Globalisation And The Indian Economy

Good morning, students. Welcome to today's economics lesson. I'm so happy to see all of you here ready to learn about something that affects your daily lives in very real ways. Today, we are going to study Chapter 4: Globalisation and the Indian Economy. This is an extremely important chapter that explains how our country has changed over the past few decades and how the world has become so interconnected. By the end of this lesson, you will understand what globalisation means, how it has affected India, and what are its advantages and disadvantages. So let's begin our journey together.

Before we start, let me ask you something. Think about the clothes you are wearing right now. Or think about the mobile phone you might have in your pocket, or the television in your home. Can you tell me where these products were made? Many of you might say they are made in India, but if you look closely, you might find labels saying "Made in China", "Made in Bangladesh", "Made in Vietnam", or other countries. Even products that say "Made in India" might have parts that came from different countries. This is exactly what we are going to learn about in this chapter - how production and markets across different countries have become connected, and what this means for us as consumers and as citizens of India.

Let me begin by telling you about a time when things were very different. Until the middle of the twentieth century, that is roughly until around 1950s, production was largely organised within countries. What crossed the boundaries of these countries were raw materials, food stuff, and finished products. Let me explain what this means with an example from Indian history. During the British colonial period, India was what we call a colony. India exported raw materials like cotton, jute, and spices, and imported finished goods like textiles and machinery from Britain. So the basic pattern was that raw materials went from India to Britain, and finished products came back from Britain to India. This was the main channel connecting different countries - and that channel was called trade.

Now, students, this is very important. At that time, production itself was happening within individual countries. The British companies did not set up factories in India to produce goods. They simply took our raw materials and sold us their finished products. But then something changed. Large companies started emerging that we call multinational corporations, or MNCs. Let me define this term clearly. An MNC, or multinational corporation, is a company that owns or controls production in more than one nation. This means the company has offices, factories, or production facilities in multiple countries, not just one.

Now, why do these MNCs set up production in other countries? The answer is very simple - to make more profit. They set up offices and factories for production in regions where they can get cheap labour and other resources. This is done so that the cost of production is low, and the MNCs can earn greater profits. Think about it this way - if a company can manufacture its products in a country where workers are paid less, where raw materials are cheaper, and where the government gives them tax benefits, then the company can produce goods at a lower cost and sell them at competitive prices all over the world. This is exactly whatGlobalisation is all about.

Let me give you a concrete example to make this clearer. Consider a large MNC that produces industrial equipment. This company designs its products in research centres in the United States, which means the engineers and scientists in America come up with the designs and blueprints. Then, the company has the components manufactured in China, because manufacturing costs are lower there. These components are then shipped to Mexico and Eastern Europe, where the products are assembled. The finished products are sold all over the world. Meanwhile, the company's customer care is carried out through call centres located in India, because India has highly skilled engineers who can understand the technical aspects, and also educated English-speaking youth who can provide customer care services.

Now students, look at this example carefully. This is a call centre in Bengaluru, equipped with telecom facilities and access to the Internet to provide information and support to customers abroad. In this example, the MNC is not only selling its finished products globally, but more importantly, the goods and services are produced globally. As a result, production is organised in increasingly complex ways. The production process is divided into small parts and spread out across the globe. In the above example, China provides the advantage of being a cheap manufacturing location. Mexico and Eastern Europe are useful for their closeness to the markets in the US and Europe. India has highly skilled engineers who can understand the technical aspects of production. It also has educated English-speaking youth who can provide customer care services. And all this probably can mean 50 to 60 per cent cost-savings for the MNC! The advantage of spreading out production across the borders to the multinationals can be truly immense.

Now let me pause here and recap what we have learned so far. We learned that MNCs are companies that operate in multiple countries. They set up production in different countries to take advantage of lower costs. This leads to production being spread across the globe, with different countries contributing different parts of the production process. This is one of the key features of globalisation.

Now, let's look at an activity from your textbook. There's an exercise that says: Complete the following statement to show how the production process in the garment industry is spread across countries. The statement says: "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...". Let me complete this for you. The answer would be something like: "get cotton fibre from Korea, fabric woven in Taiwan, buttons and zippers from China, designs created in Italy, and the actual stitching done in Bangladesh or Vietnam." This shows how the garment industry spreads its production process across different countries to get the best quality at the lowest cost.

Now let's move on to understand how MNCs interlink production across countries. In general, 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. In addition, MNCs might look for government policies that look after their interests. You will read more about the policies later in the chapter.

Having assured themselves of these conditions, MNCs set up factories and offices for production. 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. Any investment is made with the hope that these assets will earn profits. So when an MNC invests money in another country to set up factories or buy equipment, that is called foreign investment.

At times, MNCs set up production jointly with some of the local companies of these countries. The benefit to the local company of such joint production is two-fold. First, MNCs can provide money for additional investments, like buying new machines for faster production. Second, MNCs might bring with them the latest technology for production. This can help the local company become more efficient and competitive.

But the most common route for MNC investments is to buy up local companies and then to expand production. MNCs with huge wealth can quite easily do so. Let me give you a real example from India. Cargill Foods, a very large American MNC, has bought over smaller Indian companies such as Parakh Foods. Parakh Foods had built a large marketing network in various parts of India, where its brand was well-reputed. Also, Parakh Foods had four oil refineries, whose control has now shifted to Cargill. Cargill is now the largest producer of edible oil in India, with a capacity to make 5 million pouches daily! This is a perfect example of how MNCs buy up local companies and expand their production.

In fact, students, many of the top MNCs have wealth exceeding the entire budgets of the developing country governments. With such enormous wealth, imagine the power and influence of these MNCs! They can literally shape the economies of entire countries.

There's another way in which MNCs control production. Large MNCs in developed countries place 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 around the world. The products are supplied to the MNCs, which then sell these under their own brand names to the customers. These large MNCs have tremendous power to determine price, quality, delivery, and labour conditions for these distant producers. This is like a situation where small producers are dependent on the big MNCs for orders, but the MNCs call all the shots.

Thus, we see that there are a variety of ways in which the MNCs are spreading their production and interacting with local producers in various countries across the globe. By setting up partnerships with local companies, by using the local companies for supplies, by closely competing with the local companies or buying them up, MNCs are exerting a strong influence on production at these distant locations. As a result, production in these widely dispersed locations is getting interlinked. This is a key concept - interlinking means that production in one country is connected to production in other countries. What happens in one country affects what happens in another.

Now let's look at some questions from your textbook about this section. Read the passage on Ford Motors and answer the questions.

Ford Motors, an American company, is one of the world's largest automobile manufacturers with production spread over 26 countries of the world. Ford Motors came to India in 1995 and spent Rs. 1700 crore to set up a large plant near Chennai. This was done in collaboration with Mahindra and Mahindra, a major Indian manufacturer of jeeps and trucks. By the year 2017, Ford Motors was selling 88,000 cars in the Indian markets, while another 1,81,000 cars were exported from India to South Africa, Mexico, Brazil and United States of America. In recent years, Ford Company stopped producing cars for selling in India but export cars and car engines on a small scale to other countries.

Now let's answer the questions one by one.

Question 1: Would you say Ford Motors is a MNC? Why?

Yes, Ford Motors is definitely an MNC. This is because it owns or controls production in more than one nation. The passage clearly states that Ford Motors has production spread over 26 countries of the world. It designs cars in some countries, manufactures parts in others, assembles in some, and sells in many countries. This clearly makes it a multinational corporation.

Question 2: What is foreign investment? How much did Ford Motors invest in India?

Foreign investment is the money that MNCs spend to buy assets such as land, buildings, machines, and other equipment in another country. According to the passage, Ford Motors invested Rs. 1700 crore in India to set up a large plant near Chennai in collaboration with Mahindra and Mahindra.

Question 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.

This statement means that when MNCs like Ford set up factories in India, they get two major benefits. First, India has a large population, which means there are many potential buyers for their products. This gives them access to a huge market. Second, the cost of production in India is lower compared to developed countries. This is because labour costs are lower, and other resources might also be cheaper. So by producing in India, Ford can manufacture cars at a lower cost and sell them at competitive prices in India and also export to other countries.

Question 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: The cost of labour in India is much lower compared to developed countries like the US or Europe. This means Ford can manufacture car components at a lower cost in India and then use these components in their factories around the world, reducing overall production costs.

(b) the presence of several local manufacturers who supply auto-parts to Ford Motors: India has many small and medium enterprises that manufacture auto parts. These local manufacturers can supply components to Ford at competitive prices, creating a whole supply chain in India. This helps Ford get the parts they need at good prices.

(c) closeness to a large number of buyers in India and China: India and China together have billions of consumers. By setting up production in India, Ford can serve both the Indian market and also export to China and other Asian markets, saving on transportation costs and time.

Question 5: In what ways will the production of cars by Ford Motors in India lead to interlinking of production?

Ford Motors producing cars in India leads to interlinking in several ways. First, some parts of the cars might be manufactured in other countries and imported to India for assembly. Second, cars produced in India are exported to other countries like South Africa, Mexico, Brazil, and the USA. Third, Ford might source raw materials and components from different countries. All this means that production in India is connected to production in many other countries - this is what we mean by interlinking.

Question 6: In what ways is a MNC different from other companies?

A MNC is different from other companies in several ways. First, a MNC operates in multiple countries, while a regular company might operate in just one country. Second, a MNC can spread its production process across different countries, taking advantage of lower costs everywhere. Third, a MNC usually has much larger financial resources than regular companies. Fourth, a MNC has more power to influence markets and policies in the countries where it operates.

Question 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 these countries developed economically earlier and their companies had the capital and technology to expand globally. American, Japanese, and European companies became global MNCs because they had advanced technology, large amounts of money to invest, and they started expanding when many developing countries were still under colonial rule or were just becoming independent. These MNCs from developed countries had a head start in terms of technology, capital, and global networks.

Now let's move on to the next section: Foreign Trade and Integration of Markets.

For a long time, foreign trade has 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. Also, you would remember that it was trading interests which attracted various trading companies such as the East India Company to India. What then is the basic function of foreign trade?

To put it simply, foreign trade creates an opportunity for the producers to reach beyond the domestic markets, that is, markets of their own countries. Producers can sell their produce 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.

Now let me explain this with a very good example from your textbook - the example of Chinese toys in India.

Let us see the effect of foreign trade through the example of Chinese toys in the Indian markets.

Chinese manufacturers learn of 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.

What is happening here? 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.

In general, with the opening of trade, goods travel from one market to another. Choice of goods in the markets rises. Prices of similar goods in the two markets tend to become equal. And, 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.

This is a very important point, students. When countries trade with each other, their markets become connected or integrated. This means that what happens in one country's market affects the other country's market. For example, if Chinese toys become very popular in India, Indian toy makers lose business. Similarly, if Indian software services become popular in America, American software companies might face competition. This is what we mean by integration of markets.

Now let's answer the questions in this section.

Question 1: What was the main channel connecting countries in the past? How is it different now?

In the past, the main channel connecting countries was foreign trade. Countries would exchange goods through trade. Now, however, the connection between countries happens through multiple channels - foreign trade, foreign investment by MNCs, movement of technology, and even movement of people. Production itself is spread across countries, which is a bigger change than just trade.

Question 2: Distinguish between foreign trade and foreign investment.

Foreign trade involves buying and selling goods and services between countries. It is about the exchange of finished products. For example, India exporting textiles to America or importing electronics from China is foreign trade. Foreign investment, on the other hand, involves investing money in another country to set up production facilities. For example, when Ford Motors invests Rs. 1700 crore in India to set up a factory, that is foreign investment. So trade is about goods moving between countries, while investment is about money and production facilities moving between countries.

Question 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: Chinese steel companies will face competition from Indian steel. They might have to lower their prices or improve their quality to compete. Some Chinese companies might lose market share.

(b) steel companies in India: Indian steel companies will benefit from the export opportunity. They can sell more steel and earn more money. This can help them expand production and become more efficient.

(c) industries buying steel for production of other industrial goods in China: Industries in China that buy steel will benefit because they have more options and might get steel at lower prices due to competition between Chinese and Indian suppliers.

Question 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.

When China imports steel from India, the markets for steel in both countries become connected. The price of steel in China will be influenced by the price of Indian steel being sold there. Similarly, the price of steel in India will be influenced by the demand from China. The producers in both countries will now compete with each other, even though they are in different countries. This is exactly what we mean by integration of markets - the markets become connected and affect each other.

Now let's move on to understand what Globalisation actually is.

In the past two to three decades, more and more MNCs have been looking for locations around the world which would be cheap for their production. Foreign investment by MNCs in these countries has been rising. At the same time, foreign trade between countries has been rising rapidly. 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. Likewise, activities of most MNCs involve substantial trade in goods and also services.

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. MNCs are playing a major role in the globalisation process. More and more goods and services, investments and technology are moving between countries. Most regions of the world are in closer contact with each other than a few decades back.

Besides the movements of goods, services, investments and technology, there is one more way in which the countries can be connected. This is through the movement of people between countries. People usually move from one country to another in search of better income, better jobs or better education. In the past few decades, however, there has not been much increase in the movement of people between countries due to various restrictions.

So, students, let me summarise what we have learned so far. Globalisation is the process of rapid integration or interconnection between countries. This happens through greater foreign trade, foreign investment, movement of technology, and sometimes movement of people. MNCs play a major role in this process.

Now let's answer the questions in this section.

Question 1: What is the role of MNCs in the globalisation process?

MNCs are the main drivers or actors in the globalisation process. They set up production in different countries, invest money in various countries, and trade across borders. They look for cheap locations to produce their goods and services, and in doing so, they connect different countries economically. MNCs also bring new technology to different countries and create jobs wherever they set up operations.

Question 2: What are the various ways in which countries can be linked?

Countries can be linked through several ways: through trade in goods and services, through foreign investment, through movement of technology, and through movement of people. When MNCs set up production in different countries, they create links. When countries trade with each other, they create links. When people migrate from one country to another, they also create links. All these contribute to globalisation.

Question 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.

The correct answer is (b) greater competition among producers. When countries become connected, producers from different countries compete with each other. For example, Indian toy makers have to compete with Chinese toy makers. This increases competition among producers.

Now let's move on to the factors that have enabled globalisation.

There are three major factors that have enabled globalisation: technology, liberalisation of trade and investment policies, and pressure from international organisations like the WTO. Let me explain each of these in detail.

First, let's talk about Technology.

Rapid improvement in technology has been one major factor that has stimulated the globalisation process. For instance, the past fifty years have seen several improvements in transportation technology. This has made much faster delivery of goods across long distances possible at lower costs.

Let me explain containers for transport of goods. Goods are placed in containers that can be loaded intact onto ships, railways, planes and trucks. Containers have led to huge reduction in port handling costs and increased the speed with which exports can reach markets. Similarly, the cost of air transport has fallen. This has enabled much greater volumes of goods being transported by airlines.

Even more remarkable have been the developments in information and communication technology. In recent times, technology in the areas of telecommunications, computers, Internet has been changing rapidly. Telecommunication facilities (telegraph, telephone including mobile phones, fax) are used to contact one another around the world, to access information instantly, and to communicate from remote areas. This has been facilitated by satellite communication devices. As you would be aware, computers have now entered almost every field of activity. You might have also ventured into the amazing world of internet, where you can obtain and share information on almost anything you want to know. Internet also allows us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible costs.

Information and communication technology, or IT in short, has played a major role in spreading out production of services across countries. Let me give you an example to understand this better.

A news magazine published for London readers is to be designed and printed in Delhi. The text of the magazine is sent through Internet to the Delhi office. The designers in the Delhi office get orders on how to design the magazine from the office in London using telecommunication facilities. The designing is done on a computer. After printing, the magazines are sent by air to London. Even the payment of money for designing and printing from a bank in London to a bank in Delhi is done instantly through the Internet (e-banking)!

This is a perfect example of how IT has enabled globalisation. The work that was traditionally done in London is now being done in Delhi, with the help of the Internet and modern communication technology. This is called outsourcing - when a company transfers some of its work to another country to take advantage of lower costs.

Now let's answer the questions in this section.

Question 1: In the above example, underline the words describing the use of technology in production.

In the example, the words describing the use of technology would be: sent through Internet, telecommunication facilities, designing is done on a computer, sent by air, e-banking, instantly.

Question 2: How is information technology connected with globalisation? Would globalisation have been possible without expansion of IT?

Information technology is very closely connected with globalisation. IT has made it possible to coordinate production across different countries, to communicate instantly, and to transfer information and money quickly. Without IT, it would be very difficult to manage production across different countries. For example, a company in America cannot easily coordinate with a factory in India without computers and the Internet. So, yes, globalisation in its current form would not have been possible without the expansion of IT.

Now let's talk about the second factor: Liberalisation of foreign trade and foreign investment policy.

Let us return to the example of imports of Chinese toys in India. Suppose the Indian government puts a tax on import of toys. What would happen? Those who wish to import these toys would have to pay tax on this. Because of the tax, buyers will have to pay a higher price on imported toys. Chinese toys will no longer be as cheap in the Indian markets and imports from China will automatically reduce. Indian toy-makers will prosper.

Tax on imports is an example of trade barrier. It is called a barrier because some restriction has been set up. Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country.

The Indian government, after Independence, had put barriers to foreign trade and foreign investment. This was considered necessary to protect the producers within the country from foreign competition. 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. Thus, India allowed imports of only essential items such as machinery, fertilisers, petroleum etc. Note that all developed countries, during the early stages of development, have given protection to domestic producers through a variety of means.

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. 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.

Thus, 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.

Removing barriers or restrictions set by the government is what is known as liberalisation. With liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export. The government imposes much less restrictions than before and is therefore said to be more liberal.

Now let's answer the questions in this section.

Question 1: What do you understand by liberalisation of foreign trade?

Liberalisation of foreign trade means removing the barriers or restrictions that the government had placed on foreign trade. This includes removing or reducing taxes on imports, removing quotas (limits on how much can be imported), and allowing foreign companies to invest more easily in the country. The idea is to let businesses import and export with fewer restrictions.

Question 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.

Quotas are another way to restrict imports. For example, the government could say that only 1 million toys can be imported from China in a year. This would limit the supply of Chinese toys in the Indian market, which would keep their prices higher and give Indian toy makers a chance to compete. Whether this should be used or not is a matter of debate. Some argue that it protects domestic industries and jobs. Others argue that it reduces choice for consumers and can lead to inefficiency because domestic companies don't face enough competition to improve.

Now let's talk about the third factor: The World Trade Organisation.

We have seen that the liberalisation of foreign trade and investment in India was supported by some very powerful international organisations. These organisations say that all barriers to foreign trade and investment are harmful. There should be no barriers. Trade between countries should be 'free'. All countries in the world should liberalise their policies.

World Trade Organisation (WTO) is one such organisation whose aim is to liberalise international trade. Started at the initiative of the developed countries, WTO establishes rules regarding international trade, and sees that these rules are obeyed. About 160 countries of the world are currently members of the WTO.

Though WTO is supposed to allow free trade for all, in practice, it is seen that the developed countries have unfairly retained trade barriers. On the other hand, WTO rules have forced the developing countries to remove trade barriers. An example of this is the current debate on trade in agricultural products.

Now let me explain the debate on trade practices.

You have seen in Chapter 2, that the agriculture sector provides the bulk of employment and a significant portion of the GDP in India. Compare this to a developed country such as the US with the share of agriculture in GDP at 1% and its share in total employment a tiny 0.5%! And yet this very small percentage of people who are engaged in agriculture in the US receive massive sums of money from the US government for production and for exports to other countries. Due to this massive money that they receive, US farmers can sell the farm products at abnormally low prices. The surplus farm products are sold in other country markets at low prices, adversely affecting farmers in these countries.

Developing countries are, therefore, asking the developed country governments, "We have reduced trade barriers as per WTO rules. But you have ignored the rules of WTO and have continued to pay your farmers vast sums of money. You have asked our governments to stop supporting our farmers, but you are doing so yourselves. Is this free and fair trade?"

This is a very important point, students. The issue is that while developing countries like India were asked to remove their trade barriers and subsidies under WTO rules, developed countries like the US continue to give huge subsidies to their farmers. This makes it difficult for farmers in developing countries to compete, because American farmers can sell their products at very low prices due to the subsidies they receive. This is seen as unfair by developing countries.

Now let's answer the questions in this section.

Question 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 fair or free. Developing countries like India have removed trade barriers, whereas developed countries, in many cases, have continued to provide protection to their producers.

Question 2: What do you think can be done so that trade between countries is more fair?

There are several things that can be done. First, developed countries should also remove their subsidies, especially in agriculture. Second, developing countries should have more voice in making WTO rules. Third, there should be more transparency in trade negotiations. Fourth, special provisions should be made for the poorest countries to protect their industries during the transition period. Fifth, developed countries should transfer technology to developing countries to help them become more competitive.

Question 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.

This is a complex question. On one hand, government support for environmentally friendly products can be justified because these products benefit society as a whole, even if they cost more to produce. On the other hand, when governments give support to their producers, it can make it difficult for producers in other countries to compete. The key is to find a balance. Perhaps the solution is to have international agreements on what kind of support is acceptable, so that no country has an unfair advantage.

Now let's move on to the impact of globalisation in India.

In the last twenty years, globalisation of the Indian economy has come a long way. What has been its effect on the lives of people? Let us look at some of the evidence.

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. As a result, these people today, enjoy much higher standards of living than was possible earlier.

Among producers and workers, the impact of globalisation has not been uniform.

Firstly, MNCs have increased their investments in India over the past 20 years, which means investing in India has been beneficial for them. MNCs have been interested in industries such as cell phones, automobiles, electronics, soft drinks, fast food or services such as banking in urban areas. These products have a large number of well-off buyers. In these industries and services, new jobs have been created. Also, local companies supplying raw materials, etc. to these industries have prospered.

Secondly, several of the top Indian companies have been able to benefit from the 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.

Moreover, 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) are some Indian companies which are spreading their operations worldwide.

Globalisation has also created new opportunities for companies providing services, particularly those involving IT. The Indian company producing a magazine for the London based company and call centres are some examples. Besides, a host of services such as data entry, accounting, administrative tasks, engineering are now being done cheaply in countries such as India and are exported to the developed countries.

Now let's look at the steps the government has taken to attract foreign investment.

In recent years, the central and state governments in India are taking special steps to attract foreign companies to invest in India. Industrial zones, called Special Economic Zones (SEZs), are being set up. SEZs are to have world class facilities: electricity, water, roads, transport, storage, recreational and educational facilities. Companies who set up production units in the SEZs 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. You have seen in Chapter 2 that the companies in the organised sector have to obey certain rules that aim to protect the workers' rights. In the recent years, the government has allowed companies to ignore many of these. Instead of hiring workers on a regular basis, companies hire workers 'flexibly' for short periods when there is intense pressure of work. This is done to reduce the cost of labour for the company. However, still not satisfied, foreign companies are demanding more flexibility in labour laws.

Now let's answer the questions in this section.

Question 1: How has competition benefited people in India?

Competition has benefited people in several ways. First, consumers have more choices in the market. Second, the quality of products has improved because companies have to compete with each other. Third, prices have generally come down for many products. Fourth, new products and technologies have become available. Fifth, some new jobs have been created in industries where MNCs have invested.

Question 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. This would benefit the country in several ways. First, Indian companies would earn foreign currency by selling their products abroad. Second, they would create jobs in India. Third, they would bring new technology and expertise back to India. Fourth, they would enhance India's reputation in the world. Examples like Tata Motors, Infosys, and Ranbaxy show that Indian companies can become successful MNCs.

Question 3: Why do governments try to attract more foreign investment?

Governments try to attract foreign investment for several reasons. First, foreign investment brings money into the country, which can be used for development. Second, it creates jobs. Third, it brings new technology and skills. Fourth, it can help industries become more competitive. Fifth, it can boost economic growth.

Question 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.

The setting of SEZs has been opposed by several groups. Farmers whose land is acquired for SEZs oppose it because they lose their livelihoods. Environmentalists oppose it because SEZs can lead to environmental damage. Some social activists argue that SEZs benefit big companies and foreign investors more than ordinary people. They also point out that the tax holidays given to companies in SEZs mean less revenue for the government, which could have been used for public services like education and healthcare.

Now let's look at the challenges faced by small producers.

For a large number of small producers and workers globalisation has posed major challenges.

Rising Competition: Ravi did not expect that he would have to face a crisis in such a short period of his life as industrialist. Ravi took a loan from the bank to start his own company producing capacitors in 1992 in Hosur, an industrial town in Tamil Nadu. Capacitors are used in many electronic home appliances including tube lights, television etc. Within three years, he was able to expand production and had 20 workers working under him.

His struggle to run his company started when the government removed restrictions on imports of capacitors as per its agreement at WTO in 2001. His main clients, the television companies, used to buy different components including capacitors in bulk for the manufacture of television sets. However, competition from the MNC brands forced the Indian television companies to move into assembling activities for MNCs. Even when some of them bought capacitors, they would prefer to import as the price of the imported item was half the price charged by people like Ravi.

Ravi now produces less than half the capacitors that he produced in the year 2000 and has only seven workers working for him. Many of Ravi's friends in the same business in Hyderabad and Chennai have closed their units.

Batteries, capacitors, plastics, toys, tyres, dairy products, and vegetable oil are some examples of industries where the small manufacturers have been hit hard due to competition. Several of the units have shut down rendering many workers jobless. The small and medium industries in India employ the largest number of workers (11 crores) in the country, next only to agriculture.

This is a very important section, students. It shows that globalisation has not benefited everyone. While some people have benefited, many small producers like Ravi have been hurt by competition from imported goods and MNCs.

Now let's answer the questions in this section.

Question 1: What are the ways in which Ravi's small production unit was affected by rising competition?

Ravi's unit was affected in several ways. First, his main clients (television companies) started importing capacitors because they were cheaper. Second, his sales dropped to less than half of what they used to be. Third, he had to reduce his workforce from 20 workers to just 7 workers. Fourth, many of his friends in the same business had to close down their units completely.

Question 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?

This is a difficult question. On one hand, if producers like Ravi cannot compete, they might have to close down, which leads to job losses. On the other hand, they need to become more efficient to survive. The government can help by providing better infrastructure, credit at lower interest rates, and technology upgrades. It might also be necessary to have some protection for small producers during the transition period, while they become more competitive.

Question 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) Better infrastructure like roads, power, and water would help producers reduce their costs and improve efficiency. Better marketing and information networks would help them find buyers, both in India and abroad.

(b) Modernisation of technology would help producers increase their productivity and produce better quality goods at lower costs.

(c) Timely availability of credit at reasonable interest rates would help producers invest in new machines, expand their businesses, and manage their cash flow better.

Do you think MNCs will be interested in investing in these? Why?

MNCs might be interested in some of these, particularly in setting up their own infrastructure in specific areas. However, they are more likely to invest in areas where they can make quick profits, not necessarily in infrastructure that benefits small producers. MNCs might not be interested in helping small producers become more competitive because they see them as competitors.

Do you think the government has a role in making these facilities available? Why?

Yes, the government definitely has a role to play. The government should invest in infrastructure like roads, power, and water supply. The government can also provide credit at lower interest rates through banks and financial institutions. The government can help small producers get access to new technology and markets. This is important because small producers employ a large number of people and are crucial for the economy.

Can you think of any other step that the government could take? Discuss.

Some other steps the government could take include: providing training and skill development for workers, creating marketing cooperatives so that small producers can sell together, giving tax benefits to small producers, setting up technology centres where small producers can get help with modernising their production, and negotiating for fairer trade rules at the WTO.

Now let's look at the impact on workers.

Globalisation and the pressure of competition have substantially changed the lives of workers. Faced with growing competition, most employers these days prefer to employ workers 'flexibly'. This means that workers' jobs are no longer secure.

Let us see how the workers in the garment export industry in India are having to bear this pressure of competition.

Factory workers folding garments for export. Though globalisation has created opportunities for paid work for women, the condition of employment shows that women are denied their fair share of benefits.

Large MNCs in the garment industry in Europe and America order their products from Indian exporters. These large MNCs with worldwide network look for the cheapest goods in order to maximise their profits. To get these large orders, Indian garment exporters try hard to cut their own costs. As cost of raw materials cannot be reduced, exporters try to cut labour costs. Where earlier a factory used to employ workers on a permanent basis, now they employ workers only on a temporary basis so that they do not have to pay workers for the whole year. Workers also have to put in very long working hours and work night shifts on a regular basis during the peak season. Wages are low and workers are forced to work overtime to make both ends meet.

While this competition among the garment exporters has allowed the MNCs to make large profits, workers are denied their fair share of benefits brought about by globalisation.

Now let me tell you about a real garment worker.

A Garment Worker: 35 year old Sushila has spent many years as a worker in garment export industry of Delhi. She was employed as a 'permanent worker' entitled to health insurance, provident fund, overtime at a double rate, when Sushila's factory closed in the late 1990s. After searching for a job for six months, she finally got a job 30 km away from where she lives. Even after working in this factory for several years, she is a temporary worker and earns less than half of what she was earning earlier. Sushila leaves her house every morning, seven days a week at 7:30 a.m. and returns at 10 p.m. A day off from work means no wage. She has none of the benefits she used to get earlier. Factories closer to her home have widely fluctuating orders and therefore pay even less.

The conditions of work and the hardships of the workers described above have become common to many industrial units and services in India. Most workers, today, are employed in the unorganised sector. Moreover, increasingly conditions of work in the organised sector have come to resemble the unorganised sector. Workers in the organised sector such as Sushila no longer get the protection and benefits that they enjoyed earlier.

This is a very sad story, students, but it is important to understand that this is the reality for many workers in India. Globalisation has created some jobs, but the quality of these jobs is often poor. Workers are denied fair wages and benefits.

Now let's answer the questions in this section.

Question 1: In what ways has competition affected workers, Indian exporters and foreign MNCs in the garment industry?

Competition has affected different parties differently. Workers have been affected negatively - they now have less job security, lower wages, and have to work longer hours. Indian exporters have to compete fiercely to get orders from MNCs, which forces them to cut costs, often by reducing labour costs. Foreign MNCs benefit the most - they get cheap products from India and make large profits.

Question 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: The government can enforce labour laws properly, ensure that workers get minimum wages and benefits, create more jobs, and provide social security for workers.

(b) employers at the exporting factories: Employers should treat workers fairly, provide decent wages and working conditions, and not exploit workers to maximise profits.

(c) MNCs: MNCs should ensure that their suppliers follow fair labour practices, should not squeeze Indian exporters so much that they have to exploit workers, and should share some of their profits with workers.

(d) workers: Workers can form unions to negotiate for better wages and conditions, can demand their legal rights, and can try to develop new skills to get better jobs.

Question 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 argue that flexibility in labour laws is necessary to remain competitive. They say that they should be able to hire and fire workers as needed, without many restrictions. This helps them reduce costs and respond quickly to changes in demand.

Workers, on the other hand, argue that flexibility makes jobs insecure. Workers want permanent jobs with benefits like health insurance, provident fund, and paid leave. They are concerned that flexibility leads to exploitation and poor working conditions.

Now let's look at the struggle for a fair globalisation. The above evidence indicates that labour laws are not properly implemented and the workers are denied their fair share of benefits. It can support small producers to improve their performance till the time they become strong enough to compete.

The government can play a major role in making this possible. Its policies must protect the interests, not only of the rich and the powerful, but all the people in the country. You have read about some of the possible steps that the government can take. Apart from the government, people also can play an important role in the struggle for fair globalisation.

Since globalisation is now a reality, the question is how to make globalisation more 'fair'? Fair globalisation would create opportunities for all, and also ensure that the benefits of globalisation are shared better.

In the past few years, massive campaigns and representation by people's organisations have influenced important decisions relating to trade and investments at the WTO. This has demonstrated that people also can play an important role in the struggle for fair globalisation.

Now let's move on to the exercises at the end of the chapter. Let me answer each question one by one.

Exercise 1: What do you understand by globalisation? Explain in your own words.

Globalisation is the process of rapid integration or interconnection between countries. This happens through greater foreign trade and foreign investment. MNCs play a major role in this process by setting up production in different countries, investing money across borders, and trading goods and services globally. As a result of globalisation, countries have become more connected than ever before, and production has become organised across multiple countries.

Exercise 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?

After independence, India put barriers to foreign trade and investment to protect domestic industries. At that time, Indian industries were just starting and could not compete with well-established foreign companies. If foreign goods were allowed to compete freely, Indian industries might have failed. So the government protected them by putting taxes on imports (tariffs) and limiting foreign investment.

Later, around 1991, the government decided to remove these barriers because it believed that competition from foreign companies would force Indian companies to improve their quality and efficiency. The government also faced pressure from international organisations like the World Bank and IMF to liberalise the economy.

Exercise 3: How would flexibility in labour laws help companies?

Flexibility in labour laws would help companies in several ways. It would allow companies to hire workers for short periods when there is more work, and let them go when work is less. This would reduce the cost for companies because they would not have to pay workers for the whole year. Companies could also avoid providing benefits like health insurance and provident fund to temporary workers. This would make labour cheaper for the company and help them compete with companies in other countries where labour costs are lower.

Exercise 4: What are the various ways in which MNCs set up, control or produce in other countries?

MNCs set up, control or produce in other countries in several ways. First, they can set up their own factories and offices in a foreign country. Second, they can buy existing local companies. Third, they can form joint ventures or partnerships with local companies. Fourth, they can place orders with small producers and buy their products to sell under their own brand name. Fifth, they can invest in local companies and have some control over their operations.

Exercise 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?

Developed countries want developing countries to liberalise their trade and investment because this gives their companies access to new markets. They can sell more goods and services in developing countries and also set up production facilities there to take advantage of lower costs. This helps their companies make more profits.

In return, developing countries should demand that developed countries also remove their trade barriers, especially on agricultural products. They should demand an end to subsidies that allow developed country farmers to sell at unfairly low prices. They should also demand technology transfer and financial help to develop their industries. Developing countries should also demand a greater voice in making the rules at international organisations like the WTO.

Exercise 6: "The impact of globalisation has not been uniform." Explain this statement.

This statement means that globalisation has not affected everyone in the same way. Some people have benefited a lot, while others have been harmed. Well-off consumers have benefited because they have more choices and lower prices. Some Indian companies have become stronger and even become MNCs themselves. However, small producers like Ravi have suffered because they cannot compete with cheap imports. Workers often face insecurity and lower wages. So the benefits and harms of globalisation are distributed unequally among different groups of people.

Exercise 7: How has liberalisation of trade and investment policies helped the globalisation process?

Liberalisation has helped globalisation by removing barriers to trade and investment. When governments removed restrictions, it became easier for foreign companies to invest in India and for Indian companies to trade with other countries. This increased the flow of goods, services, and investments between countries, leading to greater integration. Liberalisation also encouraged competition, which pushed companies to become more efficient and global in their outlook.

Exercise 8: How does foreign trade lead to integration of markets across countries? Explain with an example other than those given here.

Foreign trade leads to integration of markets because when countries trade with each other, their markets become connected. Prices in one country are affected by what happens in another country's market. Producers in different countries compete with each other even though they are far apart.

Let me give an example. Suppose Brazil starts exporting sugar to India at a lower price than Indian sugar. Then Indian sugar companies will have to lower their prices or lose customers. At the same time, Indian consumers will benefit from cheaper sugar. This shows how the sugar markets in Brazil and India have become integrated through trade.

Exercise 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.

Globalisation will likely continue because technology is improving and trade barriers are being reduced further. Twenty years from now, we might see even more integration between countries. Companies might produce goods by spreading the production process across many different countries, taking advantage of the best resources each country offers. We might see more Indian companies becoming MNCs and more foreign companies investing in India. However, there might also be some pushback against globalisation as people demand fairer distribution of its benefits.

Exercise 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?

Both arguments have some truth to them. Globalisation has helped India in some ways - we have more choices of products, some Indian companies have become successful MNCs, and new jobs have been created in some sectors. However, globalisation has also hurt some people - small producers have closed down, workers face insecurity, and inequality has increased.

The best approach would be to try to make globalisation more fair. This means ensuring that the benefits of globalisation are shared more equally, that small producers get help to compete, and that workers get fair wages and protection. The government should play an active role in this, and people should demand fair policies.

Exercise 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 integration 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 they find it profitable to do so - they can access the large Indian market and benefit from lower costs of production. While consumers have more choices in the market, the effect of rising competition and imports has meant greater competition among the producers.

Exercise 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

Exercise 13: Choose the most appropriate option.

(i) The past two decades of globalisation has seen rapid movements in (b) goods, services and investments between countries.

(ii) The most common route for investments by MNCs in countries around the world is to (b) buy existing local companies.

(iii) Globalisation has led to improvement in living conditions (b) of people in the developed countries.

Now let's look at the additional activities.

Additional Activity I: Take some branded products that we use everyday (soaps, toothpaste, garments, electronic goods, etc.). Check which of these are produced by MNCs.

This is an activity for you to do at home. Look around your house and identify branded products. Some examples of products made by MNCs include: Colgate toothpaste (made by Colgate-Palmolive, an American company), Dove soap (made by Unilever, a British-Dutch company), Nike shoes (made by Nike, an American company), Samsung electronics (made by a South Korean company), Apple iPhones (made by an American company), Pepsi and Coca-Cola (soft drinks made by American companies), and many more. Try to identify as many as you can and note which MNC produces them.

Additional Activity II: Take any Indian industry or service of your choice. Collect information and photographs from newspapers, magazine clippings, books, television, internet, interviews with people on the following aspects of the industry.

(i) Various producers/companies in the industry: Identify the major companies operating in that industry in India.

(ii) Is the product exported to other countries? Check if Indian companies export their products.

(iii) Are there MNCs among the producers? See if any foreign companies are operating in that industry in India.

(iv) Competition in the industry: How intense is the competition? Who are the main competitors?

(v) Conditions of work in the industry: What are the working conditions like for workers in that industry?

(vi) Has there been any major change in the industry in the past 15 years? Has globalisation affected this industry?

(vii) Problems that people in the industry face: What challenges do workers and producers in this industry face?

You can choose an industry like the mobile phone industry, the automobile industry, the textile industry, or the IT industry, and research these aspects.

Now let me give you a complete summary of everything we have learned in this chapter.

In this chapter, we studied Globalisation and the Indian Economy. Let me summarise the key points:

First, we learned what Globalisation is. Globalisation is the process of rapid integration or interconnection between countries through greater foreign trade and foreign investment. MNCs play a major role in this process.

Second, we learned about MNCs and how they operate. MNCs are companies that own or control production in more than one country. They set up production in different countries to take advantage of lower costs - cheaper labour, cheaper raw materials, and sometimes tax benefits. They do this through various ways: setting up their own factories, buying local companies, forming partnerships, or placing orders with small producers.

Third, we learned about foreign trade and how it leads to integration of markets. When countries trade with each other, their markets become connected. Prices tend to become equal, and producers in different countries compete with each other even though they are far apart.

Fourth, we learned about the factors that have enabled globalisation. These include rapid improvements in technology (especially in transportation and information technology), liberalisation of trade and investment policies (removing barriers like taxes and quotas), and pressure from international organisations like the WTO.

Fifth, we learned about the impact of globalisation in India. Globalisation has benefited some people but not others. Consumers, especially the well-off, have more choices and lower prices. Some Indian companies have become successful MNCs. However, many small producers have suffered due to competition, and workers often face insecurity and lower wages.

Sixth, we learned about the debate on fair globalisation. Many people argue that globalisation should be made fairer so that everyone can benefit from it. This includes ensuring that small producers get help to compete, workers get fair wages and protection, and developing countries get a fairer deal in international trade.

Students, this is a very important chapter that relates to your daily lives. You see the effects of globalisation every day - in the products you buy, the jobs that are available, and the competition in the market. It is important to understand both the benefits and the challenges of globalisation so that you can form your own opinions about how our country should respond to this global phenomenon.

Thank you for your attention. I hope you have understood this chapter well. If you have any questions, please feel free to ask. See you in the next class!