Class 10 Economics · Chapter 4 NotesGlobalisation and the Indian Economy

Until the middle of the twentieth century, production was largely organised within countries. What crossed borders were raw materials, food stuff and finished products. Trade was the main channel connecting distant countries. Then large companies called multinational corporations (MNCs) emerged. An MNC is a company that owns or controls production in more than one nation. MNCs set up offices and factories in regions where they can get cheap labour and other resources, so that the cost of production is low and profits are greater. For example, a large MNC may design products in the United States, manufacture components in China, assemble them in Mexico and Eastern Europe, and run customer care through call centres in India. In this way, production is divided into small parts and spread across the globe.

• MNCa company that owns or controls production in more than one nation
• MNCs set up production where labour and other resources are cheap and markets are close
• Production process is divided into small parts and spread across countries

MNCs set up production where it is close to markets, where skilled and unskilled labour is available at low cost, and where other factors of production are assured. They may also look for government policies that favour them. The money spent to buy assets such as land, building, machines and equipment is called investment. Investment made by MNCs is called foreign investment. MNCs can set up production jointly with local companies, providing money for additional investment and bringing the latest technology. The most common route, however, is to buy up local companies and expand production. For example, Cargill Foods, an American MNC, bought over Parakh Foods and became the largest producer of edible oil in India. Large MNCs also place orders with small producers around the world and sell the products under their own brand names. In all these ways, MNCs interlink production in widely dispersed locations.

• Investmentmoney spent to buy assets such as land, building, machines and equipment
• Foreign investmentinvestment made by MNCs
• MNCs may set up joint production, buy local companies, or place orders with small producers

Foreign trade has been the main channel connecting countries for a long time. It creates an opportunity for producers to reach beyond domestic markets and compete in markets located in other countries. For buyers, imports expand the choice of goods beyond what is produced domestically. When trade opens up, goods travel from one market to another, choice of goods rises, and prices of similar goods in the two markets tend to become equal. Producers in the two countries compete closely even though they are separated by thousands of miles. For example, when Chinese toys enter India, Indian buyers get more choice at lower prices, but Indian toy makers face losses. Foreign trade thus connects markets and leads to integration of markets in different countries.

• Foreign tradetrade between countries, including exports and imports
• Integration of marketsconnecting markets of different countries through trade
• Trade increases choice and competition, and tends to equalise prices

In the past two to three decades, more and more MNCs have been looking for locations around the world that are cheap for production. Foreign investment by MNCs has been rising, and foreign trade between countries has been rising rapidly. 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. Globalisation is this process of rapid integration or interconnection between countries. Besides goods, services, investments and technology, countries can also be connected through the movement of people who move in search of better income, jobs or education. However, in recent decades there has not been much increase in the movement of people between countries due to various restrictions.

• Globalisationthe process of rapid integration or interconnection between countries
• MNCs play a major role in the globalisation process
• Countries are linked through movement of goods, services, investments, technology and people

Rapid improvement in technology has been a major factor stimulating globalisation. In transportation, containers have reduced port handling costs and increased the speed of exports. The cost of air transport has fallen, enabling greater volumes of goods to be transported. Even more remarkable are the developments in information and communication technology (IT). Telecommunication facilities such as telegraph, telephone, mobile phones and fax are used to contact one another around the world, access information instantly and communicate from remote areas. Computers and the Internet allow instant sharing of information and communication at negligible costs. For example, a magazine for London readers can be designed and printed in Delhi using the Internet and telecommunication, and payment can be made instantly through e-banking. Liberalisation of foreign trade and foreign investment policy has also facilitated globalisation by removing barriers.

• Technologyimprovements in transportation and information and communication technology
• Containersreduce port handling costs and increase speed of exports
• Liberalisationremoving barriers or restrictions set by the government on foreign trade and investment

After Independence, the Indian government had put barriers to foreign trade and foreign investment to protect domestic producers from foreign competition. Industries were just coming up in the 1950s and 1960s, and competition from imports would not have allowed them to grow. India allowed imports of only essential items. Starting around 1991, far-reaching changes in policy were made. The government decided that Indian producers should compete with producers around the globe, believing that competition would improve their performance. Barriers on foreign trade and foreign investment were removed to a large extent. Removing such barriers is called liberalisation. The World Trade Organisation (WTO) is an international organisation whose aim is to liberalise international trade. It establishes rules regarding international trade and sees that these rules are obeyed. About 160 countries are members of the WTO. In practice, however, developed countries have unfairly retained trade barriers while forcing developing countries to remove theirs.

• Trade barriera restriction set by the government on foreign trade, such as tax on imports
• Liberalisationremoving barriers or restrictions set by the government
• WTOWorld Trade Organisation, aims to liberalise international trade

Globalisation and greater competition have been of advantage to consumers, particularly the well-off sections in urban areas, who now enjoy greater choice, improved quality and lower prices for several products. MNCs have increased their investments in India in industries such as cell phones, automobiles, electronics, soft drinks, fast food and banking in urban areas, creating new jobs. Local companies supplying raw materials have also prospered. Several top Indian companies have benefited from increased competition by investing in newer technology and production methods. Some have emerged as multinationals themselves, such as Tata Motors, Infosys, Ranbaxy, Asian Paints and Sundaram Fasteners. Globalisation has also created new opportunities in services, especially IT, such as call centres, data entry, accounting and engineering services. However, for a large number of small producers and workers, globalisation has posed major challenges. Small manufacturers in industries like batteries, capacitors, plastics, toys, tyres, dairy products and vegetable oil have been hit hard by competition, and many units have shut down, rendering workers jobless. Workers face uncertain employment as employers prefer flexible employment, and workers in the organised sector no longer get the protection and benefits they enjoyed earlier.

• SEZsSpecial Economic Zones set up to attract foreign investment with world-class facilities
• Flexible employmenthiring workers for short periods to reduce labour costs
• Indian MNCsTata Motors, Infosys, Ranbaxy, Asian Paints, Sundaram Fasteners

The evidence shows that not everyone has benefited from globalisation. People with education, skill and wealth have made the best use of new opportunities, while many others have not shared the benefits. Since globalisation is now a reality, the question is how to make it fairer. Fair globalisation would create opportunities for all and ensure that its benefits are shared better. The government can play a major role by protecting the interests of all people, not just the rich and powerful. It can ensure that labour laws are properly implemented and workers get their rights. It can support small producers to improve their performance until they become strong enough to compete. If necessary, it can use trade and investment barriers, negotiate at the WTO for fairer rules, and align with other developing countries with similar interests. In recent years, massive campaigns and representation by people's organisations have influenced important decisions at the WTO, showing that people can play an important role in the struggle for fair globalisation.

• Fair globalisationcreates opportunities for all and ensures benefits are shared better
• Government can protect workers, support small producers, and negotiate at WTO
• People's organisations can influence decisions on trade and investment