Globalisation and the Indian Economy — Class 10 Social Science
Economics — Understanding Economic Development · Chapter 4
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Chapter summary
Key ideas & terms
- Globalisation
- The integration of economies through trade, investment, technology and movement of people.
- Multinational corporation
- A company that owns or controls production in more than one country.
- Foreign investment
- Investment made by MNCs and others to buy assets or set up production abroad.
- Liberalisation
- Removing government barriers and restrictions on trade and investment.
- World Trade Organisation
- An international body that aims to liberalise world trade.
- Trade barriers
- Restrictions such as taxes on imports used to regulate foreign trade.
- Special Economic Zone
- An area with world-class facilities and tax benefits to attract investment.
- Foreign trade
- The exchange of goods and services between countries.
Extra questions & answers
What is globalisation?
It is the process of the rapid integration of countries through greater foreign trade and investment and the movement of goods, services, technology, capital and people.
How do MNCs spread their production across countries?
They set up units, buy local companies or place orders with them where labour and resources are cheap and markets are accessible, connecting production across the world.
What was the impact of liberalisation in 1991?
It removed many trade barriers and restrictions, allowing freer imports, exports and foreign investment, and integrating India more closely with the world economy.
Why is globalisation criticised?
Because its benefits are unevenly shared — small producers and workers face stiff competition and insecurity, while developed countries often keep unfair trade advantages.
How can globalisation be made fairer?
Through government policies that protect workers and small producers, a fairer WTO, and ensuring that the gains of globalisation reach the poor and not only the well-off.
What is globalisation?
The process of the rapid integration of countries through greater foreign trade and investment and the movement of goods, services, technology, capital and people.
How do multinational corporations spread their production across countries?
They set up units, buy local companies, or place orders with them where labour and resources are cheap and markets are accessible, connecting production worldwide.
What was the impact of liberalisation in 1991?
It removed many trade barriers and restrictions, allowing freer imports, exports and foreign investment, and integrating India more closely with the world economy.
Why is globalisation criticised?
Because its benefits are unevenly shared — small producers and workers face stiff competition and insecurity, while developed countries often keep unfair trade advantages.
How can globalisation be made fairer?
Through government policies that protect workers and small producers, a fairer WTO, and ensuring that the gains reach the poor and not only the well-off.
LET’S WORK THIS OUT
Complete the following statement to show how the production process in the garment industry is spread across countries.
The brand tag says ‘Made in Thailand’ but they are not Thai products. We dissect the manufacturing process and look for the best solution at each step. We are doing it globally. In making garments, the company may, for example, get cotton fibre from Korea, ........
The company may get cotton fibre from Korea, have it spun into yarn in India, send the yarn to Thailand for weaving and stitching, obtain buttons and zips from another country, and finally sell the finished garments under its brand in markets across the world.
LET’S WORK THESE OUT
1. Would you say Ford Motors is a MNC? Why?
Yes. Ford Motors is an MNC because it owns or controls production in many countries. Its production was spread over 26 countries, including a manufacturing plant in India.
2. What is foreign investment? How much did Ford Motors invest in India?
Foreign investment is an investment made by a company in another country to acquire assets such as land, buildings, machines and equipment. Ford Motors invested Rs.
1,700
crore in India.
3. By setting up their production plants in India, MNCs such as Ford Motors tap the advantage not only of the large markets that countries such as India provide, but also the lower costs of production. Explain the statement.
India provides MNCs with a large number of potential buyers. It also offers skilled and unskilled labour, components and other resources at comparatively lower costs. Producing in India therefore reduces expenses while allowing an MNC to sell in India and export to other countries.
4. Why do you think the company wants to develop India as a base for manufacturing car components for its global operations? Discuss the following factors:
India can serve as an efficient production base because it combines comparatively low costs, an established network of component manufacturers and access to major Asian markets.
(a) cost of labour and other resources in India
Labour and several other production resources are available in India at comparatively low costs. This helps Ford reduce the cost of manufacturing components and increase its profits.
(b) the presence of several local manufacturers who supply auto-parts to Ford Motors
Local auto-parts manufacturers can supply Ford with components of the required quality and quantity. This reduces the need to produce every component itself and creates links between Ford and Indian suppliers.
(c) closeness to a large number of buyers in India and China
India is close to the large Indian and Chinese markets. Manufacturing nearby lowers transport time and cost and makes it easier to supply cars and components to a large number of buyers.
5. In what ways will the production of cars by Ford Motors in India lead to interlinking of production?
Ford’s Indian plant obtains parts and services from local producers, works with an Indian company, employs Indian workers and uses technology and investment from abroad. Cars and components made in India are then supplied to markets and factories in other countries. These activities connect production in India with production and markets across the world.
6. In what ways is a MNC different from other companies?
An MNC owns or controls production in more than one country, while an ordinary company generally operates mainly within one country. An MNC can divide its production among different nations and coordinate investment, technology, supplies and sales internationally.
7. Nearly all major multinationals are American, Japanese or European, such as Nike, Coca-Cola, Pepsi, Honda, Nokia. Can you guess why?
These regions industrialised earlier and developed large companies with substantial wealth, advanced technology, recognised brands and access to international finance. Their companies therefore had the resources to expand production and marketing across many countries.
LET’S WORK THESE OUT
1. What was the main channel connecting countries in the past? How is it different now?
In the past, foreign trade was the main channel connecting countries. Today, countries are connected not only through trade but also through foreign investment, international production networks, technology, services and, to a limited extent, the movement of people.
2. Distinguish between foreign trade and foreign investment.
Foreign trade is the exchange of goods and services between countries through imports and exports. Foreign investment is the investment made by a company in another country to acquire assets or establish and control production there.
3. In recent years China has been importing steel from India. Explain how the import of steel by China will affect.
The imports will increase competition in China’s steel market, create export opportunities for Indian steel companies and provide Chinese industries with an additional source of steel.
(a) steel companies in China.
Chinese steel companies will face competition from Indian steel. They may have to reduce prices, improve quality or become more efficient to retain customers.
(b) steel companies in India.
Indian steel companies will gain a larger market and may increase their production, sales, exports and earnings.
(c) industries buying steel for production of other industrial goods in China.
These industries will have a wider choice of suppliers and may obtain steel at lower or more competitive prices, reducing their production costs.
4. How will the import of steel from India into the Chinese markets lead to integration of markets for steel in the two countries? Explain.
Indian steel producers will begin supplying Chinese buyers and competing with Chinese producers. Changes in demand, supply, price or quality in one country will influence the other. Thus, trade connects the steel markets of India and China and makes them part of a wider market.
LET’S WORK THESE OUT
1. What is the role of MNCs in the globalisation process?
MNCs organise production across countries, make foreign investments and transfer goods, services and technology between nations. They connect local producers and markets through partnerships, purchases, orders, factories and international trade, making them a major force in globalisation.
2. What are the various ways in which countries can be linked?
Countries can be linked through the movement of goods, services, investments, technology and people. Communication and information networks also enable businesses and individuals in distant countries to work together.
3. Choose the correct option.
Globalisation, by connecting countries, shall result in
(a) lesser competition among producers.
(b) greater competition among producers.
(c) no change in competition among producers.
(b) greater competition among producers.
LET’S WORK THESE OUT
1. In the above example, underline the words describing the use of technology in production.
The relevant expressions are: “sent through Internet,” “using telecommunication facilities,” “done on a computer,” “sent by air,” and “done instantly through the Internet (e-banking).”
2. How is information technology connected with globalisation? Would globalisation have been possible without expansion of IT?
Information technology allows information, designs, instructions, services and payments to move almost instantly between countries. It enables different stages of production to be coordinated over long distances. Some international trade existed before IT, but the present speed, scale and complexity of globalisation would not have been possible without its expansion.
LET’S WORK THESE OUT
1. What do you understand by liberalisation of foreign trade?
Liberalisation of foreign trade means removing or reducing government restrictions on imports and exports. Businesses are then allowed greater freedom to decide what and how much they wish to import or export.
2. Tax on imports is one type of trade barrier. The government could also place a limit on the number of goods that can be imported. This is known as quotas. Can you explain, using the example of Chinese toys, how quotas can be used as trade barriers?
Do you think this should be used? Discuss.
The government could fix a maximum quantity of Chinese toys that may enter India. Once that quota is reached, no more toys could be imported during the period. This would limit foreign competition and protect Indian toy-makers. Such quotas may be justified temporarily when small or developing industries need protection, but permanent or excessive quotas can reduce competition, raise prices and limit consumer choice.
LET’S WORK THESE OUT
1. Fill in the blanks.
WTO was started at the initiative of __________countries. The aim of the WTO is to ____________________. WTO establishes rules regarding ________________ for all countries, and sees that ___________________ In practice, trade between countries is not ______________________________. Developing countries like India have ___________________, whereas developed countries, in many cases, have continued to provide protection to their producers.
WTO was started at the initiative of developed countries. The aim of the WTO is to liberalise international trade. WTO establishes rules regarding international trade for all countries, and sees that these rules are obeyed. In practice, trade between countries is not free and fair. Developing countries like India have removed trade barriers, whereas developed countries, in many cases, have continued to provide protection to their producers.
2. What do you think can be done so that trade between countries is more fair?
The same trade rules should apply to developed and developing countries. Developed countries should reduce unfair subsidies and trade barriers, while developing countries should be allowed reasonable protection for vulnerable farmers and small producers. WTO decisions should also give developing countries an equal voice and consider differences in their levels of development.
3. In the above example, we saw that the US government gives massive sums of money to farmers for production. At times, governments also give support to promote production of certain types of goods, such as those which are environmentally friendly. Discuss whether these are fair or not.
Support for environmentally friendly goods can be fair when it corrects environmental harm, is transparent and does not discriminate against foreign producers. However, subsidies become unfair when they allow producers to sell exports at artificially low prices and damage farmers or industries in other countries. Such support should therefore be limited, clearly justified and governed by equal international rules.
LET’S WORK THESE OUT
1. How has competition benefited people in India?
Competition has given many consumers a wider choice of goods, improved quality and lower prices. It has also encouraged some Indian companies to adopt new technology, improve production methods and raise their standards.
2. Should more Indian companies emerge as MNCs? How would it benefit the people in the country?
More efficient and responsible Indian companies can emerge as MNCs. Their international expansion can increase exports, income, investment, employment and technological development in India. The benefits will be greater when they provide fair working conditions and do not harm small producers or the environment.
3. Why do governments try to attract more foreign investment?
Governments seek foreign investment because it can bring capital, advanced technology, new factories, employment, greater production, exports and links with international markets.
4. In Chapter 1, we saw what may be development for one may be destructive for others. The setting of SEZs has been opposed by some people in India. Find out who are these people and why are they opposing it.
SEZs are often opposed by farmers, agricultural labourers, local residents and environmental groups. They may lose land, homes, livelihoods or access to common resources when land is acquired. Some also object to inadequate compensation, weak rehabilitation, environmental damage, tax concessions to companies and the relaxation of labour protections.
LET’S WORK THESE OUT
1. What are the ways in which Ravi’s small production unit was affected by rising competition?
Imported capacitors were available at about half Ravi’s price, so his main customers began buying imports or shifted to assembling products for MNCs. Ravi’s production fell to less than half its earlier level, his workforce declined from 20 workers to 7, and several similar units closed.
2. Should producers such as Ravi stop production because their cost of production is higher compared to producers in other countries? What do you think?
They should not automatically be forced to stop. Small producers provide employment and may become competitive if they receive better infrastructure, affordable credit, modern technology, training and temporary protection from unfair competition. Units that remain inefficient despite reasonable support may need to change products or production methods.
3. Recent studies point out that small producers in India need three things to compete better in the market
(a) better roads, power, water, raw materials, marketing and information network (b) improvements and
modernisation of technology (c) timely availability of credit at reasonable interest rates.
Together, these measures would reduce production costs, prevent delays, improve quality and productivity, help producers reach customers and give them the funds needed to modernise and expand.
Can you explain how these three things would help Indian producers?
Reliable roads, electricity, water and raw materials would make production and transport cheaper and more dependable. Marketing and information networks would help producers understand demand and find buyers. Modern technology would improve quality and productivity, while affordable and timely credit would finance machinery, materials and business expansion.
Do you think MNCs will be interested in investing in these? Why?
MNCs may invest in facilities that directly support their own suppliers or profits, but they are unlikely to provide broad public infrastructure or affordable credit to all small producers. Such investments may not give them an immediate commercial return.
Do you think the government has a role in making these facilities available? Why?
Yes. Roads, electricity, water, credit systems, training and market information are essential for economic development and may not be supplied fairly by private firms. Government action can ensure that small producers and less-developed areas also receive these facilities.
Can you think of any other step that the government could take? Discuss.
The government could provide technical training, quality-testing centres, research support, easier access to public purchasing, fair trade safeguards, cooperative marketing, assistance with exports and temporary protection against imports sold at unfairly low prices.
LET’S WORK THESE OUT
1. In what ways has competition affected workers, Indian exporters and foreign MNCs in the garment industry?
Foreign MNCs search for the cheapest suppliers and place large orders, allowing them to earn high profits. Indian exporters compete for these orders by reducing costs, especially labour costs. Workers are therefore often hired temporarily, paid low wages, made to work long hours and denied job security and benefits.
2. What can be done by each of the following so that the workers can get a fair share of benefits brought by globalisation?
Governments, employers, MNCs and workers must share responsibility for ensuring legal wages, safe conditions, reasonable hours, secure employment and access to social-security benefits.
(a) government
The government should enforce labour laws, minimum wages, safety standards, limits on working hours and social-security provisions. It should inspect workplaces and act against companies that violate workers’ rights.
(b) employers at the exporting factories
Employers should pay fair wages, provide safe workplaces, avoid excessive hours, offer written contracts and give eligible workers benefits such as leave, insurance and provident fund.
(c) MNCs
MNCs should pay suppliers prices that make decent wages and safe conditions possible. They should monitor their supply chains and refuse to profit from labour-law violations.
(d) workers.
Workers can organise unions or associations, learn about their legal rights, negotiate collectively and report violations. Collective action gives them a stronger voice than isolated complaints.
3. One of the present debates in India is whether companies should have flexible policies for employment. Based on what you have read in the chapter, summarise the point of view of the employers and workers.
Employers argue that flexible employment allows them to hire workers only when orders are high, reduce labour costs and respond quickly to competition. Workers argue that excessive flexibility creates insecurity, temporary jobs, low wages, long hours and loss of benefits. A fair policy should give firms reasonable adaptability while protecting basic wages, safety, social security and workers’ rights.
EXERCISES
1 What do you understand by globalisation? Explain in your own words.
Globalisation is the rapid integration or interconnection of countries through foreign trade, foreign investment, technology and the international organisation of production. Goods, services, capital and technology increasingly move across national borders, with MNCs playing a major role.
2. What were the reasons for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers?
After Independence, India used barriers to protect new domestic industries from strong foreign competition. Young industries might not have survived if cheaper or better-established imports had freely entered the market. From 1991, the government reduced these barriers because it believed competition would encourage Indian producers to improve quality and efficiency and would attract foreign investment and technology. Powerful international organisations also supported liberalisation.
3. How would flexibility in labour laws help companies?
Flexibility allows companies to hire workers for short periods when demand is high and reduce their workforce when orders fall. This lowers labour costs and helps companies respond quickly to changing market conditions. However, without proper safeguards, it can reduce workers’ job security, wages and benefits.
4. What are the various ways in which MNCs set up, control or produce in other countries?
MNCs may establish their own factories and offices, form joint ventures with local companies, buy existing local firms, place orders with small producers, use local companies as suppliers and coordinate different stages of production across several countries. Through their financial strength, technology and control over orders, they can influence prices, quality, delivery and working conditions.
5. Why do developed countries want developing countries to liberalise their trade and investment? What do you think should the developing countries demand in return?
Developed countries want liberalisation because it gives their companies easier access to developing countries’ markets, resources and investment opportunities. Developing countries should demand genuinely fair rules, including the removal of subsidies and barriers maintained by developed countries, equal participation in WTO decisions and permission to protect vulnerable farmers, workers and small producers when necessary.
6. “The impact of globalisation has not been uniform.” Explain this statement.
Globalisation has benefited well-off consumers through greater choice, better quality and lower prices. MNCs, large Indian companies, skilled workers and IT-based service providers have also gained new opportunities. In contrast, many small producers have faced damaging import competition, and numerous workers have experienced temporary employment, low wages, long hours and reduced benefits. Its gains and costs have therefore been distributed unevenly.
7. How has liberalisation of trade and investment policies helped the globalisation process?
Liberalisation removed or reduced restrictions on imports, exports and foreign investment. Goods could move more easily between countries, while foreign companies could establish factories and offices. This increased trade, investment and competition and connected Indian production and markets more closely with the global economy.
8. How does foreign trade lead to integration of markets across countries? Explain with an example other than those given here.
Foreign trade allows producers to sell outside their domestic market and buyers to purchase goods made abroad. Producers in different countries begin competing, while prices, demand and supply in one market affect the other. For example, if India exports medicines to an African country, consumers there gain another source of medicines and local manufacturers face competition. Indian producers, in turn, respond to demand and quality requirements in that country, linking the two markets.
9. Globalisation will continue in the future. Can you imagine what the world would be like twenty years from now? Give reasons for your answer.
The world is likely to become more interconnected through digital services, automated production, faster communication and international supply chains. More work may be performed remotely across borders, and companies may organise production according to skills, costs and access to markets. At the same time, countries may demand stronger rules on labour rights, taxation, data protection and the environment because the effects of globalisation have not been equally beneficial.
10.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?
Both arguments describe part of the reality. Globalisation has brought investment, technology, exports, employment, improved products and opportunities for several Indian companies and skilled workers. It has also harmed some small producers and weakened job security for many workers. The proper response is not to label globalisation entirely good or bad, but to regulate it so that competition is fair and its benefits are shared more widely.
11. Fill in the blanks.
Indian buyers have a greater choice of goods than they did two decades back. This is closely associated with the process of ______________. Markets in India are selling goods produced in many other countries. This means there is increasing ______________ 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 _____________ ___________________________________________ . While consumers have more choices in the market, the effect of rising _______________ and ______________has meant greater _________________among the producers.
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 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 and production costs are comparatively low. While consumers have more choices in the market, the effect of rising demand and purchasing power has meant greater competition among the producers.
(i) MNCs buy at cheap rates from small producers
(b) Garments, footwear, sports items
(ii) Quotas and taxes on imports are used to regulate trade
(e) Trade barriers
(iii) Indian companies who have invested abroad
(d) Tata Motors, Infosys, Ranbaxy
(iv) IT has helped in spreading of production of services
(c) Call centres
(v) Several MNCs have invested in setting up factories in India for production
(a) Automobiles
13.Choose the most appropriate option.
(i) The past two decades of globalisation has seen rapid movements in
(a) goods, services and people between countries.
(b) goods, services and investments between countries.
(c) goods, investments and people between countries.
(b) goods, services and investments between countries.
(ii) The most common route for investments by MNCs in countries around the world is to
(a) set up new factories.
(b) buy existing local companies.
(c) form partnerships with local companies.
(b) buy existing local companies.
(iii) Globalisation has led to improvement in living conditions
(a) of all the people
(b) of people in the developed countries
(c) of workers in the developing countries
(d) none of the above
(d) none of the above
ADDITIONAL ACTIVITY / PROJECT
I. Take some branded products that we use everyday (soaps, toothpaste, garments, electronic goods, etc.). Check which of these are produced by MNCs.
Examples include Dove soap and Surf Excel detergent produced by Hindustan Unilever, Colgate toothpaste produced by Colgate-Palmolive, Samsung mobile phones produced by Samsung, and Nestlé packaged foods produced by Nestlé. These companies operate and control production in more than one country and are therefore MNCs.
II. Take any Indian industry or service of your choice. Collect information and photographs from newspapers, magazine clippings, books, television, internet, interviews with people on the following aspects of the industry.
Selected service: the Indian information-technology and software-services industry. A project can include photographs of technology campuses, software teams, data centres and call centres, along with information organised under the following aspects.
(i) Various producers/companies in the industry
Major Indian companies include Tata Consultancy Services, Infosys, Wipro, HCLTech and Tech Mahindra. Foreign MNCs operating in India also participate in the industry.
(ii) Is the product exported to other countries?
Yes. Indian companies export software development, consulting, customer support, data processing, engineering and other digital services to clients in many countries.
(iii) Are there MNCs among the producers?
Yes. Several Indian technology companies operate in many countries and have become MNCs. Many foreign technology MNCs also maintain offices and service centres in India.
(iv) Competition in the industry
Competition is intense. Companies compete for international contracts on price, quality, technical skill, security, speed and reliability. They also compete to recruit and retain trained employees.
(v) Conditions of work in the industry
Work is generally performed in offices or remotely and requires specialised skills. Employees may receive relatively good salaries, but some face long hours, night shifts, strict deadlines, job insecurity and the need to update their skills continuously.
(vi) Has there been any major change in the industry in the past 15 years?
The industry has expanded from traditional software support and call-centre work into cloud computing, mobile applications, cybersecurity, data analytics, automation and artificial intelligence. Remote work and globally distributed teams have also become more common.
(vii) Problems that people in the industry face.
Workers may face rapid skill obsolescence, pressure to meet international deadlines, long or irregular working hours and uncertainty caused by automation and changing global demand. Companies also face cybersecurity risks, international competition and shortages of specialised talent.