Notes on Globalisation and the Indian Economy

1.why are MNCs spreading their production across countries?

⮚ MNCs set up offices and factories for production in regions where they can
get cheap labour and other resources.
⮚ This is done so that the cost of production is low and the MNCs can earn
greater profits.
2.Explain any three ways in which MNCs set up or control production in other
countries.
OR
Explain ways in which multinational corporations have spread their production and
interaction with local producers in various countries across the globe.

⮚ MNCs set up production jointly with some of the local companies of these
countries. They do so to derive two benefits. First, MNCs provides money for
additional investments, ex. buying new machines for faster production.
Second, MNCs bring with them the latest technology for production.
⮚ They buy up local companies and then invest in it to expand production.
MNCs with huge wealth can quite easily do so.
⮚ Large MNCs in developed countries place orders for production with small
producers. Garments, footwear, sports items are examples of industries where
production is carried out by a large number of small producers around the
world. The products are supplied to the MNCs, which then sell these under
their own brand names to the customers.

3.Explain the basic function of foreign trade?

⮚ Foreign trade creates an opportunity for the producers to reach beyond the
domestic markets, i.e., markets of their own countries. 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.
⮚ Similarly, for the buyers, import of goods produced in another country
increases the choice of goods beyond what is domestically produced.
4.What do you understand by liberalization of foreign trade? Assess its role in
globalization process in India.
⮚ Removing barriers or restrictions set by the government is what is known
as liberalisation.
⮚ With liberalisation of trade, businesses are allowed to make decisions
freely about what they wish to import or export.
⮚ Starting around 1991, International trade policy in India changed. The
government decided that the time had come for Indian producers to
compete with producers around the globe.
⮚ It felt that competition would improve the performance of producers
within the country since they would have to improve their quality. This
decision was supported by powerful international organisations.
⮚ Thus, barriers on foreign trade and foreign investment were removed to a
large extent. This meant that goods could be imported and exported easily
and also foreign companies could set up factories and offices here.
5.What is WTO ? What role does it play in process of globalization?
⮚ World Trade Organisation (WTO) is one such organisation which started
at the initiative of the developed countries with aim is to liberalise
international trade.
⮚ WTO establishes rules regarding international trade, and sees that these
rules are obeyed.
 ⮚ WTO is supposed to allow free trade for all.
⮚ However in practice it is seen that the developed countries have unfairly
retained trade barriers. On the other hand, WTO rules have forced the
developing countries to remove trade barriers.

6.Assess impact of globalization on workers.

⮚ For a large number of workers globalisation has posed major challenges.
⮚ Globalisation and the pressure of competition have substantially changed
the lives of workers. Most employers these days prefer to employ workers
‘flexibly’. This means that workers’ jobs are no longer secure.
⮚ MNCs look for the cheapest goods in order to maximise their profits. To
get these large orders, Indian garment exporters try hard to cut their own
costs. As cost of raw materials cannot be reduced, exporters try to cut
labour costs.
⮚ They employ workers only on a temporary basis so that they do not have
to pay workers for the whole year.
⮚ Workers also have to put in very long working hours and work night
shifts on a regular basis during the peak season.
⮚ Wages are low and workers are forced to work overtime to make both
ends meet.
⮚ Most workers, today, are employed in the unorganised sector.
⮚ Thus, workers have not benefitted by globalization.
7.How globalization be made fair to all ?
⮚ The government can play a major role in making this possible. Its policies
must protect the interests, not only of the rich and the powerful, but all the
people in the country.
⮚ The government can ensure that labour laws are properly implemented and the
workers get their rights.
⮚ It can support small producers to improve their performance till the time they
become strong enough to compete. If necessary, the government can use trade
and investment barriers.
⮚ It can negotiate at the WTO for ‘fairer rules’. It can also align with other
developing countries with similar interests to fight against the domination of
developed countries in the WTO.
⮚ Massive campaigns and representation by people’s organisations can influence
important decisions relating to trade and investments at the WTO.

8.Evaluate the role of MNCs in the economic development of a country .

⮚ MNCs have substantially contributed towards economic development of a
country.
⮚ They have helped in economic development of a country through increased
foreign investment.
⮚ They have contributed in rapid process of economic development of a country
through transfer of advanced technology and modern management.
⮚ MNCs by producing certain required goods in the host countries help in
reducing dependence on imports.
⮚ MNCs accelerates the growth processes in the host country through rapid
industrialization and allied activities.
⮚ MNCs have generated employment opportunities in host countries by setting
up offices or industries and thus adding up to the GDP of the economy.
9.In what ways MNC is different from local companies?
⮚ A MNC is different from local companies in following ways:
⮚ A local company produces goods within the national boundary, whereas a
MNC produces goods globally.
 ⮚ A local company uses resources of its own land, whereas a MNC uses
resources of other countries as well.
⮚ A MNC produces goods where the cost is lowest, whereas a local company
may not always produce as the lowest cost.
10. Critically analyse the role of MNCs in promoting globalization process.
⮚ MNCs are playing a major role in promoting globalization.
⮚ More and more goods and services , investment and techologyare moving
between countries.
⮚ MNCs are setting up offices and production units in more than one nation.This
facilitates integration of production processes across countries.
⮚ Producers in two countries are now closely compete with each other, even
though they are thousand of miles away. Thus resulting in integration of
markets in different countries.
⮚ Most regions of the world are now in closer contacts with each other than a
few decades away.
11. Describe any five factors that promote the Multinational Corporations
(MNCs)to set up their production units in a particular place.
The factors that MNCs take into consideration to set up their production units in
a particular place are:
⮚ where it is close to the markets.
⮚ where the skilled and unskilled labour at low costs is available.
⮚ where the favourable government policies looking after their interest are ,
present.
⮚ where the other factors of production such as raw materials, water,
electricity and transport are available.
⮚ where there are standard safety measures for assured production.
12.Why had Indian government put barriers to foreign trade and foreign
investment after independence? Explain./ What was Indian government trade
policy before 1991?
The Indian government put barriers on foreign trade and foreign investment
after independence because:
⮚ It was considered necessary to protect the producers within the country
from foreign competition.
⮚ In 1950s and 1960s, the industries were in early stage and competition
from imports at that stage would not have allowed these industries to
develop.
⮚ Therefore, India allowed the imports of only essential items like
machinery, fertilizers, petroleum etc.
13.Why have the barriers on foreign trade and foreign investment been removed to
a large extent by the Indian government? Explain./ What was Indian government
trade policy after1991?
⮚ In 1991, the Indian government decided that the time has come for Indian
producers to compete with producers around the world. It felt that
foreign competition would improve the quality of goods produced by
Indian producers within the country.
⮚ Thus, barriers on foreign trade and foreign investment were removed to a
large extent. It meant goods could be imported or exported easily and
foreign companies could set up factories and offices in India.
14. How does foreign trade lead to integration of markets across the countries?
● Foreign trade is the main channel which connects the markets of various
countries.
● It creates opportunities for the producers to sell their products beyond the
markets of their own countries and to consumers provide choice of goods
beyond that are produced domestically.
 ● Goods travel from one market to another.
● Choice of goods in the markets rises.
● Prices of similar goods in the two markets tend to become equal.
● Producers of different countries compete with each other although they are
thousands of miles away.

15. Enumerate any three features of Multinational Corporations.

Multinational Companies (MNCs) are the companies that own or control the
production of their goods in more than one country. The main features of MNCs are:
● They set up their factories and offices in more than one country.
● The set up their units where the cost of production is low and higher profits
can be earned.
● They produce and sell their finished products globally.

16. Why did India put barriers on foreign trade and investment after independence?
Why was the policy changed in 1991? Mention any two reasons.
Soon after independence Indian government had put barriers on foreign trade and
investment because:
● To protect Indian producers from foreign competition.
● Industries were just coming up and competition from abroad would not have
allowed these industries to grow.
● It was considered important to create a large industrial base which helped in
increasing the industrial production.
Policies were changed in 1991 because:
● The government decided that the time has come for the Indian producers to
compete with the producers around the globe.
● Global competition of Indian producers will improve the performance of
Indian producers. It will result in improving quality of their products.
● It will bring additional investment, newer technology and generate
employment and add to GDP of the country, help in economic development.

17. Analyse any three impacts of globalization in India.

OR
‘‘The impact of globalization has not been uniform’’. Explain this statement.
OR
‘‘In spite of numerous advantages, there are many problems that globalisation still
faces’’. Support the statement with three problems.
OR
Should more Indian companies emerge as MNCs? How would it benefit the people in
the country?
Ans.Yes, more Indian companies should emerge as MNCs. It would benefit the
people in the country in the following ways :
(Discuss positive impacts of consumers and producers )
Ans. Impacts of globalization in India are as follows:
● On consumers: ( positive impact, discussed later; qs. no. 24)
● On large producers: ( positive impact)
⮚ MNCs have increased their investment s in India. Local companies
supplying raw materials to these industries have prospered.
⮚ Several top Indian companies have been able to benefit from
increased competition.
⮚ They have invested in newer technology and production methods
and raised their production standards. Some have gained from
successful collaborations with foreign companies.
 ⮚ Many Indian companies have emerged as multi nationals
themselves.. Tata Motors, Infosys,
⮚ New opportunities have been created for companies providing
services specially in IT sector. India has become a leading country
providing software for other countries.

● On small producers: ( Negative impact)

⮚ Large numbers of small producers and wokers have been
adversely hit by globalization.
⮚ Batteries, capacitors, plastics, toys, are some industries which have
been hard hit by foreign competition.
⮚ Mostly these producers have lost market because they couldnot
compete with foreign goods on account of quality and prices.
⮚ Several small units have been closed down. Many workers have
become jobless.
⮚ Small scale industry employ the largest number of workers after
agriculture in India.
● On workers: (Negative impact)
⮚ Jobs are no longer secured.
⮚ Due to growing competition and to cut down the prices , the
producers prefer to employ workers flexibly.
⮚ As cost of raw materials could not be reduced , the exporters
prefer to cut labour cost.
⮚ Workers are hired during peak seasons and laid off as soon as
goods are ready for delivery.
⮚ Wages are low and workers are forced to work long hours to make
both ends meet.

18. How has liberalisation of trade and investment policies helped the globalisation
process? Explain.
Economic liberalisation means reducing government interference in economic
activities and removing trade and business barriers.
Liberalisation of trade and investment policies helped the globalisation process in the
following ways:
● Businesses are free to make decisions for foreign import and export.
● Goods could be imported and exported easily.
● Foreign companies could easily set up factories and industries in a country
after liberalization

19. Describe any three factors which have enabled globalisation in India.
Globalisation means integration of the domestic economy with the world economy
through trade, capital and technological flows.
Factors that supported globalisation in India are as follows :
● Rapid improvement in transportation: discussed later
● Rapid improvement in information technology: discussed later
● Liberalisation policy: discussed earlier

20. What is meant by trade barrier ? Why do governments use it? What are the tools
of trade barriers? Explain.
Barriers or restrictions that are imposed by government on free import and export
activities are called trade barrier. Government can use the trade barriers in the
following ways :
● To increase or decrease foreign trade of the country.
 ● With the help of trade barriers government can decide what kinds of goods
and how much of each, should be traded in the country.
Tools of trade barriers are:
● Tax on imports is a vital trade barrier.
● Quota fixation.
21. Mention any three steps which have been taken by the government of India to
attract foreign investment in recent years?
● Special Economic Zones are being set up.
● These are to provide world class facilities: electicity, water, roads, transport,
etc.
● Companies who set up production units in the SEZs do not have to pay taxes
for an initial period of five years.
● Government has allowed flexibility in the labour laws to attract foreign
investment.
● This is done to reduce the labour cost for the company which would increase
their profits.
22. How have transportation technology and information and communication
technology stimulated the globalisation process? Explain with suitable examples.
OR
Describe the role of technology in promoting globalization.
Transportation technology :
● Rapid improvement in transportation technology has been one major factors
that has stimulated the globalisation process.
● In past 50 years there has been several improvements in transportation
technology.
● This has made much faster delivery of goods across long distances possible at
lower prices.
● Faster planes cover the distance within a few hours between one country to
another. Similarly, the cost of air transport has fallen.
● Use of container service has led to reduction in port handling costs and
increased speed with which exports can reach markets. With use of containers
goods can be loaded intact onto ships , railways, planes and trucks.
Information and Communication Technology :
● In recent times communication and information technology got a boost from
the invention of computers and internet etc.
● Information Technology (IT) has played a major role in spreading out
production of services.
● This has been facilitated by satellite communication devices.
● Internet also allows us to send instant electronic mail (e-mail) and talk (voice-
mail) across the world at negligible costs.
● For example, a news magazine published for London readers is to be designed
and printed in Delhi. Design of magazine and payment for publishing can be
easily handled through the internet.
23. How could you distinguish between ‘foreign trade’ and ‘foreign investment’?
Explain the role of MNCs in foreign trade and foreign investments.
● Foreign trade is movement of goods and services between different countries.
For example, export and import of goods and services from one country to
another.
● But foreign investments are investments made by MNCs. For example,
investment in land, machines, building etc. to earn profit
Role of MNCs in foregin trade and foreign investments :
● MNCs can provide money for additional investments like buying new
machines for faster production to small companies.
 ● MNCs can provide efficient managerial and advanced technology for faster
production and efficient use of resources. So MNCs play an important role in
foreign investment.
● MNCs facilitate movement of goods and services between various countries.
So MNCs promote foreign trade also.
● Movement of people across the globe also creates better job opportunities and
better income.
24. ‘Globalisation and competition among producers have been of advantage to the
consumers.’ Give arguments in support of this statement.
● Well off sections of urban consumers have greatly benifitted.
● More choice for consumers: Globalisation and competition among producers
has enabled the consumer to have a wide range of choice available in market.
For example, Chinese toys and Indian toys both are available.
● Consumer have an advantage of better quality products.
● They are able to get quality products at lower prices in the market.
● As a result consumers are enjoying much higher standard of living than
before.
● So consumers are ultimately benefitted.

*Use Case Studies To Expand Your Answers.

Addition to Notes on Globalization and Indian Economy

Q.1. How has WTO affected Indian economy? What were its favourable and
unfavourable impact?
Ans. Effect of Functioning of WTO on Indian Economy : The developing countries
like India feel cheated as they are forced to open up their markets for the developed
countries but are not allowed access to the markets of developed countries.
Favourable Impacts of WTO working : WTO promotes international trade among
member countries in an open, uniform and non-discriminatory manner.
Unfavourable Impacts of WTO : WTO is dominated by the developed countries,
especially by America, European Union and Japan etc. Developing and poor countries
are forced to reduce trade barriers and are not consulted by developed countries
during their negotiations.

Q.2. What complaint do farmers of developing countries have against developed

country governments?
Ans.
 In developing countries, governments have reduced trade barriers as per WTO
rules. But developed countries have ignored the rules of WTO and have
continued to pay their farmers vast sums of money for production and for
export to other countries.
 Therefore, farmers of developed countries are able to sell farm products at
abnormally low prices in foreign markets which is adversely affecting the
farmers of developing countries. This is really a case of unfair trade.