CBSE Class 10 Social Science Globalisation And The Indian Economy Notes Set 04

These CBSE Class 10 Economics notes for Chapter 4 Globalisation and the Indian Economy cover Multinational Companies (MNCs) and their advantages and disadvantages, globalisation and its levels, liberalisation and privatisation, the positive and negative outcomes of globalisation in India, the struggle for fair globalisation, and the World Trade Organisation (WTO), with a glossary at the end. Note: per the current CBSE syllabus, only the subtopics ‘What is Globalisation?’ and ‘Factors that have enabled Globalisation’ are evaluated in the board exam; the rest of this chapter is covered through an interdisciplinary project.

Multinational Companies (MNCs)

Advantages of MNCs

Availability of foreign exchange: MNCs can help emerging and poor countries resolve foreign exchange shortages. India faced a severe foreign exchange shortage in 1991, but with the entry of MNCs since then, it has built up substantial foreign exchange reserves.

Encouraging small-scale industries: many MNCs rely heavily on small-scale and local businesses for manufacturing. Numerous small producers worldwide manufacture garments, footwear, sports equipment and similar goods, which MNCs then purchase and resell under their own brand names.

Introducing advanced techniques and management: with MNCs entering a market, local businesses gain access to modern technology and management practices, improving their productivity and making better use of their resources.

Availability of capital and foreign investment: MNCs help address the shortage of capital and investment in developing and underdeveloped countries, investing heavily in factories and offices there. Money spent on acquiring assets is called investment; investment made by MNCs from abroad is called foreign investment.

Disadvantages of MNCs

Harmful to the host country: since MNCs chiefly aim to maximise profit, they often over-exploit the host country's natural resources and cause pollution through their factories.
Harmful to local producers: most small-scale local producers cannot compete with the higher quality, lower-priced goods MNCs offer, and either sell their businesses to MNCs or are pushed out of the market; workers in such settings can also face poor working conditions and pay.
Harmful to economic equality: MNCs tend to concentrate their operations in specific regions, so some areas develop rapidly while others remain underdeveloped; MNCs also typically pay higher salaries and benefits than local employers, widening the wage gap between MNC and local employees.
Harmful to political freedom: corporations sometimes work to bring to power political parties favourably disposed towards their interests.

Foreign Trade and the Integration of Markets

With the rise of MNCs, foreign trade has become integrated with even small, local markets: producers can sell their goods not just at home but internationally, buyers get a much wider range of goods and services to choose from, local producers can expand beyond their home market, competition has driven down the prices of many consumer goods, and foreign trade overall has expanded.

In recent years, central and state governments in India have taken special steps to attract foreign investment, including setting up Special Economic Zones (SEZs) — industrial zones offering world-class facilities such as electricity, roads, water, storage, transport, and recreational and educational amenities. Companies that set up production units within SEZs are exempt from taxes for an initial period of five years.

Globalisation

Globalisation is the process of integration and interconnection between different countries, with MNCs playing a central role in driving it. It encourages the free flow of trade, capital and human resources across national borders, so that the boundaries between countries have, in many respects, become far less significant.

Levels of Globalisation

(i) Foreign producers and sellers can enter the Indian market, and Indian producers can enter international markets.
(ii) Entrepreneurs from other countries can invest in India, and Indian entrepreneurs can invest abroad.
(iii) Indian workers can move abroad in search of better employment, and workers from other countries can come to work in India.

Reasons for Globalisation

(1) Rapid technological advancement, especially in transportation, has made it possible to move goods around the world quickly and at lower cost.
(2) Developments in telecommunications, computing and the internet have made it easy to access information instantly and communicate from almost anywhere, accelerating globalisation. Information technology, in particular, has encouraged inexpensive global communication, connected markets, enabled instant transfer of money across countries, supported customer service centres located anywhere in the world, and made the transfer of data and information far easier.

Liberalisation

Liberalisation is the lessening of government regulations and restrictions in an economy — removing government-imposed controls to encourage economic development. In 1991, the Indian government decided to lift many previously necessary restrictions, such as the industrial licensing system, import licensing, and price controls.

Trade barriers are restrictions a government places on trade, such as a tax on imports. After Independence, India imposed many trade barriers on foreign trade and investment, for several reasons: basic industries required investment far beyond the reach of the private sector, and so were developed in the public sector; the government wanted control over certain critical industries, believing this would provide the resources needed for development across the economy; the private sector was allowed to operate, but under rules and regulations meant to prevent wealth and resources concentrating in too few hands; and the overarching aim of this mixed-economy strategy was to reduce poverty and inequality, address unemployment, and promote both economic growth and social justice.

Steps taken under liberalisation included: exempting all industries except a small number from industrial licensing; freeing industries to expand and produce in response to market demand; allowing producers to import machinery and raw materials from abroad; and allowing industries to import advanced foreign technology without restriction.

Privatisation

Privatisation, a component of liberalisation, means allowing the private sector to set up industries that were previously reserved for the public sector alone.

Steps taken under privatisation included: reducing the number of industries reserved exclusively for the public sector; opening core industries such as iron and steel, electricity, communication, transport and shipbuilding to private participation; beginning a process of disinvestment in loss-making public sector industries; and freeing the private sector from many earlier restrictions on licensing, importing raw materials, price regulation and investment limits.

Positive Outcomes of Globalisation

Boost to Indian companies: the private sector has benefited greatly, now able to import raw materials and technology freely; many import and export restrictions have been lifted, and globalisation has helped some large Indian companies grow into multinational companies themselves.
Development of infrastructure: infrastructure has improved markedly, including the construction of the Golden Quadrilateral highway network linking the country's major cities, and major advances in telecommunications.
Diverse products: investment by many MNCs has given Indian consumers access to a wider range of high-quality products at lower prices; companies such as Tata Motors, Ranbaxy, Infosys and Asian Paints have themselves expanded their operations worldwide.
Business becoming global: Indian businesses now operate on a global scale, with India freely importing and exporting goods and entering foreign markets of all kinds.
Foreign currency and foreign direct investment: foreign exchange reserves have grown substantially under the new economic policy; foreign direct investment rose from Rs 174 crore in 1991 to Rs 9,338 crore by 2000.
Boost to the service sector: globalisation has opened up new opportunities for service companies, particularly in information and communication technology.
Increased competition: globalisation and liberalisation together have intensified competition between firms, which has, in turn, raised efficiency and productivity in both the private and public sectors.

Negative Outcomes of Globalisation

Exploitation of workers: large MNCs, operating globally, often search for the cheapest possible labour; workers can be made to work long hours and night shifts, particularly during peak seasons, often without receiving a fair share of globalisation's benefits.
Failure to solve poverty: globalisation has not solved India's most serious economic problem, poverty, and has in some respects widened the gap between rich and poor.
Reduced importance given to agriculture: the new economic policy has, in some respects, given agriculture less attention than it deserves within the Indian economy.
Competition and insecure employment: growing competitive pressure has pushed many firms toward hiring workers on a more "flexible" (less permanent) basis, reducing job security.
Pressure on small-scale industries: MNCs have begun producing goods once made mainly by small-scale businesses, which have often struggled to compete with them.

The Struggle for a Fair Globalisation

Given these drawbacks, globalisation has clearly not benefited everyone equally: people with education, skill and good fortune have been best placed to seize its new opportunities, while many others have gained little. This points to the need for a fair globalisation, offering equal opportunity to all, where progress does not come at the expense of the poor or the environment.

The Role of Government

The government can: design policies that protect the interests of all citizens, not just the wealthy and powerful, but also the poor; ensure labour laws are properly enforced, and that workers know their rights; reserve certain goods for production by small-scale and local producers only; use trade and investment barriers, such as quotas and import tariffs, where necessary; and negotiate fair rules and regulations at the WTO.

The World Trade Organisation (WTO)

The WTO is an international organisation whose goal is to liberalise international trade, setting rules for international trade with a membership of more than 160 countries.

The WTO is the successor to GATT (the General Agreement on Tariffs and Trade), a multilateral treaty established in 1947 by 23 countries, aimed at lowering tariff and non-tariff barriers to trade through a shared, multilaterally agreed framework of principles and norms. India was one of GATT's original members, which worked to regulate "dumping" and other unfair trade practices and to encourage member countries to reduce protectionist measures. In 1994, GATT members agreed to establish a formal international organisation to carry out GATT's goals and rules. The original GATT agreements were revised several times over the years, through the Kennedy Round in the 1960s and the Tokyo Round in the 1970s; the most recent, wide-ranging round of talks began in Uruguay in 1986, and these prolonged negotiations (the Uruguay Round) led to a comprehensive, far-reaching revision of GATT. The draft for this revision was authored by the then GATT chairman, Arthur Dunkel, and is popularly known as the Dunkel Draft; the resulting Uruguay Round Agreements envisaged establishing the World Trade Organisation as a common institutional framework to conduct trade relations among member countries under these agreements.

What the WTO expects of member countries: traditionally, countries used bilateral agreements with one another to manage trade flows, while also using import quotas (to protect domestic manufacturers) and export quotas (to protect domestic consumers); the WTO aims to phase out such import and export quotas, replacing bilateral agreements with shared, global ones.

Effects of the WTO on the Indian economy:

Positive effects: greater opportunities to trade with other countries, and access to the latest technology at a lower cost.
Negative effects: the benefits to developing and underdeveloped countries have often been limited; firms in developing countries can struggle to compete with large international firms, sometimes facing closure and job losses; developed countries can exert pressure that interferes with developing countries' own domestic economic policies; and prices of some essential and life-saving medicines can rise as a result of WTO-related agreements.

Glossary

Liberalisation: the lessening of government regulations and restrictions in an economy, in exchange for greater participation by private players.
Privatisation: allowing the private sector to set up industries previously reserved for the public sector.
Globalisation: the free interaction and integration of different countries' economies.
Fair Globalisation: an approach to globalisation that creates opportunity for everyone, while ensuring its benefits are shared more evenly.
MNC (Multinational Company): a company that owns or controls production in more than one country — e.g. Coca-Cola, Apple, LG.
Investment: money spent on assets such as land, buildings, plant or machinery, with the aim of earning a future profit.
Foreign Investment: investment made by a company or individual from one country in assets or ownership stakes of a company based in another country.
WTO (World Trade Organisation): an international organisation that sets the global rules governing trade between nations.