Understanding Economic Development Chapter 4 Globalisation And The Indian Economy

Developed countries want developing countries to liberalise their trade and investment because goods could be imported and exported easily and also foreign companies could set up factories and offices in their country.

Developing countries should demand the free and fair flow of their labour and reduction in the subsidies in agriculture sector of developed countries in return.

The impact of globalisation has not been uniform. 

(i) Globalisation and greater competition among producers-both local and foreign producers-have been of advantage to consumers, particularly the well-off sections in the urban areas. There is greater choice before these consumers who now enjoy improved quality and lower prices for several products. As a result, these people today, enjoy much higher standards of living than was possible earlier.

(ii)Government has also allowed flexibility in the labour laws to attract foreign investment. Instead of hiring workers on a regular basis, companies hire workers ‘flexibly’ for short periods when there is intense pressure of work. This is done to reduce the cost of labour for the company.

Liberalization of trade and investment policies:

(i)Large MNCs in developed countries place orders for production with small producers. Garments, footwear, sports items are examples of industries where production is carried out by a large number of small producers around the world.

(ii)The products are supplied to the MNCs. But MNCs sell them under their own brand names to the customers. These large MNCs have tremendous power to determine price, quality, delivery and labour conditions for these distant producers.

(iii)MNCs investment is to buy up local companies and then to expand their production. MNCs with huge wealth, can quite easily do so. USA and other developed countries of the west are extending full support to them.

Integration of markets across countries:

(i)Foreign trade creates an opportunity for the producers to reach beyond the domestic markets, i.e., markets of their own countries.

(ii)Producers can sell their produce not only in markets located within the country but can also compete in markets located in other countries of the world.

(iii)Similarly, for the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.

(iv)In general, with the opening of trade, goods travel from one market to another. Choice of goods in the markets rises. Prices of similar goods in the two markets tend to become equal. And, producers in the two countries now closely compete against each other even though they are separated by thousands of miles.

(v)For example, during Diwali seasons, buyers in India have the option of choosing between Indian and the Chinese decorative lights and bulbs. Many shops have replaced Indian decorative lights with Chinese lights. For Chinese light manufacturers, this provides an opportunity to expand their business.

The entire world would become a global village twenty years right from now.

The reasons are mentioned below:

(i)MNCs would produce goods and services in those locations around the world which would be cheaper for their production.

(ii)Foreign investment by MNCs would increase comparitively. Foreign trade between countries would also rise.

(iii) A large part of the foreign trade would be controlled by MNCs.

(iv) More and more goods and services, investment and technology would shuffle between countries.

(v)There would be greater integration of production and markets across countries due to greater foreign investment and foreign trade.

Globalisation has got both negative and positive consequences for India. In comparision the positive effects are felt largely by the people. Moreover it has benefited well-off consumers and producers with skill, education and wealth.

(ii) On the other hand, many small producers and workers have suffered as a result of the rising competition. They have not shared the benefits of globalisation.

(iii) The government should try to make globalisation more fair. Fair globalisation would create opportunities for all and ensure that the benefits of globalisation are shared better.

globalization

cooperation

they can get cheap labour and other resources

foreign investment and foreign trade

competition

B.

Goods, services and investments between countries.

B.

Buy existing local companies.

B.

of people in the developed countries

Starting around 1991, some far reaching changes in policy were made in India.

(i)The government decided that the time had come for Indian producers to compete with producers around the globe.

(ii)It felt that competition would improve the performance of producers within the country since they would have to improve their quality.

(iii)This decision was supported by powerful international organisations.

Positive effect of Globalisation: It has resulted in greater competition among producers both local and foreign level. This has improved their quality of product and also lowered the prices.

For instance, the past fifty years have seen several improvement in transportation technology. This has made much faster delivery of goods across long distances possible at lower costs.

Negative effect of Globalisation: Globalisation has posed major problems for a large number of small producers and workers. These small producers were unable to face the competition from giant foreign manufacturers which had led to the closure.

Advantages of Foreign Trade:

(i)Foreign trade creates an opportunity for the producers to reach beyond the domestic markets, i.e., markets of their own countries.

(ii)Producers can sell their produce not only in markets located within the country but can also compete in markets located in other countries of the world.

(iii)Similarly, for the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.

Rapid improvement in technology has stimulated the globalisation process:

(i) Several improvements in the transportation technology have made much faster delivery of goods across long distances possible and that too at lower rates.

(ii) The improvement in information and telecommunication technology is even more remarkable. The invention and use of computers, internet, mobile phones, fax etc. has made contact with each other around the world quite easy. Now we have access to any information instantly.

(iii) Information and communication technology has also played a major role in spreading out production of their services. For instance, a news magazine for London readers can be printed in Delhi with the help of internet technology.

(i) (a) A MNC owns or controls production in more than one nation.

(b) A MNC sells its finished products globally.

(ii)China provides the advantage of being a cheap manufacturing hub with low wage.

(iii) It has provided  educated English speaking youth, who can provide customer care services with lower pay.

The economic policy of India prior to 1991:

(i)Special emphasis on public sector was laid.

(ii) Strict norms and conditions were imposed while granting permission for foreign direct investment.

(iii)Tough regulation of private sector was observed through various mechanism

Negative impacts of Globalisation:

(i) Small producers have to Compete or perish. For a large number of small producers and workers globalisation has posed major challenges.

(ii)Batteries, capacitors, plastics, toys, tyres, dairy products, and vegetable oil are some examples of industries where the small manufacturers have been hit hard due to competition. Several of the units have shut down rendering many workers jobless. The small industries in India employ the largest number of workers (20 million) in the country, next only to agriculture.

(iii) Globalisation and the pressure of competition have substantially changed the lives of workers. Faced with growing competition, most employers these days prefer to employ workers ‘flexibly’. This means that workers’ jobs are no longer secure.

Globalisation is this process of rapid integration or interconnection between countries.

The factors responsible for Globalisation:

(i)Rise of Multinational Corporation

(iiGrowth of technology

(iii)Development in telecommunication and transportation.

Special Ecoomic Zones are those industrial areas which have been specially set up to attract foreign investment in India.

In such Special Economic Zones, world class facilities like electricity, water, transport, storage, roads, recreational and educational facilities are available. Moreover, in such Special Economic Zones, those companies who set up their units are provided relaxation in taxes an initial period of five years.

Trade between two or more than two countries is called foreign trade. It includes import as well as export among two or more than two nations.

Investment made by MNCs is called foreign investment. An investment is made with the objectives to earn profits.

The factors are stated below:

(i) Rapid improvement in transportation has been one major factors that has stimulated the globalisation process. This has made much faster delivery of goods across long distances possible at lower costs

(ii)In recent times communication and information technology got a boost with the invention of computers and internet etc.

(iii) Information Technology (IT) has played a major role in spreading out production of services. For example, a news magazine published for London readers is to be designed and printed in Delhi.

The government can play following role in ensuring that:

(i)Its policies must protect the interests, not only of the rich and the powerful, but all the people in the country.

(ii)For instance, the government can ensure that labour laws are properly implemented and the workers get their rights

(iii)It can support small producers to improve their performance till the time they become strong enough to compete.

(iv)If necessary, the government can use trade and investment barriers. It can negotiate at the WTO for ‘fairer rules’.

(v)It can also align with other developing countries with similar interests to fight against the domination of developed countries in the WTO.

The ways Multinational Corporations (MNCs) have spread their production and interaction with local producers in various countries across the globe are following:

(i)By setting up partnerships with local companies. 

(ii)By using the local companies for supplies. 

(iii)By closely competing with the local companies or buying them up.

Globalisation and greater competition among producers - both local and foreign producers - has been of advantage to consumers, particularly the well-off sections in the urban areas.

There is greater choice before these consumers who now enjoy improved quality and lower prices for several products. As a result, these people today, enjoy much higher standards of living than was possible earlier

Governments in developing countries have reduced trade barriers in accordance with World Trade Organisation (WTO) whereas developed countries continue to ignore the rules and regulations of WTO.

They pay their farmers vast some of money for production and for exports to other nations. So the farmers of developed countries are able to sell farm products at abnormally low price in other countries’ markets. This situation effects adversely the interest of the farmers of developing countries.

MNCs prefer India as their destination for setting business for following reasons:

(i) India has highly skilled engineers who can understand the technical aspects of production.

(ii)It has also educated English speaking youths who can provide customer care services.

(iii)India has cheap labour and resources.

A.

thirty years

A.

integrated

D.

all of above

D.

all the above mentioned

D.

All of these

A.

1991  

B.

153

C.

1991   

B.

 greater competition among producers

D.

 All of these

D.

All of these

B.

developed countries

A.

between two or more countries

B.

For their own benefit

A.

Agriculture sector

C.

 Only (i), (ii) and (iii)

A.

Special Economic Zones

D.

All of these

B.

WTO

A.

Because it provide cheap educated English speaking youth

D.

Only (i), (ii) and (iii)

C.

It gives opportunity for the production to reach beyond the domestic market

Globalisation and greater competition among producers - both local and foreign producers - has been of advantage to consumers, particularly the well-off sections in the urban areas. There is greater choice before these consumers who now enjoy improved quality and lower prices for several products. As a result, these people today, enjoy much higher standards of living than was possible earlier.


Whereas on the other hand globalisation and the pressure of competition have substantially changed the lives of workers. Faced with growing competition, most employers these days prefer to employ workers ‘flexibly’. This means that workers’ jobs are no longer secure.

This was considered necessary to protect the producers within the country from foreign competition. 

ISI 

Starting around 1991, some far-reaching changes in policy were made in India. Barriers on foreign trade and foreign investment has been removed to a large extent. This meant that goods could be imported and exported easily and also foreign companies could set up factories and offices here.

With the liberalization of trade, businesses are allowed to make decisions freely about what they wish to import or export. The government imposes much less restrictions than before and is therefore said to be more liberal.

MNC is not only selling its finished products globally, but more important, the goods and services are produced globally. MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low costs; where the availability of other factors of production is assured. In addition, MNCs might look for government policies that look their interests. MNCs also set up production jointly with some of the local companies of the respective countries.

There’s another way in which MNCs control production. Large MNCs in developed countries place orders for production with small producers. The products are then supplied to the MNCs, which they sell these under their own brand names to the customers. By setting up partnerships with local companies, by using the local companies for supplies, by closely competing with the local companies or buying them up, MNCs are exerting a strong influence on production at these distant locations.

Companies with huge wealth, power and reach manipulate the market in various ways. Markets do not work in a fair manner when the producers are few and powerful whereas the consumers purchase in small amounts and are scattered. False information is passed through the media and other sources to attract consumers.

For example, a company for years sold powder milk for babies all over the world as the most scientific product claiming this to be better than mother's milk. It took years of struggle before the company was forced to accept that it had been making false claims.

D.

World Trade Organisation

Rapid improvement in technology has been one major factor that has stimulated the globalisation process.

 (i) Technology has made much faster delivery of goods across long distances possible at lower costs.

 (ii) It has enabled to contact one another around the world, to access information instantly, and to communicate from remote areas.

 (iii) Internet has allowed to send instant electronic mail and talk across the world at negligible costs.

MNCs are playing a major role in the globalisation process.

(i) MNCs is not only selling its finished products globally, but more important, the goods and services are produced globally.

 (ii) The production process is divided into small parts and spread out across the global.

(iii) The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries.

(iv) More and more goods and services, investments and technology are moving between countries.

 (v) The technology has made much faster delivery of goods across long distances possible at lower costs.

A.

Tax on import

Multi-National Companies keep the cost of production of their goods low by:

(i) Setting up factories for production in the regions where abundant raw material is available at low cost.

(ii) Setting up factories for production in the regions where cheap labour is available.

(iii) Setting up trade and distribution centres in regions close to their markets.

Markets have transformed in the following ways:

(i) The goods and services are produced globally as a result, production is organised in increasingly complex ways.

(ii) Production is widely dispersed location is getting interlinked.

(iii) Foreign trade have resulted in connecting the markets or integration of markets in different countries.

(iv) More and more goods and services, investments and technology are moving between countries.

(v) Technology has made much faster delivery of goods across long distances possible at lower costs.

MNCs spread their production across countries through the following ventures:

(i) MNCs set up offices for production and factories in regions where skilled and unskilled labour is available at low costs and other factors of production.

(ii) MNCs set up production jointly with some of the local companies of these countries.

(iii) MNC provide money for additional investments and also bring with them the latest technology for production.

Example: Cargill Foods, a very large American MNC, has brought over smaller Indian companies like Parakh foods. This includes the latter's four oil refineries. These purchases have made Cargill foods the largest producer of edible oil in India, with a capacity to make 5 million pouches daily.

If the Government of India puts heavy tax on import of Chinese toys then:

(i) The Chinese toys would become costlier to the customers in India.

(ii) This will provide an opportunity to local companies to expand their business

(iii) The Chinese government too would impose restrictions on Indian toys.

C. Increased taxes on imports.

The conditions which determine MNC’s setting up production process in other countries are:

(i) Availability of skilled and unskilled labour at low costs.

(ii) Closeness to the markets.

(iii) Government policies which look after their interests.

The government can play a major role in making globalisation fair:

(i) By making policies that protect the interests not only of the rich and the powerful but of all the people in the country.

(ii) It can ensure that labour laws are properly implemented and the workers get their rights.

(iii) The government can negotiate at the WTO for ‘fairer rules’ by aligning with other developing countries.

Multinational companies usually set up their factories and offices for production in countries where land, labour and raw materials are available at much cheaper rates as this results in greater profits for the company.

The impact are described are below: 
i. MNCs have increased their investments in India over the past 15 years, which means investing in India has been beneficial for them.

ii. Several of the top Indian companies have been able to benefit from the increased competition. They have invested in newer technology and production methods and raised their production standards. Some have gained from successful collaborations with foreign companies.

iii. Moreover, globalisation has enabled some large Indian companies to emerge as multinationals themselves!

iv. Globalisation has also created new opportunities for companies providing services, particularly those involving IT. The Indian company producing a magazine for the London based company and call centres are some examples.

v. Besides, a host of services such as data entry, accounting, administrative tasks, engineering are now being done cheaply in countries such as India and are exported to the developed countries.

It refers to restrictions that the government set up in order to regulate foreign trade. Eg tax on imports.

Foreign trade creates an opportunity for the producers to reach beyond the domestic markets, the markets of their own countries. Producers can sell their produce not only in markets located within the country but also compete in markets located in other countries of the world. Similarly, for the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced. In general, with the opening of trade, goods travel from one market to another. And, producers in the two countries now closely compete against each other even though they are separated by thousands of miles! Foreign trade thus results in connecting the markets or integration of markets in different countries.

Globalisation and greater competition among producers – both local and foreign producers both local and foreign producers has been of advantage to consumers, particularly the well sections in the urban areas.

(i) There is greater choice before these consumers who now enjoy improved quality and lower prices for several products.

(ii) As a result, these people today, enjoy much higher standard of living than was posible earlier. 

The Indian government removed barriers on foreign trade and foreign investment because it felt that competition would improve the performance of producers within the country since they would have to improve their quality.

Rapid improvement in technology has been one major factor that has stimulated the globalisation process.

(i) Technology has made much faster delivery of goods across long distances possible at lower costs.

(ii) It has enabled to contact one another around the world, to access information instantly, and to communicate from remote areas.

(iii) Internet has allowed to send instant electronic mail and talk across the world at negligible costs.

The government can play a major role in making this possible:

(i) It policies must protect the interests, not only of the rich and powerful, but all the people in the country.

(ii) The government can ensure that labour laws are properly implemented and workers get their rights.

(iii) It can support small producers to improve their performance till time they become strong enough to compete.

(iv) The government can use trade and investment barriers and can negotiate for fairer rules at the WTO.

(v) It can also align with other developing countries with similar interests to fight the domination of developed countries in the WTO.

C.

BPO

D.

It employs labour only from its own country.

The trade barrier is a barrier where some restrictions have been set up.

The Indian government put up barriers after Independence because it was considered necessary to protect the producers within the country from foreign competition.

The harmful impacts of MNCs to host countries are-

(i) MNCs are profit driven and are less concerned for the development of the host country.

(ii) The technology used are capital intensive and expensive which are not suitable to a developing country.

(iii) In some instances, labour laws are not properly implemented and the workers do not get their rights.

Starting around 1991, some far-reaching changes in policy were made in India. Barriers on foreign trade and foreign investment has been removed to a large extent. This meant that goods could be imported and exported easily and also foreign companies could set up factories and offices here.
With the liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export. The goverment imposes much less restrictions than before and is therefore said to be more liberal

The statements to support are-

(i) Foreign trade results in connecting the markets or integration of markets in different countries.

(ii) More and more goods and services, investments and technology are moving between countries.

(iii) Productions in widely dispersed locations in getting interlinked.

(iv) Globalisation and greater competition among producers both local and foreign producers has been of advantage to consumers, particularly the well-off sections in the urban areas.

(v) Globalistion has enabled some large domestic companies to emerge as multinationals themselves.

The advantageous to producers-

(i) The producers now have a large number of well-off buyers.

(ii) They have invested in newer technology and production methods and raised their production standards.

(iii) Globalisation has enabled some large domestic companies to emerge as multinationals themselves. Eg. Tata Motors
The advantageous to consumers-

(i) There is greater choice before consumers who now enjoy improved quality and lower prices for several products.

(ii) People today enjoy much higher standard of living than was possible earlier.

(iii) Globalisation has led to the creation of new jobs.

A.

They do not have to pay taxes for a long period.

The ways foreign Trade has been integrating markets of different countries are-

(i) Foreign trade creates an opportunity for producers to reach beyond the domestic markets, i.e., markets of their own countries.

(ii) Choice of good in the markets rises. Prices of similar goods in the two markets tend to become equal.

(iii) Producers in the two countries closely compete against each other even though they are separated by thousands of miles.

The advantageous to producers-

(i) The producers now have a large number of well-off buyers.

(ii) They have invested in newer technology and production methods and raised their production standards.

(iii) Globalisation has enabled some large domestic companies to emerge as multinationals themselves. Eg. Tata Motors

The advantageous to consumers-

(i) There is greater choice before consumers who now enjoy improved quality and lower prices for several products.

(ii) People today enjoy much higher standard of living than was possible earlier.

(iii) Globalisation has led to the creation of new jobs.

MNC's decision to set up production units of certain commodities in other countries is determined by the following conditions:
i. Proximity to markets and availability of buyers.
ii. Availability of cheap labor both skilled and unskilled,
iii. Availability of raw materials at lowest possible rates and 
iv. Support from the government like providing  SEZ's that is special economic zones. 
v. Assured profits
vi. Support from local companies and manufacturers.

Without Information and Technology spread of globalisation would not have been possible. People get information of every new invention and ideas through Internet. Moreover, many MNCs are service based industries which are dependent on IT for circulating information. The development of technology has flourished in recent years and has played a major role in globalization Information technology has made significant advances in recent years, owing to the internet. Communication technology, from mobile phones to GPS satellites, have also revolutionised communications. Transport technology has had a growing focus on affordability, comfort, speed and being environmentally friendly. 

The multinational corporations have spread their production and interaction across the countries in the following ways :
a. They set up production jointly with local companies. They provide money for additional investments like buying new machines for faster production.
b. MNC may  buy up local companies and then  expand production. For example : Cargil Foods, a very large MNC (USA), has bought smaller Indian companies such as Parekh Foods.
b. The MNCs provide efficient managerial and advanced technology for faster production and efficient use of resources.

c. MNC's procure raw materials for their production from local producers which has helped the latter to prosper and grow. 

Liberalisation means the opening of the country for foreign investments and capitals.  Trade barriers are often used by countries to protect the domestic industries from the products of foreign land. Usually countries resort to impose Licenses, Import quotas or Voluntary export restraints to protect local markets. 

• Producers: Tough competition faced by the producers in the native country by the producers of foreign markets
•  Workers: Job insecurity, denial of fair share in the benefits brought about by globalisation.

Other impacts:

• Increase in the foreigh trade
• Increase in foreign investment
• exchange of technology between countries. 
• Better means of communication have developed alongside globalization
• Better job opportunities for people gave rise to migration

Positive impact of the globalisation on India 
 (i) Availability of variety of products which enabled the consumers to have greater choice and enjoy improved quality and lower prices for several products.
 (ii) This led to higher standard of living.
 (iii) Increase in foreign direct investment.
(iv) Creation of new jobs in certain industries.
(v) Top Indian companies have been benefited by investing in new technology and production methods along with successful collaborations with foreign companies.

MNCs set up their offices and factories in those regions where they get cheap labour and other resources so that the cost of production is low and the MNCs can earn greater profits.

Impact of globalisation on Indian economy can be discussed with the help of following points:-

• Producers: Tough competition faced by the producers in the native country by the producers of foreign markets
•  Workers: Job insecurity, denial of fair share in the benefits brought about by globalisation.
• Increase in the foreigh trade
• Increase in foreign investment
• exchange of technology between countries. 
• Better means of communication have developed alongside globalization
• Better job opportunities for people gave rise to migration

(a) – To liberalise international trade

When local companies launch a joint venture with MNCs:

i. The MNCs provide the finances for additional investments for faster production.

ii. MNCs bring with them the latest technology for enhancing and improving production.

iii. Some Indian companies have had very successful foreign collaborations. Globalisation has enabled some Indian companies to expand into multinational corporations.

Advancement of a country’s international trade is an index of its economic prosperity because

i. International trade is in fact an ‘economic barometer’ of a country. A healthy volume of it ensures a trickling down of prosperity into the macroeconomy as well.

ii. No country is self-sufficient in all resources or services. It has to resort to international trade in order to satisfy one or the other need of its economy.

iii. If the balance of international trade is favourable to a country, it can earn more foreign exchange and hence strengthen its financial position in the market.

iv. International trade induces a country to develop secondary and tertiary sectors for exporting goods which can fetch more foreign exchange.

v. A country’s economic prosperity can be gauged by the health of its international trade.

The following are the factors which have helped in the process of globalisation:

i. Rapid development in technology has contributed a great deal in furthering globalisation. Technological advancement has resulted in faster delivery of goods and services across longer distances at cheaper costs.

ii. Development in information and communication technology has brought the world a lot closer. Telecommunication technologies such as telephone, telegraph and fax are often used to contact people and organisations around the world, access information on an urgent basis and communicate with remote areas. Tele-conferences are nowadays often used in order to avoid long trips around the world.

iii. Developments in information technology have helped in the spreading out of the production of services around the globe. Orders are nowadays placed through the Internet, designing is done on computers and payments are done online. E-mail and voice-mail are available at negligible costs.

iv. The cost of air transport has fallen gradually. This has resulted in greater volumes of goods and people being transported across the world.

v. E-banking, e-commerce, e-learning, e-mail and e-governance are becoming more commonplace.