GLOBALISATION AND

THE INDIAN ECONOMY

➢ Production Across Countries

➢ Interlinking Production Across Countries

➢ Foreign Trade & Integration Of Markets

➢ What Is Globalisation?

➢ Factors That Have Enabled Globalisation

➢ World Trade Organisation

➢ Impact Of Globalisation In India

➢ The Struggle For A Fair Globalisation

➢ Conclusion
● As consumers in today’s world, some of us have
a wide choice of goods and services before us.

● Gone are the days when Ambassador and Fiat

were the only cars on Indian roads.

● Today, Indians are buying cars produced by

nearly all the top companies in the world.
A similar explosion of brands
can be seen for many other
goods: from shirts to
televisions to processed fruit
juices.

Such wide-ranging choice of

goods in our markets is a
relatively recent phenomenon.
PRODUCTION ACROSS
COUNTRIES
 Situation before emergence of MNCs

Till mid-twentieth century, production was largely

organised within countries.

Colonies such as India exported raw materials & food

stuff and imported finished goods.

The main channel connecting distant countries- Trade.

This was before MNCs.

So what are they?

 WHAT ARE MNCs?

Multinational Corporation or MNC is a company that

owns or controls production in more than one nation.

Set up offices & factories for production in regions

where they can get cheap labour & other resources.

Aim- Low cost of production & greater profits.

 Spreading of Production by an MNC

1. Product 2. Components
designings in USA. manufactured in
China.

4. Products
assembled-
3. Skilled Mexico & Eastern
Engineers- Europe, & final
India. product ready to
be sold all over the
world.
CONDITIONS REQUIRED TO SET UP MNCs

Closeness to Market

Cheap skilled &

unskilled labour

Favourable
government policies

Having assured themselves of these conditions,

MNCs set up factories and offices for production.
❏ Investment- the action or process of
investing money for profit.

❏ The money that is spent to buy assets such

as land, building, machines and other
equipment.

❏ Foreign Investment- Investment made by

MNCs.
INTERLINKING PRODUCTION
ACROSS COUNTRIES
1. Sometimes, MNCs
set up production
jointly with some of
the local companies
of a country.
 Benefit to local companies of
joint production

MNCs provide money for

additional investments, like
buying new machines for
faster production.

MNCs might bring with them

the latest technology for
production.
 2. Most Common Route for MNC
Investment is to buy up local
companies & expand production.

Wealthy MNCs can do this

easily.
 EXAMPLE

➔ Parakh Foods- small company

bought over by a large American
Company — Cargill Foods.

➔ Parakh food built large marketing

network in India & owned 4 oil
refineries, whose control has now
shifted to Cargill.

➔ Cargill is now the largest

manufacturer of edible oil in India
making five million pouches daily.
3. Another way in which MNCs control
production

Large MNCs place their

orders for productions
with small producers &
sell them under their
brand name.

These MNCs have

tremendous power to
determine price, quality,
delivery, & labour conditions
for these distant producers.
 CONCLUSION

1. MNCs are exerting a strong

influence on production at these
distant locations.

2. Result- production in these widely

dispersed locations is getting
interlinked.
 EXAMPLE
➔ Ford Motors, an American company, is one of
the world’s largest automobile manufacturers
with production spread over 26 countries of the
world.

➔ 1995- it came to India & spent Rs. 1700 crore to

set up a large plant in Chennai.

➔ Done in collaboration with- Mahindra and

Mahindra ( major Indian manufacturer of jeeps
and trucks).

➔ By 2017, Ford Motors was selling 88,000 cars-

India & another 1,81,000 cars were exported.

➔ The company wants to develop Ford India as a

component supplying base for its other plants
across the globe.
Examine any three conditions which should be taken care of
by multinational companies to set up their production units.

-CBSE 2017

ANSWER
MNCs decision to set up production units of certain
commodities in other countries is determined by the
following conditions:

1. Proximity to the markets as it helps them to sell

products easily.

2. Availability of skilled & unskilled labourers at cheap

rate which helps them in cutting costs and aids in
production work.

3. Presence of favourable government policies looking

after their interest or which could support their
operations.

4. Presence of standard safety measures for assured

production as it helps them to grow and stay
assured.
 FOREIGN TRADE &
INTEGRATION OF MARKETS
 FOREIGN TRADE

It is the exchange of capital, goods,

and services across international
borders or territories.
BASIC FUNCTIONS OF FOREIGN TRADE

Provides vast market

to Producers.

For buyers, import of

goods produced in
another country is one
way of expanding the
choice of goods.
 Conclusion

● 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.

● Increased competition between

producers of two different countries.
 EXAMPLE
➔ Chinese manufacturers exports toys to India,
where toys are sold at a high price.

➔ They start exporting plastic toys to India.

➔ Buyers in India now have more options to choose

from.

➔ Chinese toys being cheap & latest in design

became more popular in Indian market.

➔ Within a year 70-80% of toys replaced with Chinese

toys.
Foreign trade thus results in
connecting the markets or
integration of markets in
different countries.
WHAT IS GLOBALISATION?
1. Globalisation is this process of rapid
integration or interconnection between
countries.

2. MNCs play major role in the globalisation

process.

3. More & more goods & services, investments

& technology are moving between
countries.

4. Large part of foreign trade controlled by

MNCs.

5. Result- greater integration of production &

markets across countries.
 There is another way in
which countries can be
connected. This is through
movement of people.

However, due to various

restrictions there has not been
much increase in the
movement of people between
countries.
FACTORS THAT HAVE ENABLED
GLOBALISATION
TWO MAJOR FACTORS

Technology

Liberalisation of Foreign
Trade & Foreign
Investment Policy
 Technology

Rapid improvement in technology has been one major

factor that has stimulated the globalisation process.

Example- the past 50 years have seen several

improvements in transportation technology.

This has made much faster delivery of goods across

long distances possible at lower costs.

Remarkable developments in information &

communication technology have made
communication accessible even in remote areas of
world.
Information and communication
technology (or IT in short) has
played a major role in spreading
out production of services across
countries.
 Using IT in Globalisation
➔ Magazine for London readers, designed &
published in Delhi.

➔ Text of magazine sent through internet to

Delhi office.

➔ Designers get order on how to design the

magazine from the office in London using
telecommunication facilities.

➔ Designing done from computer. After

printing, magazine sent to London by air.

➔ Payment for the whole process is done

through e-banking.
 LIBERALISATION OF FOREIGN TRADE &
FOREIGN INVESTMENT POLICY

Trade barrier- government-induced restrictions

on international trade, eg. tax on imports.

It is called a barrier because some restriction

has been set up.

Governments can use trade barriers to regulate

foreign trade & to decide what kinds of goods &
how much of each, should come into the country.
1. After independence,
2. Considered
Indian government had
necessary- to protect
to put barriers on
the producers within
foreign trade & foreign
the country from
investment.
foreign competition.

4. Thus, India allowed

3. Industries were just imports of only
coming up in the 1950s essential items such
& 1960s & competition as machinery,
from imports at that petroleum, fertilizers,
stage would not have etc.
allowed these
industries to come up.
 Far reaching changes in Trade Policy-
India around 1991

● Government decided the time had come for Indian

producers to compete with producers around the
globe.

● Competition would improve the performance of

producers within the country.

● Producers within the country would have to

improve the quality of the products.

● Decision supported by powerful international

organisations.

● Thus, trade barriers were removed to a large

extend.
 LIBERALISATION

Removing barriers or restrictions set by the

government.

Trade, businesses are allowed to make decisions

freely about what they wish to import or export.

When the government imposes less restrictions

than before, it is said to be more liberal.
How has improvement in technology stimulated the
globalisation process? Explain.
-CBSE 2013, 12

ANSWER
1. There has been many improvements in technology
in the recent years that have enabled faster
delivery of goods across the world.

2. Development of information technology in the areas

of telecommunication like internet has
revolutionised the world.

3. Use of telegraph, mobiles, fax have enabled faster

and easier access to information anywhere at any
point of time.

4. All these developments have further decreased the

cost of their operations favouring the consumers
around the world.

5. It has opened up horizons for further advancement,

research and development of existing means.
WORLD TRADE
ORGANISATION
❏ We have seen that the liberalisation
❏ ofWe
foreign
foundtrade andthe
out that investment in
person who
India was supported by some very
signed the document did not take
powerful international
this decision.
organisations.
❏ He was only executing the policy
❏ These organisations
decision say that else.
taken by someone all We
barriers to foreign trade and
noted the role of the Prime Minister
investment are harmful.
in taking that decision.
❏❏ There should
But we be nothat
also know barriers.
he could not
have taken that decision if he did
Trade between
not havecountries should
support from thebe ‘free’.
Lok
Sabha.
❏ All countries in the world should
❏ liberalise their policies.
In that sense he was only executing
the wishes of the Parliament.
WTO- is an organisation whose aim is to liberalise
international trade.

Who started WTO?

Developed countries in 1 January 1995

WTO establishes- rules regarding international trade,

& sees that these rules are obeyed.

Total number of member countries- 164

India joined WTO- 1 January 1995.

 World Trade
Organisation (WTO) is
committed to allow
free trade among its
member countries.
However, its
functioning has been
criticised.
Free Trade benefits are
enjoyed by developed
countries more than
developing countries.

On the other hand, WTO rules

have forced the developing
countries to remove trade
barriers.
IMPACT OF GLOBALISATION
IN INDIA
 It has
It hasbeen
been2020years
years
since the globalisation
since the globalisation in
in India has progressed.
India has progressed.
What has been its effect
What
on the has been
lives its effect
of people?
on the lives of people?
 Consumers

Globalisation & competition among producers,

local & foreign has been advantageous for
consumers.

They have greater choice of products with

improved quality & lower prices.

Resultantly, people enjoy high standard of living

that was not possible before.
Among producers and
workers, the impact of
globalisation has not
been uniform.
 MNCs Impact

1. Increased their
investment in India 2. Invested in industries
over the past 20 such as automobiles,
years. Meaningly, electronics, etc. or
investing in India is services such as
beneficial for them. banking in urban areas.

3. In these
industries and 4. Local companies
services new jobs supplying raw
have been created materials have also
in these industries. prospered.
 Steps to Attract Foreign Investment

Indian govt. in order to attract foreign investments

has set up industrial zones called Special Economic
Zones (SEZs)

SEZs are to have world class facilities: electricity,

water, roads, transport, storage, recreational &
educational facilities.

Companies which are set up in SEZ area will do not

have to pay taxes of initial period of 5 years.

Govt. has allowed flexibility in labour laws such as

“short duration” hiring of workers due to work
pressure instead of regular basis to reduce cost of
companies.
Several Indian companies have been able to
benefit from the increased competition.

They have invested in newer technologies &

raised their production standards. Some
have gained from successful collaborations
with foreign companies.

Example: Tata motors, Infosys, Ranbaxy, Asian

Paints, Sundaram Fasteners (nuts & bolt) are
spreading worldwide.
1. Globalisation has created new
opportunities for service companies
particularly IT industries.

2. E.g., call centres, Indian company

producing magazine for London
based company.

3. Services like data entry, accounting,

administrative tasks, engineering are
done cheaply in India & exported to
the developed countries.
 Globalisation & Small Producers

For small producers globalisation pose serious

challenge of either to compete or perish.

Industries like batteries, plastics, toys, dairy products &

vegetable oil are some examples which have been hit
hard due to competition.

Many have shut down making workers jobless.

Notably, small industries in India employ the largest

number of workers (20 million) in the country, next to
agriculture.
Competition and Uncertain Employment

➔ Globalisation have substantially

impacted the workers life.

➔ No job security- Now workers are

employed flexibly.

➔ Large MNCs in the garment industry in

Europe order their products from
Indian exporters.

➔ These MNCs look for cheapest goods

to maximise their profit.

➔ E.g.- to get bulky orders, Indian

garment exporters try hard to cut the
cost.
 Competition and Uncertain Employment

Exporters try to cut labour cost- since cost of

raw materials cannot be cut.

Hire labour on temporary basis to avoid giving

them wages for full year.

Workers are made to work long hours than usual

such as night shifts on regular basis during the
peak season.
 Competition and Uncertain Employment

To meet both ends workers work overtime in low

wages.

While MNCs make huge profits, workers are denied

their fair share and job security.

The condition of organised sector has started

resembling to that of unorganised sector due to
hardship faced by workers in industrial and
service sector.
THE STRUGGLE FOR A FAIR
GLOBALISATION
➔ It is visible that not everyone has
benefited from globalisation.

➔ The rich, powerful and educated

have benefited the most while the
poor and less educated have not.

➔ To ensure that everyone get their fair

share of benefits, Govt. can play huge
role in policy making.
 Some possible steps that
government can take:

1. It can ensure that labour laws are properly

implemented and workers get their right.

2. It can support small producers initially to expand

their business till they get in competing stage.

3. Trade and investment barriers can be used to

create a check.

4. It can negotiate at WTO for fairer rules. Govt. can

collaborate with other developing countries to
tackle dominated of developed countries in WTO.
In last few years, massive campaigns and representation
have influenced decisions relating to trade and
investments at WTO.

Thus, people can bring about change to achieve fair

globalisation.
CONCLUSION
➔ In nutshell, we studied present phase
of globalisation. It is the process of
rapid integration of countries through
foreign trade and foreign investment.

➔ Major role played by: MNCs and IT

technology.

➔ Liberalisation of trade & investment:

facilitated globalisation.

➔ International level, WTO has put a

pressure on developing countries to
liberalise their trade & investment.
➔ Globalisation has benefited-
Consumers & Producers.

➔ But, small producers & workers have

suffered loss.

What is needed?

➔ Fair globalisation to ensure shared

benefits & increased opportunities for
all.
Explain how globalisation can be made fairer.

-CBSE 2010

ANSWER
1. Policies should be made in such a way that they
protect the interests of not only the rich and
prosperous producers but also the workers.

2. The government can negotiate with World

Trade Organisation for fairer rules and can
align with developing countries to stand against
the domination of developed countries.

3. Equal space should be provided to both

developed and developing economies to explore
the market and compete.
NCERT QUESTIONS
1. What do you understand by globalisation? Explain
in your own words.

ANSWER

● Globalisation is this process of rapid integration

or interconnection between countries.

● MNCs play major role in the globalisation

process.

● Globalisation is facilitated by an increase in

foreign trade, movement of people from one
country to another, the flow of capital finance
from one country to another, and private and
public investments from other nations.
2. What was the reasons for putting barriers to foreign
trade and foreign investment by the Indian
government? Why did it wish to remove these
barriers?

ANSWER

The main reason for the Indian government creating

restrictions to foreign trade and foreign investment
was to safeguard our country's producers and small
manufacturers from foreign competition.

However, the government subsequently agreed that

international competition would drive Indian
manufacturers to enhance the quality of their
products, and that eliminating these barriers would
promote trade and the quality of products produced
in the country.
3. How would flexibility in labour laws help companies?

ANSWER
Labor law flexibility will helped companies in
remaining competitive and progressive.

In recent years, the government has permitted

businesses to ignore many of the labour rules that
are in place. Instead of hiring workers on a regular
or permanent basis, companies might hire people on
a flexibly for short periods of time when there is
heavy work demand.

Companies can negotiate pay and lay off workers

based on market conditions. As a result, the
company's competitiveness will improve.
HOMEWORK QUESTIONS
1. An important factor causing globalisation is :

A. More income

B. Expansion of markets

C. Technological developments

D. Urbanisation
2. In the competition between Indian and Chinese
toys in Indian market, China proved better
because of:

A. Good shape

B. Trade relation

C. High price and quality

D. Low price and variety