CBSE 10 social studies Globalisation and the Indian economy notes

Globalisation and the Indian economy notes

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Introduction

In today’s time, the world has become digital. Some of us have wide choices and services than others. In the digital world, people get anything at their doorsteps. Many leading manufacturers of the world provide the latest models of digital cameras, mobile phones, and televisions within our reach through websites, apps, etc.

Such a wide-ranging choice of goods in our markets is a relatively recent phenomenon. You don’t need to find any product in the market. You can get it digitally. After some years, you can see, markets have been transformed from local markets to digital markets.

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Local market digital market
Local market digital market

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Production across countries

Till the middle of the twentieth century, production was done within the counties only. Then slowly started importing and exporting raw materials for production. Such as India exported raw materials and foodstuffs and imported finished goods. Trade was the only way to connect distant countries. All this used to happen before the arrival of multinational corporations (MNCs).

MNC Companies

MNCs is a company that owns or controls production in more than one nation. The MNCs set up their factories and offices in regions where labour and other materials are easily available. This is done so that the cost of production is low and the MNCs can earn greater profits. 

In this example, the MNC is selling its finished products globally but the goods and services are produced globally also. Production becomes more organised in complex ways. Due to its complexity, the production process is divided into small parts and spread out across the globe.

mnc
mnc

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In the above example, China gets the advantage of being a cheap manufacturing location. Mexico and Eastern Europe are getting an advantage for being close to the markets in the US and Europe. India has skilled engineers who understand the technical aspects of production quickly. India has educated youth who speak English fluently so they can provide customer care service.

MNCs are saving 50-60% cost of production and spreading across borders.

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Interlinking production across countries

In general, MNCs set up offices and factories for production near the markets where skilled and unskilled labour and other factors are available at low costs. In addition, MNCs also looked for government policies that look after their interests.

The money which is used to buy assets such as land, building, machines, and other equipment is called investment. The Investment which is made by MNCs is called foreign investment. They made investments to earn profits.

MNCs also set up joint production with the local companies of the countries. The benefit of a local company with joint production is two-fold.

First, MNCs help them with additional investments to buy new machines for faster production.

Second, MNCs come up with the latest technology for production.

MNCs have a huge wealth so they like to do investments such as buying local companies to expand production.

How the MNCs perform joint production with small companies.

Cargill Foods is an example of joint production MNCs. A large American MNC has bought smaller Indian companies like Parakh Foods. Parakh Foods had built a large marketing network and reputation in various parts of India. Parakh Foods had four oil refineries, which were now controlled by now Cargill. After buying Parakh foods, Cargill became the largest producer by making 5 million pouches of edible oil daily in India.

Many of the top MNCs have more wealth than the budgets of the developing country governments. These MNCs control the production due to having more wealth, power, and influence. The Large MNCs gave the order to smaller producers for production such as Garments, footwear, and sports items of industries.

The smaller producer supplied the items to the MNCs who sell those items under their own brand names to the customers. These large MNCs have the power to determine price, quality, delivery, and labour conditions to influence production at a distant location and distant producers. Thus, MNCs are interacting with a local company to make the local company so that the supply runs smoothly and buy the local company so there is no competition in the market. Due to this the place became interlinked.

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Foreign trade and integration of markets

Foreign trade has become a new channel to connect countries. Trade made a route to connect India and South Asia with East and West markets and also attracted the East India Company in India.

What is the basic function of foreign trade?

Foreign trade creates an opportunity for the producers to reach beyond the domestic markets in their own countries.

Producers can sell their produce in local markets and also sell in other countries of the world.

Buyers also get produced from another country to expand the choice of goods beyond domestic produced.

Trading opened the market for the travel of goods from one place to another. Due to trade, the demand for choice goods is rising in the market and the price of goods is equal in each market. Producers of countries are competing with each other from thousands of miles away. Foreign trade’s motive is to connect the market or integrate different countries.

foreign trade has been rising rapidly in countries. A large part of foreign trade is also controlled by MNCs. The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries.

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WHAT IS GLOBALISATION?

Globalisation is the process of rapid integration or interconnection between countries. MNCs are playing an important role in the globalisation process. In globalisation goods, services, investments and technology are moving in huge amounts between countries.

Most regions are more connected with each other a few decades back within countries. Besides the movements of goods, services, investments and technology, people are also moving from one country to another in search of a better income.

Factors that have enabled globalisation

The Rapid improvement in technology is one of the major factors that stimulated the globalisation process. Due to improvements in transport, the delivery of goods across long distances is possible at lower costs. The developments in information and communication technology are remarkable.

In recent times, technology in the areas of telecommunications, computers, Internet has been changing rapidly. Telecommunication facilities (telegraph, telephone including mobile phones, fax) are used to contact one another, to access information instantly, and to communicate from remote to within the world. All this happens through a satellite communication device. As you know, computers have entered almost every field of activity. You can also get and share all information you want through the internet. The Internet also allows us to send instant electronic mail (e-mail) and talk (voice mail) across the world at negligible costs.

Liberalisation of foreign trade and foreign investment policy

Let’s take the example of importing Chinese toys into India. The Indian government put a tax on imported toys. After tax the cost of toys gets increases. Toys cost increased by including actual cost and tax. So now, buyers have to pay a high price for imported toys. Chinese toys will no longer be cheap in the Indian market so the import of toys reduces. And Indian toy demand increased automatically. Tax on imports is an example of a trade barrier. Governments can use trade barriers to increase or decrease foreign trade to decide what kinds of goods and how much should come into the country. The Indian government had put barriers to foreign trade and foreign investment to protect the producers of the country from foreign competition after Independence.

Industries were just coming up and competition from imports at that stage would not have allowed these industries to come up in the 1950s and 1960s. Thus, India allowed imports of only essential items such as machinery, fertilisers, petroleum etc. All developed countries have to protect their domestic producers from imported items. At the beginning of 1991, India made some far-reaching policy changes. The government decided that the time had come for Indian producers to compete with producers around the globe. The government and powerful organisations think that producers should go for the competition to improve the quality of goods. So, they remove barriers to foreign trade and foreign investment. This means that goods can be imported and exported easily and foreign companies could set up factories and offices here. Removing barriers or restrictions set by the government is known as liberalisation. The liberalisation of trade means businesses are allowed to make decisions freely about what they wish to import or export. The government imposes much fewer restrictions than before and is more liberal.

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World trade organisation (WTO)

The liberalisation of foreign trade and investment was supported by some powerful international organisations in India. These organisations do not support barriers to foreign trade and investment. Trade between countries should be ‘free’. All countries in the world should liberalise their policies. World Trade Organisation (WTO) is one such organisation whose aim is to liberalise international trade. WTO establishes rules regarding international trade and they look out that rules should be obeyed in developed countries. About 160 countries of the world are currently members of the WTO. WTO also forced the rules on developing countries to remove trade barriers. An example of this is the current debate on trade in agricultural products.

WTO
WTO

Impact of globalisation on India

Globalisation and greater competition among producers have created advantages for consumers in urban areas. Consumers gets improved quality and lower prices for several products. Due to globalisation, people enjoy higher standards of living.

Firstly, MNCs have increased their investments in India and get benefits over the past 20 years. MNCs have been interested in industries such as cell phones, automobiles, electronics, soft drinks, fast food or services such as banking in urban areas due to the huge demand for these products. These industries are creating many job opportunities and raw materials are supplied by local companies.

Secondly, Indian companies enjoy the benefit of increased competition and collaboration with foreign companies. They have invested in technology and production methods and increased production standards. Some companies have emerged with multinational companies. Like Tata Motors (automobiles), Infosys (IT), Ranbaxy (medicines), Asian Paints (paints), and Sundaram Fasteners (nuts and bolts) are some Indian companies that work worldwide.

Globalisation has created new opportunities for ITs. For example, London’s company produce magazine and call centres in India. India has a more sufficient worker that’s why there is a demand in other countries for data entry, accounting, administrative level, and engineering in a developed country so India exports labour.

Today, Workers are employed in unorganised sectors as equal to organised sectors. The condition of organised sectors is as equal to unorganised sectors. For example, Sushila works in the organised sector but didn’t get any advantage they enjoyed before.

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The struggle for a fair globalisation

Now, Globalisation is a reality, the question is how to make globalisation fairer’?

Fair globalisation means creating opportunities for all, and also ensuring that the benefits of globalisation are shared among all. The government can play a major role in making this possible. Its policies must protect the interest of all the people in the country. The government should ensure that labour laws are properly implemented and the workers get their rights. The government can use trade and investment barriers to help the small producer to become a strong competitor or they can fight against countries by aligning with similar interests in developing countries and can negotiate at the WTO for ‘fairer rules. The massive campaigns and people play an important role in the struggle for fair globalisation.

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Summary of Globalisation and Indian economy

1. What is Globalization?

  • Globalization is the process of rapid integration or interconnection between countries.
  • Foreign trade thus results in connecting the markets or integration of markets in different countries.
  • More and more goods and services, investments, and technology are moving between countries.
  • The goods and services are produced globally.

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2. What are MNCs

  • MNC stands for Multinational companies.
  • In general, MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low costs; and where the availability of other factors of production is assured.
  • In addition, MNCs might look for government policies.
  • China provides the advantage of being a cheap manufacturing location.
  • Mexico and Eastern Europe are useful for their closeness to the markets in the US and Europe.
  • India has highly skilled engineers who can understand the technical aspects of production.
  • It also has educated English-speaking youth who can provide customer care services.

3. What is Foreign Direct Investment?

  • Investment made by MNCs is called foreign investment.
  • Foreign Direct Investments are commonly made in open economies that have skilled workforces and growth prospects.
  • FDIs not only bring money with them but also skills, technology, and knowledge.

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4. Steps to Attract Foreign Investment.

  • In recent years, the central and state governments in India are taking special steps to attract foreign companies to invest in India.
  • Industrial zones, called Special Economic Zones (SEZs), are being set up.
  • SEZs is to have world-class facilities: electricity, water, roads, transport, storage, recreational and educational facilities.
  • Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years.
  • Government has also allowed flexibility in the labour laws to attract foreign investment.

5. Factors that enabled globalization.

       Technology

  • Rapid improvement in technology has been one major factor of globalization.
  • For instance, the past fifty years have seen several improvements in transportation technology.
  • This has made much faster delivery of goods across long distances possible at lower costs.
  • Even more remarkable have been the developments in information and communication technology.
  • In recent times, technology in the areas of telecommunications, computers, Internet has been changing rapidly. Telecommunication facilities (telephone including mobile phones, fax) are used to contact one another around the world, to access information instantly, and to communicate from remote areas.
  • This has been facilitated by satellite communication devices. As you would be aware, computers have now entered almost every field of activity.
  • You might have also ventured into the amazing world of internet, where you can obtain and share information on almost anything you want to know.
  • Internet also allows us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible costs.

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        Using IT in Globalization

  • A news magazine published for London readers is to be designed and printed in Delhi.
  • The text of the magazine is sent be email through Internet to the Delhi office.
  • The designers in the Delhi office get orders from London to design the magazine using telecommunication facilities.
  • The designing is done on a computer.
  • After printing, the magazines are sent by air to London.
  • Even the payment of money for designing and printing from a bank in London to a bank in Delhi is done instantly through the Internet (e-banking)!

6. What is WTO

  • We have seen that the liberalization of foreign trade and investment in India was supported by some very powerful international organisations.
  • These organisations say that all barriers to foreign trade and investment are harmful.  There should be no barriers.
  • Trade between countries should be ‘free’.
  • All countries in the world should liberalise their policies.
  • World Trade Organisation (WTO) is one such organisation whose aim is to liberalise international trade.
  • Started at the initiative of the developed countries, WTO establishes rules regarding international trade, and sees that these rules are obeyed.
  • At present 164 countries of the world are currently members of the WTO.
  • Though WTO 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.
  • An example of this is the current debate on trade in agricultural products.

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