Economics Chapter 4: Globalisation and the Indian Economy

Facts that Matter

  1. Today we have wide choice of goods and services before us. There is explosion of brands. It is a recent phenomenon and in a matter of years our markets have been transformed.
  2. Until the middle of the 20th century, production was largely organised within the countries. What crossed the boundaries was mainly the raw materials, foodstuff and finished products. Colonies such as India exported raw materials and foodstuff and imported finished goods. Trade was the main channel connecting distant countries.
  3. Emergence of MNCs proved to be of immense importance.
  4. These MNCs operate in many countries of the world.
  5. They set up their offices and factories where they can get cheap labour and other facilities. This is done so that the cost of production is low and the MNCs can earn greater profits.
  6. The money that is spent to buy assets such as land, building, machines and other equipment is called investment and the investment made by MNCs is called foreign investment.
  7. Local companies get benefitted by these MNCs. They provide money for the additional investments like bringing new machines for faster production.
  8. MNCs are playing major role in the globalisation process. Foreign investment in the countries has been rising. Foreign trade between the countries has also been rising. It has led to substantial trade in goods and also services. It has also led to greater integration of production and markets across countries.
  9. MNCs are spreading their production by setting up partnerships with local companies, by closely competing with local companies or buying them and by using local companies for supply. As a result, production in these widely dispersed locations is getting interlinked.
  10. MNCs set up their production units in those areas which are quite close to the market. They prefer such areas where there is skilled and unskilled labour available at low costs. In addition, the MNCs select such countries where the local governments properly look after the interests of the MNCs. Sometimes the MNCs set up production jointly with the local companies of the selected countries.
  11. Foreign trade started through various trade routes, connecting India and South Asia to markets both in the East and West. Trading interests also attracted various trading companies such as East India Company to India.
  12. Foreign trade gives opportunity to producers to sell their goods in other countries of the world. For the ordinary consumers, foreign trade proves very useful because the best brands of different articles are produced all over the world. Their choice of goods expands manifolds. Producers can sell their product not only in markets located within the country but can also compete in markets located in other countries of the world. For the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced. 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.
  13. Globalisation has made possible the interconnection between countries. As a result of globalisation, the different countries of the world become economically interdependent on each other.
  14. Rapid improvement in technology has been one major factor that has stirred globalisation process. Due to technology there has been improvements in various fields. Such as transport technology, information and communication technology etc.
  15. Trade barrier means restrictions imposed on import and export of goods. It is called so because some restrictions have been set up. The trade barriers provide protection to domestic goods from foreign competition. The government can use barriers to increase or decrease (regulate) foreign trade and to decide what kind of goods and services and how much of each should come into the country.
  16. The Indian government, after independence had put barriers to foreign trade and foreign investment. This was considered essential to protect the producers within the country from foreign competition.
  17. But 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. Thus, the government decided that the time had come for Indian producers to compete with producers around the globe.
  18. Liberalisation of foreign trade and foreign investment policy has proved to be a boon for India. This has led to a deeper integration of national economies into one conglomerate whole.
  19. World Trade Organisation (WTO) is an organisation whose aim is to liberalise international trade. It helps to remove trade barriers and create a free environment for foreign trade. It establishes rules regarding international trade and sees that these rules are obeyed.
  20. Though WTO is supposed to allow free trade for all, in practice, it is seen that the developed nations have unfairly retained trade barriers. On the other hand, WTO rules have forced the developing countries to remove trade barriers.
  21. Globalisation has both positive and negative impacts on India. On the one hand, it has created new jobs in certain industries, on the other hand it has perished small producers.
  22. The central and state governments in India are taking some special steps to attract foreign companies to invest in India. For this, special economic zones are being set up. SEZs are to have world class facilities like electricity, water, road transport, storage, recreational and educational facilities. The industries setting up their production units in the SEZs are exempted from paying taxes for initial five years.
  23. Some relaxation in rules aiming to protect the workers was given to the companies investing in India. For instance, instead of hiring workers on regular basis, companies hire workers flexibly for short period during the peak period. This was done to reduce the cost of labour for the company.
  24. Fair Globalisation would create opportunities for all and also ensure that the benefits of globalisation are shared better. The government can play a vital role in making of fair globalisation. Its policies should protect the interests of both rich as well as poor. The government should ensure that labour laws are properly implemented and the workers get their rights.
  25. Small producers should be given due support by the government to improve their performance till the time they become strong enough to compete.
  26. In the past few years, massive campaigns and representation by people’s organisations have influenced important decisions relating to trade and investments at WTO. This shows that even people can also play an important role in the struggle for fair globalisation.

Words that Matter

  1. Globalisation: Integrating an economy with the world economy.
  2. Liberalisation: Removing trade barriers between countries.
  3. MNCs: Multinational Corporations.
  4. Investment: The money that is spent to buy assets like buildings, machines and equipment.
  5. WTO: World Trade Organisation which aims to liberalise international trade.
  6. Trade barriers: Rules and regulations that regulate foreign trade.
  7. Flexibility: Giving relaxation in trade and labour laws.
  8. SEZs: Special Economic Zones are those industrial zones which have been set up by the government of India to attract foreign companies to invest in the country.

I. MULTIPLE CHOICE QUESTIONS

Choose the correct option:

1. A company that owns or controls production in more than one nation is called ......... .

(a) Foreign company                                                                           (b) Multi National Company

(c) International company                                                                   (d) Local company

2. What are the investments made by MNCs called?

(a) Foreign investments                                                                       (b) International investments

(c) Multi National investments                                                           (d) None of these

3. It creates an opportunity for the producers to reach beyond the domestic markets. What does it refer to?

(a) Technology                                                                                    (b) Investments

(c) Trade barriers                                                                                 (d) Globalisation

4. Why did the government decide to remove barriers on foreign trade and foreign competitors?

(a) Because the government wanted to earn the foreign exchange.

(b) Because the government felt that the time had come for Indian producers to compete with producers in the world market.

(c) Because the government wanted to maintain good relations with other countries.

(d) All of the above.

5. How many countries are currently the members of the World Trade Organisations?

(a) 140 countries                                                                                 (b) 145 countries

(c) 159 countries                                                                                 (d) 149 countries

6. What was the idea behind developing Special Economic Zones (SEZs) in India?

(a) To attract foreign companies to invest in India                 (b) To earn foreign exchange

(c) To make India financially stable                                        (d) To make India a developed country

7. What is the full form of WTO?

(a) World Transactions Organisation                                      (b) Wealth Trade Organisation

(c) World Trade Organisation                                                 (d) None of the above

8. Which one of the following is not an MNC?

(a) Reebok Shoes                                                                    (b) Tata Motors

(c) SAIL                                                                                  (d) Infosys

9. The international organisation formed for the liberalisation of trade is ......... .

(a) World Trade Organisation                                                 (b) United Nations Organisation

(c) World Trade Centre                                                           (d) Multi-national Corporation

10. The most important factor that has stimulated globalisation is ......... .

(a) population explosion                                                          (b) spread of education

(c) urbanisation                                                                       (d) rapid improvement in technology

11. What is the term ‘investment’ mean?

(a) Money spent on buying clothes                             (b) Money spent on buying land, building, machines, etc.

(c) Money spent on buying a car                                 (d) Money spent on buying furniture

12. WTO is dominated by countries like ......... .

(a) U.S. and U.K.                                                        (b) China and France

(c) India and Japan                                                     (d) Ireland and Germany

13. Ranbaxy is a multinational company which is associated with ......... .

(a) automobiles                                                            (b) nuts and bolts

(c) medicines                                                               (d) information technology

Ans. 1—(b) 2—(a) 3—(d) 4—(d) 5—(d) 6—(a)7—(c) 8—(c) 9—(a) 10—(d) 11—(b) 12—(a) 13—(c)

II. VERY SHORT ANSWER TYPE QUESTIONS

1.      Why had the Indian Government put barrier to foreign trade and foreign investment after independence? State any one reason.                                                              (CBSE 2015)

2.      Until the middle of the twentieth century, production was largely organised within countries. What crossed the boundaries of these countries?

3.      What was the main channel connecting countries in the past?

4.      What is an MNC?

5.      Where do MNCs set up offices and factories for production?

6.      Why do MNCs set up offices and factories in regions where they can get cheap labour and other resources?

7.      In what way does China provide advantage to the MNCs?

8.      How are Mexico and Eastern Europe useful for the MNCs?

9.      Why are MNCs attracted to India?

10.  What do you mean by foreign investment?

11.  What is the most common route for MNC investments?

12.  Give examples of industries where production is carried out by small producers around the world.

13.  What do you know about Ford Motors?

14.  How much did Ford Motors invest in India?

15.  What is basic function of foreign trade?

16.  Why are Chennai toys more popular in the Indian markets?

17.  What has been the major factor that has stimulated the globalisation process?

18.  For which purpose can government use trade barriers?

19.  The Indian government removed barriers on foreign trade and foreign investment to a large extent. What does this mean?

20.  How does liberalisation of trade benefit businesses?

21.  Why is fair globalisation essential?

III. SHORT ANSWER TYPE QUESTIONS

1.      In recent years how our markets have been transformed? Explain with examples. (CBSE 2015)

2.      How is information technology connected with globalisation? (HOTS)

3.      “Globalisation and competition among producers has been of advantage to the consumers.” Give arguments in support of this statement. (CBSE 2009)

4.      Analyse one good and one bad effect of globalisation on India.  (CBSE 2009)

5.      How are local companies benefitted by joining hands with MNCs for production?

6.      What is the impact of globalisation on the well-off sections in the urban areas of India?

7.      What is WTO? Why it has been formed?

8.      What is the impact of flexible labour laws on workers?

9.      What is a tariff? Why is it imposed on goods?  [V. Imp]

10.  What role can the government play in order to ensure a fair globalisation?

Or

11.  Explain how globalisation can be made fairer.  [CBSE 2010(F)]

12.  How are MNCs spreading their production across countries? Explain with an example. (AI CBSE 2012)

13.  What would happen of Government of India parts heavy tax on import of Chinese toys? Explain any three points.  (AI CBSE 2012)

14.  “Information and communication technology has played a major role in spreading out products and services across countries.” Support the statement. (CBSE 2012)

15.  Explain any three steps taken by the Indian Government to attract foreign investment. [AICBSE 2013(C)]

16.  How do Multinational companies (MNCs) control production? Explain any three points. [AI CBSE 2008(C), 2009, 2010, 2011]

17.  What are the benefits of foreign trade?

18.  Differentiate between foreign trade and foreign investment.  (HOTS)

19.  Explain how the developing countries which are members of the WTO suffer due to trade barriers. (HOTS)

IV. LONG ANSWER TYPE QUESTIONS

1.      How are multinational corporations (MNCs) controlling and spreading their productions across the world? Explain.  (CBSE 2015).

2.      ‘Rapid improvement in technology has been one major factor that has stimulated the globalisation process. Explain.  [CBSE 2008(F)]

Or

Explain the role of technology in stimulating globalisation process.    (CBSE 2010)

3.      Why is ‘tax’ on imports known as trade barrier? Why did the Indian government impose barriers to foreign trade and foreign investments after independence? Give three reasons. (CBSE 2008)

4.      Explain with examples how the opening up of foreign trade results in connecting the markets in different countries.   (CBSE 2011)

Or

How does foreign trade play an important role in integrating the markets across the countries? Explain.   [CBSE 2009(F), 2010, AI CBSE 2011, 2012]

5.      What is liberalisation? What steps were taken by the government to liberate the Indian economy?   (CBSE 2012)

6.      Explain the meaning of the term ‘globalisation’. State any two factors that have helped in the process of globalisation.   (HOTS)

7.      What are the factors that multinational companies take into account before setting up a factory in different countries?

8.      Describe with an example the role of multinational corporations in the process of globalisation.(HOTS)

9.      What is SEZ? The setting of SEZ has been opposed by some people in India. Why? Explain.

 

V. VALUE BASED QUESTIONS

1.      Information and communication technology or IT has stimulated the globalisation process. How would it influence the country like India where people still depend on agriculture and believe in their customs and traditions?

2.      What values worked behind the restrictions on foreign trade in India after independence?

TEST YOUR SKILLS

1.      Why are the taxes called ‘trade barriers’? Why does the Government of India put barriers to foreign trade and foreign investment?

2.      What is liberalisation? What are its features?

3.      Name some Indian companies that emerged as MNCs?

4.      What do you mean by fair globalisation?

5.      How do the local companies start to gain by setting up production jointly with the MNCs? Why do MNCs sometimes buy up local companies?

6.      How and why was trade barrier used? What changes took place in 1991?

7.      What is the impact of the globalisation in India? What are the different factors which have facilitated globalisation?