Globalisation and The Indian Economy

Globalisation refers to the interconnectedness and integration of economies, cultures, and societies across the world. It involves the flow of goods, services, capital, information, and people beyond national borders. In simpler terms, it’s like the world becoming a smaller, more interconnected place where ideas, products, and influences travel freely. Globalisation impacts various aspects of our lives, from trade and technology to cultural exchange and geopolitical relations.

The Indian government, after Independence, had put barriers to foreign trade and foreign investment. This was considered necessary to protect the producers within the country from foreign competition. Industries were just beginning to develop, and competition from imports could have been detrimental to their growth. Many Indian industries were in their nascent stages, lacking the capacity to compete with established foreign industries. Import competition at this point could have hindered their development.

Around 1991, 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. 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.

Government has allowed flexibility in the labour laws to attract foreign investment. The companies in the organised sector have to obey certain rules that aim to protect the workers’ rights. But in the recent years, the government has allowed companies to ignore many of these. Instead of hiring workers on a regular basis, companies hire workers ‘flexibly’ for short periods when there is intense pressure of work. This is done to :

• Reduce the cost of labour for the company.
• Reduce liability of company towards the work force
• Allow companies to adjust their workforce to maximize profits without sharing it extensively with workers.
• Let companies experiment with different work arrangements, such as remote work, part-time contracts, or project-based employment.

The various ways in which MNCs set up, control or produce in other countries are:

1. Buying Local Companies — MNCs often acquire existing local production companies. By purchasing these companies, they gain access to established infrastructure, skilled labour, and market presence.
2. Contract Manufacturing — MNCs place orders for production with small producers in other countries. These small producers manufacture goods on behalf of the MNCs.
3. Partnerships (Joint Ventures) — MNCs establish partnerships with local companies. Joint ventures allow them to pool resources, share risks, and leverage local expertise.
4. Wholly Owned Subsidiaries — MNCs set up their own subsidiaries in foreign countries. These subsidiaries operate independently but are fully owned by the MNC.

Developed nations aim to gain access to the markets of developing countries. By encouraging liberalisation, they can export their goods and services more easily. Foreign companies, especially multinational corporations (MNCs), can establish factories and offices in less expensive developing nations. This allows them to increase profits by leveraging lower manufacturing and labour costs.

Developing countries should demand the free and fair movement of their labour force. Facilitating temporary migration for work opportunities can be mutually beneficial. Developing nations can advocate for a reduction in subsidies provided by developed countries to their agricultural sectors. These subsidies distort global markets and affect developing countries’ agricultural exports. Developed countries should follow ethical practices, avoiding unfair competition that harms developing economies. Also, there should be removal of tariffs on goods exported from developing countries.

“The impact of globalisation has not been uniform.” It highlights the fact that globalisation affects different countries, regions, and social groups in diverse ways:

1. Globalisation has led to economic growth in some countries while leaving others behind. Developed nations often benefit more than developing nations due to their advanced infrastructure, technology, and access to global markets.
2. Within countries, globalisation can exacerbate income inequality. Skilled workers and capital owners may gain, while low-skilled workers face job displacement and wage stagnation.
3. Globalisation drives resource extraction and consumption. Developing countries often bear the environmental costs (e.g., deforestation, pollution) to meet global demand.
4. Increased trade and transportation contribute to climate change. Developed countries historically emit more greenhouse gases, affecting the entire planet.
5. Globalisation shifts jobs from high-cost to low-cost regions. While it creates employment in export-oriented sectors, it can lead to job losses in others.

Trade liberalisation refers to the removal or reduction of restrictions on the free exchange of goods between nations. These barriers include tariffs (duties and surcharges) and non-tariff barriers (such as licensing rules and quotas).

1. Removal of these barriers helps in reduction of cost of goods. This reduction in regulatory costs benefits consumers and businesses alike.
2. Trade liberalisation fosters competition from abroad. As foreign goods enter the market, domestic firms face competition and become more efficient and produce goods at lower costs. This competition can lead to greater efficiency and innovation making them future exporters.
3. The outcome of trade liberalisation is greater integration among countries, which is a fundamental aspect of globalisation. As trade barriers are reduced, countries become more interconnected economically.

Foreign trade plays a significant role in integrating markets across countries. When countries engage in foreign trade, domestic firms face competition from foreign firms. This competition forces firms to become more efficient, innovate, and offer better products at competitive prices. As a result, markets become more integrated as consumers have access to a wider variety of goods and services from different countries. They can choose from both domestic and imported products. Availability of products creates a competition in market leading to close alignment of prices. Also, trade agreements and policies facilitate easier access to foreign markets for goods and services. This access allows firms to sell their products to a broader consumer base beyond their domestic market. As markets become more accessible, they become more integrated economically.

For example, during Diwali season China made lights and bulbs are available in Indian market. During this festive time, buyers have choices when it comes to decorative lights and bulbs. They can opt for Indian-made decorative lights or go for the Chinese-made ones. Both are available in the market at competitive prices.

If globalisation continues in the future with same rate, world may be changed as follows:

1. Rapid advancements in technology, particularly in fields like artificial intelligence, robotics, biotechnology, and renewable energy, will likely reshape industries and economies globally.
2. Globalisation will likely deepen interconnectedness among countries through trade, investment, and information flows.
3. Addressing climate change and environmental sustainability will be critical. Efforts towards renewable energy adoption, sustainable practices in industries, and global cooperation on environmental policies may become more prevalent.
4. Emerging economies, particularly in Asia and Africa, could continue to rise, influencing global trade patterns and geopolitical relations.
5. Advances in healthcare, genetics, and biotechnology could lead to breakthroughs in treating diseases and enhancing human capabilities.

Globalisation is a complex phenomenon with both positive and negative impacts. In the case of India it has undoubtedly brought opportunities for economic growth, job creation, and technological advancement, particularly in sectors that have become India's strengths such as IT and services. However, it has also posed challenges such as income inequality, environmental degradation, and vulnerabilities to global economic fluctuations. To address these concerns and maximize the benefits of globalisation, India needs to pursue policies that promote inclusive growth, sustainable development, and resilience against external shocks.

Indian buyers have a greater choice of goods than they did two decades back. This is closely associated with the process of globalisation. Markets in India are selling goods produced in many other countries. This means there is increasing trade 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 of cheaper cost of production . While consumers have more choices in the market, the effect of rising demand and purchasing power has meant greater competition among the producers.

goods, services and investments between countries.

buy existing local companies

none of the above

Reason — Globalisation has benefited well-off consumers and also producers with skill, education and wealth, many small producers and workers have suffered as a result of the rising competition.

The brand tag says ‘Made in Thailand’ but they are not Thai products. We dissect the manufacturing process and look for the best solution at each step. We are doing it globally. In making garments, the company may, for example, get cotton fibre from Korea, dyeing and printing done in India, cutting and sewing carried out in Bangladesh, and final quality control performed in Vietnam.

1. Job Security — Workers have lost their permanent jobs. Faced with growing competition most employers prefer to employ workers ‘flexibly’. It means that jobs are no longer secure. Wages are low and workers have to put in long hours of work. Workers are denied their fair share of the benefits.
2. Cost cutting — India’s exporters are facing tough competition and try hard to cut down their cost of production to remain in competition. The intense competition compels exporters to offer competitive prices, which affects their profit margins. As cost of raw materials cannot be reduced, exporters try to cut labour costs by employing workers on temporary basis and making them work very long hours during the peak season.
3. Maximizing profit — MNCs in Europe and America source their products from Indian exporters. They seek the cheapest goods to maximize profits. While competition allows MNCs to make substantial profits, it often comes at the expense of workers and smaller businesses.

(a) Government — Governments can enact and enforce labour laws that protect workers’ rights, including fair wages, safe working conditions, and reasonable working hours. Unemployment benefits and healthcare benefits should be provided. This helps mitigate the risks faced by workers during economic transitions.

(b) Employers at the exporting factories — Employers should pay fair wages that reflect the value of workers’ contributions. Providing stable employment rather than relying solely on temporary contracts ensures job security for workers.

(c) MNCs — MNCs should choose suppliers based not only on cost but also on ethical practices, worker welfare, and environmental sustainability. MNCs should be transparent about their supply chains, allowing scrutiny and accountability.

(d) Workers — Workers can organize themselves into unions or associations to collectively advocate for their rights and negotiate with employers. Being informed about their rights and labour laws empowers workers to demand fair treatment.

Point of view of the employers
Employers argue that flexible policies allow them to manage costs more effectively. Hiring temporary or contract workers when needed reduces fixed labour expenses. Employers try to avoid long-term commitments, such as benefits, pensions, and severance pay, which can be costly.

Point of view of the workers
Workers want permanent employment because they want a regular income to run their family. Besides regular salary, they also want extra benefits like health insurance, provident fund, overtime etc. They emphasize the need for protection even in flexible arrangements.

Yes, Ford Motor Company is considered a multinational corporation (MNC) because of its global presence. It has a significant presence in various countries, including manufacturing facilities, sales networks, and research centers. Its products are available in multiple countries, making it a truly global company.

Foreign investment refers to the investment in domestic companies and assets of another country by a foreign investor. It involves long-term physical investments made by a company in a foreign country. These investments include activities such as opening manufacturing plants, purchasing buildings, machinery, factories, and other equipment in the foreign country.

Ford Motors invested Rs 1700 crore in India.

The given statement suggests that multinational corporations (MNCs) like Ford Motors benefit in two significant ways by setting up production plants in countries like India:

1. Large Markets — By establishing production facilities in India, MNCs can cater directly to this vast consumer base. This proximity allows them to reduce logistical costs, such as shipping and import duties, which can be substantial when supplying products from overseas.
2. Lower Costs of Production — India offers lower costs of production compared to many developed countries. This cost advantage is because of lower labour cost, operational cost and support from the government.

Due of these advantages they can produce goods more cost-effectively while simultaneously gaining better access to a large and growing consumer base. This enhances their profitability.

Developing India as a base for manufacturing car components for global operations involves considering several strategic factors:

(a) Cost of Labour and Other Resources in India — India offers a significant cost advantage when it comes to labour and other resources compared to developed countries. The cost of skilled and semi-skilled labour in India is lower than in many Western countries, which helps in reducing the overall cost of manufacturing. Additionally, the cost of land, utilities, and regulatory expenses can also be comparatively lower in India.

(b) Presence of Several Local Manufacturers Supplying Autoparts to Ford Motors — India has local manufacturers that supply automotive components and parts. These manufacturers often provide high-quality parts at competitive prices. By leveraging these local suppliers, Ford Motors can streamline its supply chain and lower logistics costs. This local presence also allows Ford to quickly adapt to market demands and changes in product specifications, enhancing flexibility and responsiveness.

(c) Closeness to a Large Number of Buyers in India and China — India and China are two of the largest and fastest-growing automotive markets globally. By manufacturing car components in India, Ford Motors can reduce transportation costs and delivery times to these important markets.

The production of cars by Ford Motors in India will lead to interlinking of production in following ways:

1. By setting up partnerships with local companies, Ford can use resources of Indian companies.
2. By using the local companies for supplies of spare parts, Ford Motors can source components and parts locally to assemble cars in India. This creates opportunities for local suppliers to integrate into Ford's global supply chain network.
3. By competing with local companies or by buying them, Ford can create competition in market leading to development of the industries.

The dominance of American, Japanese, and European multinational corporations (MNCs) can be attributed to following factors:

1. MNCs thrive in countries with well-established infrastructures. The United States, Japan, and Western European nations possess advanced infrastructures such as a well-trained labour force, advanced technology, stable governance and physical networks like roads, bridges, ports, and railways.
2. These countries are rich and therefore they have MNCs with huge capital and resources.

The main channel connecting countries in the past were the trade routes connecting India and South Asia to markets both in the East and West. One notable example is the Silk Route, which facilitated trade between China and the Mediterranean. Extensive trade took place along these routes.

While trade routes were the main connection in the past, today’s interconnected world relies on technology and global networks to facilitate trade. Air ways and water ways are mostly used for trades these days.

(a) Steel companies in China — Steel from India will be readily available to Chinese companies as per the demand. The transportation cost will also come down due to proximity of two countries. The import of steel from India can create competition for Chinese steel manufacturers.

(b) Steel companies in India — Indian steel manufacturers benefit from exporting to China. If Chinese demand remains strong, Indian companies can expand their exports.

(c) Industries buying steel for production of other industrial goods in China — The raw material will be readily and easily available in China. Industries in China that rely on steel as a raw material for production (e.g., automotive, construction, machinery) may benefit from cheaper steel imports. Lower input costs can enhance their competitiveness.

The import of steel from India into Chinese markets can lead to integration of markets for steel in both countries in the following ways:

1. Increased Trade Relations: When China will import steel from India, it will create a direct economic link between the two countries. Such trade fosters closer economic ties and encourages ongoing business relationships between Indian steel producers and Chinese buyers.
2. Market Stability: Both countries benefit from diversifying their sources of steel. If one country faces shortages or price fluctuations, it can rely on imports from the other to stabilize its market.
3. Technology and Knowledge Exchange:The exchange of knowledge and technology can lead to improvements in efficiency and product quality.
4. Price Competition: Increased competition due to imports can drive down prices or encourage innovation in both markets. Indian as well as chinese steel producers may need to improve their efficiency and cost-effectiveness to compete with each other, benefiting consumers in both countries.

Globalisation is the process of rapid integration or interconnection between countries. MNCs are playing a major role in the globalisation process. MNCs are critical drivers of international trade. They account for a significant share of global exports and imports. By operating across borders, MNCs help integrate countries through investments and trade. More and more goods and services, investments and technology are moving between countries. Most regions of the world are in closer contact with each other than a few decades back.

The various ways in which countries can be linked are:

1. The movements of goods and services — Countries are interconnected through foreign trade. This involves the exchange of goods and services across borders. Exports and imports play a crucial role in linking nations economically.
2. Investments — MNCs operate across borders, invest in foreign markets, buy lands, provide jobs and thus contribute to economic integration.
3. Exchange of technology — The movement of advanced technology between countries links them. Innovations, research, and knowledge flow globally, impacting economic growth and development.
4. The movement of people between countries — People usually move from one country to another in search of better income, better jobs or better education and tourism.

greater competition among producers

A news magazine published for London readers is to be designed and printed in Delhi. The text of the magazine is sent through Internet to the Delhi office. The designers in the Delhi office get orders on how to design the magazine from the office in London using telecommunication facilities. The designing is done on a computer. After printing, the magazines are sent by air to London. Even the payment of money for designing and printing from a bank in London to a bank in Delhi is done instantly through the Internet (e-banking)!

Globalisation would not have been possible without expansion of IT. Information technology (IT) and globalization are deeply intertwined. Information technology plays a pivotal role in facilitating the interconnectedness by enabling rapid communication, data exchange, and access to information across borders. For instance:

• IT allows instant communication through emails, video calls, and social media. This real-time connectivity bridges geographical gaps and fosters global collaboration.
• IT systems handle international transactions and e-banking, which forms basis of trade.
• IT optimizes supply chains, tracking goods from production to delivery globally.

Trade liberalisation refers to the removal or reduction of restrictions and barriers set by the government, on exchange of goods between nations. With liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export. Liberalisation of foreign trade involves reducing or eliminating tariffs/taxes on imports and exports, reduce quotas and other restrictions.

A quota is a numerical restriction imposed on the quantity or value of specific goods that can be imported or exported within a given period. If the government of India imposes a quota on Chinese toy imports, only a certain amount of Chinese toys can be brought into our country. Quotas will limit the supply of Chinese toys, making them scarcer and costlier in the market. This will give a breather to Indian toy producers. Therefore, Quotas can protect domestic toy manufacturers in India by preventing excessive competition from Chinese imports.

I think the quota can be used as a protective measure to protect our local toy makers but It should be carefully done so as to strike a balance which will ensure fair competition between companies.

WTO was started at the initiative of developed countries. The aim of the WTO is to liberalise international trade . WTO establishes rules regarding international trade for all countries, and sees that they are obeyed. In practice, trade between countries is not fair and free. Developing countries like India have removed trade barriers, whereas developed countries, in many cases, have continued to provide protection to their producers.

Achieving fair trade requires collaboration and cooperation among countries and international organizations.

• The trade agreements, policies, and regulations should be transparent and accessible to all parties involved.
• The rules regarding liberalisation of trade should be equally followed by developed as well as developing countries.
• Encouraging environmentally sustainable production methods and fair labour practices through trade agreements can ensure that trade will benefit local communities and protects the environment.

Supporting the production of environment friendly goods, such as renewable energy technologies or eco-friendly products, can contribute positively to environmental sustainability. From an environmental standpoint, these measures are essential for promoting sustainable practices and reducing the carbon footprint. Encouraging cleaner alternatives benefits society as a whole by mitigating climate change and preserving natural resources. But government support for environment-friendly goods can also have implications for international trade. If subsidies or incentives are deemed to distort markets or provide unfair advantages, then such practices are not fair. These practices should be challenged and corrected through trade agreements.

Globalisation and greater competition among producers - both local and foreign producers - has been of advantage to consumers, particularly the well-off sections in the urban areas. There is greater choice before these consumers who now enjoy improved quality and lower prices for several products. This has improved the quality of life.

The emergence of Indian companies as multinational corporations (MNCs) can have several benefits for the country and its people.

1. Indian companies expand globally and operate as MNCs in other countries, they generate foreign exchange by conducting business transactions in foreign currencies.
2. As Indian companies establish themselves as MNCs, they create job opportunities both within the country and abroad.
3. MNCs bring advanced technologies, best practices, and innovative processes from their global operations to India.

Governments try to attract more foreign investment because:

1. Attracting foreign direct investment (FDI) is crucial for a country’s economic growth and global competitiveness.
2. FDI brings in capital, technology, and expertise, which can enhance productivity and contribute to overall development.
3. The technology transfer benefits local industries and fosters innovation.
4. FDI generates employment opportunities directly (within the investing company) and indirectly (in support services like transportation and logistics). New jobs contribute to social welfare and reduce unemployment rates.

Farmers and Agricultural Communities, Environmental Activists, Political Opponents etc are people who are against SEZs. The following factors are responsible for SEZs being opposed:

1. Farmers often oppose SEZs due to concerns over land acquisition. SEZs typically require large tracts of land, which may lead to displacement of farming communities and loss of agricultural livelihoods.
2. Environmentalists and activists raise concerns about the ecological impact of SEZs. They argue that SEZs can lead to environmental degradation, including pollution, depletion of natural resources, and loss of biodiversity.
3. Opposition political parties and leaders have criticized SEZs on various grounds, including allegations of corruption in land acquisition and tax incentives, concerns over economic inequalities exacerbated by SEZ development, and the prioritization of corporate interests over broader social welfare.

Ravi’s small production unit was affected by rising competition in following ways:

1. Competition from the MNC brands forced the Indian television companies to move into assembling activities for MNCs and therefore they stopped buying capacitors from Ravi.
2. Price of imported capacitors was less as compared to price of capacitors produced by Ravi's unit.

No, he should not stop production. He can take following steps:

1. He can focus on cost-cutting by use of new technology.
2. He can change manufacturing process.
3. He can change the type of product which has demand in market.

1. The three things mentioned above will help Indian producers in the following ways:
   1. Efficient transportation facilitates the movement of goods and reduces costs and delivery times.
   2. Reliable electricity, raw material supply and access to clean water are essential for production processes. Uninterrupted power ensures smooth operations of industries.
   3. Access to markets and information networks enables producers to reach customers, understand demand, and adapt their products accordingly.
   4. Improvements and modernisation of technology helps in cost efficient production.
   5. Timely availability of credit at reasonable interest rates empowers Indian producers to thrive and sustain through ups and downs in the business.
2. MNCs will not be interested in investing in these because these would not fetch them direct profit. Also, these improvements will help Indian producers and thus increase their competition.
3. Yes, the government plays a crucial role in building and maintaining infrastructure. Investment in roads, ports, power plants, and water supply benefits all producers. Government usually develops these infrastructure to promote own producers as well as to attract foreign investments through MNCs.
4. Government can take following additional steps:
   1. Invest in vocational training and skill development programs. A skilled workforce enhances productivity and competitiveness.
   2. Encourage research and innovation.
   3. Facilitate exports by simplifying procedures, providing incentives, and negotiating trade agreements.