (iii) Labour (iv) Information and communication technology

9. Tax on imports is an example of
(i) Investment (ii) Disinvestment (iii) Trade barrier (iv) Privatisation

10. Liberalisation does not include
(i) Removing trade barriers (ii) Liberal policies
(iii) Introducing quota system (iv) Disinvestment 

Answer Key of MCQ:1(i) 2(iii) 3(iii) 4(iv) 5(i) 6(iv) 7(ii) 8(iv) 9(iii) 10(iii) 

Four functions of WTO are:
(i) Administering trade agreements between nations. (ii) Forum for trade negotiations.
(iii) Handling trade disputes. (iv) Maintaining national trade policy.

The impact of WTO on Indian economy is:
 (i) An opportunity to India for trading with other member countries.
(ii) Availability of foreign technology to India at a reduced cost. 
(iii) Many laws of WTO are unfavorable to the developing countries like India.
(iv) Certain clauses of WTO agreement on agriculture put restrictions on the provision of subsidized food grains in India.

Any kind of restrictions imposed on trade is called a trade barrier.
Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country. 

Privatization means allowing the private sector to set up industries which were earlier reserved for the public
sector. Removing barriers or restrictions set by the government on trade is called liberalization. Thus, privatization
and liberalization results in freedom from closed and regulated economy.

MNCs can spread their production by:-
1. Setting up joint production units with local companies.
2. To Buy up local companies and expanding its production base.
3. Placing orders with small producers

(i) Growth of MNCs.
(ii) Growth of technology.
(iii) Development in transport and communication technology. 

Globalization is the integration or interconnection between the countries through trade and foreign investments by multinational corporations (MNCs). 
 
 
 Positive impacts:-
1) Greater choice and improved quality of goods at competitive price and hence raises standard of living.
2) MNCs have increased investments in India.
3) Top Indian companies emerged as multinationals.
4) Created new opportunities for companies providing services like IT sector.
5) Collaborations with foreign companies help a lot to domestic entrepreneurs.
Negative impacts:-
1) Indian Economy faced the problem of brain drain.
2) Globalization has failed to mark its impact on unemployment and poverty.
3) Cut in farm subsidies.
4) Closure of small industries

WTO is World trade organization. It is an organization which is in favour of increasing the world trade
 through globalization.

 The aims of WTO are:
(i) To liberalise international trade by allowing free trade for all.
(ii) To promote international trade among the countries of the world in an open uniform and nondiscriminatory manner. 
(iii) Removal of both the import and export restrictions. 
The drawbacks of WTO are:
1) WTO is dominated by the developed country
2) WTO is used by developed countries to support globalization in areas that are not directly related to trade.
3) Though WTO is supposed to allow free trade for all, in practice, it is seen that the developed countries have unfairly retained trade barriers. 

MNCs are Multinational corporations. It is a company that owns or controls production in more than one Nation. MNCs set up offices and factories for production in region where they can get cheap labour and other resources, closer to the markets. This is done to reduce the cost of production and the MNCs can earn greater profits. MNCs not only sell its finished products globally but also the goods and services are produced globally. The production process is divided into small parts and spread across the globe.

The main guiding factors of MNCs are:
(i) Cheap production
(ii) Closeness of production unit to the markets.
(iii) Favourable government policies.

There are a variety of ways in which MNCs spread their production and interact with local producers in various countries across the globe.
(i) Setting up partnerships with local companies,
(ii) Using the local companies for supplies
(iii) Closely competing with the local companies or buying them up,
(iv) MNCs are exerting a strong influence on production at these distant locations so that they could produce at cheapest price and earn profit