Chapter 4: Globalisation And The Indian Economy

What do you mean by globalisation?

Ans: Globalisation means integration of the economy of the country with the world economy.

Give one argument in favour of globalisation.

Ans: One argument in favour of globalisation is:-
(1) It has been argued that with the opening of trade (globalisation), goods travel from one market to
another. Thus, choice of goods in the markets rises and hence standard of living of people also rises.

Mention one step taken by the government to attract foreign investment.

Ans: One step taken by the government to attract foreign investment is:-
(1) Setting up of Special Economic Zones (SEZs). Special Economic Zones have world class facilities like
water, transport, electricity, education, etc. Moreover, companies who set up production units in
Special Economic Zones are granted tax exemption for an initial period of five years.

Mention one impact of globalisation in India.

Ans: One impact of globalisation in India is:-
(1) It has resulted in greater competition among producers and this has been of a great advantage to
consumers. Consumers now have a greater choice. They have quality products at lower prices.
What is the contribution of MNCs regarding production in an economy?
Ans: The contribution of MNCs regarding production in an economy is that MNCs connect various regions
across the countries. They are thus spreading production to other countries.

Explain the term ‘globalisation’. What was the role of MNCs in globalisation process?
Ans: Globalisation means integration of the economy of the country with the world economy.

Multinational Corporations (MNCs) play an important role in connecting various regions across the
countries. An MNC operates or controls production in more than one nation. MNCs set up offices and factories
for production in regions/countries where they can get cheap labour and other resources. They are thus
spreading their production to other countries. Mostly, MNCs set up production units in regions which are close
to the markets; where there is availability of cheap labour and where other factors of production are easily
available.

What are the advantages of foreign trade?

Ans: The advantages of foreign trade are as follows:-
(1) Foreign trade provides opportunities for producers to reach beyond the domestic markets.
(2) Foreign trade proves useful to consumers of goods and services. Now consumers have a variety of
goods and services within their reach.
(3) Prices of similar goods in the two markets become competitive. Foreign trade thus results in
connecting the markets in different countries.

How does globalisation contribute to rise in standard of living of people?

Ans: With the opening of trade (globalisation), goods travel from one market to another. Thus, choice of
goods in the markets rises and hence standard of living of people also rises. Such is a contribution of
globalisation to the rise in standard of living of people.

What are the additional facilities provided to industries in Special Economic Zones?
Ans: The additional facilities provided to industries in Special Economic Zones are: electricity, roads,
transport, education, health, storage, recreation, etc. Moreover, industries or companies who set up production
units in Special Economic Zones are granted tax exemption for an initial period of five years.

What was the need for removing barrier or restrictions to foreign trade and investment? Explain.
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Ans: The need for removing barrier or restrictions to foreign trade and investment is to encourage
competition among producers so that there will be improvement in their performance.

What were the main objectives of setting up World Trade Organisation (WTO)?
Ans: The main objectives of setting up World Trade Organisation were as follows:-
(1) To promote trade among member countries.
(2) To create an environment that international trade among the member countries is conducted in an
open, uniform and non discriminatory manner.

How has competition benefitted people in India?

Ans: Competition led to improvement in the performance of Indian producers. It makes producers alert and
active and forces them to be more efficient. Greater competition among producers has been of advantage to
consumers or to the people. People now have a greater choice. They now have quality products at lower prices.

Why do governments try to attract foreign investment?

Ans: Governments try to attract foreign investment because of the following reasons:-
(1) Multinational Corporations, which made foreign investments, set up production jointly with some
local companies of the host countries. The local company is benefitted in two ways: (1) MNCs provide
money for additional investments. (2) MNCs might bring with them the latest technology for
production.
(2) Multinational Corporations have enormous wealth with them. They have a strong influence on
production in different countries. In this way, production in different countries is getting inter linked.

What miseries did globalisation bring to the workers in India?

Ans: Critics stated that globalisation was only a strategy of developed countries to expand their markets in
developing countries like India. Furthermore, it has widened the economic disparities among nations and
people. Growth has only been confined to the service sector. Important sectors of the economy such as
agriculture and industry which provide employment to many people remained neglected. Moreover, industries
like leather, tyre, toys, dairy products, etc., have been hit hard by foreign competition. Such were the miseries
brought about by globalisation.
What is globalisation? How is globalisation beneficial for consumers?
Ans: Globalisation is the integration of the economy of the country with the world economy.
Globalisation has been beneficial to consumers in the following ways:-
(1) Removal of inefficiency: Globalisation helps to improve the efficiency of resources in underdeveloped
countries. In increases the inflow of capital and updated technology into the country. The leads to
production of goods on a large scale, of better quality and at lower prices.
(2) Competition: it encourages foreign competition which leads to reduction in prices and improvement in
the quality of goods. With globalisation, producers have to face competition from foreign producers. It
makes domestic producers alert and active and forces them to be more efficient.
(3) International organisations like the United Nations, International Monetary Fund, World Bank, World
Trade Organisation, support the idea of globalisation.
(4) With the opening of trade, goods travel from one market to another. Choice of goods in the markets
rises and hence standard of living of people also rises.

Describe the role of foreign trade in globalisation.

Ans: The role of foreign trade in globalisation is described under:-
(1) Foreign trade provides opportunities for producers to reach beyond the domestic markets.
(2) Foreign trade proves useful to consumers of goods and services. Now consumers have a variety of
goods and services within their reach.
(3) Prices of similar goods in the two markets become competitive. Foreign trade thus results in
connecting the markets in different countries.

How has WTO affected world economy?

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Ans: WTO is dominated by developed countries like especially America, European Union, Japan, etc.
Developing and poor countries are seldom consulted until the rich nations complete their discussions and
agreement. Developing countries have been forced to open their markets to developed countries. Developing
countries were forced to liberalise their trade and investment. Developing countries feel cheated as they are
forced to open up their markets for the developed countries but are not allowed to access to the markets of
developed countries. In this way, WTO has affected the world economy.

Describe the major impact of globalisation on Indian economy.

Ans: The impact of globalisation on Indian economy is described under:-
(1) Greater competition among producers has been of advantage to consumers. Consumers now have a
greater choice. They now have quality products at lower prices.
(2) There has been phenomenal growth of the service sector. The present share of the service sector in
country’s GDP is more than 50 per cent which was about 40 per cent in 1990 at the time when
globalisation started. This sector grew on an average by 20 per cent during the reform period.
Outsourcing of services by MNCs to India has also contributed to the growth of this sector.
(3) MNCs have increased their investment in India, particularly in industries like cellphones, automobiles,
electronics, fast food or services like banking in urban areas. In such industries and services new jobs
have been created. Moreover, local companies supplying raw materials to these industries have
progressed.
(4) Foreign competition has also been to the benefit of top Indian companies. Indian companies have
raised the quality of their products. Some Indian companies gained from collaborations with foreign
companies. Also, Indian companies like Tata Motors, Asian Paints, etc. emerged as MNCs.

Explain the factors which enabled Globalisation process in India.

Ans: The factors which enabled globalisation process in India are as follows:-
(1) Technology: Improvement in technology has been the major factor that has promoted the process of
globalisation. Transportation technology has undergone improvements during the past 50 years. This
has made faster delivery of goods across long distances possible and that too at lower costs. In recent
times, remarkable developments in information technology have been seen. Computers and internet
have now entered in every field of activity. Internet now allows us to send electronic mail and voice
mail across the world at a very low cost. It has played a major role in spreading out production of
services.

(2) Liberalisation of foreign trade and foreign investment policy : Before 1991, barriers on foreign trade
and investment were put by the Indian government as it was considered necessary to protect producers
within the country from foreign competition and only imports of essential items like machinery,
petroleum, etc. were given permission. However, since 1991, the Indian government decided that
Indian producers should compete with the producers of other countries because it was felt that
competition would improve the performance and efficiency of Indian producers. Keeping this
viewpoint in mind, the government of India lifted the barriers on foreign trade and investment. Such a
removal of barriers on trade and investment by the government is called liberalisation.

(3) Pressure from international organisations: international organisations have been strongly supporting
the liberalisation of foreign trade and investment in India. These organisations want that all barriers on
foreign trade and investment should be removed. Trade between countries should be free. World Trade
Organisation is one such organisation whose aim is to make foreign trade free from all barriers.

Do you think globalisation is fair? If not, suggest measures for making globalisation fair.
Ans: No, globalisation is not fair. Globalisation has not benefitted everyone equally. Only educated, skilled
and wealthy persons have made the best use of the newly created opportunities in the country. There are many
people who have not gained anything from globalisation.
The measures for making globalisation fair are suggested under:-
(1) The government can ensure that labour laws are properly implemented and workers get their rights.

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 (2) The government can protect and support small producers to improve their performance until they
become competitive.
(3) Government may introduce some trade and investment barriers, if it feels so.
(4) Most importantly, government with the support of other countries can negotiate at the WTO for fairer
rules.

Explain any four ways by which MNCs exercise control on production.

Ans: Four ways by which MNCs exercise control on production are as follows:-
(1) MNCs set up production jointly with some of the local companies of the host countries. For example,
Ford Motors (an American company) set up large plant near Chennai in collaboration with Mahindra
& Mahindra. The local company is benefitted in two ways: (1) MNCs can provide money for
additional investments. (2) MNCs might bring with them the latest technology for production.
(2) Buying up local companies and then to expand production by MNCs is the most common route for
foreign investments. For example, Cargil Foods (an American MNC) has bought Parakh Foods (an
Indian company). Parakh had built a large marketing network in India.
(3) Large MNCs of developed countries also place orders with small producers across the countries.
Production of products is carried out by small producers around the world. These products are sold by
the MNCs under their own brand names.
(4) MNCs have enormous wealth with them. They have a strong influence on production in different
countries. In this way, production in different regions of the world is getting inter-linked.

What is globalisation? How has the Information Technology enabled globalisation in India?
Ans: Globalisation is the integration of the economy of the country with the world economy.
Improvement in technology has been the major factor that has promoted the process of globalisation.
Transportation technology has undergone improvements during the past 50 years. This has made faster
delivery of goods across long distances possible and that too at lower costs. In recent times, remarkable
developments in information technology have been seen. Computers and internet have now entered in every
field of activity. Internet now allows us to send electronic mail and voice mail across the world at a very low
cost. It has played a major role in spreading out production of services. In such ways, Information Technology
has enabled globalisation in India.

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