Globalization and the Indian Economy

Class 10
Economics
Globalization and Indian Economy
Globalization is the rapid integration of countries through foreign trade and foreign investment by
MNCs.
• The money that spend on buying assets such as land, buildings, machines and other resources is
called investment.
• When MNCs made this investment in different countries then it is called foreign investment.
• The primary purpose of foreign investment is to reduce the cost of production.
• Producers need markets to sell their products. They can sell products in market of same country or
different country. Similarly a buyer can import the product of his interest from market of same or
different country.
• Importing or exporting the products across the native country boundary is called foreign trade.
• Thus globalization enables greater integration of production and markets across countries.
• Globalization created the opportunities for peoples to move across the nation in search of better
education, better job or better income.
Production across countries:
• Companies crossed the native country boundary in search of raw material, cheap labor and other
resources in order to reduce the production cost and earn maximum profits.
• Sometimes such businesses will look for government policies that look after their interests.
• A MNC is a company that owns or controls the production in more than one nation. These
companies produce and market goods and services all over the world. e.g. Coca-Cola, Pepsi,
Honda, Nokia.
• The production process is divided into parts and spread out across the globe as per the resource
availability. E.g. India – raw material, china – cheap labor, India-highly qualified peoples to handle
customer’s technical queries.
Foreign Trade and Integration of Markets
• Foreign trade creates an opportunity to sell the goods and compete with producers of other
countries.
• It also enables a buyer to take advantage of variety of choices by importing the goods.
• Each producer can compete closely with the competitor even if they are very long distance away.
• E.g. Effect of Chinese toy manufacturers over Indian toys manufacturers.
• Indian toy manufacturers sold toys at high rates. Chinese manufacturers found the opportunity to
sell plastic toys with low rates hence gaining the market for their products. This has lead to
decreased sell of Indian toy manufacturers.
Factors that have enabled globalization:-
Improvement in Transportation Technology
• Railways, waterways, airways, roadways are developed to facilitate faster transport of goods.
• Containers are the still chambers that can store products in efficient way to facilitate the transport.
Use of containers enabled to lower the loading time, reduce the handling cost and hence faster
delivery of goods.
Improvement in Information and communication technology:
• Internet- to send and receive data instantly efficiently communicates by email and video call
services, online payment through e-banking facilities.
• Mobile services – to facilitate communication on the go.
• Satellites to link connection from any parts of the world.
Liberalisation of foreign trade and foreign investment policy
• Removing trade barriers or restrictions set by government is called liberalisation.
• Trade barriers are the restrictions laid by government to regulate the foreign trade. With these
barriers government decides what kind of goods and how much quantity of each should come into
the country.
• Trade barriers are necessary after Independence to protect the producers within the country from
foreign competition. At this time government only allowed import of essential items such as
machines, fertilisers, petroleum etc.
• Around 1991, Indian government accepted the liberalisation policy removing barriers on foreign
trade and foreign investment and enabling foreign producers to compete with domestic producers.
Pressures from World Trade Organisation
• WTO rules have forced the developing countries to remove trade barriers thus the developing
countries have no choice other than accepting liberalisation policy.
World Trade Organisation (WTO)
• The aim of this organisation is to liberalise international trade. This organisation says that all
countries in the world should liberalise their policies.
• This organisation establishes the rules regarding international trade and sees that these rules are
obeyed.
• Currently 161 countries are members of WTO. India have joined WTO on 1 January 1995.
• The rules are supposed to be obeyed by all countries but currently developed countries have
unfairly retained trade barriers. On the other hand WTO rules forced the developing countries to
remove the trade barriers. as an example US government provide huge amount of money to their
farmers for production and export of to other countries. US farmers now can sell farm products in
other country markets at abnormally low prices adversely affecting the farmers in these countries.
Impact of Globalisation in India
For Consumers
• Globalisation enabled greater competition among producers forcing them to produce the quality
product at lower price. Consumers today can take advantage of this competition to get a quality
product at reasonable price. This lead to higher standards of living. These products are easily
available in urban area and not in rural area hence reach of these products is limited thus the
rural peoples is not having the same lifestyle as of urban peoples.
For MNCs
• With globalisation MNCs have prospered a lot. They have increased their investment in India
indicating that they are benefitting from the investment.
• Recognising the opportunities in urban area that MNCs are now interested in industries such as
cell phones, automobiles, electronics, soft drinks, fast food and banking services.
• MNCs can now shift to another country to lower the production cost and gain higher profits. But
this shifting creates adverse effects to workers of the companies.
• They will get cheap qualified labour at low wages.
• Producers will have choice to outsource the work from different country where there is cheap
labor and production cost.
For Workers
 • No Job Security – With growing market competition among industries employers prefers
to hire the worker as per need. Thus they can fire the worker at any time. Thus there is no job
security for the workers.
• very long working hours – Worker has to work for long hours to meet the demands.
They will have no choice than listening to their employer.
• Low wages – Job opportunities are limited and numbers of workers are far more than the
opportunities. Thus producers easily get cheap labour and workers are ready to work at less
wages.
For Small Producers
• Small producers face close competition with such a well established firms. They can bear small
loses but small producers cannot bear such loss and ultimately end up selling their company to
MNCs.
• e.g. Batteries, capacitors, plastics, toys, tyres, dairy products and vegetable oil are some examples of
industries where small manufacturers hit hard due to competition.
• Some of the Indian multinational companies such as Tata Motors, Infosys, Ranbaxy, Asian Paints,
Sundram Fasteners benefited with the globalisation as they have spread their operations
worldwide.
• There are enough opportunities for skilled workers but unskilled workers remained poor.
Steps to attract foreign Investment
• Government of India set up Special Economic Zones to attract foreign Investors.
• SEZ’s are the Industrial zones where Industries get world class facilities such as electricity, water,
roads, transport, storage, recreational and educational facilities.
• Companies which are set up in SEZ area will do not have to pay taxes of initial period of five years.
• Government also allows these companies to ignore some of the labour laws such as instead of hiring on
regular basis these companies are allowed to hire workers for short periods i.e. whenever required.
The struggle for a fair globalisation
The question is how to make globalisation more fair?
• Fair globalisations create equal opportunities for all and thus ensure that a benefit of globalisation
is shared better.
• Government policies must take care of all peoples in country equally.
• Government should ensure that labor laws are properly implemented and workers get their rights.
• Government should support small producers to improve their performance till they become strong
enough to compete.
• Government can use trade barriers and investment barriers to protect small producers.
• Government can negotiate at the WTO for ‘fairer rules’
• Government should fight with other developing countries to reduce the domination of the
developed countries.
Important Questions
1. What are the various ways in which multinational companies set up, or control, production
in other countries?
2. What is Foreign Trade? How does Foreign Trade lead to integration of markets across
countries?
3. What are trade barriers? Why does Government uses Trade Barriers?
4. What are special economic zones? Why is the government setting up special economic
zones?
5. What is the impact of Globalisation in India?