Test: Globalisation & the Indian Economy - 2 - UPSC MCQ

The correct answer is:

3. A is correct but R is wrong

Explanation:

• Assertion (A): "Until the middle of the 20th century, production was largely organised within countries." This is true. Before the globalization and advancements in communication and transportation, production processes were primarily conducted within national borders.

• Reason (R): "Lack of trade among nations." This is incorrect. While trade among nations was more limited compared to the modern era, it was not the primary reason why production was organized within countries. The organization of production within countries was influenced more by technological limitations, transportation costs, and political factors rather than a complete lack of trade among nations.

Therefore, the assertion is correct, but the reason provided does not accurately explain the assertion.

Improvement in transport has helped in promotion of:

• Globalisation: Improved transport has facilitated the movement of goods, services, and people across borders, thereby promoting global trade and integration.


• Liberalisation: Better transportation infrastructure has supported the liberalization of markets, allowing for increased competition and the removal of trade barriers.


• Privatisation: The development of transportation systems has often been accompanied by privatization efforts, leading to increased efficiency and investment in transport services.


• None of these: None of the above options are correct. Improvement in transport has indeed played a significant role in promoting globalization, liberalization, and privatization.

Therefore, the correct answer is A: globalisation.

Indian Industries Hit Hard by Globalisation:
There are several Indian industries that have been affected by globalisation, but the one industry that has been hit particularly hard is toy making.
Reasons for the impact:
- Increased competition: With the advent of globalisation, Indian toy manufacturers face tough competition from international players who are able to offer a wider range of products at competitive prices.
- Changing consumer preferences: Globalisation has exposed Indian consumers to a variety of imported toys, leading to a shift in their preferences towards these products.
- Quality and safety standards: International toys often adhere to higher quality and safety standards, making it difficult for Indian manufacturers to compete in terms of product quality.
- Lack of technological advancements: Many Indian toy manufacturers still rely on traditional manufacturing processes, while international competitors have embraced advanced technologies for production and design.
Consequences of globalisation on the toy making industry:
- Decline in domestic demand: As Indian consumers increasingly opt for imported toys, the demand for locally made toys has significantly decreased.
- Closure of small-scale manufacturers: Many small-scale toy manufacturers have been forced to shut down operations due to their inability to compete with larger international players.
- Job losses: The decline in the toy making industry has resulted in job losses for many workers, especially those employed in small-scale manufacturing units.
- Negative impact on the economy: The decline of the toy making industry has had a negative impact on the Indian economy in terms of reduced employment opportunities and revenue generation.
Overall, the toy making industry in India has been severely impacted by globalisation, leading to a decline in domestic demand, closure of small-scale manufacturers, job losses, and negative consequences for the economy.

MNC stands for Multinational Corporation. It refers to a company which is operating in two or more countries and managed from one country where it is headquartered. It is also called as multinational enterprise (MNE), stateless corporation or transnational corporation. An MNC may have its offices and factories in different countries, but its head office or headquarter is usually located in the country of origin.

Explanation:
The given assertion is: Rapid improvement in technology has stimulated the globalization process.
The given reason is: Everyone has benefited from globalization.
To determine the correctness of the assertion and the reason, let's analyze each statement individually:
Assertion: Rapid improvement in technology has stimulated the globalization process.
- The rapid improvement in technology has indeed played a significant role in accelerating the globalization process.
- Technology has made it easier for people, businesses, and countries to connect and communicate with each other.
- The advent of the internet, social media, and mobile devices has bridged the gap between different parts of the world.
- Companies can now easily expand their operations globally, and individuals can connect with others from different cultures and backgrounds.
Reason: Everyone has benefited from globalization.
- While globalization has brought numerous benefits, it is not accurate to say that everyone has benefited equally.
- Globalization has led to economic growth, increased trade, and improved access to goods and services.
- However, it has also resulted in income inequality, job losses in certain industries, and cultural homogenization.
- Some individuals and communities have been disproportionately affected by globalization, while others have reaped significant benefits.
Conclusion: Based on the analysis of the assertion and reason, we can conclude that:
- The assertion is correct as rapid improvement in technology has indeed stimulated the globalization process.
- However, the reason is incorrect as not everyone has benefited equally from globalization.
Therefore, the correct answer is option C: A is correct but R is wrong.

Benefits of BPOs:
1. Local Companies: BPOs have significantly benefited local companies in multiple ways:
- Job Creation: BPOs have created numerous job opportunities for local individuals, thereby reducing unemployment rates.
- Skill Development: BPOs provide training and development programs, enhancing the skills of the local workforce.
- Economic Growth: BPOs contribute to the local economy by generating revenue and attracting foreign investments.
- Infrastructure Development: BPOs often require modern infrastructure, leading to the development of supporting industries and facilities.
2. National Companies: BPOs have also contributed to the growth of national companies:
- Cost Savings: National companies can outsource non-core processes to BPOs, reducing operational costs and improving efficiency.
- Focus on Core Competencies: BPOs handle non-core activities, allowing national companies to focus on their core competencies and strategic initiatives.
- Scalability: BPOs provide scalability options to national companies, enabling them to expand or contract their operations based on market demand.
- Access to Expertise: BPOs often possess specialized knowledge and expertise, which can be leveraged by national companies to improve their processes.
3. Multinational Companies (MNCs): BPOs have particularly benefited MNCs in the following ways:
- Global Presence: BPOs help MNCs establish a global presence by providing support across different geographies and time zones.
- Cost Efficiency: MNCs can leverage BPOs to achieve cost savings by outsourcing various functions, such as customer support or back-office operations.
- Flexibility: BPOs offer flexibility to MNCs in terms of scaling operations, entering new markets, or adapting to changing business environments.
- Risk Mitigation: BPOs can help MNCs mitigate risks by diversifying their operations and relying on external service providers.
Conclusion:
BPOs have benefited the growth of local companies, national companies, and multinational companies (MNCs) in various ways. They have contributed to job creation, skill development, economic growth, and infrastructure development for local companies. Moreover, BPOs have helped national companies reduce costs, focus on core competencies, and access specialized expertise. MNCs have also leveraged BPOs for global expansion, cost efficiency, flexibility, and risk mitigation. Hence, the correct answer is option C: MNCs.

Background:
The World Trade Organisation (WTO) is an intergovernmental organization that deals with the global rules of trade between nations. It was established on January 1, 1995, and is headquartered in Geneva, Switzerland. The WTO aims to promote free and fair trade by providing a platform for negotiations, resolving trade disputes, and enforcing trade agreements.
Initiative:
The WTO was started at the initiative of developed countries. These countries recognized the need for a global organization that could regulate and facilitate international trade. The formation of the WTO was seen as a continuation of the General Agreement on Tariffs and Trade (GATT), which was in place from 1948 to 1994.
Reasons:
The developed countries took the initiative to form the WTO for several reasons:
1. Economic Interests: Developed countries with strong economies and established industries wanted to ensure access to global markets and protect their domestic industries from unfair competition.
2. Trade Liberalization: Developed countries believed in the benefits of free trade and wanted to promote liberalization of trade barriers, such as tariffs and quotas. They saw the WTO as a platform to negotiate and enforce trade agreements that would lower barriers to trade.
3. Market Access: Developed countries wanted to expand their markets and have better access to the markets of other countries. The WTO provides a framework for negotiating market access and reducing trade barriers.
4. Intellectual Property Rights: Developed countries have a strong focus on protecting intellectual property rights, such as patents, copyrights, and trademarks. The WTO helps enforce intellectual property rights globally.
Conclusion:
The WTO was started at the initiative of developed countries, who recognized the need for an international organization to regulate and facilitate trade. These countries aimed to promote free and fair trade, negotiate trade agreements, and resolve trade disputes. The WTO continues to play a crucial role in shaping global trade policies and promoting economic growth.

Explanation:
An MNC (Multinational Corporation) is a company that operates in multiple countries and engages in business activities globally. When it comes to the production of goods, MNCs have various options for their production locations. Here are the options:
1. Locally: MNCs can produce goods in the country where their headquarters or main operations are located. This option is suitable when the company wants to cater to the local market or when the cost of production is favorable in that particular country.
2. Globally: MNCs can have production facilities in multiple countries around the world. This allows them to take advantage of different factors such as cost, resources, labor, and market access in different regions. Global production enables MNCs to optimize their supply chain and cater to international markets effectively.
3. In a state: This option refers to the production of goods within a specific state or region of a country. Some MNCs may have production facilities in different states or provinces to cater to local or regional demand. This approach allows them to have a decentralized production network.
4. In a country: MNCs may choose to concentrate their production in a specific country due to various reasons such as favorable business environment, market access, availability of resources, or cost advantages. In this case, the production is centralized within a single country.
Overall, the most accurate answer is:
The MNC produces goods globally, as they have production facilities in multiple countries to cater to different markets and take advantage of various factors.

Assertion: Tax on imports is an example of trade barriers.


Reason: Government can use it to increase or decrease foreign trade.
The given statement presents an assertion and a reason. Let's analyze each component separately and then evaluate their relationship.
Assertion: Tax on imports is an example of trade barriers.
- Trade barriers refer to any policy or measure implemented by the government to restrict or control the flow of goods and services across national borders.
- Tax on imports, also known as import duties or tariffs, is a common trade barrier used by governments to discourage the influx of foreign goods and protect domestic industries.
- By imposing taxes on imported goods, the government can make them more expensive compared to domestically produced goods, thereby promoting local industries and reducing foreign competition.
Reason: Government can use it to increase or decrease foreign trade.
- The government has the authority to manipulate the level of trade by adjusting the tax rates on imports.
- By increasing import taxes, the government can discourage imports and reduce foreign trade, thereby protecting domestic industries and promoting self-sufficiency.
- On the other hand, reducing import taxes can encourage imports and increase foreign trade, which may be beneficial for certain industries or to promote international relations.
Now let's evaluate the relationship between the assertion and the reason:
- The assertion states that tax on imports is an example of trade barriers, which is true.
- The reason provides a valid explanation for why tax on imports is a trade barrier, as it highlights the government's ability to influence foreign trade through the manipulation of import taxes.
Based on this analysis, we can conclude that both the assertion and the reason are true, and the reason is the correct explanation of the assertion. Therefore, option A is the correct answer.

Tata Steel
- Tata Steel is an Indian multinational company.
- It is a subsidiary of the Tata Group, a conglomerate based in India.
- The company is headquartered in Mumbai, Maharashtra, India.
- Tata Steel is one of the largest steel producers in the world.
- It has operations in multiple countries including India, the Netherlands, the United Kingdom, Singapore, Thailand, and others.
- Tata Steel has a significant presence in the European market, especially after acquiring Corus Group (now Tata Steel Europe) in 2007.
- The company is involved in various segments of the steel industry, including manufacturing, processing, and distributing steel products.
- Tata Steel is known for its commitment to sustainability and has implemented several initiatives to reduce its carbon footprint and promote responsible business practices.
- The company has received numerous awards and accolades for its performance, innovation, and corporate social responsibility efforts.

Organisation that lays stress on liberalisation of foreign trade and foreign investment:
The correct answer is D: World Trade Organisation.
Explanation:
The World Trade Organisation (WTO) is an international organisation that promotes free trade and facilitates negotiations among its member countries. It plays a significant role in laying stress on liberalisation of foreign trade and foreign investment. Here's why:
1. Liberalisation of foreign trade:
- The WTO aims to reduce barriers to trade, such as tariffs and quotas, in order to promote free and fair trade among nations.
- It encourages member countries to open their markets to foreign goods and services, allowing for increased trade and economic growth.
2. Liberalisation of foreign investment:
- The WTO supports the liberalisation of foreign investment by promoting transparency and non-discrimination in investment policies.
- It encourages member countries to create a favorable environment for foreign direct investment (FDI) by eliminating discriminatory practices and providing protection to foreign investors.
3. Dispute settlement mechanism:
- The WTO has a robust dispute settlement mechanism that ensures member countries comply with their trade and investment commitments.
- This mechanism allows countries to resolve trade disputes in a fair and transparent manner, thereby promoting the liberalisation of foreign trade and investment.
4. Trade-related agreements:
- The WTO administers various agreements and protocols related to trade and investment, such as the General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade-Related Investment Measures (TRIMs).
- These agreements provide a framework for liberalising trade and investment, setting rules and regulations that member countries must adhere to.
In conclusion, while organisations like the International Labour Organisation (ILO), International Monetary Fund (IMF), and World Health Organisation (WHO) focus on different aspects of global development, it is the World Trade Organisation (WTO) that specifically lays stress on the liberalisation of foreign trade and foreign investment.

Where does an MNC set up production?
An MNC (Multinational Corporation) sets up production in various locations based on several factors. One of the key factors is the proximity to the target market. Let's explore the reasons why an MNC would set up production close to the markets:
1. Reduced transportation costs: Setting up production close to the markets helps in minimizing transportation costs as the products can be easily delivered to the customers without incurring high logistics expenses.
2. Quick response to market demands: Proximity to the markets allows the MNC to respond quickly to market demands and changes in consumer preferences. This enables them to adapt to market trends and meet customer requirements effectively.
3. Easy access to customers: Being close to the markets ensures easy access to customers, allowing the MNC to establish strong relationships and provide better customer service. This can lead to increased customer satisfaction and loyalty.
4. Reduced lead time: Having production facilities near the markets helps in reducing lead time, which is the time taken from production to delivery. This quick turnaround time enhances the MNC's competitiveness and gives them an edge over their competitors.
5. Market-specific customization: Setting up production close to the markets enables MNCs to customize their products according to the local preferences and cultural nuances. This localization strategy can enhance product acceptance and drive sales.
6. Market intelligence: Being in close proximity to the markets allows MNCs to gather valuable market intelligence and gain insights into consumer behavior, preferences, and emerging trends. This information can be utilized to make informed business decisions and develop effective marketing strategies.
In conclusion, an MNC sets up production close to the markets to benefit from reduced transportation costs, quick response to market demands, easy access to customers, reduced lead time, market-specific customization, and market intelligence. These factors contribute to the overall success and profitability of the MNC in the target markets.

Assertion: Removing barriers or restrictions set by the government on trade is known as liberalisation.
Reason: This helps in the globalisation process
The given assertion and reason are related to the concept of liberalisation and its impact on the globalisation process. Let's analyze each statement separately:
Assertion: Removing barriers or restrictions set by the government on trade is known as liberalisation.
- Liberalisation refers to the removal or reduction of restrictions and barriers on trade and commerce imposed by the government.
- These barriers can include tariffs, quotas, licensing requirements, and other regulations that hinder free trade.
- The purpose of liberalisation is to promote economic growth, increase competition, and attract foreign investments.
Reason: This helps in the globalisation process.
- Globalisation refers to the increasing interconnectedness and integration of economies, cultures, and societies worldwide.
- Liberalisation plays a crucial role in the globalisation process as it allows for the free flow of goods, services, and capital across borders.
- By removing trade barriers, liberalisation facilitates international trade and investment, leading to the integration and interdependence of economies on a global scale.
- It promotes the exchange of ideas, technology, and knowledge between nations, contributing to economic development and prosperity.
Conclusion: Both the assertion and reason are true, and the reason correctly explains the assertion. Therefore, option A is the correct answer.
In summary, liberalisation involves the removal of government-imposed barriers on trade, and this process helps in the globalisation by promoting international trade, investment, and economic integration.

The past two decades of globalisation has seen rapid movements in goods, services, and investments between countries.
- Globalisation refers to the increasing interconnectedness and interdependence of countries through the exchange of goods, services, and capital across borders.
- Over the past two decades, globalisation has accelerated, primarily driven by advancements in technology, transportation, and communication.
- This has resulted in significant movements in goods, services, and investments between countries, leading to various economic and social impacts.
- The movement of goods refers to the exchange of physical products between countries, facilitated by international trade agreements and the reduction of trade barriers.
- The movement of services involves the cross-border provision of intangible products such as tourism, banking, consulting, and IT services.
- The movement of investments includes foreign direct investment (FDI) and portfolio investment, where capital is invested in businesses and financial assets in foreign countries.
- These movements have been facilitated by the liberalization of financial markets, the establishment of multinational corporations, and the emergence of global value chains.
- Globalisation has resulted in both opportunities and challenges for countries. On one hand, it has led to increased economic growth, job creation, and access to a wider range of goods and services. On the other hand, it has also contributed to income inequality, environmental degradation, and cultural homogenization.
- Therefore, the correct answer to the question is option B: goods, services, and investments between countries.

Investments made by MNCs are termed as Foreign investment.
Foreign investment refers to the investments made by multinational corporations (MNCs) in a country other than their home country. These investments can take various forms, such as setting up subsidiaries, acquiring existing companies, or establishing joint ventures with local companies. Here is a detailed explanation of why investments made by MNCs are considered foreign investment:
1. Definition of MNCs: MNCs are companies that operate in multiple countries and have a significant presence in the global market. These companies have their headquarters in one country (home country) but conduct business activities in other countries (host countries).
2. Investment by MNCs: MNCs make investments in host countries to expand their operations, access new markets, and take advantage of resources, talent, or favorable business environments. These investments can be in various sectors such as manufacturing, services, technology, or infrastructure.
3. Differentiating foreign investment: When an MNC invests in a host country, it is considered foreign investment because it involves capital flows from the home country to the host country. This investment is distinct from indigenous investment, which refers to investments made by domestic companies within their own country.
4. Benefits of foreign investment: Foreign investment brings several benefits to both the MNC and the host country. MNCs can gain access to new markets, resources, and skills, while host countries can benefit from job creation, technology transfer, increased tax revenues, and economic growth.
5. Regulation and policies: Foreign investments are subject to regulations and policies set by both the home country and the host country. Governments often have specific rules and incentives to attract foreign investment and ensure that it aligns with their national interests.
In conclusion, investments made by MNCs are referred to as foreign investment because they involve capital flows from the MNC's home country to a host country. These investments play a crucial role in driving economic growth, fostering international trade, and promoting global integration.

Explanation:
The correct statement is:
C: MNCs do not bring with them the latest technology for production.
Reasoning:
MNCs (Multinational Corporations) are large companies that operate in multiple countries. They often engage in foreign direct investment and establish subsidiaries or joint ventures in other countries. Here is a detailed explanation of the statements:
A: MNCs set up production jointly with local companies.
- MNCs often collaborate with local companies to establish production facilities. This allows them to benefit from local knowledge, resources, and market access.
B: MNCs can provide money for additional investments.
- MNCs have significant financial resources and can invest in new projects, expansion, and research and development. They can bring capital to the host country, stimulating economic growth.
C: MNCs do not bring with them the latest technology for production.
- This statement is incorrect. MNCs often bring advanced technology and production techniques to the host country. They may introduce new machinery, processes, and expertise, which can enhance productivity and competitiveness.
D: MNCs set up factories for production.
- MNCs commonly establish factories or manufacturing facilities in their host countries. These factories enable them to produce goods locally, reduce transportation costs, and cater to the local market's specific needs.
In summary, statement C is not correct as MNCs often bring the latest technology for production.

Removing barriers or restrictions set by the government on foreign trade and foreign investment is known as liberalisation. It is an economic policy that aims to promote free trade and open up markets to foreign competition. Here is a detailed explanation:
Liberalisation:
- Liberalisation refers to the process of removing restrictions and regulations that hinder international trade and investment.
- It involves reducing barriers such as tariffs, quotas, and licensing requirements that limit the entry of foreign goods and services into a country.
- By liberalising trade and investment, countries aim to increase economic efficiency, promote competition, attract foreign direct investment (FDI), and stimulate economic growth.
- Liberalisation can be unilateral, where a country removes restrictions on its own, or it can be part of international trade agreements where multiple countries agree to reduce trade barriers collectively.
- It often involves the negotiation and signing of free trade agreements (FTAs) or joining regional trading blocs.
- Liberalisation can also extend to the financial sector, allowing foreign investors to enter and compete in domestic financial markets.
Benefits of Liberalisation:
- Increased competition: Liberalisation promotes competition, which can lead to improved product quality, lower prices, and greater consumer choice.
- Economic growth: Opening up markets to foreign trade and investment can stimulate economic growth by attracting capital, technology, and expertise from abroad.
- Job creation: Liberalisation can create employment opportunities as foreign companies establish operations or invest in local businesses.
- Access to new markets: Liberalisation allows domestic companies to access new export markets, diversifying their customer base and increasing their revenue.
- Innovation and technology transfer: Foreign competition can drive domestic companies to innovate and adopt new technologies, leading to productivity gains and increased competitiveness.
In conclusion, liberalisation plays a crucial role in promoting international trade and investment by removing barriers and restrictions set by the government. This policy aims to enhance economic efficiency, foster competition, attract foreign investment, and stimulate economic growth.

Most Common Route for Investments by MNCs in Countries

The most common route for investments by MNCs (Multinational Corporations) in countries around the world is to:

• Buy existing local companies: MNCs often acquire established local companies to enter a new market or expand their operations.


• Reasons for choosing this route:




• MNCs can quickly gain access to an established customer base, distribution channels, and local market knowledge.


• Acquiring a local company can be more cost-effective than setting up a new factory or forming partnerships.


• It allows MNCs to leverage the existing infrastructure, resources, and brand reputation of the acquired company.




• Advantages of buying existing local companies:




• Immediate market presence and reduced time to market.


• Access to established supply chains and distribution networks.


• Acquisition of local talent, expertise, and knowledge.


• Opportunity to consolidate operations and achieve economies of scale.




• Other routes for investments:




• Setting up new factories: MNCs may choose to establish their own manufacturing facilities in a foreign country.


• Forming partnerships with local companies: MNCs may enter into joint ventures or strategic alliances with local companies to leverage their expertise and resources.

However, the most common and preferred route for investments by MNCs is to buy existing local companies, as it provides a faster and more efficient entry into new markets while leveraging the advantages of an established business.

Explanation:
A MultiNational Company (MNC) is a company that operates and has a presence in more than one country. It is characterized by its ability to conduct business on a global scale and has several distinguishing features. Let's examine each of the options to determine which one is not a feature of an MNC:
A: It owns/controls production in more than one nation.
- This is a characteristic feature of an MNC. It refers to the ability of the company to have production facilities or operations in multiple countries.
B: It sets up factories where it is close to the markets.
- This is another characteristic feature of an MNC. It involves the strategic placement of factories or production facilities in locations that are close to the target markets. This allows the company to reduce transportation costs and respond quickly to market demands.
C: It organizes production in complex ways.
- This is also a feature of an MNC. Due to its global operations, an MNC often organizes production in complex ways, such as establishing supply chains that span multiple countries or implementing decentralized production processes.
D: It employs labor only from its own country.
- This is not a feature of an MNC. MNCs typically employ a diverse workforce from different countries, including the host country where their operations are located. Hiring labor only from their own country would limit the company's ability to adapt to local markets and take advantage of the diverse skills and expertise available globally.
Therefore, the correct answer is D: It employs labor only from its own country. This is not a feature of a MultiNational Company.

Main Aim of Forming the World Trade Organisation (WTO)

The main aim of forming the World Trade Organisation (WTO) was to:

• To liberalise international trade: The WTO was established to promote and facilitate the liberalisation of international trade by reducing trade barriers such as tariffs, quotas, and subsidies. Its primary objective is to create a more open and predictable trading system.