Class -10

Subject- Economics

Chapter 4: Globalisation and the Indian economy

Notes

GLOBALISATION:

Globalisation refers to the integration of a country with the other countries.

It consists of:

1) Trade of goods

2) Trade of services

3) Spread of Technology & Knowledge

4) Foreign Investment

6) Movement of People (for better job opportunities, Tourism, education, Medical

Treatment, etc.)

MNCs:

MNCs are playing a major role in the process of globalization.

MNC → Multi National Company is a company that owns as controls production in

more than one nation.

Factors that MNCs look for setting production in other countries are:

1) Cheap Labour

2) Cheap Raw Materials

3) Flexible Government Policies

4) Access to large Markets

Ways in which MNCs expand production in other countries:

1) The most common route is to buy local companies. For example- Cargill foods
an American MNC, has bought over smaller Indian companies such as Parakh
 foods.
2) Large MNCs in developed countries place orders for production with small
producers and then sell these under their own brand names to the
customers. For example: Garments, footwears, sports items, etc.
3) By setting up partnerships with local companies. For example: Collaboration
of Mahindra & Mahindra with Ford Motors.
4) By closely competing with local companies.

Factors that have enabled globalization:

1) Technology:

a) Transportation:

→ Improvement in transportation technology has made much faster delivery of

goods across long distances possible at lower costs.

For example: Containers have led to huge reduction in port handling costs. The cost
of a transport has fallen enabling much greater volume of goods being transported
now.

b) Information and Communication Technology:

Telecommunication facilities like telephone, telegraph, fax, etc. are used to contact
one another around the world. Computers have now entered almost every field of
production activity. Examples: Video calls, E-mails, voice-mail, etc.

2) Liberalisation –

Removing barriers or restrictions set by the government is known as liberalisation.

Business were allowed to make decisions more freely as to what to import or export.

FOREIGN TRADE:

FOREIGN TRADE has been the main channel connecting counties.

BENEFITS OF FOREIGN TRADE:

TO PRODUCERS - Producers can sell their produce within the country but also
markets of other countries.

TO CONSUMERS → more choices of goods and services beyond what is domestically

produce.
With increase in foreign Trade, prices of similar goods in the two markets tends to
become equal and producers now compete closely with each other.

Thus, Foreign Trade results in connecting the markets of different countries.

LIBERALISATION - with liberalisation, businesses are allowed to make decisions more

freely about what they wish to import and export.

Q. After Independence, the Indian government had but barriers of foreign trade &
Investment. Why?

- To protect the producers with within country from foreign competition. Industries
were just coming up, and competition from imports at that stage would not have
allowed these industries to come up.

Thus, India allowed imports of only essential items like machinery, fertilizers,
petroleum, etc.

But in 1991, Policy of liberalisation was too introduced by the Indian government.

Q. Why the government does removed trade barriers?

It felt that they had come for Indian producers to compete with producers around
the globe. This would improve the performance of the producers within the country
since they would improve their performance. Trade Barriers are used by the
government to regulate (increase or decrease) the foreign Trade.

TYPES OF TRADE BARRIERS ARE:

1. Tax on Imports

2. Import Quotas: a limit on the number of goods that can be imported.

WORLD TRADE ORGANISATION:

*It aims to liberalise International trade .Trade between countries should be free.

* It was started at the initiative of the developed countries.

* WTO establishes rules regarding international trade, and sees that these rules are
followed.

*164 countries are members of WTO.

* It’s seen that the developed countries have unfairly retained trade barriers.
*Developing counties are asking developed countries -Is this free and fair trade?

POSITIVE IMPACT OF GLOBALISATION

1) Consumes now have greater choice of goods & services with improved quality and
lower prices.

2) Increase in foreign investment in our country over the past 20 years.

3) Creation of New Jobs in our country especially in industries like cell phones,
electronics, soft drinks, banking etc.

4) Local companies supplying raw materials to MNCs have prospered.

5) Top Indian companies have invested in newer technology and raised their
production standards.

6) Some large Indian companies have emerged as MNCs themselves. Eg- Tata Motors,
Infosys, Ranbaxy, Asian Paints, etc.

7) It has created new opportunities for companies providing services like IT sector of
India have prospered.

8) Improved living standards of people of India.

NEGATIVE IMPACT OF GLOBALISATION:

1) Small local have been hit hard to the competition from globalization.

2) They have suffered huge losses & shut down their production units, Eg: Chinese
Toys in India.

3) Flexiblity of Labour laws - In order to attract foreign Investment, the government

made flexible labour laws under which the MNCs can hire workers on temporary
basis. This would help MNCs to cut down their cost of production but workers in
India are now exploited.

4) Workers are paid less wages, have no job security, poor working conditions and
work for extra hours to make both the ends meet.

5) Batteries, capacitors, Plastics, Toys, Tyres, Dairy products and vegetable oil are
some examples of Industries where the small manufactures have been hit hard due
to competition.
FAIR GLOBALISATION:

Fair Globalisation would create opportunities for all, and also ensure that the
benefits of globalisation are shared better.

REALITY - Not everyone has benefited fair globalisation. People with education, skill
and wealth have made best use of the new opportunities.

On the other hand, small manufacturers & less educated & less skilled workers have
not benefited equally well from globalisation.

ROLE OF GOVERNMENT IN MAKING GLOBALISATION MORE FAIR:

1) The government can ensure that the labour laws are properly implemented and
the workers get these rights.

2) It can support small producers to improve their performance till the time they
become strong enough to compete.

3) It can negotiate at the WTO for fairer rules

4) It can align with other developing countries to fight against the domination of
developed countries in the WTO.

Role of People:

Massive campaigns and representations by people’s organizations have influenced

important decisions relating to trade and investment at the WTO.

STEPS TO ATTRACT FOREIGN INVESTMENT:

1) SPECIAL ECONOMIC ZONES (SEZS):

SEZs are Industrial Zones which have been set up the government in India to attract
the foreign Investment.

FEATURES OF SEZS:

A) NO TAX FOR INITIAL 5 YEARS.

B) WORLD CLASS FACILITIES → electricity, water, roads, storage, recreational

activities, etc.

2) FLEXIBILITY OF LABOUR LAWS -

Companies in the organised sector have to follow some rules & regulations that
protect the workers. But in recent years the government has allowed companies to
ignore many of these.

They can hire workers flexibly for short periods when there is pressure of work. This
is done to reduce cost of labour for the company.

Q. How can we help small producers to compete better in the market?

1) Better roads, Power, raw materials, marketing facilities and Information network.

2) Improvement and modernisation of technology.

3) Timely availability of cheap credit.