Chapter 4 Globalisation and the Indian Economy
What do you understand by globalization? Explain in your own words.
Globalisation in today’s world has come to imply many things. It is the process by which the people of the world are unified into a single society and function together. This term is also often used to refer to economic globalization: the integration of national economies into the international economy through trade, foreign direct investments, capital flows, migration and the spread of technology.
What were the reasons for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers?
Barriers to foreign trade and foreign investment were put by the Indian government to protect domestic producers from foreign competition, especially when industries had just begun to come up in the 1950s and 1960s. At this time, competition from imports would have been a death blow to growing industries. Hence, India allowed imports of only essential goods.
Later, in the 1990s, the government wished to remove these barriers because it felt that domestic producers were ready to compete with foreign industries. It felt that foreign competition would in fact improve the quality of goods produced by Indian industries. This decision was also supported by powerful international organisations.
How would flexibility in labour laws help companies?
Flexibility in labour laws would help companies in the ways mentioned below :
- It will help companies in being competitive and progressive.
- Flexibility in labour laws can help the companies to decrease their production cost by employing labourers only for short period of time when there is need instead of employing them for long period of time or yearly basis.
- By easing up on labour laws, company heads (managers) can negotiate wages and terminate employment, depending on market conditions. This will increase the competitiveness of the companies.
- The companies can ask the workers to work overtime when there is more pressure to complete the work.
What are the various ways in which MNCs set up or control the production in other countries?
The various ways in which MNCs set up, or control, production in other countries are by buying out domestic companies or making the latter work for them. Sometimes, MNCs buy mass produce of domestic industries, and then sell it under their own brand name, at much higher rates, in foreign countries. MNCs look towards developing nations to set up trade because in such places, the labour and manufacturing costs are much lower.
Why do developed countries want developing countries to liberalise their trade and investment ? What do you think should the developing countries demand in return ?
- World Trade Organisation which was started at the initiative of the developed countries says that all barriers of foreign trade and investment are harmful. It is supposed to allow free trade for all.
- In practice it is seen that the developed countries have unfairly retained trade barriers.
- On the other hand, WTO rules have forced the developing countries to remove trade barriers.
- Developed countries produce goods at a very low cost. The surplus goods are sold in
other countries at a fairly higher price. This way they earn profits. So developed countries want
developing countries to liberalise their trade and investment.
(2) The developed countries are biased against the developing countries. They have been
following wrong practices. The example is the debate on agriculture sector. In the USA, the share of agriculture in GDP is 1% and its share in total employment a tiny 0.5%. And this very small percentage of people who are engaged in agriculture in the US receive massive sums of money from the US government for production and for exports to other countries at low prices. This adversely affects farmers in these countries.
In view the above facts the developing countries should demand for fair trade practices to be followed by the developed countries under which they should stop giving subsidies to their agricultural sector. Trade barriers put unfairly should be removed. Only then there would be a free and fair trade in the world and the interest of the developing countries would be protected.
“The impact of globalisation has not been uniform.” Explain this statement.
“The impact of globalisation has not been uniform”. The truth of this statement can be verified if we observe the impact of MNCs on domestic producers and the industrial working class. Small producers of goods such as batteries, capacitors, plastics, toys, tires, dairy products, and vegetable oil have been hit hard by competition from cheaper imports. Also, workers are now employed “flexibly” in the face of growing competition. This has reduced their job security. Efforts are now on to make globalisation “fair” for all since it has become a worldwide phenomenon.
How has the liberalization of trade and investment policies helped the globalization process?
Liberalization has the following effects :
- Goods can now be imported and exported easily.
- Companies can set up factories and offices in other countries. For example, Ford Motors, an American company came to India in 1995 and set up a large plant near Chennai. This MNC not only produces cars for the Indian market, it also exports cars to other developing countries and exports car components for its many factories around the world.
- Activities of many MNCs has increased foreign investment and foreign trade which has led to greater integration of production and markets across countries or globalisation process.
As a result of above, more and more countries are coming into closer contacts with each other due to MNCs. Therefore, liberalisation of trade and investment policies have helped in the globalisation process.
How does foreign trade lead to the integration of markets across countries ? Explain with an example other than those given here.
Foreign trade leads to integration of markets across countries by the processes of imports and exports. Producers can make available their goods in markets beyond domestic ones via exports. Likewise, buyers have more choice on account of imports from other countries. This is how markets are integrated through foreign trade. For example, Japanese electronic items are imported to India, and have proved to be a tough competition for less-technologically-advanced companies here.
Globalisation will continue in the future. Can you imagine what the world would be like twenty years from now ? Give reasons for your answer.
(a) Globalisation is a step towards the integration between countries through foreign trade and foreign investments by multinational corporations. Integration of production and integration of markets are the main objectives of globalisation. Rapid improvement in technology, liberalisation of trade and investment policies and the role of WTO has facilitated the process of globalisation.
(b) But in practice the globalisation has not benefited all the people. Moreover many rules of the WTO are biased against the developing countries. They are designed to force them to open their economies in the interest of the developed countries. For example, in the USA, the government gives massive sums of money to farmers whose share in total employment is only 0.5%, for production and for exports to other countries at abnormally low prices. Thus surplus farm products are sold in other country markets adversely affecting farmers in those countries. It is not a fair trade practice.
If such policies continue then the position of the developing countries may deteriorate. Many industries may not be able to compete and face closure. There will be less employment opportunities in the developing countries.
(c) However, efforts are being made to have a fair globalisation to ensure that its benefits are shared by all. Under these circumstances, the world after twenty years from now would bring people closer to each other. All the people would be benefited. The standard of living would improve and people would live a happier contented life than at present. But if the efforts for a fair globalisation fails then the condition of the developing countries of the world worsens because the regulations of the WTO will remain biased against the developing countries.
Supposing you find two people arguing: One is saying globalization has hurt our country’s development. The other is telling, globalisation is helping India develop. How would you respond to these arguments?
Globalisation has hurt our country’s development because: firstly, it has led to the annihilation of small producers who face stiff competition from cheaper imports. Secondly, workers no longer have job security and are employed “flexibly”.
Globalisation is helping India develop on account of the following reasons: firstly, the competition it entails has led to rise in the quality of products in the market. Secondly, it has made available a wider variety of goods in the market, for the buyer to choose from. Now, imported goods are easily available alongside domestic products.
Fill in the blanks :
Indian buyers have a greater choice of goods than they did two decades back. This is closely associated with the process of (1)____________ . Markets in India are selling goods produced in many other countries. This means there is increasing (2)__________ with other countries. Moreover, the rising number of brands that we see in the markets might be produced by MNCs in India. MNCs are investing in India because
(3) ______ . While consumers have more choices in the market, the effect of rising (4)______ and (5)_________ has meant greater (6)___________ among the production
- cooperation foreign
- it has been beneficial for them
- foreign trade
Match the following :
(i) (b) Garments, footwear, sports items
(ii) (e) Trade barriers
(iii) (d)Tata Motors, Infosys, Ranbaxy
(iv) (c) Call centres
(v) (a) Automobiles.
Choose the most appropriate option :
(1) The past two decades of globalisation has 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.
(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 partnerships with local companies.
(3) Globalisation has led to an improvement in living conditions
(a) of all the people.
(b) of people in developed countries.
(c) of workers in developing countries.
(d) none of the above.
- (b) goods, services and investments between countries.
- (b) buy existing local companies.
- (d) none of the above.