Globalisation and the Indian Economy Summary Class 10 Social Science Chapter 4

Production across Countries

Multinational Corporation ( MNC )

MNCs can spread and control production in various ways

• They can create partnerships with local companies to establish production units together.
• They can buy local companies and expand their own production capabilities.
• They can place orders with small producers to manufacture products for them.
• They can use their well-known brand to attract customers and gain control over production.

These are some ways in which MNCs expand their operations and take control of production across countries.

Advantage of MNC’s Spreading Out

• When multinational companies (MNCs) spread their production across different countries, they can obtain high-quality resources at lower prices. This helps them make more profit. Moreover, by expanding their production in various countries, MNCs create job opportunities in underdeveloped nations.

Connecting Production across Countries

• Investment: Investment refers to the money spent on purchasing assets like land, buildings, machinery, and equipment.
• Foreign investment: Foreign investment occurs when a company or individual from one country invests in the assets or ownership of a company located in another country.
• Joint ventures: MNCs also collaborate with local companies by providing additional investment to acquire different assets.
• Taking over local companies: MNCs sometimes buy local companies or production units to expand their production capacity. For example, Cargill Foods from the USA acquired Parakh Foods in India.
• Contracts with local companies: MNCs also enter into agreements with small producers worldwide under their brand name. They specify prices, quality standards, delivery schedules, and labor conditions for these producers.

Foreign Trade

• Foreign trade is when countries exchange goods and services with each other. It is also called international trade.

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Foreign Trade and Integration of Markets

• It allows goods and services to move between different countries.
• It gives consumers more choices of products.
• It helps people, ideas, and technology to travel between countries.
• It allows producers to sell their products in markets beyond their own country.
• Buyers have more options to choose from.
• It increases competition among producers, leading to better quality products.

Globalization

Factors that contribute to globalization

• Improvement in Transportation: Over the last fifty years, transportation technology has improved significantly. This has allowed for faster and cheaper delivery of goods over long distances, thanks to advancements like containerization and lower port handling costs.
• Development of Information Technology: The growth in information and communication technology has been even more impressive, enabling quick and easy sharing of information.
• Telecommunication: Methods of communication such as phones and the internet link people globally.
• Computers: Technology, especially IT, has greatly enhanced the ability to organise production internationally, speeding up and improving the processing and sharing of information.
• Internet: The internet allows individuals to connect and communicate with others from various parts of the world.
• Liberalization of Trade and Investment: The easing of trade and investment barriers has promoted globalization.

How Information Technology Promotes Globalization

• Easier Transportation: Advances in transportation have made it simpler and more affordable to transport goods to distant places.
• Improved Communication: Information technology has made it easier to send and receive information across the world.
• Increased Trade: Information technology has led to a rapid increase in trade between countries.

Privatization

• Privatization means transferring a business, industry, or service from government ownership to private ownership and control.

Foreign Investment Policy

• The government's foreign investment policy also affects globalization to a large extent. It determines whether foreign investment is encouraged or restricted based on the country's situation. Trade barriers are a part of foreign investment policy.

Trade Barriers

• Trade barriers are restrictions on the free exchange of goods or services between countries. For example, import duties (taxes on imports) are a type of trade barrier. They are called barriers because they limit or control trade.

Why Governments Use Trade Barriers

• Regulating Foreign Trade: Trade barriers help the government regulate the flow of goods into and out of the country.
• Controlling Imports: Trade barriers help the government decide which types of goods and how much of each should enter the country.
• Protecting Domestic Producers: Trade barriers are used to shield domestic producers from foreign competition.

Restrictions on Foreign Trade

• After India gained independence, the government implemented barriers on foreign trade and investment to protect domestic producers from competition. This was because the industries in India were still developing during the 1950s and 1960s.
• During that time, India only allowed the import of essential items like machinery, fertilizers, and petroleum.

New Economic Policy, 1991

• Starting around 1991, significant changes in policy were made in India. The government decided that Indian producers should compete with global producers, believing that competition would enhance local producers' performance and quality.
• This decision was supported by powerful international organisations. As a result, barriers on foreign trade and foreign investment were largely removed, allowing goods to be imported and exported easily, and enabling foreign companies to establish factories and offices in India.
• Removing government-imposed barriers is known as liberalisation. With the liberalisation of trade, businesses can freely decide what to import or export, with much fewer restrictions than before.

Gradual Adoption of Liberalization Policy in India

• After India gained independence, the government imposed barriers on foreign trade and investment. Initially, these barriers were essential because Indian industries were still developing, and competition from imports could have hindered their growth.
• In 1991, the government decided it was time for Indian producers to compete globally, leading to a more liberal approach to foreign trade and investment.
• Liberalisation refers to the removal of barriers or restrictions set by the government. With this change, businesses are allowed to make decisions freely about what they wish to import or export, resulting in much less government interference.

Liberalization

• Liberalization means reducing or removing government rules and restrictions on private businesses and trade.

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Effects of Liberalization on the Indian Economy

• Competition: Liberalization encourages competition among producers in the country, which helps them improve their performance.
• Removal of Barriers: Many barriers on foreign trade and investment were eliminated, making it easier to import and export goods.
• Foreign Companies: Liberalization allows foreign companies to establish factories and offices in India, which boosts production and creates more job opportunities.
• Freedom of Decision-making: Liberalization gives businesses the freedom to make decisions without excessive government control.

World Trade Organization (WTO)

• The WTO, or World Trade Organization, is an organization that supports increasing global trade through globalization.

Aim of WTO

• Free Trade: The WTO aims to promote international trade by allowing free trade for all countries.
• Uniformity: It encourages trade among countries in an open, fair, and non-discriminatory manner.
• Removal of Restrictions: The WTO works towards removing both import and export restrictions.

Drawback of WTO

• Dominance of Developed Countries: Although the WTO is meant to support free trade for everyone, developed countries have often kept trade barriers while pushing developing nations to remove theirs.
• Support for Globalization: The WTO’s job is to encourage international trade, which is closely tied to the idea of globalization.

Impact of Globalization in India:

• Greater Choice and Improved Quality: Globalization has led to a wider range of goods available in the market, with improved quality and competitive prices, which raises the standard of living.
• Increased Investment: Multinational companies (MNCs) have invested more in India, bringing in economic opportunities and growth.
• Emergence of Indian Multinationals: Top Indian companies have become multinationals, expanding their operations globally.
• Opportunities in Service Sector: Globalization has created new opportunities in service sectors like IT, benefiting companies providing such services.
• Collaboration with Foreign Companies: Collaboration with foreign companies has provided significant support to domestic entrepreneurs.

Negative Impacts

• Brain Drain: Globalization has caused a problem known as brain drain, where skilled people leave India for better opportunities elsewhere. This results in a loss of talent and knowledge, which can slow down economic growth and innovation at home.
• Unemployment and Poverty: Even with globalization, unemployment and poverty continue to affect the Indian economy. While some new jobs have been created in various sectors, others have been lost due to increased competition, making life harder for vulnerable groups.
• Cut in Farm Subsidies: Globalisation has led to cuts in farm subsidies, which impacts farmers' livelihoods. This reduction makes it tough for small farmers to compete against larger agribusinesses, contributing to financial instability and higher rural poverty.
• Closure of Small Industries: Small businesses have struggled due to stiff competition from larger multinational corporations (MNCs). Many have closed down, resulting in job losses and economic hardships in local areas. Small producers often face issues like limited access to capital, technology, and markets.

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Steps Taken by the Government to Attract Foreign Investment

• Establishment of Special Economic Zones (SEZs): SEZs offer top-notch facilities to companies, including infrastructure and tax benefits. However, some local communities and labour groups oppose these zones, fearing they may cause land loss and diminish workers' rights.
• Tax Benefits: Companies setting up in SEZs receive tax exemptions for the first five years, which encourages foreign investment.
• Flexibility in Labour Laws: The government has made labour laws more flexible to attract foreign investors. This includes allowing companies to hire temporary workers, which can lower costs but may also create job insecurity and weaken worker rights.

Special Economic Zone (SEZ)

• SEZ is a designated area in a country with unique economic regulations that differ from other areas. It is intended to attract foreign direct investment and promote economic growth.

Rising Competition and Uncertain Employment

• Globalization and competition have significantly altered workers' lives. Many employers now prefer ‘flexible’ hiring, making job security less reliable. For example, while the garment export industry in India has opened up paid work for women, often their employment conditions fail to provide them with fair benefits.
• Large MNCs in Europe and America source their products from Indian exporters, seeking the cheapest options to maximise profits. As a result, Indian garment workers face intense pressure to meet low-cost demands, which can compromise their working conditions.

The Struggle for Fair Globalization

• While globalization has opened doors for some individuals with education, skills, and wealth, many others have not gained the same advantages.
• The key challenge is to make sure the benefits of globalization are shared fairly among everyone.
• Fair globalization would create opportunities for all and ensure better sharing of its advantages.

The government plays a crucial role in making globalization fair for everyone

• Ensuring Policy Compliance: The government ensures that policies like labor laws are followed to protect workers' rights and ensure fair working conditions.
• Supporting Small Producers: The government supports and protects small producers from global competition, helping them improve their performance and compete on a level playing field.
• Negotiating Fair Rules: The government engages in negotiations with organizations like the World Trade Organization (WTO) to advocate for fair rules and concessions that benefit developing countries.
• Using Trade and Investment Barriers: The government can implement trade and investment barriers when necessary to safeguard the interests of domestic producers and maintain a fair trading environment.
• Collaboration with Developing Countries: The government can form alliances with other developing countries that share similar interests to collectively address the influence of developed countries in organizations like the WTO.

Overall, the government works towards creating an equitable and inclusive globalization process that benefits all individuals and sectors of society.