Globalisation and the Indian Economy Class 10 Notes Social Science Economics Chapter 4
Changing Market Trends
Today, consumers have a wide choice of goods and services before them. Various digital cameras, mobile phones and televisions made by the leading manufacturers of the world can be bought and used. Citizens of any country can buy anything, produced in any country of the world. This transformation and integration in markets is a recent phenomenon.
Until the middle of the twentieth century, production was largely organised within countries. Only raw material, food stuff and finished products were transported back and forth across countries. Colonies such as India exported raw materials and food stuff and imported finished goods.
Earlier, trade was the main channel connecting distant countries. Today, multinational companies have integrated them further. MNCs have set up offices and factories for production in regions with cheap labour and other resources. This helps MNCs earn more profits. MNCs help to sell and produce the goods and services globally. Production is organised in different ways.
The production process is divided into small parts and spread out across the globe.
- China provides the advantage of being a cheap manufacturing location.
- Mexico and Eastern Europe are close to markets in the US and Europe.
- India has highly skilled engineers to aid the technical aspects of production. It also has educated English-speaking youth to provide customer care services.
- This reduces the cost of production for MNCs.
Frequently Asked:
A multinational corporation or MNC is a company that owns or controls production in more than one nation.
MNCs also set up production jointly with local companies in various countries.
It benefits the local companies in following ways:
- MNCs can provide monay for additional investments.
- MNCs might bring with them the latest technology for production.
MNCs set up production in areas which are:
- Close to the markets,
- Hubs of skilled and unskilled labor available at low costs;
- Other factors like transportation are easily available.
- In addition, MNCs often look for government policies to keep their interests up.
- MNCs set up factories and offices for production.
Important:
The money spent to buy assets such as land, building, machines and other equipment is called investment. The investment made by MNCs is called foreign investment. Any investment is made with the hope that these assets will earn profits.
MNCs invest usually by buying up local companies and then to expand production. This expands its reach to different local markets and increases its production capacity. Richest MNCs around the world have more wealth and greater budgets than the governments of some developing country.
MNCs control production by placing orders for production with small producers. Production is carried out by a large number of small producers around the world. Products are then supplied to the MNCs, which sell them under their own brand names to the customers.
MNCs have tremendous power to determine price, quality, delivery, and labour conditions for these distant producers.
MNCs spread their production through interaction with local producers in various countries across the globe.
MNCs thus exert influence on production at these distant locations by:
- setting up partnerships with local companies,
- using the local companies for supplies,
- closely competing with the local companies
- buying Local companies
As a result, production in these widely dispersed locations is getting interlinked.
Foreign trade was the main channel connecting countries. Trading interests attracted various trading companies such as the East India Company to India. Foreign trade thus creates an opportunity for the producers to reach beyond their local and domestic markets.
Producers can also compete in markets located in other countries of the world.
For consumers, the import of goods produced in another country helps expand the choice of goods beyond items produced domestically.
Prices of similar goods in the two markets tend to become competitive and producers in the two countries compete against each other despite being separated by miles. Foreign trade integrates or connects the markets of different countries.
Foreign Trade And Investment
MNCs have been boosting foreign trade for the past few decades. They control a significant portion of foreign trade. Foreign investment by MNCs has been rising. Most activities in MNCs involve substantial trade in goods and services. The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries. This process comprises rapid integration or interconnection between countries and is called Globalisation.
MNCs play instrumental roles in Globalisation. Goods and services, investments and technology are flowing between countries on a larger scale. Countries are building closer relationships.
Countries are also connected through movement of people in search of better income, better jobs or better education between them. There has not been an exponential rise in movement between countries due to various restrictions.
Example 1.
Read the source given below and answer the questions that follow:
Chinese manufacturers learn of an opportunity to export toys to India, where toys are sold at a high price. They start exporting plastic toys to India. Buyers in India now have the option of choosing between Indian and the Chinese toys. Because of the cheaper prices and new designs, Chinese toys become more popular in the Indian markets. Within a year, 70 to 80 per cent of the toy shops have replaced Indian toys with Chinese toys. Toys are now cheaper in the Indian markets than earlier.
Let us see the effect of foreign trade through the example of Chinese toys in the Indian markets. What is happening here? As a result of trade, Chinese toys come into the Indian markets. In the competition between Indian and Chinese toys, Chinese toys prove better. Indian buyers have a greater choice of toys and at lower prices. For the Chinese toy makers, this provides an opportunity to expand business. The opposite is true for Indian toy makers. They face losses, as their toys are selling much less.
(A) Which of the following is not the benefit of Chinese producers exporting toys to India?
(a) It gives Indian consumers a variety of people to choose from.
(b) It makes the products cheaper.
(c) It increases the demand of Indian toys.
(d) It increases the competition between manufacturers.
Answer:
(c) It increases the demand of Indian toys.
Explanation: Chinese toys reduce the demand of Indian toys. Indian Manufacturers have to face loss.
(B) Mention one way to ensure that Indian manufacturers face no loss when Chinese toys are imported.
Answer:
Taxes or Trade barriers can be imposed on Chinese Toys.
Explanation: Taxes imposed on Chinese toys will provide both products- Indian and Chinese- a level playground in the markets. The customers will then prefer the products of better quality. This can help the Indian toys.
(C) Fill in the blank by choosing the most appropriate option:
The practice of buying toys from China is called the Chinese toys.
(a) Importing
(b) Manufacturing
(c) Exporting
(d) Trading
Answer:
(a) Importing
Explanation: When we buy foreign goods, we are importing goods and when we are seLling goods, we are exporting goods.
(D) Assertion (A): Chinese toys to be cheaper than Indian toys.
Reason (R): Low labour wages and low prices of raw materials in China along with the presence of better technology reduces cost of production of Chinese Toys.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b) Both (A) and (R) are true but (R) is not the correct explanation of (A).
(c) (A) is correct but (R) is wrong.
(d) (A) is wrong but (R) is correct.
Answer:
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
Example 2.
Choose the correct option. Globalisation, by connecting countries, shall result in:
(a) lesser competition among producers.
(b) greater competition among producers.
(c) no change in competition among producers.
Answer:
(b) greater competition among producers.
Factors That Have Enabled Globalisation
Technology:
Rapid improvement in technology stimulated the globalisation process. Transportation technology has made delivery of goods across long distances faster and cheaper. The developments in information and communication technology has helped in quicker flow of ideas and culture. The internet, telecommunication facilities (telegraph, telephone including mobile phones, fax) facilitated by satellite communication devices have made it easy to communicate, interact even in the remotest areas of the world.
The internet has made it possible for one to obtain and share information. The Internet helps us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible costs.
Information and Communication technology helped spread production of services across countries.
Liberalisation of Foreign Trade and Foreign Investment Policy Tax on imports is an example of a trade barrier. Indian Government used this to protect Indian industries after gaining Independence from foreign competition and continues to use the same today for boosting native enterprises. Governments can use trade barriers to increase or decrease (regulate) foreign trade.
Industries were beginning to establish themselves and the competition from imports at that stage would not have allowed these industries to prosper initially. India allowed imports of only essential items such as machinery, fertilisers, petroleum etc. All countries give or have given protection to domestic producers through a variety of means.
Starting around 1991, Indian government changed their approach because they felt competition would boost these industries and give them greater markets to trade. It would also contribute in terms of quality. Hence barriers were strategically lifted and the Indian market was opened to the world. This meant that goods could be imported and exported easily and also foreign companies could set up factories and offices in India.
Important:
Information and communication technology (or IT in short) has played a major rote in spreading out the production of services across countries
Frequently Asked:
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.
World Trade Organisation
The decision to liberalise Indian trade was supported by various International Organisations. They support open economy and restriction-free trade. They say that all countries in the world should liberalise their policies.
The World Trade Organisation (WTO) aims to liberalise international trade. WTO establishes rules regarding international trade and regulates their implementation.
About 164 countries of the world are members of the WTO. In practice, WTO is dominated by Western developed countries. They have unfairly retained trade barriers. WTO rules have forced the developing countries to remove trade barriers. For example, the trade on the agricultural products is one example.
Impact of Globalisation On India:
Globalisation and greater competition among advantageous to consumers especially those who indgenous and foreign producers has been belong to the urban areas. Consumers are able to enjoy improved quality and lower prices for several products. People enjoy higher standards of living today.
However, among producers and workers, the impact of globalisation has not been uniform.
For the past two decades, MNCs have been increasing their investments in India which shows that investing in India has been beneficial for them. They have been interested in fields and industries like mobile phones, automobiles, electronics, soft drinks, fast food or services such as banking in urban areas. These products are popular and have numerous customers. Employment has been created. The local companies supplying raw materials have prospered.
Frequently Asked:
The central and state governments have created special zones to attract foreign investment. Industrial zones called Special Economic Zones (SEZs) have been set up.
SEZs are to have world-class facilities:
- Electricity and Water
- Roads, transport, storage, recreational and educational facilities.
- Companies with production units in the SEZs do not have to pay taxes for an initial period of five years.
Example 3.
Match the following:
|
Column A |
Column B |
| (i) MNCs buy at cheap rates from small producers | (a) Automobiles |
| (ii) Quotas and taxes on imports are used to regulate trade | (b) Garments, footwear, sports items |
| (iii) Indian companies who have invested abroad | (c) Call centres |
| (iv) IT has helped in spreading of production of services | (d) Tata Motors, Infosys, Ranbaxy |
| (v) Several MNCs have invested in setting up factories in India for production | (e) Trade barriers |
Answer:
|
Column A |
Column B |
| (i) MNCs buy at cheap rates from small producers | (b) Garments, footwear, sports items |
| (ii) Quotas and taxes on imports are used to regulate trade | (e) Trade barriers |
| (iii) Indian companies who have invested abroad | (d) Tata Motors, Infosys, Ranbaxy |
| (iv) IT has helped in spreading of production of services | (c) Call centres |
| (v) Several MNCs have invested in setting up factories in India for production | (a) Automobiles |
Most successful Indian companies have been able to benefit from the increased competition. They have invested in newer technology and production methods and raised their production standards. They have also gained through their foreign collaborations.
Tata Motors (automobiles), Infosys (IT), Ranbaxy (medicines), Asian Paints (paints), Sundaram Fasteners (nuts and bolts) have been successful enough to emerge as MNCs themselves.
Globalization has created new opportunities for companies providing certain services like IT. Services like data entry, accounting, administrative tasks, engineering are now being produced in India and exported to other countries.
Globalisation has posed major challenges for both small and new producers. Producers and manufacturers of batteries, capacitors, plastics, toys, tyres, dairy products, and vegetable oil have been hit hard due to competition. Various units had to be shut down due rendering workers homeless.
Important:
- Small industries in India employ the largest number of workers (20 million) in the country, next only to agriculture.
- MNCs in the garment industry in Europe and America order their products from Indian exporters. These MNCs look for the cheapest goods in order to maximise their profits. To attract these companies, Indian producers try to cut labour costs. They employ workers on a temporary basis to avoid partying them for the entire year.
- Workers put in very long working hours and work night shifts regularly. Wages are low and workers are forced to work overtime. Despite this hard work, the workers are denied their fair share of benefits brought about by globalisation.
- MNCs achieve profits while the workers suffer.
Example 4.
Choose the most appropriate option. 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.
Answer:
(b) goods, services and investments between countries.
Example 5.
Choose the most appropriate option. 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.
Answer:
(b) buy existing local companies.
Example 6.
Choose the most appropriate option: 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:
(a) of all the people
The conditions of work and the hardships of the workers are common to almost every industry today. Most workers are employed in the unorganised sector. The organised sector have come to resemble the unorganised sector because of the hard conditions. The benefits of the workers are no longer ensured.
Not everyone has benefited from globalisation. People with education, skill and wealth have been able to make the best use of these opportunities.
Fair Globalisation
Globalisation can be made fair. This would create opportunities for all and help share the benefits of the Globalisation evenly. The government can help achieve that by making policies which protect the interests of the rich and poor alike.
The government can ensure various steps to ensure the effects of Globalisations are shared evenly. For example, it can ensure that:
- Labour laws are properly implemented and the workers get their rights.
- It can support small producers and help them improve their performance.
- It can use trade and investment barriers to support native industries.
- It can negotiate at the WTO for ‘fairer rules’.
- It can align with other countries to fight against the domination of developed countries in the WTO.
Massive campaigns and representation by people’s organisations have helped alter trade and investments related decisions at the WTO. This shows that people also play an important role in the struggle for fair globalisation.
→ Globalisation: Integration and spread of products, technology, information, and jobs across nations.
→ Liberalisation: Removal of trade barriers.
→ Customer Care Services: It is the act of taking care of the customer’s needs by providing and delivering professional, helpful, high quality service and assistance before.
→ Assets: Something that contains an economic value and/or future benefit.
→ Foreign trade: Buying and selling of goods between countries.
→ Export: Selling goods to foreign countries and markets.
→ Import: Buying goods from foreign countries and markets.
→ Telecommunications: It is the transmission of information by various types of technologies over wire, radio, optical or other electromagnetic systems.
→ Surplus: An extra amount.
→ Consumer: Someone who consumes goods and services.
→ Capacitors: A device used to store an electric charge.