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 Chapter 4: Globalisation and Indian Economy
CBSE Class 10 Social Studies Economics Chapter 4 throws
light on the various aspects of globalisation and its impact
on the Indian economy.
If we look back, the variety of choices available today to
the consumers of the Indian market was not present prior
to 1990. We have goods produced by different companies
from different regions of the world. Until a few decades
ago, India only had goods from Indian manufacturers. This
severely limited the choices available. In this chapter, we
will explore how this transformation took place and the
impact it has had on our lives. It will look at the role of
multinational companies (MNC) in linking production and
markets across the world. It will also look at the role of
government and international organisations in the
process.
Production Across Countries
● In the mid-20th century, only raw material and
finished goods were traded across countries.

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 Production was completely undertaken within a
country.
● The rise of MNCs changed this practice. MNCs
manufacture and sell goods globally.
● They are able to break up their production to
different parts and locate them across the globe to
reduce the cost of production. This allows MNCs to
make more profits than if they were producing in a
single location.
Interlinking Production
I. The MNCs’ decision to locate their production
facilities is affected by a variety of factors including
the following. These factors determine where and
how much MNCs will invest their capital.
○ Availability of resources at low cost
○ Proximity to markets
○ Cheap skilled and unskilled workforce
○ Favourable government policies

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II. MNCs invest in assets after considering the above
factors. Such an investment is called foreign
Investment.
III. There are many ways in which MNCs invest:
○ Joint Production/Partnership: MNCs tie-up with
an existing local company. The investment helps
local producers to acquire more and better
assets and the latest technology.
○ Acquisition of Local Companies: MNCs buy large
established local companies with extensive
networks and expand their production.
○ Controlled Production: MNCs provide supplies
and place orders with local producers who
manufacture goods. Products are sold under the
brand name of the MNC.
IV. These ways of locating production facilities, which
can reduce their overall cost leads to the complex
organisation structure across several countries.
V. This, in turn, gives rise to interlinkages among
production markets. Technology, labour conditions,

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 and overall competition in the market is influenced by
the presence of MNCs.
Foreign Trade and Integration of Markets
● For a long time, foreign trade was the primary mode
of interlinkages between markets.
● Foreign trade expands the market for the producer.
They can sell their products and services both in
domestic markets and in international markets.
● It also expands choices for consumers. They can now
buy goods and services which were earlier only
available in far-away foreign markets.
● The import and export of goods also allow equalising
the price of the same good in different markets. If a
customer finds that they can import a good cheaper
than buy it from a domestic firm, they will buy foreign
goods. Unable to sell its products, the domestic firm
will reduce the price to attract customers.
● This causes competition among producers located
across the globe.
● End result is that allowing free foreign trade will
create deep interlinkages between markets and

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 integrate them to form one large global market which
is spatially dispersed.
Globalisation
● Over the decades, the scale of these activities has
increased. There are more MNCs now than ever.
Foreign investment and the quantum of foreign trade
has been rising.
● Consequently, the markets of production and sales
integration of production and markets across the
globe had deepened leading to Globalisation.
● The rapid process of integration of markets and
production is called Globalisation.
● Physical goods, services, information and technology,
and people are important components of this global
interconnections and movement.
Factors Enabling Globalisation
Technology
● Rapid improvement in technology like transportation
and advanced production has allowed fast integration
of global production and markets.

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 ● Information and Communication technology has
played a major role in making possible globalisation.
Advancement of telecommunication facilities and
internet revolution has made it easier to remotely
monitor and control products across the globe.
● Advanced computational facilities have enabled
automation and precise controlling of production,
making possible uniformity.
● The IT revolution in India was made possible by these
advances which allowed the possibility of locating
workers at different locations, yet integrating them in
a virtual workspace.
Trade Liberalisation
● Liberalisation is the process of reducing barriers to
performing economic activity. These barriers were
traditionally put in place by the government for a
variety of reasons including producing domestic
producers or facilitating production.
● Trade liberalisation is the removal of trade barriers.
Barriers like taxes and quotas on imports and exports
distort the price and quantity that can be traded. This,

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 in turn, makes it more expensive to import goods,
hence people will more likely buy local products.
● Trade barriers can promote growth and production in
an emerging economy. However, after a certain level
of development, it can be detrimental.
● Removal of these barriers will explore the domestic
firms to international competition. Firms must adopt
better technology and produce better quality output
at costs similar to international firms.
● In 1991, India liberalised its trade allowing businesses
to freely import and export material and products.
Organisations like the World Bank supported this
move.
Foreign Investment Policy
● Like liberalised trade, better foreign investment
policy will encourage a free flow of
investments/capital across borders.
● This increases the resources available with a country
to produce goods.
● It also brings in advanced technology from developed
countries to the less developed country.

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WTO
● World Trade Organisation is an international
organisation which supports free trade across
countries.
● It works to liberalise international trade by making its
member countries remove the trade barriers which
they have in place.
● WTO and similar organisations believe that barriers to
trade and investment are bad. It allows unfair
advantage to one set of producers and harms others.
● WTO has 164 member countries, all of which have not
opened up their trade.
● It is seen that while WTO forces developing countries
to liberalise, developed countries have unfairly
retained barriers.
Impact of Globalisation in India
● For consumers:
○ More products and services are available to
consumers due to increased competition among
different producers.
○ Higher quality goods at lower prices.

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 ○ Improvement in standard of living.
● Companies
○ MNCs have been able to get the best skills,
materials, and workers at lower cost.
○ Suppliers of such raw materials have been able to
increase their production as MNCs increase
production with more consumers purchasing
their goods.
○ Local companies have improved their production
techniques by adopting better technology and
standards due to competition with MNCs.
○ Partnership and collaborations have helped local
companies expand..
○ Many Indian companies have become global
players.
○ The emergence of new areas of business and
demand for new skills.
○ The emergence of more jobs.
Having said this, there are many concerns associated with
globalisation:

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 ● Producers with small firms and limited output have
not been able to withstand stiff competition from
MNCs. Shutting down such firms have made many
people jobless.
● Rush to find flexible workforce at cheap prices,
workers who work in MNCs face uncertain jobs, poor
pays.
● Lack of State policy to protect workers has led to poor
working conditions, lack of employment benefits.
● Many workers in the informal or unorganised sector
work on a daily wage basis and have no fixed
contracts or benefits like pension.
Fair Globalisation
● Inequalities in the distribution of benefits of
globalisation lead to the call for fair globalisation.
● This argues that the opportunities and benefits of
globalisation be distributed among all people in an
equitable manner.

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 ● People’s organisations have led campaigns and
submitted a representation to governments for
intervention though policies that will promote equity.
● Government is best placed to ensure fair
globalisation. They can use labour laws to protect
their workers.
● The government can negotiate with the WTO and
other organisations to keep in place barriers which
will distribute the benefits in an equitable fashion.

Important Question and Answers

Q1. How has globalisation transformed the markets?
Ans: Globalisation is the creation of dense interlinkages of
production and markets across countries. It has caused
the following changes:
1. The variety and quality of goods and services in the
market have greatly increased/improved due to
competition resulting from globalisation.

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 2. Producers now have access to the larger global
market where they can sell their goods and services
and get better prices
3. Consumers can now buy goods and services which
were earlier only available in far-away foreign
markets.
4. Price of the same goods over different markets tend
to equalise due to the effects of trade
Q2. “The advantage of spreading out production across
the borders to the multinationals can be truly immense.”
Explain
Ans: The above statement can be explained in light of the
following points:
● MNCs can significantly lower the cost of production
by locating production in locations with minimum
costs of resources and wages.
● By locating production in different parts of the world,
they can access markets more easily.
● They can draw the best-skilled workers for higher-
level jobs at modest costs.

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Q3. How do MNCs spread their production facilities in
new countries?
Ans: MNCs follow three main strategies to locate their
production in new regions:
i. Join hands in production/Enter into a partnership:
MNCs tie-up with an existing local company. They bring in
investment to expand assets and advanced technology.
MNCs share profits with the local partner.
ii. Acquire local companies: MNCs buy out large local
companies with extensive networks and expand
production. MNCs can benefit from the reputation and
expertise of the company while having complete decision-
making power.
iii. Control Production: MNCs place orders with local
producers who manufacture goods. Products are sold
under the brand name of the MNC. MNC may supply raw
material, it will control the terms of production, quality,
design, standard, etc.
Q4. What are the changes that led to the dense
interlinkages across markets present in the world today?

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Ans: a. Technology: Availability of advanced technology
has allowed improving production and transportation
methods among others. Information and Communication
technology like telecommunication facilities and internet
revolution has made it easier to remotely monitor and
control products across the globe.
b. Trade Liberalisation leading to the removal of trade
barriers like taxes and quotas on imports and exports have
allowed countries to produce in one place but sell in many
other places. It also has allowed local producers to import
semi-finished goods and expand their operations.
Consumers by purchasing goods produced outside link the
markets.
c. Foreign Investment Policy has encouraged the free flow
of investments/capital across borders. This has allowed
MNCs to locate their production across countries.
Q5. Explain how MNCs have contributed to the increased
competition in local markets. How has this been
beneficial and for whom?
Ans:

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● MNCs have a low cost of production due to the
benefits of locating production in locations with
minimum costs of resources and wages. This makes
their goods cheaper than local producers.
● MNCs have advanced production technology which
allows them to produce better quality goods as
compared to local producers.
● Due to high capital availability, MNCs can produce
more than other local competitors.
● These together create a competitive environment in
both production and sales. Local producers should
now try to bring their costs of production low and
improve the quality of goods and services to meet the
price and rating of MNCs’ goods and services.
● The competition has benefited large firms and
allowed them to emerge as formidable local and
global players.
● Customers have benefited from better quality at
lower prices.
● However small and medium producers lacking
resources to expand their production, or acquire
better technologies have lost out.

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Q6. What are Special Economic Zones?
Ans: Special Economic Zones (SEZs) are industrial regions
where governments give special incentives to companies
to set up their production. These include
● Provision of the infrastructure of levels of
international standards.
● Tax expedition for the first five years.
● Flexible application of labour laws within the zones
making it possible to lower cost of wages.
Q7. What is WTO? Why are their policies criticized?
Ans: World Trade Organisation is an international
organisation that oversees international trade. Its aim is
to liberalise international trade by reducing trade barriers.
● WTO has 164 member countries, all of which have not
opened up their trade.
● WTO policies to liberalisation unfairly harm
developing countries.
● Often developing countries are put under extra
pressure to liberalise and their premature economy

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 may not survive the intense international
competition.
● Developed countries on the other hand have unfairly
retained barriers and while enriching from the open
trade policy of their less fortunate peers.
Q8. Identify two sections who are harmed by
globalisation. Explain how.
Ans: Small manufacturers and workers in the
informal/unorganised sectors have not benefited as such
from globalisation. The existing challenges for them are:
● Stiff competition from MNCs which they may not be
able to withstand.
● Lack of resources to upgrade technology or expand
their production.
● Workers in the unorganised sector are paid very low
wages as MNCs focus on employing a flexible
workforce at cheap prices.
● Lack of State policy to protect workers has led to poor
working conditions. They have no benefits like fixed
contracts or pension.

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Q9. Who can ensure fair globalisation and how?
Ans: Government can ensure fair globalisation.
● The government can introduce labour policy and laws
to protect workers in the unorganised sector from
exploitation in the hands of MNCs. It can provide
related benefits to insurance and pension schemes
for all workers.
● The government can also negotiate with global
organisations to put in place trade barriers which
protect vulnerable and important sectors of the
economy. Agriculture in India, which provides income
to roughly half the population can be given protection
from competition from international players.
Q10. List different factors which affect the choice of
location by MNCs
Ans: MNCs decision to locate production in different
countries is affected by their consideration of costs of
production. These include:
● Cost of resources and availability of cheap resources
● Proximity to markets

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● Availability of cheap skilled and unskilled workforce
● Favourable government policies like flexible labour
laws, liberal trade and investment policies
● Level of technology, like transportation and
communication.

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