Chapter 4 Globalisation and the Indian Economy
Question 1: Define globalization.
Answer: Globalization refers to the integration between countries through foreign trade and foreign investment by Multi-National Corporations.
Question 2: What is a Multi-National Corporation? Where do they set up their production units?
Answer:
• A Multi National Corporation is a company that own or controls production in more than one nation.
• MNCs set up offices and factories for production in regions where they can get cheap labour and other resources. For example: China and India provide the advantages of being cheap manufacturing location.
• They set up their offices and factories which are closer to the markets. For example: MNCs set-up their factories in Mexico and Eastern Europe due to their closeness to the markets in the USA and Europe.
• Government policies and infrastructure also attracts the MNCs.
• This is done so that the cost of production is low and the MNCs can earn greater profits.
Question 3: What are the various ways in which MNCs set up/control production in other countries?
Answer:
• MNCs set up factories on their own. Preferred locations – close to the market, availability of skilled and unskilled labour at low cost, where the other factors of production are available and government policies that protect their interest.
• They set up production jointly with some of the local companies. The benefit to the local companies of such joint production is two-fold. The MNCs can provide money for additional investments, like buying new machines for faster production. They might bring with them the latest technology for production.
• For example, Ford Motors, an American company, set up a large automobile manufacturing plant near Chennai in collaboration with Mahindra and Mahindra.
• They buy up local companies and then expand production. For example, Cargill Foods, a very large American MNC has bought over smaller Indian companies such as Parakh Foods. Cargill is now the largest producer of edible oil in India.
• They place order for production with small producers. For example, garments, footwear, sports items etc. After delivery, the MNCs sell the product under their own brand.
• These large MNCs have tremendous power to determine price, quality, delivery and labour conditions for these distant producers.
Question 4: What is foreign trade? How does foreign trade help producers and consumers?
Answer:
• Trade between two or more countries is termed as foreign trade.
• Foreign trade creates an opportunity for the producers to sell their products not only in the markets located within the country but can also compete in markets located in other countries of the world.
• Consumers get a wider choice of goods.
Question 5: How does foreign trade lead to integration of markets across countries? Explain with the help of an example.
Answer:
• Trade between two or more countries is termed as foreign trade.
• With the opening of foreign trade, 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 in the two countries now closely compete against each other even though they are separated by thousands of miles.
• Thus, foreign trade results in the integration of markets across countries.
• Example: Chinese manufacturers introduced plastic toys in the Indian markets, where toys were sold at a high price. In the competition between Indian and Chinese toys, Chinese toys proved better. Indian buyers have a greater choice of toys and at lower prices. For the Chinese toy makers, this provided an opportunity to expand business, while the Indian manufacturers were at a loss.
Question 6: Explain briefly the factors that have enabled globalization.
Answer:
→ Technology:
• Transport technology: Improvement in transportation technology, i.e., container manufacturing, has made much faster delivery of goods across long distances possible, at lower costs.
• Information and communication technology: In the recent times, technology in the areas of telecommunications, computers and internet has been changing rapidly. Telecommunication facilities (telephone including mobile phones, telegraph, fax) are used to contact one another around the world, to access information instantly and to communicate from remote areas.
• Liberalization: Removing barriers on foreign trade and foreign investment, set by the government, led to globalization.
Question 7: What is a trade barrier? Why did the Indian government put barriers on foreign trade and foreign investment after independence? Why were the trade barriers removed later?
Answer:
• Restrictions on foreign and foreign investment, set by the government, are termed as trade barriers.
• Industries were just coming up in the 1950s and 1960s, and competition from imports at that stage would not have allowed these industries to come up.
• So, trade barriers were put by the government to protect domestic producers from foreign competition.
• Starting around 1991, the government removed the barriers as it felt that the Indian producers can compete with the producers around the globe. The government also felt that the competition would improve the performance of producers as well as the quality of the product.
Question 8: What is World Trade Organization (WTO)? What are its objectives?
Answer:
• World Trade Organization was started at the initiative of the developed countries.
• 164 countries are currently the members of the WTO.
• WTO establishes rules regarding international trade to allow free trade for all.
• The WTO is criticized for being biased towards the developed countries. While the developed countries have unfairly retained trade barriers, the developing countries were forced to remove trade barriers by the WTO.
Question 9: What was the impact of globalization on India? / Describe the impact of globalization on the Indian economy.
Answer:
• Increase in foreign investment.
• Top Indian companies benefitted through collaboration with MNCs – better quality goods are produced due to newer technology and production methods.
• Some large Indian companies emerged as multinationals themselves. For example, Tata Motors, Infosys, Ranbaxy etc.
• Globalization created new opportunities for companies providing services, particularly those involving IT.
• More employment opportunities were generated.
Question 10: “Globalization has been of advantage to consumers as well as producers.” Explain.
Answer:
→ Consumers:
Globalization indeed has been of advantage to consumers due to the following reasons:
• Greater choice of goods.
• Better quality goods.
• Goods are available at lower prices.
→ Producers:
• Globalization brings in new and improved technology by which even the local companies benefit.
• Some large companies like Infosys, TATA, Asian paints have emerged as MNCs.
• New companies that provide call centres, IT related services, accounts and administrative jobs have come up.
Question 11: What was the impact of globalization on small producers and workers?
Answer:
→ Small producers:
• Producers of batteries, toys, tyres etc. have been hard hit due to the competition. They could not find buyers, as the prices of the goods which they produced were more when compared to the goods produced by the MNCs.
• They had to shut down their units.
• Many workers lost their jobs.
→ Workers:
• Workers are hired for short periods when there is work
• Later they were removed (hired on a temporary basis)
• No job security
• Long working hours
• Low wages
Question 12: What should the government do/what steps should the government take to make globalization more fair?
Answer:
• The government can ensure that labour laws are properly implemented and the workers get their rights.
• Support small producers till they are competent enough.
• Can use trade barriers and investment barriers.
• Can negotiate at the WTO for fairer rules.
• Can collaborate with other developing countries and fight against the domination of developed countries in the WTO.
Question 13: What do the governments do/try to do to attract foreign companies to invest, in India?
Answer:
• In order to attract foreign companies to invest in India, industrial zones called Special Economic Zones are being set up. SEZ’s have world class facilities: electricity, water, roads, transport, storage, recreational and educational facilities.
• The companies set up in SEZs need to pay taxes for an initial period of 5 years. Flexibility in labour laws.
Question 14: Why are foreign companies outsourcing certain parts of their business in countries like India? Explain with the help of an example.
Answer:
• A large MNC, producing industrial equipment, designs its products in research centres in the United States.
• This MNC has the components manufactured in china. China provides the advantage of being a cheap manufacturing location.
• These are then shipped to Mexico and Eastern Europe where the products are assembled and the finished products are sold all over the world. Mexico and Eastern Europe are useful for their closeness to the markets to the US and Europe.
• The company’s customer care is carried out through call centres located in India. India has highly skilled engineers who can understand the technical aspects of production. It also has educated English speaking youth who can provide customer care services.
• This is done by the MNC to minimize the cost of production and to earn exorbitant profits.
Question 15: Explain the role of MNCs in globalization.
Answer:
• Globalization refers to the integration between countries through foreign trade and foreign investment by Multi-National Corporations.
• The car manufacturing plant of Ford Motors in Chennai, established in collaboration with Mahindra and Mahindra, India not only produces cars for the Indian markets, it also exports cars to other developing countries and exports car components for its many factories around the world.
• Likewise, activities of most MNCs involve substantial trade in goods and also services.
• Thus, MNCs play a major role in the globalization process.
Question 16: How liberalization of trade and investment policies helped the globalization process?
Answer:
→ Liberalization of trade:
• Under the liberalization policy, the government of India has removed various restrictions from the import and export of goods and services.
• As a result, businessmen from India and abroad were allowed to make decisions freely about what they want to produce, import and export.
→ Investment policies:
• Under the liberalization policy, MNCs are free to invest in India. Government of India established SEZs where all sorts of facilities were made available to foreign companies. Foreign companies were allowed flexibility in labour laws.
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