GLOBALISATION AND THE INDIAN ECONOMY - Q&A
LET'S WORK THIS OUT
Complete the following statement to show how the production process in the garment industry is spread across countries.
The brand tag says 'Made in Thailand' but they are not Thai products. We dissect the manufacturing process and look for the best solution at each step. We are doing it globally. In making garments, the company may, for example, get cotton fibre from Korea,
import buttons from France, design the garment in Italy, manufacture the cloth in China, stitch the garment in Thailand, and sell the final product in the United States.
(Note: The answer illustrates the fragmentation of the production process across various countries to minimize costs and maximize quality/efficiency).
LET'S WORK THESE OUT
(Based on the Ford Motors passage)
1. Would you say Ford Motors is a MNC? Why?
Yes, Ford Motors is a Multinational Corporation (MNC).
Reason: An MNC is a company that owns or controls production in more than one nation. Ford Motors has production spread over 26 countries, designs products in one country, manufactures components in others, and sells globally.
2. What is foreign investment? How much did Ford Motors invest in India?
Foreign Investment: Investment made by MNCs (buying assets like land, building, machines in another country) is called foreign investment.
Investment in India: Ford Motors invested Rs. 1700 crore to set up a large plant near Chennai.
3. By setting up their production plants in India, MNCs such as Ford Motors tap the advantage not only of the large markets that countries such as India provide, but also the lower costs of production. Explain the statement.
MNCs benefit in two ways:
1. Large Market: India has a huge population and a growing middle class, offering a vast market for selling cars directly (e.g., Ford sold 88,000 cars in India in 2017).
2. Lower Cost of Production: India offers cheap labor and resources. This lowers the manufacturing cost, allowing the MNC to earn higher profits when exporting cars/components to other countries (like South Africa, Brazil, USA).
4. Why do you think the company wants to develop India as a base for manufacturing car components for its global operations? Discuss the following factors:
(a) cost of labour and other resources in India
(b) the presence of several local manufacturers who supply auto-parts to Ford Motors
(c) closeness to a large number of buyers in India and China
The company wants to use India as a global base because:
(a) Cost of Labour: India has highly skilled engineers and unskilled labor available at much lower wages compared to developed countries, reducing production costs.
(b) Local Supply Chain: The presence of established local manufacturers (like Mahindra and Mahindra and others) ensures a steady and cheap supply of auto-parts, reducing the need for expensive imports.
(c) Market Proximity: Being in India provides easy access to the massive Indian market and proximity to China and other Asian markets, reducing transport time and costs.
5. In what ways will the production of cars by Ford Motors in India lead to interlinking of production?
It interlinks production by:
1. Collaborating with a local Indian company (Mahindra & Mahindra).
2. Buying components from local Indian suppliers.
3. Using Indian labor and technology.
4. Producing cars in India that are exported and sold in other countries (like Mexico, Brazil).
This connects Indian production factors with global markets.
6. In what ways is a MNC different from other companies?
A domestic company operates (produces and sells) within the political boundaries of a single country. An MNC operates in multiple countries. It not only sells its products globally but also produces goods and services globally to take advantage of lower costs in different regions.
7. Nearly all major multinationals are American, Japanese or European, such as Nike, Coca-Cola, Pepsi, Honda, Nokia. Can you guess why?
This is because the USA, Japan, and European nations are developed countries. They industrialized early, accumulated vast capital (wealth), and developed advanced technology. This financial and technological power allowed their companies to expand beyond their borders and establish production in other countries.
LET'S WORK THESE OUT
1. What was the main channel connecting countries in the past? How is it different now?
Past: The main channel was Foreign Trade (export of raw materials and import of finished goods).
Now: While trade is still important, countries are now increasingly connected through Foreign Investment, movement of services, technology, and capital by MNCs. Production itself is spread across countries, not just the exchange of goods.
2. Distinguish between foreign trade and foreign investment.
Foreign Trade: Involves the exchange of goods and services between countries (Imports and Exports). It connects markets.
Foreign Investment: Involves the movement of capital (money) from one country to another to buy assets like land, buildings, or companies (e.g., an MNC setting up a factory in India). It connects production.
3. In recent years China has been importing steel from India. Explain how the import of steel by China will affect.
(a) steel companies in China.
(b) steel companies in India.
(c) industries buying steel for production of other industrial goods in China.
(a) Steel companies in China: They will face competition. If Indian steel is cheaper, they may lose customers or be forced to lower their prices/improve quality.
(b) Steel companies in India: They will benefit from a larger market. They can expand production and earn higher profits by exporting to China.
(c) Industries buying steel in China: They will benefit. They will have more choices (Indian vs Chinese steel) and likely lower prices, which reduces their cost of production.
4. How will the import of steel from India into the Chinese markets lead to integration of markets for steel in the two countries? Explain.
Import of steel creates a connection between the Indian and Chinese markets.
1. Indian producers can sell in China, competing with local producers.
2. Prices of steel in both countries will tend to become equal (after adjusting for transport/taxes).
3. The two markets effectively function as one huge market where buyers and sellers interact.
LET'S WORK THESE OUT
1. What is the role of MNCs in the globalisation process?
MNCs play a major role by:
1. Spreading production across the globe (manufacturing where costs are low).
2. bringing foreign investment and new technology to developing countries.
3. Facilitating foreign trade by selling goods produced in one country to another.
4. Integrating markets and production systems of different nations.
2. What are the various ways in which countries can be linked?
Countries can be linked through:
1. Movement of Goods: Foreign trade (Exports/Imports).
2. Movement of Services: IT, communication, banking.
3. Movement of Investments: Capital flow/Foreign Direct Investment.
4. Movement of Technology: Transfer of know-how.
5. Movement of People: Migration for jobs or education.
3. Choose the correct option.
Globalisation, by connecting countries, shall result in
(a) lesser competition among producers.
(b) greater competition among producers.
(c) no change in competition among producers.
(b) greater competition among producers.
LET'S WORK THESE OUT
1. In the above example, underline the words describing the use of technology in production.
(Referring to the Magazine example in the text):
- "sent through Internet"
- "using telecommunication facilities"
- "designing is done on a computer"
- "payment... done instantly through the Internet (e-banking)"
2. How is information technology connected with globalisation? Would globalisation have been possible without expansion of IT?
Connection: IT (computers, internet, telecommunications) enables instant communication and transfer of information across the world. It allows management of production at a distance (e.g., a London office directing Delhi designers).
Possibility: Globalisation in its current rapid and complex form would not have been possible without IT. While trade existed before, the real-time coordination of production, services (like call centers), and instant financial transfers rely entirely on IT.
LET'S WORK THESE OUT
1. What do you understand by liberalisation of foreign trade?
Liberalisation of foreign trade means removing barriers or restrictions set by the government on imports and exports. It allows businesses to freely decide what they wish to import or export, leading to freer trade between nations.
2. Tax on imports is one type of trade barrier. The government could also place a limit on the number of goods that can be imported. This is known as quotas. Can you explain, using the example of Chinese toys, how quotas can be used as trade barriers? Do you think this should be used? Discuss.
How Quotas work (Chinese Toys example): If the Indian government imposes a quota, say, "Only 1,000 Chinese toys can be imported per month," then once this limit is reached, no more toys can enter. This restricts supply, likely raising the price of Chinese toys or making them unavailable, thus forcing people to buy Indian toys.
Should it be used?
- Yes: If the local industry is dying and needs temporary protection to survive unfair competition.
- No: If used long-term, it reduces consumer choice, keeps prices high, and protects inefficient local producers who don't improve quality. Generally, quotas are considered restrictive to free trade.
LET'S WORK THESE OUT
1. Fill in the blanks.
WTO was started at the initiative of developed countries. The aim of the WTO is to liberalise international trade. WTO establishes rules regarding international trade for all countries, and sees that these rules are obeyed. In practice, trade between countries is not free and fair. Developing countries like India have removed trade barriers whereas developed countries, in many cases, have continued to provide protection to their producers.
2. What do you think can be done so that trade between countries is more fair?
To make trade fair:
1. Developed countries (like USA) must stop giving huge subsidies to their farmers, which artificially lowers prices and hurts farmers in developing countries.
2. Developing countries should jointly fight in the WTO for fairer rules.
3. WTO should enforce rules strictly on developed nations, not just developing ones.
3. In the above example, we saw that the US government gives massive sums of money to farmers for production. At times, governments also give support to promote production of certain types of goods, such as those which are environmentally friendly. Discuss whether these are fair or not.
Unfair: When rich countries give massive subsidies to agriculture (as in the US cotton case), it allows them to sell at extremely low prices, destroying the livelihood of poor farmers in other countries who cannot compete. This violates the spirit of free trade.
Fair: Supporting environmentally friendly goods (like solar panels) is arguably fair and necessary because it benefits the whole planet (Global Public Good) and offsets the higher cost of green technology, rather than just seeking commercial dominance.
LET'S WORK THESE OUT
1. How has competition benefited people in India?
Competition has benefited people (consumers), especially the urban well-off, by:
1. Providing a greater choice of goods (e.g., cars, phones, electronics).
2. improving the quality of products.
3. Lowering prices due to competition between foreign and local brands.
4. Creating new jobs in industries expanding due to competition.
2. Should more Indian companies emerge as MNCs? How would it benefit the people in the country?
Yes, more Indian companies should emerge as MNCs.
Benefits:
1. Economic Growth: It brings profits from foreign markets back to India.
2. Employment: It creates jobs in India for headquarters, R&D, and support services.
3. Global Influence: It increases India's standing in the global economy.
4. Technology: It encourages Indian companies to develop world-class technology.
3. Why do governments try to attract more foreign investment?
Governments attract foreign investment to:
1. Get additional capital for development which might be lacking domestically.
2. Bring in advanced technology and management expertise.
3. Create employment opportunities for the local population.
4. Develop infrastructure (like in SEZs).
4. In Chapter 1, we saw what may be development for one may be destructive for others. The setting of SEZs has been opposed by some people in India. Find out who are these people and why are they opposing it.
Who opposes: Farmers, tribal groups, and residents of the areas where SEZs are proposed.
Why:
1. Land Acquisition: SEZs require large tracts of land. Fertile agricultural land is often acquired, displacing farmers and robbing them of their livelihood.
2. Displacement: People lose their homes and communities.
3. Compensation: Often the compensation paid is considered inadequate compared to the future value of the land.
LET'S WORK THESE OUT
1. What are the ways in which Ravi's small production unit was affected by rising competition?
Ravi's unit producing capacitors was affected because:
1. The government removed import restrictions (liberalisation).
2. MNC brands forced Indian TV companies (his clients) to import cheaper components.
3. The price of imported capacitors was half of Ravi's price.
4. He lost clients, production fell by half, and he had to fire workers.
2. Should producers such as Ravi stop production because their cost of production is higher compared to producers in other countries? What do you think?
No, they should not necessarily stop. Instead, they need support to improve. If they stop, India loses manufacturing capacity and jobs. The government should help them upgrade technology to reduce costs, or provide infrastructure (electricity/roads) that lowers their operating costs so they can compete fairly.
3. Recent studies point out that small producers in India need three things to compete better in the market (a) better roads, power, water, raw materials, marketing and information network (b) improvements and modernisation of technology (c) timely availability of credit at reasonable interest rates.
• Can you explain how these three things would help Indian producers?
(a) Infrastructure: Reliable power and roads reduce production delays and transport costs, making goods cheaper.
(b) Technology: Modern machinery improves quality and efficiency, allowing them to match MNC standards.
(c) Credit: Cheap loans allow them to invest in the above technology and expand business without falling into debt traps.
• Do you think MNCs will be interested in investing in these?
Generally No. MNCs are profit-driven and prefer to invest in their own production units. They usually expect the host country to provide infrastructure. However, they might invest in specific infrastructure (like a dedicated port or power plant) if it directly benefits their own factory.
• Do you think the government has a role in making these facilities available? Why?
Yes. It is the government's duty to provide public goods (roads, power) and ensure a fair economic environment. Small producers create the most jobs; protecting them is crucial for national welfare.
• Can you think of any other step that the government could take? Discuss.
The government could:
1. Reserve certain items for production by small-scale industries.
2. Provide training and skill development centers for workers.
3. Help in marketing their products abroad (Export promotion).
LET'S WORK THESE OUT
1. In what ways has competition affected workers, Indian exporters and foreign MNCs in the garment industry?
Foreign MNCs: They have benefited the most. They get goods at the cheapest rates and earn huge profits.
Indian Exporters: They face intense pressure to cut costs. Their profit margins are thin.
Workers: They are the worst affected. Their jobs are no longer secure (temporary employment), wages are low, and they have to work long hours without benefits to help the exporter meet the low cost demanded by MNCs.
2. What can be done by each of the following so that the workers can get a fair share of benefits brought by globalisation?
(a) government
(b) employers at the exporting factories
(c) MNCs
(d) workers.
(a) Government: Strictly enforce labor laws to ensure minimum wages and working hours. Provide social security nets.
(b) Employers: Invest in training workers to increase productivity rather than just cutting wages. Share a part of the profits.
(c) MNCs: Agree to pay a slightly higher "fair price" that covers ethical labor costs. Adhere to international labor standards.
(d) Workers: Form unions to bargain collectively for better rights and wages.
3. One of the present debates in India is whether companies should have flexible policies for employment. Based on what you have read in the chapter, summarise the point of view of the employers and workers.
Employers' View: They want flexibility (hiring/firing at will, temporary contracts) to reduce labor costs and adjust to fluctuating market demand (seasonal orders). They claim strict laws make them uncompetitive.
Workers' View: Flexibility destroys job security. They lose benefits like provident fund and health insurance. It leads to exploitation with low wages and long hours, making their lives unstable.
EXERCISES
1. What do you understand by globalisation? Explain in your own words.
Globalisation is the process of rapid integration or interconnection between countries. It involves:
1. Increase in Foreign Trade (goods/services moving across borders).
2. Increase in Foreign Investment (MNCs operating globally).
3. Movement of Technology and People between nations.
Essentially, it means the world's markets and production systems are becoming one.
2. What were the reasons for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers?
Reasons for barriers (post-1947): To protect domestic producers from foreign competition. Industries were just coming up, and they would have collapsed against established foreign goods.
Reasons for removal (1991):
1. The government felt Indian producers were ready to compete.
2. Competition would force local producers to improve quality.
3. Pressure from international organizations like WTO.
3. How would flexibility in labour laws help companies?
Flexibility allows companies to:
1. Hire workers only when needed (during peak seasons) and fire them later, saving wage costs.
2. Avoid paying long-term benefits like pension or provident fund.
3. Negotiate wages more freely.
This reduces their "Cost of Production," helping them compete with cheap imports or sell competitively abroad.
4. What are the various ways in which MNCs set up, control or produce in other countries?
1. Direct Investment: Buying land and setting up new factories.
2. Acquisition: Buying up existing local companies (e.g., Cargill buying Parakh Foods).
3. Joint Ventures: Partnering with local companies.
4. Contracts/Outsourcing: Placing orders with small producers in developing countries for products like garments or footwear, then selling under the MNC brand.
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?
Why: Developed countries want new markets to sell their goods and safe places to invest their surplus capital for high returns.
Demand in return: Developing countries should demand:
1. Removal of trade barriers (like subsidies to farmers) in developed countries.
2. Fairer access to markets in developed nations.
3. Transfer of technology at affordable rates.
6. "The impact of globalisation has not been uniform." Explain this statement.
The statement is true because:
1. Winners: Well-off urban consumers (better variety/prices), Skilled professionals (IT jobs), and Large Indian companies (Tata, Infosys) have benefited.
2. Losers: Small producers (like Ravi) have been crushed by competition. Workers have lost job security and face lower wages.
Thus, benefits are concentrated among the rich/skilled, while the poor/unskilled often suffer.
7. How has liberalisation of trade and investment policies helped the globalisation process?
Liberalisation removed the walls (tariffs, quotas, restrictions) that separated national economies. By allowing goods and capital to move freely:
1. MNCs could easily set up bases in other countries.
2. Import/Export volume surged.
3. This accelerated the integration of global markets, which is the essence of globalisation.
8. How does foreign trade lead to integration of markets across countries? Explain with an example other than those given here.
Foreign trade allows goods produced in one country to be sold in another. This creates competition between local and foreign goods, equalizing prices and quality standards.
Example: Japanese Electronics in India. Sony or Panasonic TVs are sold in India competing with Indian brands. This connects the Japanese production market with the Indian consumer market. If prices drop in Japan, they might drop in India too. The consumer has access to global products, integrating the two markets.
9. Globalisation will continue in the future. Can you imagine what the world would be like twenty years from now? Give reasons for your answer.
Prediction: The world will be even more connected. Digital services will dominate.
Reasons:
1. Technology: AI and Internet speed will make remote work seamless; people might work for companies in other countries without moving.
2. Culture: Cultural exchange will increase (food, movies).
3. Risks: However, environmental damage might increase due to transport, and inequality might widen if not regulated.
10. Supposing you find two people arguing: One is saying globalisation has hurt our country's development. The other is telling, globalisation is helping India develop. How would you respond to these arguments?
I would say both are partially right.
- To the supporter: Yes, it has brought modern tech, better consumer choices, and growth in IT/Service sectors.
- To the critic: Yes, it has harmed small industries and reduced job security for workers.
Conclusion: We need "Fair Globalisation" where the government protects the vulnerable while utilizing the opportunities for growth.
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 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 production costs are lower here. While consumers have more choices in the market, the effect of rising competition and imports has meant greater instability/challenges among the producers.
12. Match the following.
(i) MNCs buy at cheap rates from small producers -> (b) Garments, footwear, sports items
(ii) Quotas and taxes on imports are used to regulate trade -> (e) Trade barriers
(iii) Indian companies who have invested abroad -> (d) Tata Motors, Infosys, Ranbaxy
(iv) IT has helped in spreading of production of services -> (c) Call centres
(v) Several MNCs have invested in setting up factories in India for production -> (a) Automobiles
13. Choose the most appropriate option.
(i) The past two decades of globalisation has seen rapid movements in
(a) goods, services and people between countries.
(b) goods, services and investments between countries.
(c) goods, investments and people between countries.
(b) goods, services and investments between countries.
(Explanation: Movement of people has not been as rapid due to visa restrictions).
(ii) The most common route for investments by MNCs in countries around the world is to
(a) set up new factories.
(b) buy existing local companies.
(c) form partnerships with local companies.
(b) buy existing local companies.
(iii) Globalisation has led to improvement in living conditions
(a) of all the people
(b) of people in the developed countries
(c) of workers in the developing countries
(d) none of the above
(d) none of the above
(Explanation: It has improved conditions for well-off consumers in developing countries, but not "all" people, nor specifically "workers" who often face insecurity. Option (d) is the safest choice given the text emphasizes the lack of uniform benefit).