Globalisation and Indian Economy Notes Economics Chapter - 4
1. Production across countries
2. Interlinking Production across countries
3. Foriegn trade and integration of markets
4. What is globalisation
5. Factors that have enabled globalisation
6. World Trade Organisation
7. Impact of globalisation in India.
8. The struggle for fair globalisation
Overview
Today when you visit market you have variety of choice available before you.You can find the latest models of digital cameras, mobile phones and televisions, which was not possible even twenty years ago. Our markets have been transformed in a matter of few years.
This led to many Questions :
a) How do we understand these rapid transformation?
b) What are the factors that are bringing about these changes?
c) And how are these changes affecting our lives.
In this chapter we are going to find the answers of all these puzzling questions.
1. Production across countries
Till the mid -20th century only raw materials, food stuffs and finished products were moving from one country to another.
e. g:- India
Exported ---- raw materials, food stuffs like cotton, spices etc.
Imported --- Finished goods.
Note -- This happened before large companies called Multinational Coorporation(MNC) begin to emerge.
MNC
A MNC is a company that owns or controls production in more than one nation.
Objective :- This is done to reduce the cost of production and earn greater benefits.
Q. What are the things MNC consider before setting up the production?
Ans. MNCs consider the following things before setting up the production:-
a) Closeness to the markets.
b) Availability of skilled And unskilled labour at cheaper rates.
c) Favourable policies of the government.
d) Availability of water, electricity and other resource at low costs.
E.g:- There is a large MNC which produce its goods and services globally in the following way:-
a) Design of product -- US
b) Components Manufactured -- China
c) Assembling and Sale -- Mexico & Europe
d) Tech Services -- India
In this example:-
a) US provides the best design at low price.
b) China provides the advantage of being a cheap manufacturing location.
c) Mexico and Eastern Europe are useful for their closeness to the market in US and Europe.
d) India has highly skilled engineer who can understand the technical aspects of production.
It also has educated English speaking youth who can provide customer care services.
2. Interlinking Production Across Countries
What are the ways in which MNCs spread their production?
MNCs spread their production in the following ways :
a) MNCs set up production jointly with some of the local companies of these countries.
b) The most common way is to buy up local companies and then to expand production.
c) Some of them place orders for production with the small producers. The products are supplied to MNC ,which then sell these under their own brand names to the customers.
e. g:- Garments, Footwear and sports items etc.
Advantage of to local companies in joining hand with MNCs
➡️ MNCs can provide money for additional investments like buying new machines.
➡️MNCs might bring with them the latest technology for production.
3.Foreign Trade and Integration of Market
Foreign trade -- It refers to the trade in which goods travelled from one country to other. For a long time it has been the main channel of connecting countries.
Benefits
a) Producers -- They get an opportunity to sell their product beyond the domestic market.
b) Buyers ---- They get more options of goods.
Integration of Markets
➡️In general with the opening of trade, goods travel from one market to another.
➡️Prices of similar goods tend to become equal and producers in the two countries closely compete against each other.
➡️ This results in integrating the markets in different countries.
4. What is Globalisation ?
➡️It refers to the process of rapid interconnection or integration between countries.
➡️This integration is created by the movement of more goods and services, investment and technology.
Other ways to connect countries
Besides the movements of goods, services, investments and technology, there is one way in which the countries can be connected. This is done through the movement of people between countries.
➡️People usually move from one country to another in search of better income, better jobs or education.
5.Factors that have enabled globalisation
These are the following factors that have enabled globalisation :-
1) Advancement in technology :
Rapid improvement in technology has been one major factor in the growth of globalisation process.
i) Transportation
a) Fast transportation system
In the past 50 years several improvements in the transport Technology took place.This has made faster delivery of goods across long distance
possible at lower cost .
example :- ✈ Airplane ,Ship etc.
b) Containers
Containers have led to to use reduction in port handling cost .
They have also increased the speed with which exports can reach the markets.
ii) Information and Communication Technology
Fast changes in this technology has further made it easier the interconnection of the world. It has done so by spreading the production of services across the countries.
a) Mobile phone and Fax:-
They are used to contact one another around the world .
b) Internet
It provides many facilities like gaining and sharing information on anything, having video call and sending email etc.
2. Liberalisation of foreign trade and investment
Before understanding the liberalisation we need to understand the concept of trade barrier.
Trade barriers
Restriction on foreign trade and investment imposed by the government is called trade barrier. Tax on import is an example of trade barrier .
Government can use this to increase or decrease foreign trade with any country.
Why put trade barriers?
Indian government had put barriers to foreign trade and investment to protect the producers of India from foreign competition .
Removing the barriers around 1991
Around 1991 the government decided to remove the trade barriers as it felt that Indian producers had now become strong enough to compete with producers around the world .
They thought that it would force the Indian producers to improve their quality which would lead to improvement in the performance.
This decision of liberalisation was supported by powerful International Organisation.
liberalisation
Removing barriers or restrictions on foreign trade and investment is called liberalisation .
6. WTO(World Trade Organisation)
World Trade Organisation was founded in 1995, headquartered at Geneva, Switzerland.
It was started by the developed countries to regulate the international trade.
This organisation believes in liberalizing international trade as it considered it to be harmful.
They establish rules regarding international trade and see that these are obeyed.
Discrimination by WTO
Developed countries have unfairly written trade barriers while developing countries were forced to remove them by WTO.
7.Impact of Globalisation in India
Among consumers
a) The choice for product has increased as the latest models of digital cameras, mobile phones and televisions are available .
b) They are now enjoying good quality products at lower prices .
c) This resulted in in increasing their standard of living.
Impact over MNC
a) They increased their investment in India over the past 20 years which clearly indicates that investing has been beneficial to them.
b) They are interested in the products which have a large number of well-off buyers.
e.g:- cellphones,automobiles, electronics and soft drink etc.
Impact over Top Indian companies
Top Indian companies have also benefited from this competition in the following ways:
a) They have invested in newer technology and raised their production standards.
b) Globalisation has enabled some large Indian companies to emerge as multinational themselves.
e. g:- Tata Motors, Infosys, Ranbaxy etc.
c) Some have gained a lot from successful partnerships with the foreign companies.
d) It has also created new opportunities for companies providing the services.
e. g:-- Data entry, BPO, Accounting etc.
Impact over Small producers
The small producers have been hard hit due to rising competition from MNCs. As a result many of them have been shut down.
Impact over Workers
➡️Some of the workers have become jobless.
➡️The workers working in any local companies which supply goods to MNC is also not in good condition.
➡️Their working hours have increased and they are paid less as compared to earlier.
SEZs
It stands for Special Economic Zones.These zones are being created by the central and state government in India to attract the foreign companies to invest here.
Facilities
They have world class facilities of : Electricity, water, roads, transports, storage and recreational activities .
The companies who set up production units in the SEZs do not have to pay taxes for the initial period of five years.
The government has allowed companies to ignore many of the labour laws.
So they hire workers for short periods instead of hiring them on a regular basis.
8.The struggle for fair globalisation
Need for fair globalisation
The benefits of globalization has been not shared equally to all.
People with education, skill and wealth have made the best use the new opportunities. Whereas people lacking these qualities could not take its benefits.
What is fair Globalisation?
A Globalisation that would create opportunities for all and also ensure that its benefits are shared better.
How to make it fair?
The role of the government
a) The government needs to check that labour laws are properly implemented and the workers get their rights.
b) It can also support small producers till they become strong enough to compete.
c) It can negotiate at WTO for fairer rules.
d) It can fight against the domination of the developed countries in the WTO by aligning with other developing nations.
People's role
People can also play a role by massive campaigns and protests. This can influence the decisions of World Trade Organisation.
~Seminaryclasses
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