Notes on Globalization and the Indian Economy, Economics-X

Globalization and the Indian Economy Chapter-4, Economics Class-X ० Production across countries • Until the middle of the 20th century, prod...

Globalization and the Indian Economy

Chapter-4, Economics

Class-X

० Production across countries

• Until the middle of the 20th century, production was largely organized within countries.
• Colonies such as India export the raw materials and food stuff and imported finished
goods.
• Trade was the main channel connecting
distant countries. This was done before MNCs. 

० Multinational corporations (MNCs)

• A MNC is a company that owns or controls production in more than one nation .

• MNCs set up offices and factories for production in regions where they can get cheap labour and other resources.

• This is done to reduce the cost of production and thus MNCs can earn greater profits .

• MNCs not only sell its finished products globally but also the goods and services

are produced globally. 

• Ex:-An American company design it's products in US(research centres), Parts manufactured in China (Cheap), assembled in Mexico and Eastern Europe (Near to Market), 

and its call centre is in India (educated Youngs). 

• As a result, production is organized in increasingly complex ways.

० Interlinking Production Across countries :
The money that is spent to buy assets such as land, building, machines and other equipment is called investment.

The investment made by the MNCs into companies belonging to other countries is called foreign investment.

MNCs link the production process of different countries. Some ways are :
(i) Foreign Direct Investment: Investment made by a company based in one country ( usually an MNC), into a company based in another country. 
(ii) Partnerships : MNCs setup production unit jointly with some of the local companies of that region.
The benefit to the local company of such joint production is two-fold.
(a) MNCs can provide money for additional investments, like buying new machines for faster production.
(b) MNCs might bring with them the latest technology for production.
(iii) Local companies  Mergers / Takeover : The most common route for MNC is to buy up local companies and then expand production.
(iv) Contracts to local companies : MNCs place order for production with many small producers. MNCs then receives the product and sell it under their own brand name. 

• MNCs are exerting a strong influence on

production at these distant locations. As a result, production in these widely dispersed

locations is getting interlinked.

० Foreign Trade And Integration Of Markets:

• Foreign trade is a trade between different countries of the world. It is also called international trade. 

• Foreign trade helps in the integration of Markets as :

(i) Foreign trade creates an opportunity for the

producers to reach beyond the domestic/local 

markets.

(ii) It facilitate movement of goods and services between countries.

(iii) It facilitate movement of people, ideas and technology.

(iv) Increases competition , overall reduction in the price of goods. 

• Foreign trade thus results in connecting the

markets or integration of markets in different countries. 

० Globalisation

• Globalisation is the process of rapid integration or interconnection between countries. 

• MNCs and Foreign trades are playing a major role in the globalization process.

• More and more goods and services, investments and technology are moving between countries.

• It also increases the movement of people (migration) for jobs, education etc. 

० Factors that helped globalisation are-

# Technology

• Development in transportation has led to cheap quick delivery of goods over long distances.

Example:-Trains, ships, highways etc.

• Information and communication Technology (IT) has revolutionised the spreading of production of services across the globe. 

Example: e-banking, telephones, internet etc. 

# Liberalisation

• In 1991 , the Indian government made changes in policies and removed trade

barriers to a large extent. 

० Trade Barrier: 

Government puts restrictions to control(regulate) the foreign trade, these restrictions are called trade barrier. 
Ex:-Tax on imports

• All developed countries ,during the early stage of development have given protection to domestic producers through trade barriers. 

• Liberalization means the removal of barriers and restrictions set by the government on foreign trade.

० New Economic Policy 1991: 

Around 1991, it was felt that Indian producers must compete with producers around the globe, so that they can improve their performance and quality of goods and services. That's why Government of India in 1991 made some major changes in its trade policy. 

० World Trade Organisation ( WTO)
• It its an organisation whose aim is to liberalise international trade.

• It was started at the initiative of developed countries, now nearly 164 countries are member of WTO. 

• It is seen that the developed countries have unfairly retained trade barriers while on other hand WTO forced developing countries to remove trade barriers. 

• Resulting debate on the working of WTO. 

० Impact of Globalisation on India

० Positive Impact

• Increased foreign investment in India.

• Top indian companies raised their production standards due to competition and they also got new technologies by collaborating with MNCs.

• Some large Indian companies become MNCs like TATA, Asian Paints, Infosys etc, and contributed to economic growth of India.

• Greater cultural exchange because of greater movement of the people. This has greatly helped the tourism sector in India.

• As many foreign companies come to India, huge number of jobs were created. 

• Consumers got more choices and cheaper products.

• Globalisation also increased the standard of living of people, especially to well-off sections.

० Negative Impacts
• Small local producers could not face the stiff competition and had to be shut down.
• Labour laws were made flexible to attract foreign investment which was against the employees.

• Due to increase in technology and shut down of small factory many people lost their jobs, or work as part time worker. 
• Regional products are not growing or have been replaced by some foreign product.

• Increase in production and demands due to globlisation results in environmental problems. 

० Special Economic Zones (SEZ):

• SEZs are the specially created industrial zones having world class facilities such as Road electricity, water, transport, storage etc. These zones are created to Attract foreign Investment. 

Advantages for Investors:

• Warld class facility. 

• Exemptions in the payment of taxes for an initial period of five years.

• Flexibility in labour laws

० The Struggle for a Fair Globalisation:

• Not everyone has benefited equally from globalisation. 

• People with education, skills and wealth benefited alot

• There must be equal opportunities for all.

० How to make globalisation more fair?

• Government must protect the interest of all the people,not just the rich, by making better labour laws and implementing them.
• Government can support small producers till the time they become strong enough to compete.
• Government can use trade barriers in favour of small producers. 

• Government can negotiate at WTO for "Fairer Rules"
• Government Can align with other developing countries to fight against the domination of developed countries in WTO. 

• People and Media can also play an important role [such as Campaigns, protest and Representation]

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