globalisation and the indian economy

globalisation

it is the process of rapid integration or interconnection between countries by foreign investment and foreign trade

goods and services, investments and technology are moving among different countries

countries are also connected through a movement of people between them, migration. this is because people are seeking for better life, higher income and better education

the early phase of globalisation

the early phase of globalisation involved export of raw materials from colonial countries like india and import of finished products from industrially developed countries like the usa. however, this changed from the middle of the 20th century with the rise of MNCs

multinational corporations (MNCs)

an MNC is a company that owns or controls production in more than one country

it sets up offices and factories for production in regions where they can get cheap labour and equipment, to minimise cost and maximise profit

they produce and sell their products globally

by spreading out production in different countries, they get the best resources at cheap prices, which increases profit. they also generate employment opportunities in underdeveloped countries

ways of interlinking production across countries

foreign investment: investment made by a MNCs based in one country, into a company based in another country. they set up production units by setting up factories and offices

partnerships/ joint ventures: MNCs merge with local companies and produce jointly. in this way, MNCs provide money for additional investments like new equipment and bring latest technology

local companies/ takeover: MNCs buy local production units or merge with local companies to expand production. eg: USA took over parakh foods in india and has become the larger producer of oil in india

contracts to local countries: MNCs place orders with small producers for production. they themselves determine the price, quantity, delivery and labour conditions for these distant producers

foreign trade

foreign trade is the trade between different countries. it is also called international trade, external trade or inter-regional trade. it consists of imports and exports. it helps in the integration of markets in the following ways;

facilitates movement of goods and services between countries

facilitates movement of people and ideas

gives opportunity to producers to sell their products beyond local markets

buyers get more choice of goods

increased competition among producers so better quality of goods and services

eg: cheap and quality chinese toys replaced indian toys

role of IT in globalisation

improvement in technology has resulted in improvement in transportation resulting in much faster delivery of goods across long distances at lower cost

it has also improved communication services. telecommunication facilities (phones, telegraphs, fax) and internet are used to contact one another across the world

eg: a news magazine published for readers in london, which is designed and printed in delhi by using telecommunication facilities

foreign investment policy

the policy of foreign investment adopted by the government affects globalisation to a large extent. it restricts or encourages foreign investments seeing the situation in the country. one such policy is the trade barrier

trade barrier

it is a restriction on the free international exchange of goods and services

tax on imports (import duty) is an example of a trade barrier

governments use trade barriers to regulate foreign goods and the type and amount of goods that enter the country. this is on the basis of quotas, which are government-imposed trade restrictions that limit the number or value of goods that can be imported or exported

restrictions on foreign trade in india and how it was reduced

after independence, the government of india put barriers on foreign trade and investment to protect the domestic producers from foreign competition (1950-60s). only essential items like machinery and fertilisers were allowed to be imported

arround 1991, it was felt that indian producers must compete with producers around the globe so that they improve their production. therefore, the new economic policy (1991) made some changes such as liberalisation, which was the removal of the restrictions set earlier by the government, which made india more liberal

world trade organisation (WTO)

it is an international organisation dealing with the global rules of trade between nations. its main function is to ensure that trade flows smoothly and freely. it supported the liberalisation of foreign trade in india

it was started at the initative of developed countries with the objective to liberalise international trade

though WTO is supposed to allow free trade for all the countries, it was found that the developed countries have unfairly implemented some rules. they have forced developing countries to remove barriers and at the same time they themselves restricted imports to their countries, and use unfair trade practice to manipulate the markets. eg: agriculturalists in USA are heavily subsidised by their government, so they can export wheat, cotton etc. at very low prices to developing countries, which increases competition and affects the farmers of those countries

impact of globalisation in india

it resulted in more competition among producers (local and foreign). it gives greater choice of goods with lesser prices

MNCs have increased their investments in india in cell phones, automobiles, electronics, fast foods etc. in urban areas

many new jobs have been created and local companies supplying raw materials to these industries have prospered

globalisation brings in new and improved technology by which even the local companies benefit

some large indian companies have emerged as MNCs and set up companies in other countries

new companies that provide call centers, IT related services etc. have emerged

globalisation has threatened small producers as their production has decreased considerably

government steps to attract foreign investments

they have set up industrial zones called special economic zones (SEZs) which have world class facilities, electricity, water, roads, educational facilities etc.

companies who set up production units in the SEZs do not have to pay taxes for the first 5 years

government has allowed flexibility in the labour laws for foreign investment

the companies in the organised sector have to obey rules that aim to protect the workers rights

companies hire workers flexibly for short periods in order to reduce the cost of labour for the country

growing competition and uncertain employment due to globalisation

with growing competition, most employers prefer flexible employment (on a temporary basis) which means that workers jobs are no longer secure

for example; indian garment exporters try to cut their own costs by reducing labour costs, as raw material costs cannot be reduced. so, they employ workers on a temporary basis. they get paid very low wages and forced to do overtime to manage their expenses. even in the organised sector, workers no longer get the protection and benefits that they enjoyed earlier

steps the government has took to ensure fair globalisation

it ensures that policies such as labour laws are strictly followed

it supports small producers from global competition to improve their performance

it negotiates with the WTO to ensure fair rules and concessions for developing countries

it uses trade and investment barriers to protect the interest of domestic produce

it aligns with other developing countries with similar interests to fight against the authority of developed countries in the WTO