NCERT Notes Class 10 Social Science Economics Chapter 4 Globalisation and The Indian Economy
Chapter 4 Globalisation and The Indian Economy NCERT Notes
Chapter Name | Globalisation And The Indian Economy Notes |
Class | CBSE Class 10 |
Textbook Name | Understanding Development Class 10 |
Related Readings |
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Introduction
In the present world, we as consumers have access to all the latest products, technology, clothes, etc., from all the leading manufacturers worldwide. This was not the scenario in the past, and it has changed completely today. We have innumerable choices of goods and services in the Indian market. This chapter will learn how this transformation occurred, what its factors were, and how it has affected our lives.
Production across Countries
Until the last century, production and manufacturing were mostly confined within the countries. Most of the distant countries were connected only through trade, where there was an exchange of raw materials, food, and finished products. This situation changed with the emergence of MNC’s.
A Multi-national Corporation is a company that owns or controls production in more than one Nation.
- MNCs set up their offices and production units at different locations to collect labor and other resources at a comparatively cheaper rate.
- They invest less in production (input) and earn more profits at the outcome (output).
- For example, A multi-national company manufacturing mobile phones designs its products in research centers located in the US. Its parts are manufactured in China as it serves as a cheap manufacturing location. These parts are then assembled in Mexico and Eastern Europe as they are close to the US and Europe and sold across the world. Meanwhile, the company’s customer care is facilitated through call centers located in India.
- Thus, MNCs not only sell their products globally but also manufactures them globally. The production is organized in increasingly complex ways. It is divided into small parts and spread out across the world.
Interlinking Production across Countries
MNC’s set up their production units to efficiently recruit skilled and un-skilled laborers at low wages andseek benefit from government policies.
The money that MNC’s finance (invest) for procuring land, resources, equipment, and other assets is called Foreign Investment. This investment is made with an aspiration to earn higher profits.
The MNC’s play a significant role in interlinking the production across various countries in the following ways:
- The MNC’s collaborate with small scale industries of developing countries. They provide money for new pieces of machinery, resulting in faster production. In some cases, MNC brings their own latest technology for production. Thus, theoutcome of this partnership with a local company is two-fold.
- The top MNCs have a tremendous amount of wealth that exceeds the entire budgets of developing countries. Most of the time, these MNCs buy up local companies and then expand their production. E.g.,Cargill foods (American MNC) bought over smaller Indian companies like Parakh foods.
- Large MNCs of developed countries place orders for items such as garments, shoes, and sports items to the small producers worldwide. These products are then sold to customers under the brand name of that MNC. Here, the MNCs have the authority to regulate price, quality, delivery, and labor conditions for these distant producers.
Thus, MNCs exert strong supremacy on production through partnerships with local small industries by using them for supplies, competing with them, or buying them out. As a result, production is getting interlinked across distant locations.
Foreign Trade and Integration of Markets
Since earlier times, foreign trade has been the main channel connecting countries. Earlier, East and West markets were connected through trade routes between India and South Asia. Later, trading interests attracted various companies like East India Company to India.
Foreign trade
- Foreign trade or international trade is the exchange (import and export) of capital, goods, and services across international borders or territories.
Thus, Foreign trade creates an opportunity for producers to reach beyond the domestic markets, i.e., markets of their own countries, and compete in markets of the other countries of the world.
In- Same way, importing the goods produced in another country would give the buyers more options of goods and raw materials, i.e., beyond domestically produced goods.
With the beginning of trade, goods move from one market to another, and goods’ choice increases. Thus, the competition rises, and prices of similar goods in the two markets become equal.
Producers in the two countries compete against each other even though they are thousands of miles apart.
Thus, foreign trade results in connecting the markets or integration of markets in different countries.
For example, Chinese toy manufacturers export toys to India. They sell their plastic toys at lower rates compared to the toys manufactured in India. As a result, Chinese toys have replaced Indian toys. This way, toymakers of China have expanded their business while, on the other side, Indian toymakers cannot compete and face losses.
What is Globalisation?
Globalization is the spread of goods, services, technology, Information, and jobs across nations. It can also be defined as the integration and interaction of people, companies, and governments across the world. It marks the interdependence of nations around the globe.
Over the past few decades, MNCs have set up their production facilities in more than one country worldwide.
Foreign investment along with foreign trade has been increasing rapidly. The MNCs also dominate a large part of foreign trade.
They are producing as well as selling their products in various countries. They are interlinking the economies of these countries and boosting up globalization.
Thus, MNCs play a significant role in the globalization process.
On one hand, globalization has connected distant countries and developing economic growth through the cross-border flow of goods. On the other hand, this has also led to greater competition among producers across industries or countries.
Factors that have enabled Globalisation
Following are the factors that have contributed to Globalisation:
1. Technology
- Rapid improvement in technology is a significant factor that has led to the globalization process.
- Because of the technological improvement in transportation areas such as air travel, containerized sea shipping, countries today have connected more than ever.
- The containerized sea shipping has led to a considerable reduction in port handling charges, and air travel has enabled larger volumes of goods. This has led to faster delivery of goods at much lower costs.
- The Information and communication technology has changed rapidly; the shift from telephonic systems to cable and satellite digital like mobile phones, computers, internet communication has resulted in increasing information flows.
- People can now communicate with one another across the globe, even in remote areas, and instantly access information. The Internet has enabled us to send e-mails and voice-calls at nominal rates.
2. Liberalization of foreign trade and foreign investment policy
- The government of a country puts a tax on imported products because of this. The buyers pay a higher price for the products due to tax. Thus, importing the country’s products would not be cheaper, so the import will reduce from that country.
- These government-induced restrictions, such as a tax on international trade, are called Trade barriers.
- The government can use trade barriers to regulate foreign trade and decide what goods and the number of goods enter the country.
- The Indian government, during the 1950s and 1960s (post-independence), i.e., the initial phase of development, restricted foreign trade, and foreign investment to protect the producers within the country from foreign competition; otherwise, they would not have been able to set up industries. They allowed imports of only essential items like machinery, fertilizers, petroleum, etc.
- In the 1990s, changes were made to this policy in India. The government felt that competition would benefit as it would improve the quality of products. Influential international organizations supported this decision. The barriers to foreign trade and foreign investment were removed to a large extent that allowed goods’ movement efficiently.
- The removal or loosening of restrictions or barriers set by the government is called
- Due to liberation, the businesses are free to make decisions for import and export. Foreign companies can easily set up their office and factories at various locations.
World Trade Organisation
Many influential organizations believed that trade barriers are detrimental and decrease overall economic efficiency, and they supported the idea of Liberalisation. WTO is one such organization.
The World Trade Organization (WTO) is a global international organization that deals with trade rules between nations. The goal is to ensure that trade flows as smoothly, predictably, and freely as possible and liberalize international trade.
It was started at the initiative of developed countries. At present, 164 countries of the world are currently members of the WTO.
Though WTO is supposed to allow free trade for all, developed countries have unfairly retained trade barriers, but it is the opposite for developing countries.
For example:
In the US, the agriculture sector’s share in GDP is 1% and in employment is 0.5% only. Still, the US government pays a massive sum of money for production and exports. This enables their farmers to sell their goods at cheaper rates than the farmers of developing nations. This adversely affects the farmers of developing nations as they cannot compete against them, and thus, they complain about fair and free trade.
Impact of Globalisation in India
Globalization has grown up at an unprecedented pace, impacting the Indian economy in various ways.
- Globalization has created greater competition between producers of both importing as well as exporting countries. Because of this variety of choices are available for customers with improved quality and lower rates. As a result, people can enjoy a higher standard of living.
- Because of globalization, MNCs have increased their Indian investments in cell-phones, automobiles, electronics, fast-food, etc. This has led to new jobs, and economic growth has prospered. Moreover, the local companies supplying raw materials have also gained profits.
- The productivity and efficiency of Indian companies have increased due to the process of competition. Some have benefited from a successful partnership with foreign companies.
- Globalization has enabled Indian companies to emerge as MNCs like Tata Motors, Infosys, Ranbaxy, Asian Paints, etc.
Steps to attract Foreign Investment
To attract foreign investments in India, the Central and State governments have set up Industrial zones called Special Economic Zones (SEZ).
- SEZs are facilitated with all the amenities such as electricity, water, roads, transport, storage, recreational and educational facilities.
- The taxes are waived for five years if the companies set up their production units in SEZ.
- The government has also allowed ignoring specific rules that aim to protect workers and allow flexibility in the labor laws where the companies can hire workers for shorter periods when there is intense pressure work.
Rising Competition and Uncertain Employment:
The benefits of globalization have not been distributed equally to small producers and workers.
Due to the Liberalization of import policies, foreign companies have flourished by selling their product at a lower price. In contrast, the local companies have faced huge losses and subsequently have shut down their small-scale industries rendering many workers jobless.
Because of growing competition and the motive to earn more profits, employers prefer to employ laborers flexibly.
Thus, the workers have no secure jobs, must work in long shifts without extra wages, and under much pressure.
Most workers today are employed in the unorganized sector.
Moreover, increasingly, work conditions in the organized sector have come to resemble the unorganized sector.
Struggle for fair Globalisation
- The benefits of globalization are not equally distributed to all the people. Fair globalization would create opportunities and would be beneficial to all.
- The government can play a significant role in fair globalization.
- The government should ensure that workers get their rights and the labor laws are appropriately implemented.
- The government should make provisions to support small scale industries until they are ready to face competition with foreign companies.
- It should negotiate at WTO for ‘fairer rules.’
- The government should make an ally with other developing countries having the same interest to fight against the supremacy of developed countries in the WTO.
- People can also play a significant role in the struggle for fair globalization through their campaign and representation relating to trade and WTO.