Chapter – 4

Globalisation and the Indian economy

Q- 1) What do you understand by globalisation?

Ans. (a) Globalisation means integrating the economy of a country with the economies of other
countries under conditions of free flow of trade and capital, and movement of persons
across border.

(b) There would be unrestricted flow of goods and services, technology and expertise
among different
countries of the world.

(c) There would be increased co-operation of an economy with different economies across
the world.
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Q – 2) What were the reasons for putting barriers to foreign trade and foreign investment by
Indian
Government? Why didit wish to remove these barriers?

Ans.Reasons for putting barriers to foreign trade and foreign investment by the Indian
Government:-
(a)After Independence, it was considered necessary to protect the producers within the
country from foreign competition.

(b) Indian industries were in their infant stage and competition from imports at that stage
would not
have allowed these industries to come up.

(c) India allowed imports of only essential items such as machinery, fertilizers, petroleum,
etc., which
were required for the growth of industries.

Why did Indian Government wish to remove these Barriers:

(a)Around 1991, the government decided that the time had come for Indian producers to
compete with the producersaround the globe.

(b) The government felt that competition would improve the performance of producers within
the country asthey would have to improve their quality.

With this view in mind, the barriers on foreign trade and foreign investment were removed to
a large extent.
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Q - 3) How would flexibility in labour laws help companies?

Ans. a)Flexibility in labour laws helps companies to employ labour as per their requirements.

(b) They can employ labour on casual and contractual wages. They can turn out labour
whenever they feel to do so.
 (c) They are not bound by any labour laws when they employ only casual and contractual
labour.
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Q – 4) Why do Governments try to attract more foreign investments?

Ans. (a) It brings in money and capital:
Foreign investments help in bringing money and capital which is scarce in developing
countries.

(b) It brings in new technology:

As developed countries have latest technology of production therefore if they invest in
developing
countries, it would help these countries in increasing production.

(c) Creates more employment and generates income:

As developing countries suffer from unemployment problem and less GDP therefore foreign
Investmenthelps in creating employment opportunities as well as income in the countries.

(d) Stimulates Competition:

Foreign investments increases competition between the domestic companies and the
foreign
Companies, which in turn results in adoption of advanced technology by the domestic companies
andhence efficiency aswell as productivity increases in the domestic companies.

(e) More income to the Government:

Investments by the foreign companies lead to more tax revenue to the government.
Consequently, the governmentcanspend more money for the benefit of the poorer people.
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Q- 5) Why do developed countries want developing countries to liberate their trade and
investment?
What do you think should the developing countries demand in return?

Ans.(a)Developed countries want developing countries to liberalise their trade and investment
so that
they may sell their surplus products at low prices in these countries. For example, Chinese toys
are
being imported and sold in the Indian markets. In this way, various companies of developed
countries make huge profits.

(b) These companies set up factories in developing countries due to the availability of cheap
labour
which reduces the cost of production, thus increasing their profits.

However, the developed countries have their own interests and are biased against the
developing countries. For example, in the US massive sums of money paid to the agriculture
sector for production and exports to other countries at low prices. On the other hand, the
developing countries like India have been asked to put restrictions on the provision of subsidized
food grains. This is unfair for the developing countries who should ask the developed countries
to have free and fair trade in the world and to protect their interest.
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Q - 6) How has liberalization of trade and investment policies helped the globalization
process?

Ans. (a) Removal of restrictions and trade barriers has resulted in great expansion of exports
and imports.

(b) Removal of investment restrictions has resulted in:

(i) MNCs coming to India to invest their money.
(ii) Indian companies going abroad to invest in other countries.

It means due to liberalization a two-way flow of goods, services, capital, technology and labour
is taking placewhich is promoting globalization.
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Q – 7) How will the import of steel from India into the Chinese markets lead to integration of
markets for steel in twocountries? Explain.

Ans. When a product is traded between two countries, the forces of demand and supply result
in a uniform
price of the product in two countries. Import of steel by China will result in:

(a) Increased demand of steel from India to China, resulting in rise in prices of steel in India.
(b) Increased supply of steel in China, resulting in fall in prices of steel in China.

These movements in prices of steel will continue till the prices in two countries are same.
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Q – 8) What is a Multinational Corporation?

Ans.A company that owns or controls production in more than one nation is called MNC.
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Q - 9) Distinguish between Foreign Trade and Foreign Investment?

Ans.Foreign Trade- is a trade between two or more countries where producers can sell their
products.
Foreign investment– investments made by MNCs in a countryis called foreign investment. They
could invest to buy assets such as land, building, machines and other equipments in a country
with the hope to earn profits.
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Q – 10) How does foreign trade lead to integration of markets across countries?

Ans. Foreign trade has led to integration of markets across countries in the following ways:
(a) Foreign trade creates an opportunity for the producers to reach beyond the domestic
markets i.e.
markets of their own countries.
(b) Similarly, for the buyers, import of goods produced in another country is one way of
expanding the
choice of goods beyond what is produces within the country.

(c) Prices of similar goods in the two markets tend to become equal.

(d) Producers from other countries can set up joint ventures with domestic companies.
For example, various foreign companies such as AIG have set up joint ventures in insurance
sector and
are selling their products in India. Such activities lead to integration of markets across countries
and
bring them closer to each other.
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Q – 11) What are the factors responsible for Globalisation?

Ans.ITechnology :

(a)Improvement in transportation technology: In the last 50 years there has been a rapid
improvement in transportation technology which is amajor factor responsible for globalisation.
This has made much faster delivery of goods across long distances possible at lower costs.

(b)Development in Information and communication technology : telecommunication, computers,

internet has gven a big boost to the process ofglobalisation.Because of the modern facilities, it
is very easy to access information instantly and to communicatefrom remoteareas.

USES OF INFORMATION TECNOLOGY IN GLOBALISATION:

(i) Helps in communication across the world at negligible cost.
(ii) Transfer of data and other information.
(iii) Transfer of money across the countries ( e-banking)
(iv) Links the markets of various countries
(v) Sets up customer care centre.
IILiberalisation:
World trade organization promotes free trade between countries. It says all barriers to foreign
trade and investment are harmful thus countries should liberalise their trade policies. This has
resulted in globalization.
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Q – 12) Explain the consequences of globalisation on India and what role the Government
can play in fair
globalisation?

Ans. (a) It is evident that everyone has not benefitted from globalisation and it is only people
with
education, skill and wealth who have made the best use of new opportunities.

(b) On the other hand, there are many who have not shared the benefits.
Hence there is a need to make globalisation fair by creating opportunities for all and by
insuring better sharing of its benefits.

Role of the Government OR steps that may be taken to make globalisation more fair:
(i) Government should prepare such policies that must protect the interests of all the
people and not the rich.
 (ii) Government can ensure that labour laws are properly implemented and the workers get
their rights.

(iii) Government can reserve some items exclusively for small scale and local producers.

(iv) The Government can use trade and investment barriers like quota system, import duties
etc. It can
negotiate at the WTO for fair trade.

(v) It can also align with other developing countries with similar interest to fight against the
domination
of developed countries in WTO.
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Q – 13) Mention the steps taken by India in the direction of globalisation.

Ans. (a)Simplification of custom procedures.

(b) Allowing relaxation of investment and capital flow between countries.
(c) Improving technological capability so that the Indian industry could compete with the
international
market.
(d) Encouraging business community to do business globally.
(e) Custom duties and tariffs on imports and exports have been gradually reduced.
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Q – 14) What is the impact of globalisation on consumers, producers and workers?

Ans.On Consumer:
(a) Globalisation and greater competition among producers i.e. local and foreign producers
has been of advantage to consumers particularly the well-off sections in the urban areas.

(b) There is greater choice before these consumers who now enjoy improved quality of
products and at lower prices.

(c) It has led to a higher standard of living of the people.

On Producers:
(a) MNCs have increased their investments in India over the years which means investing in
India has been beneficial to them.

(b) MNCs have been interested in industries like cell phones, automobiles, electronics, soft
drinks, fast food and services like banking, etc in urban areas. Local companies who
supply raw material to them have also prospered in this process.

(c) Top Indian companies have also benefitted from the increased competition. They have
invested in newer technology and production methods.

(d) Some domestic producers have gained from successful collaborations with foreign
companies.

(e) Globalisation has enabled some large Indian Companies to emerge as multinational
themselves like Tata Motors (automobiles), Infosys (IT), Ranbaxy (Medicines), Asian
Paints, Sundaram Fasteners (nuts & bolts).
( f)New opportunities for companies providing services particularly IT services have been
created. For example,the Indian company producing a magazine for London based company and
call centreslocated in India for an American MNC.

e) Services like data entry, accounting, administration tasks, engineering etc. are done
cheaply in countries like India and are exported to developed countries.
On Workers:
(a) Most of the workers are now employed in the unorganised sector.

(b) Conditions of work in the organised sector have started resembling as those in the
unorganised sector, i.e., the protection and the benefits enjoyed by the workers earlier.
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Q – 15) What is a trade barrier? What is its use?

Ans. Trade barrier is the restrictions put by the government on the import of goods in order to
regulate foreign trade. These barriers provide protection to domestic producers from foreign
trade.
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Q – 16) What is Liberalisation?

Ans. Liberalisation: Removing barriers and restrictions on foreign trade and foreign investment
is known as
liberalisation. The producers are free to decide what to import or export.
For example: abolition of industrial licensing, freedom for expansion of business in
international market, freedom to import technology,reducetaxes on imports, etc.
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Q – 17) Name the Indian Companies that have emerged as MNCs. Should more Indian
companies emerge
as MNC? How woluld it benefit the people in the country?

Ans. (a) Tata Motors (automobiles), Infosys (IT), Ranbaxy (Medicines), Asian Paints, Sundaram
Fasteners
(nuts& bolts) are MNCs.

(b) More Indian Companies should emerge as MNCs because it will bring more countries closer
to
India. There will be more movement of people between the countries for better jobs.

(c) More superior quality goods will be available to the people.

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Q -18) What is the idea of developing Special Economic Zones (SEZs) in India?

Ans. (a)The idea behind SEZs is to attract foreign companies to invest in India.

(b) SEZs have world class facilities like electricity, water, roads, transport, storage, educational
and
recreationalfacilities, etc.
 (c) Companies who set up production units in these zones do not have to pay taxes for an
initial
period of five years.
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Q -19) What is the benefit (result) of foreign trade?

Ans.It results in connecting of the markets or integration of markets in different countries.

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Q – 20) Are there any benefits of collaboration to a local producer?

Ans.The benefits are two-fold:

(a) MNC can provide money for additional investments like buying new machines for faster
production.

(b) MNC might bring latest technology for production.

But mostly MNC buys the local company and then expand production.
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Q – 21) “The impact of globalisation hasnot been uniform”. Explain this statement.

Ans. Globalisation has resulted in more choice for the consumers who enjoy better quality and
lower
prices for many goods. It has improved the standard of living of the people particularly in the
urban
areas.

The impact on producers and workers has not been uniform as explained below:
Good Impact:
(a) MNCs have increased their investments in the developing countries like India in industries
like cell
phones, automobiles, electronics, etc.

(b) The local companies who supply raw material to MNCs have also benefitted.

(c) Companies providing services particularly in the field of information and communication
technologies have benefitted from globalization.

(d) Some companies in India have invested in newer technology and production methods and
have
been successful in raising their production standards like Tata Motors, Infosys are MNCs.

Bad Impact:
(a) Special Economic Zones: SEZ’s are being set up by the Central and State
Governments.
to attract foreign investment where world class facilities of electricity, water, roads,
transport and education are provided. But these facilities are provided by disrupting the
 lives of people who are displaced such as tribal. In order to produce more electricity, dams
are constructed and their land is submerged. People are left without jobs at such places.

(a) Flexibility in labour laws:

Flexibility in Labour Laws is allowed by the government to attract foreign investment. It
has affected
theworkers badly as they are appointed on temporary basis to avoid payment of provident fund
and
otherfacilities. No overtime is paid for extra hours of work.

(b) Effect on Small Producers:

It has affected the Small Producers because they are unable to compete with MNCs or the
big
producers. Several units have been shut down rendering many workers jobless.
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Q – 22) Supposing you find two people arguing: One is saying – “Globalization has hurt our
country’s development.” The other is telling –“Globalization is helping India develop.”How
would you respond to these arguments?

Ans.1) Both the arguments are true as globalisation has hurt our industrial development because
small
industries like toy industry may not be able to compete with the international enterprises like
Chinese toy industry. The Indian toy industry has suffered in the competition with its Chinese
counter
parts because Chinese toys have become very popular. This competition has led to less
employment
opportunities.

2) On the other hand, globalisation has helped India to develop in a better way. More and More
MNCs
are makinginvestment in different sectors like banking, insurance and food. It has benefitted
the
people in different waysand resulted in development of the country.

Therefore both the arguments are true but if steps are taken to have a fair globalisation
then the bad
effects can be minimized.

Q -23) How is Information Technology connected with globalisation? Would globalisation

have been possible without expansion of IT?

Ans.Information and Communication Technology has spread very fast in the recent years.
Telecommunication facilities are used to contact one another around the world, to access
information
Instantly, and to communicate from remote areas.

Internet has dramatically brought changes in the way business is conducted. Every transaction is
possible through internet. It includes transfer of technology, money across countries.
 Therefore it is only through information technology that globalisation was possible. It has
facilitated in
bringing the countries closer.
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Q – 24) Explain the variety of ways in which MNCs are interacting with local producers in
various countries across the globe.

Ans. (a) By Joint Venture:

Sometimes MNCs set up production jointly with some of the local companies. The
benefit to the
local company is two – fold.
First, MNCs can provide money for additional investments and secondly MNCs might bring with
them the latest technology for production.
Example:

(b) By placing orders to small producers:

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.
Example:
(c) By buying local companies:
MNCs sometimes buy local companies and expand production.
Example:

(d) By setting – up production units in other countries:

Sometimes MNCs set up their production units in countries where cost of production is
less so that
they can earn more profits.
Example-
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Q25. Examine any three conditions which should be taken care of by multinational
corporations to set up their production units in a country.
Ans. a) MNCs set up production where it is close to the markets.
b) where there is skilled and unskilled labour available at low costs.
c) where the availability of other factors of production is assured.
d) MNCs might look for government policies that look after their interests.

Q26. What is the role of WTO in international trade?

ANS. i) WTO aims to liberalise International trade.
ii) It establishes rules regarding international trade and sees that these rules are obeyed.
iii) 164 countries of the world are its members.
iv) It is seen that the developed countries have retained trade barriers. On the other hand, WTO
rules have forced developing countries to remove trade barriers.
Q27. Give two examples of trade barriers set by countries.
Ans. i) Taxes on imports.
ii) The government can also place a limit on the number of goods that can be imported.
This is known as quota