CLASS 10 GLOBALIZATION AND THE INDIAN ECONOMY (ECONOMICS-4)

GLOBALIZATION AND INDIAN ECONOMY

What is Globalization?

•      It is the process of rapid integration or interconnection between countries.

•      Rapid integration between countries is the result of free flow of goods, services, capital etc. 

•      There is one more way through which countries are becoming closer and that is Movement of people between countries.

•      People usually move from one country to another in search of jobs or better education. This is also a result of Globalisation

Need of Globalization

•      Industrialization could not improve during 1965-80s due to high controlled and regulated economy.

•      The performance of Public Sector was not satisfactory.

•      Private Sectors could not perform efficiently due to excessive controls which affected smooth business operation.

Impact of Globalization in India

Ø  Greater competition among producers - both local and foreign producers has been of advantage to consumers.

Ø    There is greater choice before these consumers who now enjoy improved quality and lower prices for several products which leads to higher standard of living.

Ø  New jobs are being created in industries, such as mobile phones, electronics, fast food etc.

Ø  Local companies have prospered by supplying raw materials to these industries.

Ø  Top Indian companies have gained from successful collaboration with foreign companies.

Ø  Some of these companies have emerged as key multinationals themselves. Eg: Infosys, Tata, Ranbaxy etc.

Ø   Service industry has witnessed a fillip (boost). Eg: Call Centres, engineering services, accounting etc.   

Ø  Foreign Direct Investment (FDI) has increased. 

Factors that have enabled Globalization

TECHNOLOGY: 

Rapid improvement in technology has been one major factor that has stimulated globalisation process. Due to technology there have been improvements in various fields as in:

1. TRANSPORTATION TECHNOLOGY

(a) In past fifty years, this technological improvements has led to faster delivery of goods across long distances at lower costs.

(b) Containers for transport of goods have led to huge reduction in port handling costs, increased the speed with which goods can reach markets.

(c) Airlines: the cost of air transport has fallen, this has enabled much greater volumes of goods being transported by airlines.

2. INFORMATION AND COMMUNICATION TECHNOLOGY:

IT, has played a major role in spreading out production of services across countries.

Remarkable improvements have in the areas of telecommunications, computers & internet.

      Telecommunications: facilitated by the satellite communication devices, facilities as telegraph, telephone including mobiles, faxes are used to contact around the world, to access the information instantly & to communicate in the remote areas.

Computer and internet: computers have entered in almost all the fields.

Internet allows one to share information on almost every thing, we can send instant e-mail and talk through voice-mail across the world at almost negligible cost.

REASONS / FACTORS FOR THESE RAPID TRANSFORMATIONS?

Middle of twentieth century:
 

Ø  Production was largely organized within the countries
 

Ø  What crossed the boundaries was mainly the raw materials, food stuff and finished products.
 

Ø  Trade was the main channel connecting distant countries.

TRADE AND FOREIGN TRADE HISTORY:

Various trade routes connecting India and South Asia to markets both in the East and West & extensive trade that took place along these routes.
It was trading interest which attracted various trading companies such as East India Company to India.

Function or purpose of foreign trade?

Ø  Foreign trade creates an opportunity for the producers to reach beyond the domestic markets i.e., markets of their own countries.

Ø  Producers can sell their produce not only in markets located within the country but can also compete in markets located in other countries of the world.

Ø  For the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.

EFFECTS OF FOREIGN TRADE:

There are various positive & negative effects of foreign trade. Its positive effects are          

Ø  With the opening of trade, goods travel from one market to another.

Ø  Choice of goods in the markets rises.

Ø  Prices of similar goods in the two markets tend to become equal.

Ø  Producers in the two countries now closely compete against each other even though they are separated by thousands of miles.

Ø  Foreign trade thus results in connecting the markets or integration of markets in different countries. The economies of various countries are getting interlinked.

How foreign trade benefit to India & to China?

To China: Chinese got an opportunity to trade and expand their business.
--As they were selling it at high selling price, they got high profits.
--Within an year 70-80% of toys shops have replaced Indian toys with Chinese toys.

To India:  Indian buyers have more choice now.
--Prices are cheaper now.
--designs are new.
--But due to the cheaper prices & new designs, the Indian toy makers face losses, as their toys are selling much less.

MNC’S—Multi National Corporations

It is a company that owns or controls production in more than one nation.     

MNC’s set up offices & factories for production in the regions where they can get cheap labour and other resources.

This is done so that the cost of production is low and the MNC’s can earn greater profits.     

 Many MNC’s have wealth exceeding the entire budgets of the developing countries, with such enormous wealth they have immense power & influence.

FACTORS/ CONDITIONS TO SET UP A MNC

MNC’s set up production:

·         where it is close to the markets.

·         where there is skilled labour available at low costs.

·          where the availability of other factors of production is assured.

·          They look for the government policies that look after their interests.

INVESTMENT:
The money that is spend to buy assets such as land, building, machines and other equipments is called investment.
The investment made by MNC’s is called foreign investment.

MODES OF FOREIGN INVESTMENT:
Establishment of factories and offices solely by the MNC in some other country using its own capital.

Establishment of production units by an MNC in joint-venture with some local company.

Buying local companies and then expanding production.

Placing orders with small local producers.

FUNCTIONS OF FOREIGN TRADE:
Opens-up the world market for the producers.

Reduces the producer’s dependency on the domestic markets.

Increase the choice of goods for buyers.

Integrates various nations and paves the way for cultural and other contacts.

VARIOUS WAYS IN WHICH MNC’s ARE SPREADING THEIR PRODUCTION:

There are variety of ways in which MNC’s are spreading their production and interacting with local producers in various countries across the globe. They do this by various means:

By setting up partnerships with local company.   

By closely competing with local companies or buying them -the most common route for MNC investments is to buy up local companies and to expand production. With their huge wealth they can easily do so.

By using local companies for supply - Large MNC’s in developed countries place orders for production with small producers. Eg., garments, footwear, sports item etc. The products are supplied to MNC’s which then sell these under their brand names to the customers.

As a result, production in these widely dispersed locations is getting interlinked.

MNC’s are exerting strong influence on production at these distant locations.

MNC’S are playing major role in the Globalisation process.

MNC’s have been looking for locations around the world, which would be cheap for their production.
As a result of greater foreign investment and greater foreign trade, has been greater integration of production and markets across countries.

More and more goods and services, investments and technology are moving between the countries.

Most regions of the world are in closer contact with each other than a decade back.
Foreign investment in the countries has been rising.
Foreign trade between the countries has been rising.

Trade Barrier

Any tax or any other form of restriction that is imposed on the import of goods into a country is called a trade barrier.

Trade barriers are imposed for regulating the inflow of foreign goods in the domestic market for safeguarding the local producers from foreign competition.

India, after independence, had imposed trade barriers and allowed import of only essential commodities to give protection to the upcoming industries.

Liberalisation

It stands for the removal of trade barriers imposed by the govt of a nation.

Liberalisation opens-up the economy of a nation to foreign trade.

India liberalized its economy in 1991.

Measures taken for Liberalisation of Indian economy

v  Abolition of Industrial Licensing and Registration.

v  Concession form Monopolies Act.

v  Freedom for expansion and production of industries.

v  Increase in investment limit of the small industries.

v  Freedom to import capital goods.

v  Freedom to import technology.

v  Free determination of interest rates.

WTO-World Trade Organization

The functions of the WTO are as follows:

Establishing rules for international trade

Ensuring the rules are followed

Promoting removal of restrictions on trade barriers

It is biased in favour of the developed countries.

WTO is against barriers on trade in the form of tariffs and import duties as these impede (obstruct) the flow of capital, investments and technology. These mechanisms prevent the functioning of free trade.

Tax on Import is a Trade Barrier. Why did Indian Govt. impose barriers on foreign trade and foreign investment after Independence?
Tax on imports is known as a trade barrier, because Govt. can use it to regulate the foreign trade.

(a)   To protect the producers within the country from foreign competition.

(b)   To allow imports of only essential items, such as machinery, fertilizers, petroleum.

 To safeguard the industries which were just coming up in the 1950s and 1960s from external competition.

Important questions

01. What is Globalisation?
Ans. Globalisation means opening up the economy to facilitate its integration with the world economy.

02. Define Economic reforms of new Economic Policy 1991.
Ans. Economic policy adopted by the Government of India since July,1991 is termed as new economic policy or economic reforms.

03. Define Privatisation.
Ans. Privatisation means reduced government intervention and increased private investment in production activities.

04. What is meant by Liberalisation?
Ans. Liberalisation means removing unnecessary trade restrictions and making the economy more competitive.

05. What is outsourcing?
Ans. Outsourcing means going out to a source outside the company to buy regular service that formerly used to be provided departmentally and internally just as legal advice, computer service, security, advertisement and accounting etc.

06. What is meant by modernisation of the Economy?
Ans. The new economic policy accords top priority to modern techniques and technologies. It also promotes computers and electronics industries. It has made the Indian industries dynamic.

08. How many countries are currently the members of the World Trade Organisation (WTO)?
Ans. It has 153 member countries as on 23 July, 2008.

09. In which year, the government started to remove barriers on foreign trade and foreign investment.
Ans. In 1991

10. Why are the Chinese Toys popular in the world?
Ans. Chinese Toys are comparatively cheaper and have new designs. That is why they are popular in the world.

11. Why are the MNCs making investments in India?
Ans. In India labour cost is comparatively very low, that is why many MNCs are making investments in India.

12. Name the organisation which lay emphasis on liberalisation of foreign trade and foreign investment in India.
Ans. World Trade Organisation (WTO)

13. When was the UNO established?
Ans. The UNO was established on 24 October, 1945.

14. When was the WTO established?
Ans. The WTO was established on 1st January, 1995.

15. Where is the main Head Office of WTO?
Ans. Geneva-Switzerland.