NCERT Notes Class 10 Social Science Economics Chapter 4 Globalisation and Indian Economy
Chapter 04: Globalisation and Indian Economy - Study Notes, Questions and Answers / NCERT CBSE TextBooks Solutions Class 10 Economics Chapter 04 Globalisation and Indian Economy
* Introduction:
CBSE Class 10 Social Studies Economics Chapter 4 throws light on the various aspects of globalisation and its impact on the Indian economy.
If we look back, the variety of choices available today to the consumers of the Indian market was not present prior to 1990. We have goods produced by different companies from different regions of the world. Until a few decades ago, India only had goods from Indian manufacturers. This severely limited the choices available. In this chapter, we will explore how this transformation took place and the impact it has had on our lives. It will look at the role of multinational companies (MNC) in linking production and markets across the world. It will also look at the role of government and international organisations in the process.
* Production Across Countries
● In the mid-20th century, only raw material and finished goods were traded across countries. Production was completely undertaken within a country.
● The rise of MNCs changed this practice. MNCs manufacture and sell goods globally.
● They are able to break up their products into different parts and locate them across the globe to reduce the cost of production. This allows MNCs to
make more profits than if they were producing in a single location.
* Interlinking Production
I. The MNCs’ decision to locate their production facilities is affected by a variety of factors including the following. These factors determine where and how much MNCs will invest in their capital.
● Availability of resources at low cost
● Proximity to markets
● Cheap skilled and unskilled workforce
● Favourable government policies
II. MNCs invest in assets after considering the above factors. Such an investment is called foreign Investment.
III. There are many ways in which MNCs invest:
● Joint Production/Partnership: MNCs tie up with an existing local company. The investment helps local producers to acquire more and better assets and the latest technology.
● Acquisition of Local Companies: MNCs buy large established local companies with extensive networks and expand their production.
● Controlled Production: MNCs provide supplies and place orders with local producers who manufacture goods. Products are sold under the brand name of the MNC.
IV. These ways of locating production facilities, which can reduce their overall cost leads to the complex organisation structure across several countries.
V. This, in turn, gives rise to interlinkages among production markets. Technology, labour conditions, and overall competition in the market is influenced by the presence of MNCs.
* Foreign Trade and Integration of Markets
● For a long time, foreign trade was the primary mode of interlinkages between markets.
● Foreign trade expands the market for the producer. They can sell their products and services both in domestic markets and in international markets.
● It also expands choices for consumers. They can now buy goods and services which were earlier only available in far-away foreign markets.
● The import and export of goods also allow equalising the price of the same good in different markets. If a customer finds that they can import a good cheaper than buy it from a domestic firm, they will buy foreign goods. Unable to sell its products, the domestic firm will reduce the price to attract customers.
● This causes competition among producers located across the globe.
● End result is that allowing free foreign trade will create deep interlinkages between markets and integrate them to form one large global market which
is spatially dispersed.
* Globalisation
● Over the decades, the scale of these activities has increased. There are more MNCs now than ever. Foreign investment and the quantum of foreign trade has been rising.
● Consequently, the markets of production and sales integration of production and markets across the globe had deepened leading to Globalisation.
● The rapid process of integration of markets and production is called Globalisation.
● Physical goods, services, information and technology, and people are important components of these global interconnections and movement.
Factors Enabling Globalisation Technology
● Rapid improvement in technology like transportation and advanced production has allowed fast integration of global production and markets.
● Information and Communication technology has played a major role in making possible globalisation. Advancement of telecommunication facilities and
the internet revolution has made it easier to remotely monitor and control products across the globe.
● Advanced computational facilities have enabled automation and precise controlling of production, making possible uniformity.
● The IT revolution in India was made possible by these advances which allowed the possibility of locating workers at different locations, yet integrating them in a virtual workspace.
* Trade Liberalisation
● Liberalisation is the process of reducing barriers to performing an economic activity. These barriers were traditionally put in place by the government for a
variety of reasons including producing domestic producers or facilitating production.
● Trade liberalisation is the removal of trade barriers. Barriers like taxes and quotas on imports and exports distort the price and quantity that can be traded. This, in turn, makes it more expensive to import goods, hence people will more likely buy local products.
● Trade barriers can promote growth and production in an emerging economy. However, after a certain level of development, it can be detrimental.
● Removal of these barriers will explore the domestic firms to international competition. Firms must adopt better technology and produce better quality output at costs similar to international firms.
● In 1991, India liberalised its trade allowing businesses to freely import and export material and products. Organisations like the World Bank supported this
move.
* Foreign Investment Policy
● Like liberalised trade, a better foreign investment policy will encourage a free flow of investments/capital across borders.
● This increases the resources available to a country to produce goods.
● It also brings in advanced technology from developed countries to the less developed country.
* WTO
● World Trade Organisation is an international organisation that supports free trade across countries.
● It works to liberalise international trade by making its member countries remove the trade barriers which they have in place.
● WTO and similar organisations believe that barriers to trade and investment are bad. It allows unfair advantage to one set of producers and harms others.
● WTO has 164 member countries, all of which have not opened up their trade.
● It is seen that while WTO forces developing countries to liberalise, developed countries have unfairly retained barriers.
* Impact of Globalisation in India
● For consumers:
• More products and services are available to consumers due to increased competition among different producers.
• Higher quality goods at lower prices.
• Improvement in standard of living.
● Companies
• MNCs have been able to get the best skills, materials, and workers at a lower cost.
• Suppliers of such raw materials have been able to increase their production as MNCs increase production with more consumers purchasing their goods.
• Local companies have improved their production techniques by adopting better technology and standards due to competition with MNCs.
• Partnership and collaborations have helped local companies expand..
• Many Indian companies have become global players.
• The emergence of new areas of business and demand for new skills.
• The emergence of more jobs.
Having said this, there are many concerns associated with globalisation:
● Producers with small firms and limited output have not been able to withstand stiff competition from MNCs. Shutting down such firms have made many people jobless.
● Rush to find flexible workforce at cheap prices, workers who work in MNCs face uncertain jobs, poor pays.
● Lack of State policy to protect workers has led to poor working conditions, lack of employment benefits.
● Many workers in the informal or unorganised sector work on a daily wage basis and have no fixed contracts or benefits like pension.
* Fair Globalisation
● Inequalities in the distribution of benefits of globalisation lead to the call for fair globalisation.
● This argues that the opportunities and benefits of globalisation be distributed among all people in an equitable manner.
● People’s organisations have led campaigns and submitted a representation to governments for intervention through policies that will promote equity.
● Government is best placed to ensure fair globalisation. They can use labour laws to protect their workers.
● The government can negotiate with the WTO and other organisations to keep in place barriers that will distribute the benefits in an equitable fashion.
* Textbook Exercises
1. What do you understand by globalisation? Explain in your own words.
Answer:
Globalisation means integrating the economy of a country with the economies of other countries under conditions of free flow of trade, capital and movement of persons across borders. It includes
(i) Increase in foreign trade
(ii) Export and import of techniques of production.
(iii) Flow of capital and finance from one country to another
(iv) Migration of people from one country to another.
2. What was the reason for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers?
Answer:
The Indian government had put barriers to foreign trade and foreign investment to protect domestic producers from foreign competition, especially when industries had just begun to come up in the 1950s and 1960s. At this time, competition from imports would have been a death blow to growing industries. Hence, India allowed imports of only essential goods.
In New Economic Policy in 1991, the government wished to remove these barriers because it felt that domestic producers were ready to compete with foreign industries. It felt that foreign competition would in fact improve the quality of goods produced by Indian industries. This decision was also supported by powerful international organisations.
3. How would flexibility in labour laws help companies?
Answer:
Flexibility in labour laws will help companies in being competitive and progressive. By easing up on labour laws, company heads can negotiate wages and terminate employment, depending on market conditions. This will lead to an increase in the company’s competitiveness.
4. What are the various ways in which MNCs set up, or control, production in other countries?
Answer:
Multinational Corporations (MNCs) set up their factories or production units close to markets where they can get the desired type of skilled or unskilled labour at low costs along with other factors of production. After ensuring these conditions MNCs set up production units in the following ways:
• Jointly with some local companies of the existing country.
• Buy the local companies and then expand its production with the help of modern technology.
• They place orders for small producers and sell these products under their own brand name to customers worldwide.
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?
Answer:
Developed countries want developing countries to liberalise their trade and investment because then the MNCs belonging to the developed countries can set up factories in less-expensive developing nations, and thereby increase
profits, with lower manufacturing costs and the same sale price.
In my opinion, the developing countries should demand, in return, for some manner of protection of domestic producers against competition from imports. Also, charges should be levied on MNCs looking to set base in developing nations.
6. “The impact of globalisation has not been uniform.” Explain this statement.
Answer:
“The impact of globalisation has not been uniform”. It has only benefitted skilled and professional person in urban, not unskilled persons. The industrial and service sector has much gained in globalisation than in agriculture. It benefitted MNCs on domestic producers and the industrial working class. Small producers of goods such as batteries, capacitors, plastics, toys, tyres, dairy products and vegetable oil have been hit hard by competition from cheaper imports.
7. How has the liberalisation of trade and investment policies helped the globalisation process?
Answer:
Liberalisation of trade and investment policies has helped the globalisation process by making foreign trade and investment easier. Earlier, several developing countries had placed barriers and restrictions on imports and investments from abroad to protect domestic production. However, to improve the quality of domestic goods, these countries have removed the barriers. Thus, liberalisation has led to a further spread of globalisation because now businesses are allowed to make their own decisions on imports and exports.
This has led to a deeper integration of national economies into one conglomerate whole.
8. How does foreign trade lead to an integration of markets across countries? Explain with an example.
Answer:
Foreign trade provides opportunities for both producers and buyers to reach beyond the markets of their own countries. Goods travel from one country to another. Competition among producers of various countries as well as buyers prevails. Thus foreign trade leads to the integration of markets across countries.
For example, during Diwali season, buyers in India have the option of choosing between Indian and Chinese decorative lights and bulbs. So this provides an opportunity to expand a business.
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.
Answer:
After twenty years, the world would undergo a positive change which will possess the following features— healthy competition, improved production efficiency, increased volume of output, income and employment, better living standards, greater availability of information and modern technology.
Reason for the views given above: These are the favourable factors for globalisation:
• Availability of human resources both quantity-wise and quality-wise.
• Broad resource and industrial base of major countries.
• Growing entrepreneurship
• Growing domestic market.
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 organisations?
Answer:
Benefits of globalisation of India:
• Increase in the volume of trade in goods and services
• Inflow of private foreign capital and export orientation of the economy.
• Increases volume of output, income and employment.
Negative Impact / Fears of Globalisation.
• It may not help in achieving sustainable growth.
• It may lead to the widening of income inequalities among various countries.
• It may lead to aggravation of income inequalities within countries.
Whatever may be the fears of globalisation, I feel that it has now become a process which is catching the fancy of more and more nations. Hence we must become ready to accept globalisation with grace and also maximise economic gains from the world market.
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.
Answer:
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 trade 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 of cheaper production costs. While consumers have more choices in the market, the effect of rising demand and purchasing power has meant greater competition among the producers.
12. Match the following.
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.
Answer: (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.
Answer: (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
Answer: (d) None of the above
* Important Question and Answers
1. How has globalisation transformed the markets?
Answer: Globalisation is the creation of dense interlinkages of production and markets across countries. It has caused the following changes:
i. The variety and quality of goods and services in the market have greatly increased/improved due to competition resulting from globalisation.
ii. Producers now have access to the larger global market where they can sell their goods and services and get better prices
3. Consumers can now buy goods and services which were earlier only available in far-away foreign markets.
4. Price of the same goods over different markets tend to equalise due to the effects of trade
2. “The advantage of spreading out production across the borders to the multinationals can be truly immense.” Explain
Answer: The above statement can be explained in light of the following points:
● MNCs can significantly lower the cost of production by locating production in locations with minimum costs of resources and wages.
● By locating production in different parts of the world, they can access markets more easily.
● They can draw the best-skilled workers for higher-level jobs at modest costs.
3. How do MNCs spread their production facilities in new countries?
Answer: MNCs follow three main strategies to locate their production in new regions:
i. Join hands in production/Enter into a partnership: MNCs tie-up with an existing local company. They bring in investment to expand assets and advanced technology. MNCs share profits with the local partner.
ii. Acquire local companies: MNCs buy out large local companies with extensive networks and expand production. MNCs can benefit from the reputation and expertise of the company while having complete decisionmaking power.
iii. Control Production: MNCs place orders with local producers who manufacture goods. Products are sold under the brand name of the MNC. MNC may supply raw material, it will control the terms of production, quality, design, standard, etc.
4. What are the changes that led to the dense interlinkages across markets present in the world today?
Answer:
a. Technology: Availability of advanced technology has allowed improving production and transportation methods among others. Information and Communication technology like telecommunication facilities and the internet revolution has made it easier to remotely monitor and control products across the globe.
b. Trade Liberalisation leading to the removal of trade barriers like taxes and quotas on imports and exports have allowed countries to produce in one place but sell in many other places. It also has allowed local producers to import
semi-finished goods and expand their operations. Consumers by purchasing goods produced outside link the markets.
c. Foreign Investment Policy has encouraged the free flow of investments/capital across borders. This has allowed MNCs to locate their production across countries.
5. Explain how MNCs have contributed to the increased competition in local markets. How has this been beneficial and for whom?
Answer:
● MNCs have a low cost of production due to the benefits of locating production in locations with minimum costs of resources and wages. This makes their goods cheaper than local producers.
● MNCs have advanced production technology which allows them to produce better quality goods as compared to local producers.
● Due to high capital availability, MNCs can produce more than other local competitors.
● These together create a competitive environment in both production and sales. Local producers should now try to bring their costs of production low and
improve the quality of goods and services to meet the price and rating of MNCs’ goods and services.
● The competition has benefited large firms and allowed them to emerge as formidable local and global players.
● Customers have benefited from better quality at lower prices.
● However small and medium producers lacking resources to expand their production, or acquire better technologies have lost out.
6. What are Special Economic Zones?
Answer: Special Economic Zones (SEZs) are industrial regions where governments give special incentives to companies to set up their production. These include
● Provision of the infrastructure of levels of international standards.
● Tax expedition for the first five years.
● Flexible application of labour laws within the zones making it possible to lower cost of wages.
7. What is WTO? Why are their policies criticized?
Answer: World Trade Organisation is an international organisation that oversees international trade. Its aim is to liberalise international trade by reducing trade barriers.
● WTO has 164 member countries, all of which have not opened up their trade.
● WTO policies to liberalisation unfairly harm developing countries.
● Often developing countries are put under extra pressure to liberalise and their premature economy may not survive the intense international competition.
● Developed countries on the other hand have unfairly retained barriers and while enriching from the open trade policy of their less fortunate peers.
8. Identify two sections that are harmed by globalisation. Explain how.
Answer: Small manufacturers and workers in the informal/unorganised sectors have not benefited as such from globalisation. The existing challenges for them are:
● Stiff competition from MNCs which they may not be able to withstand.
● Lack of resources to upgrade technology or expand their production.
● Workers in the unorganised sector are paid very low wages as MNCs focus on employing a flexible workforce at cheap prices.
● Lack of State policy to protect workers has led to poor working conditions. They have no benefits like fixed contracts or pension.
9. Who can ensure fair globalisation and how?
Answer: Government can ensure fair globalisation.
● The government can introduce labour policy and laws to protect workers in the unorganised sector from exploitation in the hands of MNCs. It can provide
related benefits to insurance and pension schemes for all workers.
● The government can also negotiate with global organisations to put in place trade barriers that protect vulnerable and important sectors of the economy. Agriculture in India, which provides income to roughly half the population can be given protection from competition from international players.
10. List different factors which affect the choice of location by MNCs
Answer: MNCs decision to locate production in different countries are affected by their consideration of costs of production. These include:
● Cost of resources and availability of cheap resources
● Proximity to markets
● Availability of cheap skilled and unskilled workforce
● Favourable government policies like flexible labour laws, liberal trade and investment policies
● Level of technology, like transportation and communication.
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