Globalisation and the Indian Economy

Globalisation and II.G.23

8 the Indian Economy

In recent past, India has been encouraging inflow of foreign successes of her neighbours to the east and is trying to sell
investment. New economic policy refers to the policy measures herself as a safe and profitable destination for FDI.
and changes introduced by Indian Government since 1991. The
main components of new Economic policies are: Globalisation: A process associated with increasing openness
New Industrial policy growing economic interdependence and deepening economic
New trade policy (export-import) integration in the world economy.
Fiscal reforms (Tax) Rapid improvement in technology: Development in
Monetary reforms (Bank and Money) information and communication technology makes possible
Capital market reforms (Shares) faster delivery of goods across long distances possible at
lower costs. Email, voice mail, internet, mobile, telegraph,
Table: 8.1 The main Strategies of New Economic Policy
fax, etc.
Liberalisation Privatiation Globalisation
Liberalisation means It is closely associated Globalisation means
Liberal foreign trade policy: Around 1991 barriers on
removing un-necessary with liberalisation. It the free interaction of foreign trade and foreign investment were removed this
trade restrictions and means allowing the our economy, with the meant that goods could be imported and exported easily and
making the economy private sectors to set- world economy. It
more competitive. up were previously means free flow of
also foreign companies could set up factories and offices
Private sector have been reserved for public trade and capital, and here.
exempted from sector. e.g.: Telecom, movement of persons Pressures from international Organisations such as
Licensing, quota, Airways. across borders under
WTO: Aim of world trade Organisation is to liberalise
permission, regulations the policy of
means it is the process globalisation. Each uniform and non-discriminatory international trade.
by which government nation must keep its Currently 149 countries are the members of WTO. WTO
controls over the private doors opens to the rest
establishes rules regarding international trade and check
sector are being of the world.
loosened. that these rules are obeyed it was setup in 01-01-95 by the
member countries of United Nations. WTO gives many
Note opportunities to developing countries also.
Indian economy had experienced major policy changes in early
1990s. The new economic reform, popularly known as, Merits and Demerits of Globalisation
Liberalisation, Privatisation and Globalisation (LPG model) Helps in development by latest technology.
aimed at making the Indian economy as fastest growing Increase in the volume of trade in goods and services.
economy and globally competitive. The series of reforms Encourage productive efficiency and healthy competition.
undertaken with respect to industrial sector, trade as well as Helpful increased volumes of outputs income employment.
financial sector aimed at making the economy more efficient. Inflow of private foreign capital and makes possibility of
With the onset of reforms to liberalise the Indian economy in
large funds.
July of 1991, a new chapter has dawned for India and her
It has enabled some large Indian companies to emerge as
billion plus population. Now that India is in the process of
multinational themselves.
restructuring her economy, with aspirations of elevating herself
from her present desolate position in the world, the need to Demerits
speed up her economic development is even more imperative. It will bring income inequality.
And having witnessed the positive role that Foreign Direct
It may lead to loss of autonomy.
Investment (FDI) has played in the rapid economic growth of
It will increase competition, mal practice.
most of the Southeast Asian countries and most notably China,
It will increase the dependence of under developed
India has embarked on an ambitious plan to emulate the
countries.
Fair Globalisation: Fair globalisation refers to the situation
which creates opportunities for all and ensures that its benefits
are property shared by every country. Government can take
following steps to ensure achieving fair globalisation:
Influence the decisions of WTO.
Use trade and investment barriers efficiently.
Labour laws should be implemented properly.
Small producers, domestic industry should be supported.
Steps to Attract Foreign Investment
Removed trade barriers, restrictions, quotas, regulations,
etc.
Government has allowed flexibility in labour laws to attract
foreign investment.
SEZ (Special Economic Zones) are being set up. This
provides world class facilities of electricity, water,
transport.
Multinational Corporations (MNCs): Multinational
corporation is that corporation whose sphere of activity is
spread over more than one country. It is also known as
international corps transnational corporations’ global
corporations, etc. MNC is a company that owns or control
Multiple Choice Questions
1. The Past two decades of globalisation have 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
d. All of these
2. 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 partnership with local companies
d. None of these
3. 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
4. Name the Indian companies which have benefited from
the increased competition?
a. Tata Motors
b. Ranbaxy
c. Hamdard
d. Both (a.) and (b.)
production and services in more than one nation. Its managerial
headquarter is located in home country which it carries out
operations in and numbers of other host countries.
Merits of MNCs
It provides transfer capital.
It provides improved skills.
It provides superior technology.
It provides wider range at lower cost.
It provides improves living standard of people.
It provides creating employment opportunities.
It provides help in development of human resources.
It provides advanced knowledge and better quality product.
Demerits of MNCs
It brings inequality in regional economy.
Harmful for domestic, small scale and industries, small
producers are unable to compete.
It often uses undesirable, corrupt practices.
They have only own profit motive and not concerned with
an overall economy development of host countries.
Exploitation of customers, employers increased Job is
always uncertain.
5. ‘Cargill Foods’ is the largest producer of which of the
following in India?
a. Medicines b. Asian Paints
c. Edible Oil d. Garments
6. WHO was stated at the initiative of which one of the
following group of countries?
a. Rich countries
b. Poor countries
c. Developed countries
d. Developing countries
7. Which one of the following organisations lays stress on
liberalisation of foreign trade and foreign investment?
a. International Labour Organisation
b. International Monetary Fund
c. World Health Organisation
d. World Trade Organisation
8. Which one of the following is not a characteristic of a
‘Special Economic Zone’?
a. They do not have to pay taxes for a long period
b. Government has allowed flexibility in labour laws
c. They have world class facilities
d. They do not have to pay taxes for an initial period of 5
years
9. Which of the following is a ‘barrier’ on foreign trade? 15. Rapid integration between countries is called
a. Tax on import a. Nationalisation b. Mutual share
b. Quality control c. Globalisation d. Open share
c. Sales tax 16. What is the name of the organisation whose aim is to
d. Tax on local trade liberalise international trade?
10. Which one of the following was the main aim to form a. PTO b. WTO
‘World Trade Organisation’? c. MTO d. KTO
a. To liberalise international trade 17. Till 2006, how many members were there in the WTO?
b. To promote trade of rich countries a. 150 b. 100 c. 50 d. 20
c. To promote trade of poor countries
18. Removing barriers or restrictions set by the government is
d. To promote bilateral trade
known as
11. A company theta owns or controls production in more a. Globalisation b. Nationalisation
than one nation ________. c. Liberalisation d. Open market
a. Private company
19. Name the term which refers to globalisation, which
b. MNCs
creates opportunities for all and ensures that, is benefits
c. Subsidiary company
are better shared.
d. Leader company
a. Fair globalisation b. Fair nationalisation
12. Investment made by MNCs is called c. Liberalisation d. Best share
a. Internal investment
20. Companies that set up production units in the special
b. Dollar investment
economic zones do not have to pay taxes for an initial
c. Foreign investment
period of
d. Pond investment
a. 10 years b. 12 years
13. Cargill foods, a very large American MNC, has bought c. 5 years d. 15 years
over smaller Indian companies such as
a. Best foods b. Gold foods ANSWERS
c. Fine foods d. Parakh foods
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
14. Ford motors came to in c c a d c c d d a a
a. 1995 b. 1998 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.
c. 1970 d. 1980 b c d a c b a c a c