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.

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: Better transportation systems have made it easier and faster to move goods from one country to another.
• Development of Information Technology: Advances in technology have made it possible to share information quickly and easily.
• Telecommunication: Communication methods like phones and the internet connect people around the world.
• Computers: Computers have made it faster and more efficient to process and share information.
• Internet: The internet has made it possible for people to connect and communicate with each other from different parts of the world.

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

• Around 1991, it was recognized that Indian producers needed to compete with producers from other countries to improve their production and the quality of goods and services.
• As a result, the Indian government made significant changes to its foreign investment policy in 1991.
• One of these changes was the introduction of liberalization, which was supported by international organizations like the World Trade Organization (WTO).

Gradual Adoption of Liberalization Policy in India

• After India gained independence, the government imposed barriers on foreign trade and investment.
• Initially, these barriers were necessary because the Indian industries were still developing after independence, and competition from imports would have hindered their growth.
• In 1991, the government decided that it was time for Indian producers to compete with producers from around the world. This led to the adoption of a more liberal approach to foreign trade and investment.

Liberalization

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

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: Developed countries hold significant influence within the WTO.
• Support for Globalization: The WTO is sometimes used by developed countries to promote globalization in areas that are not directly related to trade.

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 resulted in the problem of brain drain, where skilled individuals leave the country to seek better opportunities abroad.
• Unemployment and Poverty: Despite globalization, unemployment and poverty still persist in the Indian economy.
• Cut in Farm Subsidies: Globalization has led to a reduction in farm subsidies, affecting the livelihoods of farmers.
• Closure of Small Industries: Small industries have faced challenges and many have been forced to shut down due to increased competition.

Steps Taken by the Government to Attract Foreign Investment

• Establishment of Special Economic Zones (SEZs): SEZs provide world-class facilities to companies, including infrastructure, tax benefits, and other amenities.
• Tax Benefits: Companies setting up production units in SEZs enjoy tax exemptions for an initial period of five years.
• Flexibility in Labor Laws: The government has introduced flexibility in labor laws to make it more attractive for foreign investment. This includes hiring workers on a temporary basis to reduce labor costs.

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 impacted workers and local producers. Workers face uncertain employment opportunities, and many local producers struggle to keep up with technology adopted by MNCs. This has led to the closure of many local production units and the hiring of workers on a temporary basis, reducing their job security and benefits.

The Struggle for Fair Globalization

• While globalization has provided opportunities for some individuals with education, skills, and wealth, there are many who have not benefited equally. The challenge lies in ensuring a fair distribution of the benefits of globalization to all segments of society.

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.