Globalisation and the Indian Economy

Every card in this deck

QMultinational corporation (MNC)

AA company that owns or controls production in more than one country. MNCs locate offices and factories wherever labour and other resources are cheap, which lowers their costs and raises their profits.

QHow does an MNC spread its production across countries? Give an example.

AIt splits production into small parts and places each where it is cheapest or most useful. One industrial-equipment MNC designs products in US research centres, makes components in China, assembles them in Mexico and Eastern Europe near their markets, and runs customer care from call centres in India.

QWhat factors decide where MNCs set up production?

ACloseness to markets; availability of skilled and unskilled labour at low cost; assured availability of other factors of production; and government policies that look after their interests.

QInvestment and foreign investment

AInvestment is money spent on assets such as land, buildings, machines and equipment in the hope that they will earn profits. Investment made by MNCs in another country is called foreign investment.

QIn what ways do MNCs set up or control production in other countries?

ABy joint production with local companies, bringing money and the latest technology; by buying up local companies and expanding, the most common route (Cargill bought Parakh Foods); and by placing orders with small producers, as in garments, footwear and sports goods, which they sell under their own brands.

QHow does a local company benefit from joint production with an MNC?

AThe MNC can provide money for additional investment, such as new machines for faster production, and it may bring the latest production technology.

QHow do large MNCs exercise power over small producers in developing countries?

AMNCs in developed countries order goods such as garments, footwear and sports items from many small producers worldwide and sell them under their own brand names. With their enormous wealth, they have tremendous power to set the price, quality, delivery terms and labour conditions of these distant producers.

QHow does foreign trade lead to the integration of markets across countries?

AOpen trade lets goods move from one country's market to another's. Buyers get more choice, prices of the same goods in both markets draw closer together, and producers thousands of miles apart compete directly. When cheap Chinese toys entered India, for example, they displaced many Indian toys.

QGlobalisation

AThe process of rapid integration or interconnection between countries through greater foreign trade and foreign investment, with more goods, services, investments and technology moving between countries. MNCs play a major role in it.

QBesides goods, services, investment and technology, how else can countries be connected, and why has it grown little?

AThrough the movement of people, who move in search of better income, jobs or education. It has not increased much in recent decades because of various restrictions.

QHow has improvement in transport technology stimulated globalisation?

ATransport improvements have made faster delivery of goods over long distances possible at lower cost. Containers loaded intact onto ships, trains, planes and trucks cut port handling costs and speed up exports, and cheaper air transport lets airlines carry much larger volumes.

QHow has information and communication technology helped spread production of services across countries?

ATelecom, computers, satellites and the internet let people share information instantly at negligible cost. A London magazine can be designed and printed in Delhi: text sent by internet, instructions by telecom, design on computer, and payment by e-banking.

QTrade barrier

AA restriction set by the government on foreign trade, such as a tax on imports or a quota limiting the quantity of goods imported. Governments use trade barriers to regulate how much and what kinds of goods come into the country.

QWhy did the Indian government put barriers on foreign trade and foreign investment after Independence?

ATo shield domestic producers from foreign competition. In the 1950s and 1960s Indian industries were only starting out and would not have survived competing imports, so only essentials such as machinery, fertilisers and petroleum were allowed in. Developed countries had likewise protected their producers in their early stages.

QWhat changes did India make to its economic policy from around 1991, and why?

AIt largely removed barriers on foreign trade and investment, so goods could be imported and exported easily and foreign companies could set up factories and offices. The government felt competition would push Indian producers to improve quality, and powerful international organisations supported the move.

QLiberalisation

ARemoving barriers or restrictions set by the government. With liberalised trade, businesses decide freely what to import or export, and the government imposes far fewer restrictions than before.

QWorld Trade Organisation (WTO)

AAn organisation, started at the initiative of developed countries, that aims to liberalise international trade. It sets rules for international trade and sees that they are obeyed; about 160 countries are members.

QWhy do developing countries say WTO trade rules are not free and fair?

AWTO rules have forced developing countries to remove trade barriers, while developed countries unfairly keep theirs. The US, for example, pays its small farming population huge subsidies, so its farmers sell produce abroad at abnormally low prices, hurting farmers in other countries.

QWho in India has benefited from globalisation, and how?

AWell-off urban consumers get more choice, better quality and lower prices. MNCs have invested in cell phones, automobiles, electronics, soft drinks, fast food and banking, creating jobs and helping local suppliers. Top Indian companies modernised, and some, such as Tata Motors and Infosys, became MNCs themselves.

QHow has globalisation created new opportunities for Indian service companies?

AIT-based services such as call centres and magazine design, and a host of others such as data entry, accounting, administrative tasks and engineering, are now done cheaply in India and exported to developed countries.

QSpecial Economic Zones (SEZs)

AIndustrial zones set up by central and state governments to attract foreign investment. They offer world-class electricity, water, roads, transport, storage and recreational and educational facilities, and units set up in them pay no taxes for an initial five years.

QWhat does 'flexibility in labour laws' mean, and how does it help companies?

AThe government lets companies ignore many rules protecting workers' rights. Instead of hiring regular workers, companies hire them flexibly for short periods when work pressure is high, which reduces their labour costs. Foreign companies demand still more flexibility.

QHow has globalisation affected small producers in India?

AMany have been hit hard by competition. Ravi's capacitor unit in Hosur shrank from 20 workers to seven after import restrictions were removed in 2001, as TV makers turned to cheaper imports. Batteries, plastics, toys, tyres, dairy and vegetable oil units have also shut down, leaving many workers jobless.

QHow has competition from globalisation made workers' employment uncertain?

ATo win cheap orders from MNCs, garment exporters cut labour costs, hiring temporary instead of permanent workers, with long hours, night shifts, low wages and forced overtime. Even organised sector jobs now resemble unorganised ones, without earlier benefits.

QWhat is 'fair globalisation', and how can the government help achieve it?

AGlobalisation that creates opportunities for all and shares its benefits better. The government can enforce labour laws, support small producers until they can compete, use trade and investment barriers if needed, negotiate fairer WTO rules, and align with other developing countries against developed-country domination.