| Non-Rationalised Economics NCERT Notes, Solutions and Extra Q & A (Class 9th to 12th) | |||||||||||||||||||
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| 9th | 10th | 11th | 12th | ||||||||||||||||
| Class 10th Chapters | ||
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| 1. Development | 2. Sectors Of The Indian Economy | 3. Money And Credit |
| 4. Globalisation And The Indian Economy | 5. Consumer Right | |
Chapter 4 Globalisation And The Indian Economy
Production Across Countries
Introduction: The Transformation of Markets
As consumers today, we have a wide choice of goods and services, from the latest digital cameras and mobile phones to new models of automobiles from top companies around the world. This wide-ranging choice is a relatively recent phenomenon. Just two decades ago, Indian markets had a much more limited variety of goods. Our markets have been transformed in a matter of years. This chapter explores the factors bringing about these rapid transformations and how they are affecting people's lives.
The Emergence of Multinational Corporations (MNCs)
Until the middle of the twentieth century, production was largely organized within countries. Trade in raw materials, foodstuffs, and finished products was the main channel connecting distant countries. This changed with the emergence of large companies called multinational corporations (MNCs).
A MNC is a company that owns or controls production in more than one nation. MNCs set up offices and factories in regions where they can get cheap labour and other resources. This is done to keep the cost of production low and earn greater profits.
Example 1. A large MNC producing industrial equipment designs its products in research centres in the United States. The components are then manufactured in China, shipped to Mexico and Eastern Europe for assembly, and the finished products are sold all over the world. Meanwhile, the company's customer care is carried out through call centres located in India.
In this example, the MNC is not only selling its products globally, but the goods and services are also being produced globally. The production process is divided into small parts and spread out across the globe to take advantage of specific benefits in each location:
- China: Provides the advantage of being a cheap manufacturing location.
- Mexico and Eastern Europe: Useful for their closeness to the markets in the US and Europe.
- India: Has highly skilled engineers and educated, English-speaking youth who can provide technical support and customer care services.
This global organization of production can result in immense cost savings (50-60%) for the MNC.
Interlinking Production Across Countries
MNCs use a variety of ways to spread their production and interact with local producers in countries across the globe. This process of interlinking production has become a defining feature of the modern global economy.
How MNCs Set Up and Control Production
MNCs set up production where it is close to markets, where skilled and unskilled labour is available at low costs, where other factors of production are assured, and where government policies are favorable. The money spent to buy assets like land, buildings, and machines is called investment. Investment made by MNCs is called foreign investment.
MNCs interlink production in several ways:
- Joint Production with Local Companies: MNCs often set up production jointly with local companies. This benefits the local company through access to additional investment for new machinery and the latest technology for production.
- Buying Up Local Companies: The most common route for MNC investment is to buy up local companies and then expand production. MNCs with huge wealth can easily do this. For instance, Cargill Foods, a large American MNC, bought over smaller Indian companies like Parakh Foods, gaining control of its large marketing network and oil refineries.
- Placing Orders with Small Producers: Large MNCs in developed countries place orders for production with a large number of small producers around the world, particularly in industries like garments, footwear, and sports items. The products are supplied to the MNCs, which then sell them under their own brand names. In this arrangement, the MNCs have tremendous power to determine price, quality, delivery, and labour conditions.
Through these methods, MNCs exert a strong influence on production at distant locations, leading to the interlinking of production across widely dispersed locations.
Foreign Trade and Integration of Markets
For a long time, foreign trade has been the main channel connecting countries. It was the trading interests of companies like the East India Company that first brought them to India.
The Basic Function of Foreign Trade
Foreign trade creates an opportunity for producers to reach beyond their domestic markets. They can sell their products not only within their own country but also compete in markets located in other countries. For buyers, the import of goods expands the choice of products beyond what is domestically produced.
Example 1: Chinese Toys in India. Chinese manufacturers saw an opportunity to export toys to India, where they were sold at a high price. They began exporting plastic toys to India. Due to cheaper prices and new designs, Chinese toys became more popular than Indian toys. Within a year, 70-80% of toy shops had replaced Indian toys with Chinese ones. Indian buyers had a greater choice of toys at lower prices, while Chinese toy makers could expand their business. Indian toy makers, however, faced losses.
How Foreign Trade Integrates Markets
In general, with the opening of trade, goods travel from one market to another. This leads to:
- Increased choice of goods in the markets.
- Price equalization, as prices of similar goods in different markets tend to become equal.
- Competition between producers in different countries, even though they are separated by thousands of miles.
Foreign trade thus results in connecting the markets or integration of markets in different countries.
What is Globalisation?
Definition and Key Drivers
In the past few decades, there has been a rapid increase in foreign investment by MNCs and foreign trade between countries. A large part of this foreign trade is controlled by MNCs. The result of greater foreign investment and greater foreign trade has been a 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, services, investments, and technology are moving between countries. Besides these movements, there is also the movement of people between countries in search of better income, jobs, or education.
Factors that Have Enabled Globalisation
1. Technology
Rapid improvement in technology has been a major factor stimulating the globalisation process.
- Transportation Technology: Improvements in transportation have made faster delivery of goods across long distances possible at lower costs. The use of containers for transport has led to a huge reduction in port handling costs.
- Information and Communication Technology (IT): Developments in telecommunications, computers, and the Internet have been even more remarkable. Facilities like the telephone, fax, and the Internet allow us to access information instantly and communicate from remote areas. IT has played a major role in spreading out the production of services across countries, as seen in the examples of e-banking, magazine designing, and call centres.
2. Liberalisation of Foreign Trade and Foreign Investment Policy
Governments can use trade barriers, such as taxes on imports (tariffs) or limits on the quantity of imports (quotas), to regulate foreign trade. After independence, the Indian government had put up barriers to foreign trade and investment to protect domestic producers from foreign competition.
Starting around 1991, India made far-reaching changes in its policy. The government decided that the time had come for Indian producers to compete with producers around the globe. Barriers on foreign trade and foreign investment were removed to a large extent. Removing these barriers or restrictions set by the government is what is known as liberalisation. With liberalisation, businesses are allowed to make decisions freely about what they wish to import or export.
3. World Trade Organisation (WTO)
The liberalisation of foreign trade and investment has been supported by powerful international organizations. The World Trade Organisation (WTO) is one such organization whose aim is to liberalise international trade. Started at the initiative of developed countries, the WTO establishes rules regarding international trade and sees that they are obeyed.
While the WTO is supposed to allow free trade for all, in practice, it is seen that developed countries have often unfairly retained trade barriers, while WTO rules have forced developing countries to remove theirs.
Impact of Globalisation in India and the Struggle for Fair Globalisation
Impact of Globalisation in India
In the last twenty years, globalisation has had a wide-ranging impact on the lives of people in India. This impact has not been uniform.
Positive Impacts
- Benefit to Consumers: Consumers, particularly the well-off sections in urban areas, have benefited from greater choice, improved quality, and lower prices for several products.
- Growth of MNCs in India: MNCs have increased their investments in industries like cell phones, automobiles, electronics, and services like banking, creating new jobs and benefiting local companies that supply raw materials to them.
- Emergence of Indian MNCs: Several top Indian companies (e.g., Tata Motors, Infosys, Ranbaxy) have benefited from increased competition, invested in new technology, and have emerged as multinationals themselves.
- New Opportunities in Services: Globalisation has created new opportunities for companies providing services, especially those involving IT, such as call centres, data entry, and engineering services, which are now being exported to developed countries.
Negative Impacts
- Challenges for Small Producers: For a large number of small producers and workers, globalisation has posed major challenges. Small manufacturers in industries like batteries, capacitors, plastics, toys, and vegetable oil have been hit hard by competition from cheaper imports. Many have shut down, rendering workers jobless.
- Uncertain Employment: Faced with growing competition, most employers now prefer to employ workers 'flexibly'. This means jobs are no longer secure. Workers are often employed on a temporary basis, especially in industries like the garment export industry, to cut labour costs. They are denied a fair share of the benefits, have to work long hours for low wages, and do not receive the protection and benefits (like provident fund, health insurance) they enjoyed earlier.
The Struggle for a Fair Globalisation
The evidence indicates that not everyone has benefited from globalisation. People with education, skills, and wealth have made the best use of the new opportunities, while many others have been left behind. Since globalisation is now a reality, the question is how to make it more 'fair'.
Fair globalisation would create opportunities for all and ensure that its benefits are shared better.
The government can play a major role in making this possible:
- Its policies must protect the interests of all people, not just the rich and powerful.
- It can ensure that labour laws are properly implemented and workers get their rights.
- It can support small producers to improve their performance until they are strong enough to compete.
- If necessary, it can use trade and investment barriers.
- It can negotiate at the WTO for 'fairer rules' and align with other developing countries to fight against the domination of developed countries.
In recent years, massive campaigns by people's organizations have influenced important decisions relating to trade and investment at the WTO, demonstrating that people can play an important role in the struggle for fair globalisation.
NCERT Questions Solution
Intext Questions (Pages No. 57)
Question 1. 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, ........
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Intext Questions (Pages No. 59)
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. The company wants to develop Ford India as a component supplying base for its other plants across the globe.
Read the passage above and answer the questions.
Question 1. Would you say Ford Motors is a MNC? Why?
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Question 2. What is foreign investment? How much did Ford Motors invest in India?
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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.
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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
(b) the presence of several local manufacturers who supply autoparts to Ford Motors
(c) closeness to a large number of buyers in India and China
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Question 5. In what ways will the production of cars by Ford Motors in India lead to interlinking of production?
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Question 6. In what ways is a MNC different from other companies?
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Question 7. Nearly all major multinationals are American, Japanese or European, such as Nike, Coca-Cola, Pepsi, Honda, Nokia. Can you guess why?
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Intext Questions (Pages No. 61)
Question 1. What was the main channel connecting countries in the past? How is it different now?
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Question 2. Distinguish between foreign trade and foreign investment.
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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.
(b) steel companies in India.
(c) industries buying steel for production of other industrial goods in China.
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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.
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Intext Questions (Pages No. 62)
Question 1. What is the role of MNCs in the globalisation process?
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Question 2. What are the various ways in which countries can be linked?
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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.
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Intext Questions (Pages No. 63)
Question 1. In the above example, underline the words describing the use of technology in production.
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Question 2. How is information technology connected with globalisation? Would globalisation have been possible without expansion of IT?
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Intext Questions (Pages No. 64)
Question 1. What do you understand by liberalisation of foreign trade?
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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.
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Intext Questions (Pages No. 66)
Question 1. Fill in the blanks.
WTO was started at the initiative of __________countries. The aim of the WTO is to ____________________. WTO establishes rules regarding ________________ for all countries, and sees that ___________________. In practice, trade between countries is not ______________________________. Developing countries like India have ___________________, whereas developed countries, in many cases, have continued to provide protection to their producers.
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Question 2. What do you think can be done so that trade between countries is more fair?
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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.
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Intext Questions (Pages No. 67)
Question 1. How has competition benefited people in India?
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Question 2. Should more Indian companies emerge as MNCs? How would it benefit the people in the country?
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Question 3. Why do governments try to attract more foreign investment?
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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.
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Intext Questions (Pages No. 68)
Question 1. What are the ways in which Ravi’s small production unit was affected by rising competition?
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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?
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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?
Do you think MNCs will be interested in investing in these? Why?
Do you think the government has a role in making these facilities available? Why?
Can you think of any other step that the government could take? Discuss.
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Intext Questions (Pages No. 70)
Question 1. In what ways has competition affected workers, Indian exporters and foreign MNCs in the garment industry?
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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
(b) employers at the exporting factories
(c) MNCs
(d) workers.
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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.
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Exercises
Question 1. What do you understand by globalisation? Explain in your own words.
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Question 2. What was the reasons for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers?
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Question 3. How would flexibility in labour laws help companies?
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Question 4. What are the various ways in which MNCs set up, or control, production in other countries?
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Question 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?
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Question 6. “The impact of globalisation has not been uniform.” Explain this statement.
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Question 7. How has liberalisation of trade and investment policies helped the globalisation process?
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Question 8. How does foreign trade lead to integration of markets across countries? Explain with an example other than those given here.
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Question 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.
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Question 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?
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Question 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 ______________. Markets in India are selling goods produced in many other countries. This means there is increasing ______________ 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 __________________________________________ . While consumers have more choices in the market, the effect of rising _______________ and ______________has meant greater _________________among the producers.
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Question 12. Match the following.
| (i) MNCs buy at cheap rates from small producers | (a) Automobiles |
| (ii) Quotas and taxes on imports are used to regulate trade | (b) Garments, footwear, sports items |
| (iii) Indian companies who have invested abroad | (c) Call centres |
| (iv) IT has helped in spreading of production of services | (d) Tata Motors, Infosys, Ranbaxy |
| (v) Several MNCs have invested in setting up factories in India for production | (e) Trade barriers |
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Question 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.
(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.
(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
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