Chapter 4 Globalisation and the Indian Economy

Question 1 What do you understand by globalisation? Explain in your own words.

Answer 1 Globalisation is the process of rapid integration or interconnection between countries. Globalisation means integrating an economy with the world economy. As a result of globalisation, the different countries of the world become economically interdependent on each other. This term is also often used to refer to economic globalisation: the integration of national economies into the international economy through trade, foreign direct investments, capital flows, migration and the spread of technology.

Question 2. What were the reasons for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers?

Answer 2. Reasons for putting barriers to foreign trade and foreign investment by the Indian Government:

(a) To protect the domestic producers within the country from foreign competition.

(b) The competition from importers would have crippled the new-born industries of India. In such a situation, imports of only such commodities were allowed which were quite necessary such as machinery, fertilisers, petroleum etc.

(c) During 1950s and 1960s, competition from imports was giving a death blow to growing industries in India. Hence, India allowed imports of only essential goods.

Later in the 1990s, the government wished to remove these barriers because it felt that domestic producers were ready to compete with foreign industries. It felt that foreign competition would in fact improve the quality of goods produced by Indian industries. This decision was also supported by powerful international organisations. Thus, the government decided that the time had come for Indian producers to compete with producers around the globe.

Question 3. How would flexibility in labour laws help companies?

Answer 3. Flexibility in labour laws would help to reduce the cost of labour for the company.

Question 4. What are the various ways in which MNCs set up or control production in other countries?

Answer 4  Various ways in which MNCs control production in other countries:

(i) By setting up partnerships with local companies.

(ii) By closely competing with local companies or buying them up. The most common route for MNC investments is to buy up local companies and to expand production. With their huge wealth they can easily do so.

(iii) By using local companies for supply—Large MNCs in developed countries place orders for production with small producers.

E.g. garments, footwear, sports item etc. The products are supplied to MNCs which then sell these under their own brand names to the customers. These large MNCs have great power to determine price, quality, delivery and labour conditions for these distant producers.

Question 5. Why do developed countries want developing countries to liberalise their trade and investment? What do you think should the developing countries demand in return?

Answer 5 . Developed countries want developing countries to liberalise their trade and investment because then the MNCs belonging to the developed countries can set up factories in less expensive developing nations, and thereby increase profits, with lower manufacturing costs and high sale price.

In my opinion, the developing countries should demand, in return, for some manner of protection of domestic producers against competition from imports. Also, charges should be levied on MNCs looking to set base in developing nations.

Question 6 “The impact of globalisation has not been uniform.” Explain this statement.

Answer 6  Globalisation has been proved beneficial for the top Indian companies but so far workers are concerned, globalisation has perished them. The top Indian companies have invested in newer technology and production methods and raised their production standards. Some have gained from successful collaborations with foreign companies. Globalisation has enabled some large Indian companies to emerge as multinationals themselves. For examples: Tata Motors (Automobiles), Infosys (IT), etc.

But for a large number of small producers and workers globalisation has posed great problems. They have been hit hard due to competition. Several units have shut down rendering many workers jobless. Thus, we can say that the impact of globalisation has not been uniform.

Question 7 How has liberalisation of trade and investment policies helped the globalisation process?

Answer 7 Liberalisation of trade and investment policies has helped the globalisation process by making foreign trade and investment easier. This has led to a deeper integration of national economies into one conglomerate whole. Now goods could be imported and exported easily. Foreign companies could set up factories and offices in India.

Question 8 How does foreign trade lead to integration of markets across countries? Explain with an example other than those given here.

Answer 8 (i) Foreign trade gives opportunity to producers to sell their goods in other countries of the world. Producers can sell their produce not only in markets located within the country but can also compete in markets located in other countries of the world.

(ii) For the ordinary consumers, the foreign trade proves very useful because the best brands of different articles are produced all over the world. Their choice of goods expands manifolds.

(iii) For the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced. This is how markets are integrated through foreign trade. For example, Japanese electronic items are imported to India, and have proved to be a tough competition for less-technologically-advanced companies here.

Question 9. Globalisation will continue in the future. Can you imagine what the world would be like twenty years from now? Give reasons for your answer.

Answer 9. Globalisation will continue in the future. Twenty years from now, the world will be more globally connected and integrated into one international economy, if this process continues on a fair and equitable basis. Trade and capital flows will increase alongside the mobility of labour. This will occur because liberalisation will get augmented and MNCs will converge with other companies producing the same goods.

Question 10. Supposing you find two people arguing: One is saying globalisation has hurt our country’s development. The other is telling, globalisation is helping India develop. How would you respond to these arguments?

Answer 10 . Both the arguments are right to some extent. Globalisation has hurt our country’s development as well as helped our country develop. In other words, we can say that globalisation has positive as well as negative impact on our country’s development.

Positive impact of the globalisation on India

(i) Availability of variety of products which enabled the consumers to have greater choice and enjoy improved quality and lower prices for several products.

(ii) This led to higher standard of living.

(iii) Increase in foreign direct investment.

(iv) Creation of new jobs in certain industries.

(v) Top Indian companies have been benefited by investing in new technology and production methods along with successful collaborations with foreign companies.

(vi) Enabled some large Indian companies to emerge as multinationals.

(vii) Created new opportunities for companies providing services, particularly those involving IT.

Negative impact of the globalisation on India

(i) Small producers failed to compete and got perished. Rising competition has led to shutting down of many units. Many workers became jobless. For instance, batteries, capacitors, plastics, toys, dairy products and vegetable oil are the examples of the industries which have been hit hard due to hard competition.

(ii) Globalisation and pressure of competition have substantially changed the lives of workers. Faced with growing competition most employers these days prefer to employ workers ‘flexibly’. This means that workers’ jobs are no longer secure.

Question 11. Fill in the blanks.

Indian buyers have a greater choice of goods than they did two decades back. This is closely associated with the process of (a) ………. Markets in India are selling goods produced in many other countries. This means there is increasing (b) ……… with other countries. Moreover, the rising number of brands that we see in the markets might be produced by MNCs in India. MNCs are investing in India because (c) ………. While consumers have more choices in the market, the effect of rising (d) ……… and (e) ……… has meant greater (f) ……… among the producers.

Answer 11. (a) globalisation (b) trade (c) production costs here are cheaper (d) demand (e) purchasing power (f) competition.

Question 12. Match the following:

Question 12

Answer 12 . (i) (b), (ii) (e), (iii) (d), (iv) (c), (v) (a).

Question 13. Choose the most appropriate option.

(i) The past two decades of globalisation has seen rapid movements in

(a) goods, services and people between countries.

(b) goods, services and investments between countries.

(c) goods, investments and people between countries.

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

(a) set up new factories.

(b) buy existing local companies.

(c) form partnerships with local companies.

(iii) Globalisation has led to improvement in living conditions

(a) of all the people

(b) of people in the developed countries

(c) of workers in the developing countries

(d) None of the above

Answer 13

(i) (a)

(ii) (b)

(iii) (c).

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