CHAPTER 4
GLOBALISATION AND THE INDIAN ECONOMY
1. How have our markets transformed during the last few years?
Ans: There is a wide choice of goods and services in the market.
The latest models of digital cameras, mobile phones and television made by the leading manufacturers of the world are within our reach.
2. What is MNC? What are the various ways in which MNCs set up or control production in other countries?
Ans: Multinational corporations (MNCs) are companies that owns or controls production in more than one nation.
MNCs set up production on the following factors:
i. Availability of skilled & unskilled labour at low costs
ii. Availability of other factors of production is assured
iii. Government’s favourable policies
iv. Closeness to the place of market.
Having assured themselves of these conditions, MNCs set up factories and offices for production. They buy assets such as land, building, machines and other equipments.
3. What is investment and foreign investment?
Ans: The money that is spent to buy assets such as land, building, machines and other equipments is called investment.
Investment made by MNCs is called foreign investment.
4. What is Ford Motors? When did it come to India and what did it do?
Ans: Ford Motors, an American company, is one of the world’s largest automobile manufacturers with production spread over 26 countries of the world.
Ford Motors came to India in 1995 and spent Rs.1700 crore to set up a plant near Chennai. This was done in collaboration with Mahindra and Mahindra.
5. “Foreign trade integrates the markets in different countries.” Explain.
Ans: Foreign trade integrates the market in following ways:
i. Foreign Trade creates an opportunity for the producers to reach beyond the domestic market i.e. markets of their own countries. Producers can sell their produce in markets located in other countries of the world.
ii. The buyers too can import goods produced in another country.
iii. With the opening of trade, choice of goods in the market rises. Prices of similar goods in the two markets tend to become equal. And, producers in the two countries now closely compete against each other even though they are separated by thousands of miles.
iv. Foreign trade thus results in connecting the markets or integration of markets in different countries.
v. Example: There are endless number of footwear brands available in the Indian market. A consumer can choose between domestic brands like Bata and international brands like Nike, Adidas etc.
6. What do you understand by globalisation?
Ans: Globalisation is the process of rapid integration or interconnection between countries.
• It is the integration between countries through foreign trade and foreign investments by MNCs.
• Under globalisation, the countries that are closed to trade and foreign investment open up their economies and go global.
• Under globalisation, more and more goods and services, investment and technology are moving between countries.
• Besides the movement of goods, services, investments and technology, there is movement of people who move from one country to another in search of better income, better jobs or better education.
7. ‘Rapid improvement in technology is a major factor that has helped in globalisation’. Explain.
Ans: Rapid improvement in technology has contributed greatly towards the globalisation process. Advanced technology in transport system has helped in the delivery of goods faster across long distances at lower costs.
Example: Goods are placed in containers that can be loaded intact onto ships, railways, planes and trucks. This has led to huge reduction in port handling costs and increased the speed with which exports can reach markets.
Similarly, the cost of air 3 transport has also fallen which has enabled much greater volumes of goods being transported by airlines.
• Developments in information and communication technology has also helped a great deal. Telecommunication facilities like telegraph, telephone including mobile phones, fax are used to contact one another around the world, to access information instantly, and to communicate from remote areas.
• Information and communication technology has also played a major role in spreading out production of services across countries. Orders are placed through internet, designing is done on computers and payment for designing and printing can be arranged through internet.
• Internet also allows us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible costs.
8. Explain how liberalisation has enabled globalisation?
Ans: Removing barriers or restrictions set by the government on foreign trade is known as liberalisation. This means that goods can be imported and exported easily without any trade barrier.
• Indian government imposed trade barriers on imports and exports during 1950s and 1960s in order to protect the budding infant industries.
• Starting around 1991, these restrictions were lifted up by the government and India economy became liberal.
• With liberalisation, foreign companies could easily set up factories and offices in other countries. Businesses were allowed to make decisions freely about what they wish to import or export.
• Thus, it enabled MNCs to increase their investments in other countries as India. As a result of greater foreign trade, there is greater integration of production and markets across countries.
9. What was the reason for putting barriers to foreign trade and foreign investment by Indian government? Why did it wish to remove these barriers?
Ans: The Indian government after independence, had put barriers to foreign trade and foreign investment to protect the domestic producers from foreign competition because industries were just coming up in the 1950s and 1960s and competition at that stage would not have allowed these industries to come up.
Thus, India allowed imports of only essential items such as machinery, fertilisers, petroleum etc.
Starting around 1991, the government wished to remove these barriers due to the following reasons:
• India had attained technological capability.
• The government decided that the time had come for Indian producers to compete with producers around the globe.
• It felt that competition would improve the performance of producers within the country since they would have to improve their quality.
10. Why do government use trade barriers?
Ans: Government use trade barriers to increase or decrease (regulate) foreign trade and to decide what kind of goods and how much of each, should come into the country.
11. Why do developed countries want developing countries to liberalise their trade and investment? What do you think should be developing countries demand in return?
Ans: World Trade Organisation was started at the initiative of developed countries stating that all barriers of foreign trade and investment are harmful.
It is supposed to allow free trade for all. 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.
The developed countries have been following wrong practices. An example of this is the current debate on trade in agricultural products.
In US, the share of agriculture in GDP is 1% and its share in total employment is a tiny 0.5% and this very small percentage of people engaged in agriculture receive massive sums of money from the US government for production and for exports to other countries at abnormally low prices.
This is adversely affecting farmers in these countries. Therefore, 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.
12. “The impact of globalization has not been uniform”. Explain this statement.
Ans: POSITIVE IMPACT
i. There has been advantage to consumers of greater choice at improved quality and lower prices for several products. This has improved standards of living of people particularly in urban areas.
ii. MNCs have increased their investments in India in industries such as cell phones, automobiles, electronics, soft drinks, fast foods etc. As a result, new jobs have been created. Local companies supplying raw materials etc. to these industries have prospered.
iii. Several of the top Indian companies have been able to invest in newer technology and production methods and raised their production standards.
iv. Globalisation has enabled some large Indian companies to emerge as multinational themselves like Tata Motors (automobiles), Infosys (IT), Ranbaxy (medicines), Asian Paints (paints).
v. A host of services such as data entry, accounting, administrative tasks, engineering are now being done cheaply in countries such as India and are exported to the developed countries.
NEGATIVE IMPACT
i. Flexibility in labour laws: In order to cut down on their costs MNCs look for the cheapest supplier. The suppliers supply them with the goods at low price and in turn pay less wages to the workers.
ii. The economic condition of the workers are hampered due to this. Flexibility in labour laws has resulted in worsening the condition of workers because they are appointed on temporary basis to avoid payment of provident fund and other facilities. No overtime is paid for extra hours of work.
ii. Effect on small producers: Globalisation has hit the small producers because they are unable to complete with MNCs for the with producers or manufacturers on price and quality. Several units have been shut down rendering many workers jobless.
13. What steps have been taken by the government to attract foreign investment?
Ans: The following steps were taken by the government:
i. Industrial zones, called Special Economic Zones are being setup. SEZs are to have world class facilities: electricity, water, roads, transport, storage, recreational and educational facilities.
ii. Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years.
iii. Government has also allowed flexibility in the labour laws to attract foreign investment i.e. workers can be hired for short periods when there is intense pressure of work. This is done to reduce cost of labour for the company.
14. Describe the major problems created by the globalisation for a large number of small producers and workers.
Ans: The major problems are:
i. Small producers such as producing batteries, capacitors, plastics, toys, tyres, dairy products and vegetable oil have been hit hard due to competition. They could not complete on the issue of price and quality. Several of the units have shut down rendering many workers jobless. The small industries in India employ the largest number of workers (20 million).
ii. Faced with growing competition, most employers these days prefer to employ workers ‘flexibly’ i.e. workers’ jobs are no longer secure. Women too are denied their fair share of benefits. Workers have to put in very long working hours without any overtime.
15. Describe the steps that may be taken to make globalisation ‘fair’.
Ans: The government can play a major role in making fair globalisation possible. Its policies must protect the interests, not only of the rich and the powerful, but all the people in the country.
i. The government should ensure that labour laws are properly implemented and the workers get their rights.
ii. The government should protect the interest of small producers by using trade and investment barriers till the time they are in a position to compete with large producers or MNCs.
iii. It should negotiate with WTO for ‘fairer rules.’
iv. It should also align with other developing countries to fight against the domination of developed countries in the WTO.
16. How would flexibility in labour laws help companies?
Ans: Flexibility in labour laws help the companies in following ways:
i. It can help companies to decrease their production cost by employing labourers for short period of time when there is need instead of employing them for long period of time or yearly basis.
ii. Company heads can negotiate wages and terminate employment depending on market conditions.
iii. Companies can ask workers to work overtime when there is more pressure to complete the work.
Very Short Answers:
1. What is a trade barrier?
Ans: Restrictions on foreign trade are known as trade barriers.
2. What is the aim of WTO?
Ans: The aim is to liberalise international trade.
3. What was the effect of importing Chinese toys to India? Ans: Within a year, 70-80% shops have replaced Indian toys with Chinese toys.
4. Which country gives a massive sum of money to farmers so that they can sell their farm products at abnormally low prices in other countries?
Ans: USA
OTHER QUESTIONS
1. How does foreign trade lead to integration of markets across countries? Explain with an example.
2. “Globalisation and competition among producers has been of advantage to the consumers”. Give arguments in support of this statement.
3. How has liberalization of trade and investment policies helped the globalization process?
4. “Barriers on foreign trade and investment were removed to a large extent in India since 1991.” Justify the statement.
5. A group of companies in India wishes to import high quality ACs from South Korea but have to pay a huge import tax on them which would make the ACs very expensive leading to a decline in their sale. Ascertain the role of the import tax in this situation.
6. How can the government ensure that globalisaton is fair and its benefits are shared in a batter way by all?
7. “Globalisation has been advantageous to consumers as well as to producers.” Support the statement with suitable examples.
8. How do Multinational Companies manage to keep the cost of production of their goods low? Explain with examples.
9. How are multinational corporations (MNCs) controlling and spreading their production across the world?
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