ECONOMICS (X)-LESSON-4 GLOBALISATION AND THE INDIAN ECONOMY (LESSON NOTES)

 

 

ECONOMICS (X)-LESSON-4

GLOBALISATION AND THE INDIAN ECONOMY

(LESSON NOTES)

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v INTRODUCTION

  Ø As you know that in today’s world, consumers have lot of choice and options of different products which manufactured from various nations. Now a days various brands are available of same products manufactured in different nations.

  Ø In this lesson we will try to know how markets are transferred now a days. What are the factors that are bringing about these changes? And, how are these changes affecting the lives of the people?

v INTERLINKING OF THE MARKET

Before 20^th century production were largely organized within the nation. Before that large country purchased the raw material from the colonies (like Britain purchase the cotton from India) But now a days the markets are interlined through various ways:-

1. Multi-National Corporations (MNCs)

  Ø A company that owns or controls production in more than one nation is called a MNCs. It set up offices and factories for production in regions where they can get cheap Labour and other resources. (like India, China) By the MNCs the goods and services are produced globally. As a result, production is organized in increasingly complex ways. For example: TATA, VIPRO

  Ø A large MNC, producing industrial equipment, designs its products in United States, manufactured in China after shipped to Mexico and Eastern Europe where the products are assembled and the finished products are sold all over the world.

  Ø Now a days MNCs spreading their production through various ways:

§  Through FDI (Foreign Direct Investment)- In these ways A MNCs purchase the land and set their own factory in other country and expand the production. For example

§  By purchasing the local company of other country and expand the production globally. For example, an American MNCs of edible oil Cargill foods purchase Parakh Foods of India.

§  By placing orders for production with small producers. Garments, footwear, sports items are examples of industries where production is carried out by a large number of small producers.

§  By setting up partnerships with local company. For example, Hero Honda, Maruti Suzuki etc. MNCs set up production jointly with local companies which benefits local companies in the following ways:

1.    First, MNCs can provide money for additional investments, like buying new machines for faster production.

2.    Second, MNCs might bring with them the latest technology for production.

2. Foreign Investment:

  Ø The money that is spent to buy assets such as land, building, machines and other equipment with the hope to earn profit is called investment. Investment made by MNCs is called foreign investment.

  Ø Steps to attract the foreign Investment by India: -

§  To attract foreign companies to invest in India. Industrial zones, called Special Economic Zones (SEZs), are being set up. SEZs are the regions which have world class facilities as electricity, water, roads, transport, storage, recreational and educational facilities etc for Companies.

§  In SEZs the companies also do not have to pay taxes for an initial period of five years.

§  Government has also allowed flexibility in the labour laws to attract foreign investment.

3. Foreign Trade:

  Ø The trade between the nations is called as foreign trade. It has two components as

§  Export (sell things to other Nations)

§  Import (Purchase things from other Nations).

  Ø Foreign trade has been the main channel for connecting countries from early time. In the ancient time Silk route was used to linked the Nations.   From 17^th century onward Trading interest attracted the trading companies such as East India Company to India.

  Ø Foreign trade not only help to the producers but also provide the various opportunities for the consumers.

v What is Globalisation

Ø Globalisation is the process of rapid integration or interconnection of countries. MNCs are playing a major role in the globalisation process.

Ø More and more goods and services, investments and technology are moving between countries.

Ø There are four different way through which countries are connected :-

§  Movement of Goods and services

§  Movement of Technology

§  Movement of People

§  Movement of Money (Investment)

v FACOTRS THAT ENABLED THE GLOBALISATION

 

Ø TECHNOLOGY

§  Rapid improvement in technology has been one major factor that has stimulated the globalisation process.

§  Due to technology faster delivery of goods and services across long distances at lower costs became possible.

§  The developments in information and communication technology have made information instantly accessible.

§  Internet also allows us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible costs and we also can pay online.

 

Ø LIBERALISATION POLICY

§  Liberalisation means make the policy liberal so that trade and investment can be increased among the country.

§  Government can set up some rules or restrictions on trade and investment to regulate the foreign trade and investment that are known as trade barriers. For example, Tax on import.

§  So, removing barriers or restrictions set by the government on trade is known as liberalisation. When the government imposes less restrictions than before, it is said to be more liberal.

 

v INDIAN ECONOMIC POLICY

Ø Before 1991

§  After Independence Indian government had put barriers on foreign trade and foreign investment.

·      This was considered necessary to protect the producers within the country from foreign competition.

·      The competition from imports goods at that stage would not have allowed these industries to come up. Thus, India allowed only imports of machinery, fertilisers, petroleum etc.

·      During the early stages of development, have given protection to domestic producers through a variety of means.

§  After 1991 New economic policy

·      After 1991 the government decided that the time had come for Indian producers to compete with producers around the globe.

·      It felt that competition would improve the performance of producers within the country since they would have to improve their quality.

·      This decision was supported by powerful international organisations (WTO).

·      Thus, barriers on foreign trade and foreign investment were removed to a large extent.

·      his meant that goods could be imported and exported easily and also foreign companies could set up factories and offices here.

v WORLD TRADE ORGANISATION (WTO)

  Ø The international organisation which regulates the international trade among the countries is called as WTO. At present, 164 countries of the world are currently members of the WTO.

  Ø The aim World Trade Organisation (WTO) is to liberalise international trade.

  Ø It also works to enhance the international trade among countries and solve the conflicts if arise.

  Ø Though in practice, it has been seen that WTO favoured the developed countries as they have unfairly retained trade barriers. On the other hand, WTO rules have forced the developing countries to remove trade barriers. For example, debate on agriculture subsidy.

v IMPACT OF GLOBALISATION IN INDIA

Ø POSITIVE IMPACT

     1.    Globalisation create the great competition among the producers which provide the advantage for consumers as they enjoyed improved quality at lower price of several products.

2.    It has resulted in higher standards of living.

3.    Globalisation has also created new opportunities for companies providing services, particularly in the IT sector.

4.    Due to globalisation many MNCs increased their investment in India which provides the new job opportunities.

5.    Due to globalisation many Indian companies also raised their production standard by new technology or successful collaborations with foreign companies.

6.    globalisation has enabled some large Indian companies to emerge as multinationals themselves! Tata Motors (automobiles), Infosys (IT), Ranbaxy (medicines), Asian Paints (paints), Sundaram Fasteners (nuts and bolts) etc.

§  NEGATIVE IMPACT

1.    Globalisation created the competition among the producers so the small producers have hit hard due to tuff competition. For example, Batteries, capacitors, plastics, toys manufacturers.

2.    Due to growing competition, most employers prefer to employ workers ‘flexibly’. It increases the job insecurity.

3.    The MNCs have the more capital even more than the GDP of some countries so they pressurise the Government for flexibility of labour laws.

 

v THE STRUGGLE FOR A FAIR GLOBALISATION

Ø Fair globalisation refers as which creates opportunities for all and also ensures that the benefits of globalisation are shared better. For the fair Globalisation government should take these steps :-

§  Government must ensure that labour laws are properly implemented and the workers get their rights.

§  It can support small producers to improve their performance.

§  If necessary, the government can use trade and investment barriers.

§  It can negotiate at the WTO for ‘fairer rules’.

§  It can also align with other developing countries with similar interests to fight against the domination of developed countries in the WTO.