Chapter- 4
GLOBALISTION AND THE INDIAN ECONOMY
1 What do you understand by globalisation? Explain in your own words.
Answer:
• Globalization is a process of dialogue and integration between people, companies and governments of different nations, driven by international trade and investment and facilitated by information technology.
• Under globalization, countries hitherto closed to trade and foreign investment open up their economies and go global. This has increased the interconnectedness and integration of the global economy.
• Under globalization, most goods and services, investment and technology are moving among countries.
• In addition to goods, services, investments and technology, there is a movement of people moving from one country to another in search of better income, better jobs or better education.
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: (1) The government restricted imports of goods to protect domestic manufacturers from foreign competition as industries were coming up in the 1950s and 1960s, and import competition at that stage would not have allowed these industries to be carried. Therefore, the government only allowed the import of essential commodities like machinery, fertilizers and petroleum. These sanctions helped to gain technological capacity within the country.
(2) Beginning around 1991, the government wanted to remove barriers for the following reasons:
• India had gained technological capabilities.
• The government had decided that it was time for Indian producers to compete with producers globally.
• It felt that competition would improve the performance of manufacturers within the country as they would have to raise their standards.
• There will be an unlimited exchange of capital, technology and experience between India and other countries of the world.
• Therefore, restrictions on foreign trade and foreign investment were removed. Goods can now be easily imported and exported. The government reduces taxes on imported goods, and encourages overseas investors to invest in India.
3. How would flexibility in labour laws help companies?
Answer: The flexibility of labor laws will help companies to be competitive and progressive. By simplifying labor laws, company heads can negotiate wages and terminate hires depending on market conditions. This will increase the competitiveness of the company.
4. What are the various ways in which MNCs set up, control or produce in other countries?
Answer:
1. MNCs establish or control production in other countries as follows:
• The MNC sets up production based on the following factors:
• The proximity of the place to the market.
• Availability of skilled and unskilled labor at low cost.
• availability of other factors of production, raw materials and so on. Favorable policies of the government.
2. After ensuring the above conditions, the MNC sets up factories and offices for production.
3. They purchase assets such as land, buildings, machinery and other equipment.
3. Sometimes MNCs set up joint production with local companies because the local company has knowledge of local business conditions. Moreover, the domestic firm has an established business structure. MNCs provide funds and latest technology for production.
4. MNCs buy up local companies to expand production. MNCs with huge wealth can quite easily do so.
5. Some MNCs start as an independent entity right from the beginning.
6. While some of the MNCs produce entirely for the local market, many others produce for the exports markets.
7. MNCs in developed countries place orders for production with small producers of developing countries for various products such as garments, footwear. These products are supplied to the MNCs which sell them under their own brand names to the customers. The MNCs decide their price, quality, delivery, and labour conditions for these distant producers.
Thus we see that there are a variety of ways in which MNCs are spreading their production and interacting with local producers in various countries across the globe. As a result, production in these widely dispersed locations is getting interlinked.
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 developing countries to liberalize their trade and investment as MNCs in developed countries can then set up factories in less expensive developing countries, and thereby increase profits, with lower production costs and the same selling price. In my opinion, developing countries should demand some form of protection of domestic producers against competition from imports. Also, fees should be levied on MNCs seeking to set up Aadhaar in developing countries.
6. “The impact of globalisation has not been uniform.” Explain this statement.
Answer:
The effects of globalization are not the same as described below:
(1) Positive effects:
1. Globalization has brought more options for consumers who now have access to a number of products with better quality and lower prices.
2. This has improved the standard of living of people, especially living in urban areas.
3. MNCs are increasing their investments in industries like cell-phones, automobiles, electronics, and soft drinks in developing countries like India. This has resulted in the creation of new jobs in developing countries.
4. Some local companies that supply raw materials to MNCs have also benefited.
5. Some local companies in countries like India have been able to invest in new technologies and production methods. They are successful in improving the quality of their products.
6. Globalization has enabled some big companies like Tata Motors and Infosys to emerge as multinationals.
7. Companies providing services particularly in the field of information and communication technologies have also benefited by globalisation. Similar is the case in services like data entry, accounting, administrative tasks and engineering.
(2) Negative effects: The effects of globalization have also been detrimental as mentioned below:
1. The creation of special economic zones has disrupted the lives of displaced people like tribals. Sometimes dams are built to produce more electricity and their land is flooded and the people are left without any jobs.
2. Flexibility in labor laws: Flexibility in labor laws allows the government to attract foreign investments. This has worsened the situation of the workers as they are employed on a temporary basis to avoid future fund and other benefit payments. No overtime is paid for additional hours worked. Workers are paid low wages.
3. Impact on Small Producers: Globalization has hurt the small scale manufacturers as they are unable to compete with MNCs or big producers or manufacturers. Many groups have been closed down leaving many workers unemployed. In India, small scale industries employing about 20 million workers have been severely affected.
4. From above description, it is clear that the impact of globalisation has not been uniform. It has positive as well as a negative impact.
7. How has liberalisation of trade and investment policies helped the globalisation
process?
Answer: The liberalization of trade and investment policies has helped the globalization process by facilitating foreign trade and investment. Earlier, several developing countries imposed restrictions and restrictions on foreign imports and investments to protect domestic production. However, to improve the quality of domestic products, these countries have removed barriers. Therefore, liberalization has led to a greater spread of globalization as businesses are now allowed to make their own decisions on imports and exports. This has led to a profound consolidation of national economies into one group.
8. How does foreign trade lead to integration of markets across countries? Explain
with an example other than those given here.
Answer:
1. Foreign trade results in the consolidation of markets throughout the country as it creates opportunities for producers to reach outside the domestic market i.e. the market of their own country. Producers can sell their products in their own country markets as well as in other countries all over the world. They can also compete in markets located in other countries of the world.
2. Buyers also have a choice between products produced in different parts of the world. It enables the customer to purchase according to his needs.
3. Competition among producers brings them closer to each other.
4. Sometimes manufacturers in other countries set up joint ventures as AIG has set up joint ventures in the insurance sector and is selling their products in India.
Thus generally, as trade opens, goods travel from one market to another. Two markets tend to have equal prices for similar goods. and the manufacturers of the two countries now compete closely against each other even though
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:
Globalization will continue in the future. Twenty years from today, the world will be more connected and integrated into an international economy, if this process continues on a fair and equitable basis. Labor mobility as well as trade and capital flows will increase. this will happen as liberalization increases and MNCs merge with other companies producing the same goods.
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 to these arguments?
Answer: As noted below, there is some truth to both arguments:
Globalization has helped India to develop as follows:
• Many MNCs are investing in India in various sectors like insurance banking and food processing.
• These investments have benefited the people in various ways resulting in the development of the country.
• Now people have options. They can purchase anything they like, expensive or cheap.
• People have got jobs with good salaries.
• The standard of living of people has increased.
• Many projects are underway with foreign investment.Various states are making efforts to attract foreign companies to invest in their states and have succeeded in their campaign.
The globalisation, however, has hurt the country’s development as mentioned below :
• For a large number of small-scale producers, globalization has created many challenges. The batteries, capacitors, plastic dolls, tyres, dairy products and vegetable oil industries have been hit hard by competition.
• Many small groups have been closed down leaving many workers unemployed.
• As small scale industries in India employ the largest number of workers in the country (20 million), after only agriculture, it has hurt development.
Therefore, there is some truth in both arguments. However, if steps are taken for a neutral globalization, the adverse impacts can be reduced and the development of the country cannot be affected.
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 ______________. 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.
13.Choose the most appropriate option.
(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.
(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.
(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
Answer:
(i) (b)
(ii) (b)
(iii) (d)
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