Chapter-Globalisation and Indian Economy

About Class 10 Economics Notes: Globalisation and the Indian Economy

The chapter on Globalisation and the Indian Economy explains how economies around the world are becoming interconnected. Class 10 Globalisation means integrating domestic markets with international markets through trade, foreign investments, and technology. Students learn about the role of multinational corporations (MNCs), which set up production across different countries to maximize profits. This has created more job opportunities and access to global goods in India. However, it also brings challenges, such as competition for local industries.

The chapter explains how liberalisation and privatisation policies introduced in India in the 1990s encouraged globalisation. Import restrictions were reduced, foreign companies invested in India, and Indian companies expanded globally. While globalization has led to growth in IT and manufacturing, it has also widened the gap between the organized and unorganized sectors. The notes also focus on the role of organizations like the World Trade Organization (WTO) and how government policies aim to balance benefits with protection for weaker sections of society. Students are encouraged to think critically about the pros and cons of globalization in India’s development journey.

India’s Development Strategy Prior to 1991

1. India followed mixed economy approach
2. Industries critically important for the economy were retained by the government.
3. Private sector was allowed to operate, but was subjected to control and regulations to prevent concentration of wealth in few hands.
4. Government outlay in public sector enterprises increased from Rs. 81.1 Crore in First Five Year Plan (1950-51) to Rs. 34200 Crore in Ninth Five year Plan (1997-2002).
5. Government's aim was to eliminate poverty, reduce inequality in the distribution of income, and to achieve economic growth with social justice.
6. Most of the government revenue went in the financing Public Sector Enterprises rather than development purposes.

Positive Aspects:

1. A large industrial base was created which helped in industrial development.
2. Problem of unemployment and poverty declined substantially.
3. Self- sufficiency was achieved in food production.
4. Base for export oriented industries was created.
5. We were able to generate our own resources for development.
6. A large pool of scientists and technically skilled persons was created.

Negative Aspects:

1. Industrialization did not take place as expected.
2. Industrial growth rate declined to 4% ( 1965-80) from 8% (1950-65).
3. Corruption, lack of efficiency in work and ineffective, management became common features in Public Sector Enterprises.
4. Government invested Rs.18207 Crore in 1980-81 in central public sector enterprises but incurred losses of Rs.203 Crore.
5. Government failed to reduce concentration of economic power in few hands in private sector.

Conditions Which Led to Reforms In Indian Economy:

1. Rising prices, shortage of adequate capital, slow economic development and technological backwardness.
2. Borrowings from abroad increased to such a level that we were finding difficulty in paying even the interests, there was nothing left to pay for the imports.
3. Indian government was forced to borrow more money from International Banks.

Multinational Corporations (Mncs)

A Multinational Company is a company that owns or controls productions in more than one nation. MNCs set up offices and factories for productions in regions where they can get cheap labour and other resources. This is done so that the cost of productions is low and the MNCs can earn greater profits. Multinational Corporations has changed the world economy

1. Before the entry of MNCs production was largely organised within a country.
2. Countries used to trade in raw material, foodstuff and finished goods.
3. But with the entry of MNCs, economic activities of companies are getting spread over many countries.
4. The goods and services are being produced globally.

Interlinking Production Across Countries:

1. MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low costs; and where the availability of other factors of production is assured.
2. MNCs might look for government policies that look after their interests. MNCs set up factories and offices for production.
3. The money that is spent to buy assets such as land, building, machines and other equipment is called investment. Investment made by MNCs is called foreign investment.
4. MNCs set up production jointly with some of the local companies of these countries.
5. MNCs can provide money for additional investments, like buying new machines for faster production. MNCs might bring with them the latest technology for production.

Advantages Of Multinational Corporations:

1. Availability of capital and foreign investment: Multinational corporations help to solve the problem of capital and foreign investment of under-developed and developing countries. Most of the underdeveloped countries suffer from lack of capital. Consequently, their rate of economic growth is low. MNCs setup factories, and offices for production in these developing and underdeveloping countries and made high investments. The money that is spent to buy assets such as land, buildings, machines and other equipment, is called investment. Investment made by these MNCs is called foreign investment.
2. Availability of foreign exchange: MNCs can be helpful in solving the problem of foreign exchange of the underdeveloped and developing countries. In 90s India faced a huge shortage of foreign exchange but, with the entry of MNCs it has surplus foreign exchange reserves.
3. Promotion of Small Scale Industries: Most of the MNCs take help from small scale and local industries in manufacturing. Garments, footwear, sports items etc. are examples of industries where production is carried out by a large number of small producers around the world. The products are supplied to the MNCs which then sell these under their own brand names to the customers.
4. Foreign Trade and Integration of Markets: MNCs helps in the integration of world markets. With the entry of MNCs even the small countries have opened up their domestic markets for other countries.

• MNCs increase foreign trade.
• Foreign trade by the MNCs creates an opportunity for the local producers to reach beyond the domestic markets, i.e., markets of their own countries.

Disadvantages Of Multinational Corporations:

(i) Harmful for host country:

The main objective of the MNCs is to earn maximum profit. To achieve this objective they invest their capital in underdeveloped and developing countries. These MNCs over-exploit the natural resources of the host country. Bug chunk of profits earned in underdeveloped countries go to the headquarters of MNCs.

(ii) Harmful for the local producers: MNCs place orders for production with small producers. The products produced are sold by MNCs undertheir own brand names. MNCs have tremendous power to determine manufacturing conditions for the local producers. The history has shown that most of the local producers have failed to compete with the MNCs so, either they have sold their units to MNCs or have been wiped off.

(iii) Harmful for Economic Equality: MNCs have been proved harmful to the goal of economic equality, in more than one way:

• Regional inequality has further aggravated because of them. MNCs are interested in setting up industries in particular regions and hence these regions develop very rapidly and other regions remain undeveloped.
• MNCs pay more salaries and perks to their employees than other employees. This widens the gap between the incomes of the labourers giving rise to economic inequality.

(iv) Harmful for freedom: MNCs also prove detrimental to the economic and political freedom of the host countries. These dabble in the politics of the country. MNCs were at the back of armed insurgence of many host countries. These corporations make all efforts to bring to power in the host county a political party that is favourably inclined to them. Thus, it is not possible for the rulers of host countries to pursue nationalistic, economic and political policies.

Foreign Trade And Integration Of Markets

For a long time foreign trade have been the main channel connecting countries.

• In history you would have read about the trade routes connecting India and South Asia to markets both in the East and West and the extensive trade that took place along these routes.
• Foreign trade creates an opportunity for the producers to reach beyond the domestic markets, i.e., markets of their own countries.
• Producers can sell their produces not only in markets located within the country but can also compete in markets located in other countries of the world.
• Similarly, for the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.
• With the opening of trade, goods travel from one market to another. Prices of similar goods in the two markets tend to become equal.
• Producers in the two countries now closely compete against each other even though they are separated by thousands of miles.
• Foreign trade thus results in connecting the markets or integration of markets in different countries.

Chinese Toys In India:

Chinese manufacturers learns an opportunity to export toys to India, where toys are sold at a high price. They start exporting plastic toys to India. Buyers in India now have the option of choosing between Indian and the Chinese toys. Because of the cheaper prices and new designs, Chinese toys become more popular in the Indian markets. Within a year, 70 to 80 per cent of the toy shops have replaced Indian toys with Chinese toys. Toys are now cheaper in the Indian markets than earlier.

As a result of trade, Chinese toys come into the Indian markets. In the competition between Indian and Chinese toys, Chinese toys prove better. Indian buyers have a greater choice of toys and at lower prices. For the Chinese toy makers, this provides an opportunity to expand business. The opposite is true for Indian toy makers. They face losses, as their toys are selling much less.

Liberalization:

To make economy free from director physical controls imposed by the government.

• Two components or steps taken under liberalization:

(i) To allow private sector to run those industries which were earlier restricted only to public sector.

(A) Many industrial activities are now opened for private sector also.

(B) Number of industries reserved for public sector has been reduced from 17 to 3.

(C) Private sector can also enter in core industries.

(ii) Relaxation in all the rules and regulations - Private sector was freed from:

(A) Licensing

(B) Permission to import raw materials

(C) Regulation in price and distribution

(D) Restriction on investment by large business companies

• "Developed countries want developing countries to liberlise their trade and investment":

(i) Developed countries wanted to invest in developing countries to earn high rate of returns.

(ii) According to developed countries trade barriers are harmful as they hinder growth of trade and investments.

Developed countries want that all developing countries should liberate their trade but they themselves have retained trade barriers. Developing countries should align with other developing countries with similar interests to fight against the domination of developed countries. They should negotiate with the WTO and other organisations for `fairer rules.'

• "Liberalisations of trade and investment policies helped the globalisation process."

Liberalisation means following a liberal policy in the filed of industry and trade. Liberalisation of trade and investment policies helped the golbalisation process in a number of ways:

(i) Since 1991, the Government of India began to follow a liberal policytowards foreign trade and foreign investments. As a result of the removal of the barriers on foreign trade and foreign investments, foreign companies were able to set up their factories and offices here. Like wise Indian companies were able to set up their factories and offices in other countries.

(ii) As a result of liberalisation, businessmen from India and abroad were allowed to make decisions freely about what they wanted to produce, import or export.

(iii) As a result of liberalisation of trade and investment, the government of India established many Special Economic Zones where all sorts of facilities were made available to foreign companies and relaxation of taxes for an initial period of five years was given.

(iv) Foreign companies were allowed flexibility in labour laws so that they could employ workers for short periods and cut off the cost of their production.

All the above steps of liberalisation of trade and investment policies greatly helped the globalisation process.

Globalization

• Globalisation means integrating Indian economic with the world economic so that there can be free flow of goods, services and investment from the rest of the World.
• Foreign investment by MNCs in Asia and Africa has been increasing at the same time foreign trade between countries has been rising.
• A large part of the foreign trade is also controlled by MNCs.
• For instance, the car manufacturing plant of Ford Motors in India not only produces cars for the Indian markets, it also exports cars to other developing countries and exports car components for its many factories around the world.
• The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries.
• Globalisation is this process of rapid integration or interconnection between countries.
• More and more goods and services, investments and technology are moving between countries.
• People usually move from one country to another in search of better income, better jobs or better education.
• In the past few years, however, there has not been much increase in the movement of people between countries due to various restrictions.

Factors That Have Enabled Globalization:

1. Rapid improvement in technology has been one major factor that has stimulated the globalisation process. Several improvements in transportation technology have made much faster delivery of goods across long distances possible at lower costs.
2. Information and communication technology has played a major role in spreading out production of services across countries.
3. Starting around 1991, some far-reaching changes in policy were made in India. The government decided that the time had come for Indian producers to compete with producers around the globe. Barriers on foreign trade and foreign investment were removed to a large extent. This meant that goods could be imported and exported easily and also foreign companies could set up factories and offices here.

Impact of Globalisation In India:

Globalisation and greater competition among producers- both local and foreign producers- has been of advantage to consumers, particularly the well-off sections in the urban areas. There is greater choice before these consumers who now enjoy improved quality and lower prices for several products. These people today, enjoy much higher standards of living than was possible earlier. Among producers and workers, the impact of globalisations has not been uniform.

1. MNCs have increased their investments in India over the past 15 years, which means investing in India has been beneficial for them. New jobs have been created. Local companies supplying raw materials, etc. to these industries have prospered.
2.  Several of the top Indian companies have been able to benefit from the increased competition. They have increased competition. They have invested in newer technology and production methods and raised their production standards. Some have gained from successful collaborations with foreign companies.
3.  Globalisation has enabled some larger Indian companies to emerge as multinational themselves.
4. Globalisation has also created new opportunities for companies providing services, particularly those involving IT.

Liberalisation Of Foreign Trade And Foreign Investment Policy:

• Government puts tax on import of certain items. Suppose the Indian government puts tax on the import of Chinese toys. This will raise the price cert these toys. Chinese toys will no longer be cheap in Indian market and its import will automatically reduce. Indian toy maker will, automatically proper.
• Tax on imports is an example of trade barrier. It is called a barrier because some restrictions have been set up. Government can use trade barrier to regulate foreign trade.
• The Indian government, after independence, had put barriers to foreign trade and foreign investment. This was considered necessary to protect our industries.
• Industries were just coming up in the 1950s and 1960s and competition from imports at that stage would not have allowed these industries to come up. India allowed the imports of only essential item such as machinery, fertilizers petroleum etc.
• All developed countries, during the early stages of development, have given protection to domestic producers through a variety of means.
• The government decided that the time had come for Indian producers to compete with producers around the globe. It feet that competition would improve the performance of Indian companies as they had to improve the quality.
• Thus, barriers on foreign trade and foreign investment were removed to a large extent.
• Removing barriers or restrictions set by the government is what is known as liberalization. With liberalization of trade, businesses are allowed to make decisions freely about what they wish to import or export.

The Struggle for A Fair Globalisation:

• The above evidence indicates that not everyone has benefited from globalization.
• People with education skill and wealth have made the best use of the new opportunities.
• On the other hand, there are many people who have not shared the benefits.
• Fair globalization would create opportunities for all, and also ensure that the benefits of globalization are shared better.
• The government can play a major role in making this possible.
• The government can ensure that labour laws are properly implemented and the workers get their rights.
• The government can use trade and investment barriers. It can negotiable at the WTO for ‘fairer rules’.
• It can also align with other developing countries to fight against the domination of developed countries in the WTO.
• People’s organizations have influenced important decisions relating to trade and investments at the WTO.

World Trade Organisation

GATT (General Agreement on Tariffs and Trade) is a multilateral treaty or arrangement which was instituted in 1948 by 102 countries with the objective of bringing dow tarrif and non-tarrrif barriers to international trade by providing a multilaterally accepted framework of principles and norms to govern the trade relations among member countries. India was one of the original members of GATT. Untill 1994; the main concerns of GATTof GATT were to regulate 'dumping' and unfair business practises and to ensure that member nations gradually reduce protectionist measures.

Moreover it is only now (1944) that GATT members have accepted the commitment to establish and international organisation to implement the objectives ad provisions of GATT. The original GATT agreements were revised several times through the Kennedy Round in 1960s and the Tokyo Round in 1970s. The latest round of talks for wide ranging revision started in Uruguay in 1986. The prolonged talks and negotiations under the Uruguay round has resulted in a comperhensive, radical revision of GATT.

The draft for this comprehensive revision was prepared by the ex-chairman of GATT, Arther Dunkef. Hence, it is popularly known as the Dunkel Draft. The Uruguay Round Agreements envisage the establishment of an institution called the World Trade Organisation (WTO) to provide a common institutional framework to conduct trade relations among member nations in accordance with the provisions of these agreements.

Expectations Of Wto From Its Member Countries:

Bilateral agreements are held between two countries for the smooth flow of trade.

• Import Quotas: Government put restrictions on imports to protect their local manufacturers.
• Export Quotas: Government put restrictions on exports to protect their local consumers.

WTO wants to abolish import and export quota, and to have multinational agreement instead of bilateral agreements.

Impact of WTO on Indian Economy:

• Positive impacts:

(i) Increased opportunities to have trade with other countries.

(ii) Availability of modern technology at reduced rates.

• Negative impacts:

(i) Benefits to developing countries are very limited.

(ii) Companies of developing countries would not be able to compete with international companies, can face closure, reducing employment opportunities.

(iii) Developed countries will interfere in the domestic economy of developing countries.

(iv) Prices of many essential and lifesaving drugs may go up.

Summing up:

1. In this Chapter, we looked at the present phase of globalisation.
2. Globalisation is the process of rapid integration of countries.
3. MNCs are playing a major role in the globalisation process.
4. More and more MNCs are looking for locations around the world that are cheap for their production.
5. As a result, production is being organised in complex ways.
6. Technology, particularly IT, has played a big role in organizing production across countries.
7. Liberalization of trade and investment has facilitated globalization by removing barriers to trade and investment.
8. At the international level, WTO has put pressure on developing countries to liberalize trade and investment.
9. While globalization has benefited well-off consumers and also producers with skill, education and wealth.
10. But many small producers and workers have suffered as a result of the rising competition.
11. Fair globalization would create opportunities for all, and also ensure that the benefits of globalization are shared better.

Important Terms

• Economic Reforms : By economic reforms we mean a change in the set of economic policies.
• Liberalization: Liberalization means lifting of controls imposed by the government. In other words, liberalization means giving greater freedom to economic agents to take their own decisions.
• Globalization: Globalization means increasing integration between different economics of the world.
• Privatization: Privatization is closely associated with liberalization. It signifies a greater role for private sector in the functioning of an economy.
• Bilateral Agreement: When a country makes trade relation with other country then it makes an agreement with the country separately. This is called bilateral agreement.
• Import Quota: When a country puts restriction on the amount of commodities to be imported them it is called import quota. This is done in the interest of the domestic consumers.
• Export Quota: When a country imposes restriction on the quality of a commodity to be exported then it is called export quotas. This is done in the interest of the domestic consumers.
• MRTP: Following the recommendations of Monopoly Inquiry Committee (1965), an act was passed in 1970. The act was called Monopolies and Restricted Trade Practices Act.
• Laissez Faire : It is a French term which means leave us alone. It denotes the view that government should interfere as little as possible in economic activity and leave decision to the market.
• Foreign Investment: Foreign investment is of two types. The first is investment of foreign capital into new productive activity. This is known as direct foreign investment. The other is foreign capital, purchasing the shares of Indian companies. This is known as Port Folio Investment.
• Direct Foreign Investment: Direct foreign investment creates additional capacity and contributes to additional production.
• Intellectual Property Rights: Laws governing patents, copyrights, trade secrets, electronic media and other commodities, comprised primarily of information.
• Mixed Economy: Under this economy both public sector and private sector work together.
• Sustainable Economic development: It means that the development should take place without damaging the environment.
• Hard Currencies: Currencies of those countries which are in great demand.
• Development Strategy: Development strategy refers to a basic long term policy to realize certain objectives.

Globalisation and Indian Economy Solved Questions with Answers

1. What is the new economic policy?

Ans. The policy of globalization and liberalization refers to new economic policy.

2. What was the result of spending too much on public enterprises?

Ans. The result of such policy was that the public sector became very large and much of the government revenue went in financing it and as a result many development works had to be withheld.

3. Why Indian government had put barriers on foreign trade?

Ans. The Indian government had put barriers on foreign trade to protect Indian industries from international competition.

4. Explain the two components of liberalization.

Ans. The two components of liberalization are :

(i) To allow private sector to run those activities which were restricted earlier only to public sector.

(ii) The relaxation of all the rules and regulations, which had restricted the growth of the private sector earlier.

5. What is the main objective of WTO?

Ans. WTO was formed to regulate international trade and to see that it is carried in a free and fair manner.

6. What are the characteristics of MNCs?

Ans. (i) They are of a giant size. The assets and sales of MNCs run into billions of dollars and they also make supernormal profits.

(ii) Multinational companies conduct international operations.

(iii) They operate in many countries.

(iv) They deal in universal products and ore controlled centrally.

(v) It facilitates a multilateral transfer of resources.

7. What was the development strategy adopted prior to 1991 is India?

Ans. Development strategy prior to 1991 adopted by India are :

(i) Private sector as well as public sector operated side by side in the economy.

(ii) Role of public sector was expanded.

(iii) Strict regulation of private sector was observed through various instruments such as licensing system, permits, etc.

(iv) Strict norms and conditions were imposed while giving permission to foreign direct investment.

8. “New Economic Reforms were required in 1991”. Why?

Ans. Need for New Economic Policy – Need arisen due to following reasons :

(i) Slow and unsatisfactory Economic Growth.

(ii) Inefficiency in Public Enterprises.

(iii) Continued Inflationary Pressures.

(iv) High growth by other countries due to greater liberalization and minimization of governmental control.

9. What do you mean by liberalization of the economy? What measures have been taken for the liberalization of economy?

Ans. Impact of Globalization on the Indian Economy: Impact of globalization on the Indian economy may be discussed under two sub-headings for beneficial effects and adverse effects.

Beneficial effects:

(i) The level of technology would improve because of foreign technology.

(ii) Globalization will raise productivity and average living standard of the Indians.

(iii) The atmosphere of competition will increase efficiency in every sector of the economy.

Adverse effects: Following are the adverse effects of globalization on the Indian economy.

(i) Globalization may have negative impacts on employments and real wages especially of the low skilled labourers. Relaxation of labour laws has made employment uncertain.

(ii) New technology is not appropriate to Indian conditions. It is complicating India’s problem instead of providing solution to them.

(iii) Globalizing imposing challenge to the sovereignty of the India economy. Now economic policies of India are being formulated under the pressure of IMF, World Bank, rich countries and multinational countries.

(iv) Many small companies are not able to face competition so there is a fear that they many be closes.

10. What is the role of MNCs in the globalization process?

Ans. (i) Multinational Corporations MNC is a company that owns or controls production in more than one nation.

(ii) According to ILO report, “The essential nature of the multinational enterprises lies in the fact that its managerial headquarters are located in one country (referred to for convenience as the home country) while the enterprise carries out operations in a number of other countries as well (host countries).”

(iii) In other words, MNC is a corporation that controls production facilities in more than one country, such facilities having been acquired through the process of foreign direct investment.

(a) MNCs have served as agents for the transfer of superior technology. They have provided advanced technological know-how, sophisticated, manufacture processes and improved skills to underdeveloped countries.

(b) MNCs transfer capital from countries where it is abundant to countries where it is scarce. Thus helps in the globalization process.

(c) MNCs help to build up ‘knowledge base’ and thus serve for the development of human resources.

(d) MNCs uses the cheap resources of different regions of the world thus links the production.

11. What do you understand by globalization? Explain in your own words.

Ans. (i) Globalization means integrating our economy with the world economy. The economic gap between different nations is reduced by removing all restrictions between nations on the movement of goods, services, capital, technology and labour.

(ii) Indian government through its new policy realized the need for relating the Indian economy with the world economy, so that the unrestricted exchange of capital, technology and experience between countries became possible. Steps taken in this direction included removal of restrictions on import of goods, reduction in taxes on import of goods, and encouragement to investors from abroad to invest in India.

12. 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?

Ans. (i) Reason behind putting barriers to foreign trade and foreign investment by the Indian government in 1950s and 1960s was to protect the producers within the country from foreign competition.

(ii) At this stage competition from imports would have hampered the growth of our industries.

(iii) Around 1991, government felt that it was the proper time for Indian produce to face competition and improve quality of products in comparison to produces around the globe.

(iv) It was welcomed by the world business community and it has attracted a huge amount of foreign investment which is crucial for the overall development of the country.

13. How would flexibility in labour laws help companies?

Ans. Flexibility in labour laws helps to reduce the cost of labour for the company. This is done to attract foreign investment.

14. What are the various ways in which MNCs set up, or control, production in other countries?

Ans. Ways in which MNCs make investment or control production.

(a) Directly setup factories and offices for production.

(b) Set up production jointly with some of the local companies of these countries.

(c) Buy up local companies and then expand production.

(d) Place orders for production with small producers of the countries e.g., garments, footwear, etc.

15. The impact of globalisation has not been uniform. Explain this statement in your own words.

Ans. Impact of Globalisation in India :

(i) For consumers, wide varieties of goods quality goods at lower prices are available which leads to higher standard of living.

(ii) New jobs are created in industries such as cell phones, electronics, fast food, automobiles.

(iii) Local companies have prospered through supplying raw materials to these industries.

(iv) Top Indian companies have gained from successful collaborations with foreign companies. Some of these companies have emerged as multinationals themselves.

(v) Companies providing services have also benefited from new opportunities.

(vi) Small manufacturers producing toys, vegetable oils etc. have been hit hard due to competition.

(vii) In order to cut cost of the product, employers try to cut labour cost. Workers job is no longer secure.

16. How has liberalisation of trade and investment policies helped the globalisation process?

Ans. It facilitated import and export of goods easily and allowed foreign companies to set up factories and offices in India. Competition caused due to this also helped in improving quality of the Indian products. This change in the policy was welcomed by the world community.

17. How does trade lead to integration or markets across countries? Explain with an example other than those given here.

Ans. (i) Foreign trade provides an opportunity for both producers and buyers to reach beyond the markets of their own countries.

(ii) Goods travel from one country to another. There is huge competition among producer of one country and producer of another country.

(iii) Competition among buyers also prevails. Thus foreign trade lead to integration of markets across countries.

(iv) For example, during Diwali seasons, buyers in India have the option of choosing between Indian and the Chinese decorative lights and bulbs. Many shops have replaced Indian decorative lights with Chinese lights. For Chinese light manufacturers, this provides an opportunity to expand business.

18. What are the various ways in which countries can be linked?

Ans. (i) MNCs can jointly produce with local companies of other countries.

(ii) MNCs can buy the local companies.

(iii) MNCs can place order for production (like garments, footwear, etc.) with small producers of other countries.

19. What do you understand by liberalization of foreign trade?

Ans. Liberalization of foreign trade refers to removal of barriers or restrictions set by the government for attracting foreign investment. Since 1991, there has been a major shift in the thrust and direction of FDI policy, which can be described as an open-door policy on foreign investment and technology transfer.

20. How has competition benefited people in India?

Ans. Due to competition, buyers can easily get good variety of quality products of different countries at reasonable price. Producers now sell their products not only in domestic market but also in different countries and thereby increase their profits.

21. Distinguish between foreign trade and foreign investment.

Ans. Foreign Direct Investment (or Foreign Capital) : It refers to investments directly made in industry or other spheres of economic activity of a country by foreign industrial houses or MNCs with the objective of earning profits. In short, it is an investment made by MNCs. FDI is an important source of financing industrial development in less developed countries.

Foreign Trade: It refers to exchange of goods – purchase and sale – across geographical boundaries of the countries.

22. Globalization will continue in the future. Can you imagine what the world would be like twenty years from now? Give reasons for your answer.

Ans. After twenty years, world would undergo a positive change which will posses the following features–

Healthy competition, improved productive efficiency, increased volume of output, income and employment, better living standards, greater availability of information and modern technology.

Reasons for the views given above–These are number of favorable factors for globalization.

(a) Availability of Human Resources both quantity wise and quality wise.

(b) Broad resource and industrial base of major countries.

(c) Growing entrepreneurship

(d) Growing domestic market

(e) Expanding internal markets

(f) Economic liberalizations

(g) Growing Competition

23. Supposing you find two people arguing: One is saying globalization has hurt our country’s development. The other is telling globalization is helping India develop. How would you respond to these organizations?

Ans. Benefits of Globalization of India :

(i) Increase in the volume of trade in goods and services.

(ii) Inflow of Private Foreign Capital and export orientation of the economy.

(iii) More availability of investible funds in the form of FDI.

(iv) Helps in development and strengthening of domestic economics of India.

(v) Improved productive efficiency and healthy competition.

(vi) Increased volume of output, income and employment.

Negative Impact/Fears of Globalization :

(i) It may not help in achieving sustainable growth.

(ii) It may lead to widening of income inequalities among various countries.

(iii) It may lead to aggravation of income inequalities within the countries.

(iv) It may lead to loss of autonomy.

(v) It may lead to greater dependence of the underdeveloped countries on advanced countries.

Whatever be the fears of globalization, I feel that. It has now become a process which is catching the fancy of more and more nations. India is found to gain much from globalization if proper policies are effectively implemented and economic reforms properly pursued.

Globalisation and Indian Economy Exercise – 1

1. When India attained independence in 1947, its economy was

(a) Underdeveloped (b) Developed

(c) developing (d) partially developed

2. The First Five Year Plan only inaugurated the process of planning. Its main objective was to

(a) Correct the damage done to an economy by war and partition

(b) Increase agricultural and industrial population

(c) Remove poverty

(d) Raise the standard of life of the people

3. The Indian government has been following the policy of liberalisation, globalisation and privatisation since

(a) 1990 (b) 1991 (c) 1992 (d) 1996

4. India's share in the world trade is less than

(a) Two per cent (b) One per cent (c) Three percent (d) Four per cent

5. Which is not the aim of liberalisation and globalisation?

(a) More production at all levels

(b) Increase in the trade of goods and services

(c) Generating more employment opportunities

(d) Increase in the subsidies to the poor and deprived sections of society

6. The past two decsdes of giobalisation has seen rapid movements in –

(a) Goods, services and people betwen countries.

(b) Goods, services and investments between countries

(c) Goods, investements and people between countries

(d) None of the above

7. 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

8. Globalisation, by connecting countries, shall result in -

(a) Lesser competition among producers

(b) greater competition among producers

(c) No change in competition among producers

(d) none of the above

9. Which of the following terms stands for opening the economy to the world by removing protective barriers against free flow of trade, technology and investment among countries?

(a) Liberalisation (b) Globalisation (c) Privatisation (d) None of the above

10. Which of the following is the cause of the policy of globalisation?

(a) Crisis in balance of payments (b) Crisis in exchange rate management

(c) Crisis in public sector management (d) All of the above

11. Most regions of the world are getting increasingly:

(a) Integrated (b) Mutualy fighting

(c) Inter-depending for defence (d) none of the above

12. Interconnectedness across countries has now a days several dimensions:

(a) Cultural & political (b) Social

(c) Economic (d) All above

13. Globalization integrates different countries:

(a) Through foreign trade (b) Through foreign investment

(c) By Multinational Corporations (d) All the above mentioned

14. If we look at the past, we find that MNGs have been a major force in the process of globalization since last.

(a) Forty years (b) Thirty years (c) Fifty years (d) Sixty years

15. The past two decades of globalization 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.

(d) goods, services, people and investment between countries.

16. 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. (d) form the franchises

17. Globalization has led to improvement in living conditions

(a) of all the people (b) of people in the developed countries

(c) literate workers in the developing countries

(d) none of the above

18. Globalization, by connecting countries, shall result in

(a) lesser competition among producers. (b) greater competition among producers.

(c) no change in competition among producers.

(d) moderate competition among producers.

19. Ford company’s plant is being setup in

(a) Mumbai (b) Chennai (c) Kolkata (d) Ahmadabad

20. Contribution of agriculture to GDP is maximum in

(a) Developed countries

(b) Developing countries

(c) It is some in developed and developing countries

(d) None of these

21. US farmers can sell the form products at a very low price due to

(a) High subsidy (b) High competition (c) Low subsidy (d) New technology

22. Cargill food is

(a) Indian Multinational (b) Japanese Multinational

(c) Chinese Multinational (d) American Multinational

23. MNCs are making china as a production base due to the availability of

(a) Advanced technology (b) Skilled engineers

(c) Cheap labour (d) English speaking youth

24. New economic policy won stared in

(a) 1990 by the NDA government (b) 1990 by the UPA government

(c) 1991 by the NDA government (d) 1991 by the UPA government

ANSWERS TO Exercise – 1

1. (a)
2. (b)
3. (b)
4. (a)
5. (d)
6. (a)
7. (c)
8. (b)
9. (b)
10. (d)
11. (a)
12. (d)
13. (d)
14. (b)
15. (d)
16. (b)
17. (c)
18. (b)
19. (b)
20. (b)
21. (c)
22. (d)
23. (c)
24. (d)

Globalisation and Indian Economy Exercise – 2

1. How could flexibility in labour laws help companies?
2. Define globalisation.
3. Give the meaning of liberalisation.
4. What are the various ways in which countries can be linked?
5. How has competition benefited people in India?
6. Distinguish between foreign trade and foreign investment. Short answer type questions:
7. What was the condition or status of the private sector prior to 1991?
8. How was the public sector been a dominant feature of India's planned economy? Explain with examples.
9. Mention two problems or situations that forced India to undertake new economic policy in 1991.
10. What is Liberalization?
11. What is Globalization?
12. What visible changes have occurred in India due to the adoption of the policy of liberalization and globalization? Explain two such changes with examples.
13. Why do developed countries want developing countries to leberalise wtheir trade and investment? What do you think should the developing countries demand in return?
14. Describe four positive aspects and three negative aspects of the five-decade long planned economic development in India.
15. What changes have occurred in India due to the adoption of the policy of liberalization and globalization?
16. Explain the process of Globalization in India.
17. What are the adverse effects of Liberalization, Globalization and Privatization?
18. State three favorable and three unfavorable impacts of World Trade Organization on Indian economy.
19. Give the meaning of globalisation and describe the steps taken in this direction.
20. What was the development strategy of India prior to 1991?
21. Mention three objectives of liberalization policy in large scale sectors.
22. The impact of globalisation has not been uniform. Explain this statement in your own words.