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Chapter 4 Globalisation and the Indian Economy Notes Class 10 Social Science

Before You Read:

• Globalisation: Globalisation is a process of international integration arising from the interchange of world views, products ideas and other aspects of a culture.

• Privatization: Privatization is the transfer of a business, industry, or service from public to private ownership and control.

• Liberalization: Liberalization refers to the reduction or elimination of government regulation or restrictions on private business and trade.

• Multinational Corporation (MNC): MNC is an enterprise operating in several countries but managed from one country or group that derives a quarter of its revenue from operations outside of its home country.
→ MNC owns or controls production in more than one nation.
→ MNC’s set up offices and factories for production in regions where they can get cheap labour and other resources.

• Investment: The money that is spent to buy assests such as land, building, machines and other equipments is called investment.

• Foreign Trade: Foreign trade is basically trade between two different countries of the world. It is also known as international trade.

• World Trade Organization: (WTO) World trade organization is the only global international organization dealing with the rules of trade between nations. The main aim of this organization is to liberalize the law of trade between the nations.

• Foreign Investment: Foreign investment is when a company or individual from one nation invests in assets or ownership stake of company based in another nation.

• Special Economic Zone (SEZ): SEZ is a special economic zone of a country that is subject to unique economic regulations that differs from other areas in the same country. These regulations tend to be conductive to foriegn direct investment.

• Production Across Countries: Trade was the main channel connecting distant countries. Large companies, which are how called mutinational corporations (MNCs) play a major role in trade.

An MNC is a company that owns or controls production in more than one nation. MNC’s set up offices and factories for production in region where they can get cheap labour and other resources so that the company can earn greater profits.

• Interlinking Production Across Countries:
→ The money that is spent to buy assets such as land, bulding machines and other equipment is called investment.
→ An investment made by MNC’s is called foriegn investment.
→ MNC’s are exerting a strong influence on production at these distant locations. As a result, production in these widely dispersed locations is getting interlinked.

• MNC’s Interlink Production Across Countries: MNC’s are spreading their production and interacting with local producers in various countries across the globe.
(i) By setting up partnerships with local companies.
(ii) By using the local companies for supplies.
(iii) By closely competing with the local companies or buying them up.

MNC’s set up production jointly with local companies which benefits local companies in the following ways:
(i) First MNC’s can provide money for additional investments, like buying new machines for faster production.
(ii) Second MNC’s might bring with them the latest technology for production.

• Foreign Trade And Integration Of Markets: Foreign trade creates an opportunity for the producers to reach beyond the domestic markets. Producers can sell their products not only in markets located with in the country but can also compete in markets located in their countries of the world. Similarly, buyers have the options to choose among various goods beyond domestically produced goods. Thus, foreign trade results in connecting the markets or integration of markets in different countries.

• Globalisation: Globalisation is the process of rapid integration or interconnection of countries. MNC’s are playing a major role in the globalisation process.
→ More and more goods and services, investments and technology are moving between countries.
→ There is one more way in which the countries can be connected. This is through the movement of people between countries.

• Factors That Have Enabled Globalisation Technology: Rapid improvement in technology has been one major factor that has stimulated the globalisation process. This has made possible much faster delivery of goods across long distances at lower casts. The developements in information and communication technology have made information instantly accessible.

• Liberalisation of Foriegn Trade and Foreign Investment Policy:
→ Trade barriers are some restrictions that have been setup by governments.
→ The government can we trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of reach, should come into the country. Tax on imports is an example of trade barrier.
→ Removing barriers or restructions set by the government on trade is known as liberalisation.

• World Trade Organisation (WTO): WTO is an organisation whose aim is to liberalise international trade.
→ At present 164 countries are currently members of WTO.

• Impact of Globalisation in India: Globalisation has affected the lives of people in India in following manner:
→ It has provided greater choice to consumers who now enjoy improved quality of and lower prices on several products.
→ It has resulted in higher standards of living.
→ Globalisation has also created new opportunities for companies providing services particularly in the IT sector.

Summary :

• Until the twentieth century, production was organised within countries. What crossed the boundaries of these countries were raw material, food stuff, and finished products. This was before large companies called multinational corporations (MNCs) emerged on the scene.
• MNC is a company that owns 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 and policy of the Govt. that look after the interest of MNC (to earn greater profits).
• Spreading of production by an MNC : A large MNC, producing industrial equipment, designs its products in research centres in the United States and then has the components manufactured in China. The finished products are shipped to Mexico and Eastern Europe and sold all over the world. Meanwhile, the company’s customer care is carried out through call centres located in India.
• In this example, the MNC is not only selling its finished products globally but more importantly, the goods and services are produced globally. 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. And all this probably can mean 50-60 percent cost-savings for the MNC!
• The money that is spent to buy assets such as land, building, machines and other equipment is called Investment. Investment made by MNCs is called foreign investment.Any investment is made with the hope that these assets will earn profits.
• Interlinking production across countries:
MNCs set up production jointly with some of the local companies of these countries. The two fold benefit to the local company :money for additional investments, like buying new machines for faster production &MNCs might bring with them the latest technology for production.
• The most common route for MNC investments is to buy up local companies and then to expand production Large MNCs in developed countries place orders for production with small producers, then sell these under their own brand names to the customers. Eg.Garments, footwear, sports items.
• Ford Motors, an American company, is one of the world’s largest automobile manufacturers with production spread over 26 countries of the world. Ford Motors came to India in 1995 and spent Rs. 1700 crore to set up a large plant near Chennai. This was done in collaboration with Mahindra and Mahindra, a major Indian manufacturer of jeeps and trucks.

• 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 percent of the toy shops have replaced Indian toys with Chinese goods. Indian buyers have a greater choice of toys and at lower prices.

GLOBALISATION
• Globalisation is the process of rapid integration or interconnection between countries. MNCs are playing a major role in the globalisation process. More and more goods and services, investments, and technology are moving between countries.

FACTORS THAT HAVE ENABLED GLOBALISATION
• Rapid improvement in technology has been one major factor that has stimulated the globalisation process. For instance, the past fifty years have seen several improvements in transportation technology. This has made much faster delivery of goods across long distances possible at lower costs.
• Even more remarkable have been the developments in information and communication technology. In recent times, technology in the areas of telecommunications, computers, Internet has been changing rapidly.

LIBERALISATION OF FOREIGN TRADE AND FOREIGN INVESTMENT POLICY
• Tax on imports is an example of a trade barrier. It is called a barrier because some restriction has been set up. Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country.
• 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 coming up in the 1950s and 1960s, and competition from imports at that stage would not have allowed these industries to come up.
• Starting around 1991, some far-reaching changes in policy were made in India to make it more competitive with other countries. 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’.
• Barriers on foreign trade and foreign investment were removed a large extent. This meant that goods could be imported and exported easily and also foreign companies could set up factories here.
• The process of removing barriers or restrictions set by the government is what is known as liberalisation.

WORLD TRADE ORGANISATION
• The World Trade Organisation (WTO) aims to liberalise international trade. At present 160 (2014) countries of the world are currently members of the WTO. Though WTO is supposed to allow free trade for all, in practice, it is seen that the developed countries have unfairly retained trade barriers. On the other hand, WTO rules have forced developing countries to remove trade barriers. An example of this is the current debate on trade in agricultural products.

IMPACT OF GLOBALISATION IN INDIA

POSITIVE & NEGATIVE IMPACT OF GLOBALISATION – INDIA

Positive:
(i) Availability of variety of products which enabled the consumers to have greater choice and enjoy improved quality and lower prices for several products.
(ii) This led to higher standard of living.
(iii) Increase in foreign direct investment and creation of new jobs in certain industries.
(iv) Top Indian companies have been benefited by investing in new technology and production methods along with successful collaborations with foreign companies.
(v) Globalisation has enabled some large Indian company to emerge as multinationals themselves. For example, Tata Motors, Infosys, Ranbaxy etc.
(vii) Enabled some large Indian companies to emerge as multinationals, created new opportunities for companies providing services, particularly those involving IT.

Negative :
(i) Small producers failed to compete and got perished. Rising competition has led to shutting down of many units. Many workers became jobless. For instance, batteries, capacitors, plastics, toys, dairy products and vegetable oil are the examples of the industries which have been hit hard due to hard competition.
(ii) Globalisation and pressure of competition have substantially changed the lives of workers. Faced with growing competition most employers these days prefer to employ workers ‘flexibly’. This means that workers ’jobs are no longer.

STEPS TO ATTRACT FOREIGN INVESTMENT

• The central and state governments in India are taking special steps to attract foreign companies to invest in India.
• Industrial zones, called Special Economic Zones (SEZs), are being set up.
• Special Economic Zones (SEZs) are to have world-class facilities: electricity, water, roads, transport, storage, recreational and educational facilities. Companies that set up production units in the SEZs do not have to pay taxes for an initial period of five years.
• The government has also allowed flexibility in the labour laws to attract foreign investment. 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.

THE STRUGGLE FOR A FAIR GLOBALISATION

• Since globalisation is now a reality, the question is how to make globalisation more ‘fair’? Fair globalisation would create opportunities for all and also ensure that the benefits of globalisation are shared better.
• The government can play a major role in making this possible. Its policies must protect the interests, not only of the rich and the powerful but all the people in the country. It can use trade and investment barriers or negotiate for ‘fairer rules’ at the World Trade Organisation (WTO) If necessary, it can also align with other developing countries to fight against developed countries’ interests.
• People also can play an important role in the struggle for fair globalisation.

Objective Type Questions

Question. How much did Ford Motors invest in India in 1995?
(a) ₹ 1670 crore
(b) ₹ 1770 crore
(c) ₹ 2700 crore
(d) ₹ 2770 crore
Answer : (b) ₹ 1770 crore

Question. Ranbaxy is a multinational company which is associated with:
(a) automobiles
(c) medicines
(b) nuts and bolts
(d) information technology
Answer : (c) medicines

Question. Why did the government decide to remove barriers on foreign trade and foreign investment?
(a) Because the government wanted to earn the foreign exchange.
(b) Because the government decided that the time had come for Indian producers to compete with producers around the world.
(c) Because the government wanted to maintain good relations with other countries.
(d) None of the above.
Answer : (b) Because the government decided that the time had come for Indian producers to compete with producers around the world.

Question. Which one of the following is not an MNC?
(a) Coca Cola
(b) Toyota
(c) SAIL
(d) Microsoft
Answer : (c) SAIL

Question. Ford Motors entered the Indian automobile business in collaboration with which Indian manufacturer?
(a) Maruti Suzuki
(b) TATA Motors
(c) Mahindra and Mahindra
(d) Toyota
Answer : (c) Mahindra and Mahindra

Question. Which one of the following statement is true regarding MNCs?
(a) They belong to Europe only.
(b) They are working only in Asian countries.
(c) These must own or control production in least in ten countries.
(d) These own or control production in more than one country
Answer : (d) These own or control production in more than one country

Fill in the blanks-

Question. Rapid improvement in technology has stimulated the _________ process.
Answer : Globalisation

Question. ___________ has resulted in greater competition among producers—both local and foreign. As a result, people today, enjoy much higher standards of living.
Answer : Globalisation

Question. The full form of SEZs is ______
Answer : Special Economic Zones

Question. The money that is spent to buy assets such as land, building, machines and other equipment is called __________.
Answer : Investment

Question. Companies who set up production units in the Special Economic Zones do not have to pay taxes for an initial period of ______ years.
Answer : Five

Question. Investment made by MNCs is called _________.
Answer : Foreign investment

Question. A ___________ is a company that owns and controls production in more than one nation.
Answer : MNC

Match the following:

WTO	To attract foreign companies to invest in India.
SEZs	Medicines
MNCs	To liberalise international trade.
Ranbaxy	A large part of foreign trade is controlled.

Answer : 1. WTO – To liberalise international trade.
2. SEZs – To attract foreign companies to invest in India.
3. MNCs – A large part of foreign trade is controlled.
4. Ranbaxy – Medicines

VERY SHORT ANSWER QUESTIONS

Question. Differentiate between investment and foreign investment.
Answer : World Trade Organisation was set up in 1995 at the initiative of the developed countries. Its aim is to liberalise international trade. Its headquarters is at Geneva. WTO establishes rules regarding international trade among countries of the world in an open,uniform and non-discriminatory manner. In 2006,149 countries of the world were its members.

Question. What are Multi-National Corporations (MNCs)?
Answer : A Multi-National Corporation (MNC) is a company that owns or controls production in more than one nation. The goods and services are produced globally. The production process is divided into small parts and spread out across the globe.

Question. What do you understand by the term ‘Foreign Direct Investment’?
Answer : FDI is the investment of foreign capital in the economic and productive activities of a country by foreign companies or MNCs with the aim of expanding capacity and production to earn profits.

Question. What is meant by trade barrier?
Answer : Workers are now employed on a temporary basis so that the employers do not have to pay workers for the whole year. Wages are low and workers are forced to work overtime to make both ends meet.

Question. Give one characteristic feature of a ‘Special Economic Zone’?
Answer : Special Economic Zones or SEZs are industrial zones set up by the government having word class facilities such as electricity, water, roads, transport, storage, recreational and educational facilities. Companies who set up production units in SEZs are exempted from taxes for an initial period of five years.

SHORT ANSWER QUESTIONS

Question. Mention any three steps that have taken by the government of India to attract foreign invest meant in recent years?
Answer : a) Special Economic Zones (SEZs) have been set up to have world class facilities such as electricity, water, roads, transport, storage, recreational and educational facilities.
b) Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years.
c) Government has allowed flexibility in the labour laws. 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.

Question. Why did the government of India wish to remove barriers to foreign trade and foreign investment starting around 1991?
Answer : 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.
Power fun International Organisations supported this decision.

Question. What is an MNC? How do MNCs succeed in spreading production across countries?
Answer : A MNC is a company that owns or controls production in more than one nation. A large MNC, producing industrial equipment, designs its products in research centres in the United States, and then has the components manufactured in China. These are then shipped to Mexico and Eastern Europe where the products are assembled and the finished products are sold all over the world. Meanwhile, the company’s customer care is carried out…….. through call centres located in India.

Question. Differentiate between investment and foreign investment.
Answer : The money that is spent to buy assets such as land, building, machines etc. is called investment whereas investment made by a MNC to buy such assets is called foreign investment.

Question. What are the various ways in which MNCs set up or control production in other countries?
OR
How do MNCs interlink production across the countries? Explain any three points.
Answer : Set up production jointly with some of the local companies.Benefit to the local company – MNCs provide money for buying new machines for faster production and bring the latest technology for production.
The most common route for MNC investments is to buy up local companies and then to expand production. (Eg. Cargill Foods, a very large American MNC, has bought over smaller Indian companies such as Parakh Foods).
Large MNCs in developed countries place orders for production with small producers. Eg. Garments, footwear, sports items then sell these under their own brand names to the customers.

Question. What is a trade barrier?
Answer : Trade barrier refer to restrictions set by the government in order to regulate foreign trade and investment. For example – a tax on imports is a trade barrier. It is called a barrier because some restriction has been set up.

Question. Explain any three factors that have enabled globalisation.
Answer : Rapid improvement in Transportation Technology: This had made possible much faster delivery of goods across long distances at lower cost.
Development in Information and Communication technology: It has played a major role in spreading out production of services across countries.
Liberalisation: Countries have removed many of the barriers to foreign trade and foreign investments and then promoted globalisation.

LONG ANSWER QUESTIONS

Question. Supposing you find two people arguing: One is saying globalisation has hurt our country’s development. The other is telling, globalisation is helping India develop. How would you respond to these arguments?
Answer : Both the arguments are right to some extent. Globalisation has hurt our country’s development as well as helped our country develop. In other words, we can say that globalisation has positive as well as negative impact on our country’s development.
Positive impact of the globalisation on India
(i) Availability of variety of products which enabled the consumers to have greater choice and enjoy improved quality and lower prices for several products.
(ii) This led to higher standard of living.
(iii) Increase in foreign direct investment and creation of new jobs in certain industries.
(iv) Top Indian companies have been benefited by investing in new technology and production methods along with successful collaborations with foreign companies.
(v) Globalisation has enabled some large Indian company to emerge as multinationals themselves. For example, Tata Motors, Infosys, Ranbaxy etc.
(vii) Enabled some large Indian companies to emerge as multinationals, created new opportunities for companies providing services, particularly those involving IT.
Negative impact of the globalisation on India
(i) Small producers failed to compete and got perished. Rising competition has led to shutting down of many units. Many workers became jobless. For instance, batteries, capacitors, plastics, toys, dairy products and vegetable oil are the examples of the industries which have been hit hard due to hard competition.
(ii) Globalisation and pressure of competition have substantially changed the lives of workers. Faced with growing competition most employers these days prefer to employ workers ‘flexibly’. This means that workers ’
jobs are no longer.

Question. Describe the major problems created by the globalisation for a large number of small producers and workers.
Answer : • Lead to widening income inequalities among various countries.
• Expansion of unorganised sector
• Jobs are no longer secure.
• The small manufacturers have been hit hard due to competition and several of the units have shut down rendering many workers jobless.
• Workers are denied their fare share of benefits.

Question. What were the reasons putting barriers to foreign trade and foreign investment by the government of India? Why did it wish to remove these barriers?
Answer : Reasons for putting barriers to foreign trade and foreign investment :
• To protect the producers within the country from foreign competition.
• 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.
• India allowed imports of only essential items such as machinery, fertilisers, petroleum etc.
Reasons for removing barriers to foreign trade and foreign investment :
• 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.
• Power fun International Organisations supported this decision.

Question. In what ways has competition effected the workers, the Indian exporters of the garment industries and MNCs?
Answer : Workers: Earlier a factory used to employ workers on a permanent basis, now they employ workers only on a temporary basis so that they do not have to pay workers for the whole year. Workers also have to put in very long working hours and work night shifts on a regular basis during the peak season. Wages are low and workers are forced to work overtime to make both ends meet. They are denied their fair share of benefits
Indian Exporters: Large MNCs in the garment industry in Europe and America order their products from Indian exporters. These large MNCs with worldwide network look for the cheapest goods in order to maximise their profits. To get these large orders, Indian garment exporters try hard to cut their own costs. As cost of raw materials cannot be reduced, exporters try to cut labour costs.
MNCs : They are able to find the cheapest goods in order to maximise their profits.
Competition among large the garment exporters has allowed these MNCs to make large profits.