Chapter 4: Globalisation and the Indian Economy (Economics)

Globalisation is the process of rapid integration or interconnection between countries. It happens through:

• more foreign trade: goods and services move freely between countries;
• more foreign investment, mostly by MNCs, which set up or control production in many countries;
• the movement of technology and, to some extent, people across countries.

As a result, markets and production in different countries become linked. For example, a phone designed in the USA may be assembled in India with parts from China and Korea, and sold all over the world. Faster transport and better information and communication technology have made globalisation possible.

Globalisation is the growing integration of countries through trade, foreign investment (mainly by MNCs), technology and the movement of people.

Reasons for barriers (after Independence):

• 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 them to grow.
• India allowed imports of only essential items such as machinery, fertilisers and petroleum.

Reasons for removing them (from around 1991):

• The government felt that Indian producers were ready to compete with producers around the globe, and that competition would improve the performance and quality of Indian producers.
• Powerful international organisations (and the WTO) supported this decision.
• It was expected to bring more foreign investment, technology and access to world markets.

Barriers were put up to protect young Indian industries from foreign competition; from 1991 they were removed because Indian producers were thought ready to compete, and competition would improve their quality.

• Companies can hire workers "flexibly" for short periods when there is intense pressure of work, and fire them when there is no work, without legal difficulties.
• They need not give workers long-term benefits such as provident fund, paid leave or job security, which reduces the cost of labour.
• This helps companies compete with foreign producers and keep prices low, and attracts foreign investment.

(However, it makes the jobs of workers insecure.)

It lets companies hire workers for short periods and remove them when not needed, cutting labour costs and helping them compete; but it makes jobs less secure.

• Setting up factories and offices for production, often in partnership with local companies (joint production). The local company gets money for investment and the latest technology.
• Buying up local companies, the most common route, and then expanding production. Example: Cargill Foods, an American MNC, bought Parakh Foods in India.
• Placing orders with small producers around the world for products such as garments, footwear and sports items, which are then sold under the MNC's brand name. The MNCs determine price, quality, delivery and labour conditions for these distant producers.

By setting up production units (often jointly with local firms), by buying local companies (e.g. Cargill bought Parakh Foods), and by placing orders with small producers who make goods sold under the MNC's brand.

Why developed countries want it:

• Their MNCs want access to the large markets of developing countries to sell their goods and services.
• They want to set up production where labour and raw materials are cheap.
• They want to invest their surplus capital and earn higher profits.

What developing countries should demand:

• Fair trade: developed countries should also remove their trade barriers, especially the subsidies they give to their farmers, which make it hard for farmers of poor countries to compete.
• Access to technology and fair terms for its transfer.
• Freedom to protect sensitive sectors (small farmers and small industries) where needed.
• A fair say in international organisations such as the WTO, whose rules are often set by rich countries.

Developed countries want markets for their MNCs, cheap labour and raw materials and higher profits; developing countries should demand that rich countries also remove their barriers and farm subsidies, share technology, and give them a fair say in the WTO.

• Consumers, particularly the well-off sections in urban areas, have benefited: they have a greater choice of goods of better quality at lower prices, and their standard of living has risen.
• Big Indian companies with modern technology, such as Tata Motors, Infosys, Ranbaxy, Asian Paints and Sundaram Fasteners, have benefited and some have become MNCs themselves.
• New jobs have been created in industries and services where MNCs invested (electronics, automobiles, mobile phones, IT services).
• But small producers have been hit hard by rising competition: industries such as batteries, capacitors, plastics, toys, tyres, dairy products and vegetable oil have seen many units shut down, and many workers lost their jobs.
• Workers face insecure jobs: companies hire them flexibly, with long hours and without benefits.
• Farmers in developing countries face unfair competition from subsidised farm products of developed countries.

So the benefits of globalisation have gone mostly to the skilled, educated and wealthy, not to everyone.

Well-off consumers, big companies and skilled workers have gained, while small producers lost out to competition and many workers face insecure jobs, so the impact has been uneven.

• When barriers (taxes and quotas on imports, restrictions on investment) were removed, goods could be imported and exported more easily, so foreign trade increased.
• Foreign companies could set up factories and offices in India, and Indian companies could invest abroad, so foreign investment increased.
• MNCs could spread their production across countries wherever it was cheapest, linking markets and production.
• Indian businesses could take decisions freely about what to import or export.

So liberalisation allowed the free flow of goods, services and investment, which is the essence of globalisation.

By removing trade barriers and restrictions on investment, liberalisation made it easy for goods, services and investment to flow between countries, which drove globalisation.

Foreign trade creates an opportunity for producers to reach beyond domestic markets, and gives buyers a choice of goods beyond those produced at home. As goods from one country are sold in the markets of other countries, prices and quality of the same goods in different countries begin to move closer, and the markets get connected.

Example: Indian mangoes (such as Alphonso) are exported to the USA, the UK and the Gulf countries. Buyers there get a new choice, and Indian mango growers get a bigger market and better prices. Indian mangoes now compete with mangoes from Mexico and Brazil in these markets. Similarly, Korean and Chinese smartphones are sold in India and compete with Indian brands. In this way, the markets of different countries become one large integrated market.

Trade lets producers sell abroad and buyers choose foreign goods, so goods compete across borders and markets become linked; e.g. Indian Alphonso mangoes competing with Mexican mangoes in US markets.

Twenty years from now:

• Trade and communication will be even faster: online shopping across countries, digital payments in any currency, and goods delivered quickly by better transport.
• Production will be spread across many countries; MNCs and global supply chains will be larger, and many Indian companies will be global players.
• Technology such as artificial intelligence and automation will change jobs: people with skills will find work anywhere (remote work), while routine jobs may disappear.
• People will migrate and travel more for education and work, and cultures will mix more.
• At the same time, there may be challenges: inequality between and within countries, job insecurity, pressure on the environment, and countries using trade barriers to protect their own industries.

Reasons: improvements in technology, the spread of the internet, liberalisation by governments and the search by companies for markets and cheap production.

The world will be more connected, with faster trade, global production, AI and remote work, and more travel; but inequality, job insecurity and environmental pressure may grow, so globalisation must be made fairer.

Both are partly right:

• Helping development: more choice and better-quality goods for consumers at lower prices; new jobs in industries and services where MNCs invested; Indian companies such as Tata Motors, Infosys and Ranbaxy have become global; IT services, call centres and exports have grown; access to new technology and foreign investment.
• Hurting development: small producers (toys, batteries, plastics, dairy) have closed down because of competition, causing unemployment; workers face flexible, insecure jobs; benefits have gone mostly to the rich and skilled; farmers face competition from subsidised imports.

So globalisation has both benefits and costs. The answer is fair globalisation: the government should protect small producers and workers (by enforcing labour laws, supporting small industries, and using trade barriers where needed), negotiate fairer rules at the WTO, and help people gain skills so that the benefits reach everyone.

Both are partly right: globalisation has brought choice, jobs and growth for some, but hurt small producers and workers; what is needed is fair globalisation that spreads its benefits to all.

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 foreign trade (integration) 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 India has a large market, cheap labour and liberal government policies. While consumers have more choices in the market, the effect of rising foreign trade and foreign investment has meant greater competition among the producers.

globalisation; foreign trade; India has a large market, cheap labour and liberalised policies; foreign trade; foreign investment; competition

(i)–(b), (ii)–(e), (iii)–(d), (iv)–(c), (v)–(a)

(iii): globalisation has benefited some sections of people in both developed and developing countries, but not all people, nor all people of any one group.

(i) (b) goods, services and investments (ii) (b) buy existing local companies (iii) (d) none of the above

(I) Example table:

Check the label for "Manufactured by" or "Marketed by", or look up the company's website.

(II) Example: the Indian automobile industry.

• Producers: Maruti Suzuki, Tata Motors, Mahindra, Hyundai, Toyota, Kia, Honda.
• Exports: yes; India exports cars and two-wheelers to many countries.
• MNCs: many (Suzuki, Hyundai, Toyota, Kia, Honda).
• Competition: intense, especially in small cars and SUVs; electric vehicles are a new field.
• Working conditions: big factories with modern machines; many workers are employed on contract.
• Changes in 15 years: more models and safety features, entry of new MNCs, growth of exports, and the shift towards electric vehicles.
• Problems: high costs of fuel and raw materials, competition, pollution norms, and insecure contract jobs.

Collect photographs and newspaper clippings to make a project file.

Make a table of everyday brands showing which are MNC products, and prepare a project file on one industry covering its producers, exports, MNCs, competition, working conditions, recent changes and problems.