Chapter-4

Globalisation and the Indian Economy

Question/Answers

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

Ans. Globalisation refers to the process of integration of economies of the world under
conditions of free flow of trade, capital and movement of persons across borders. In this
process, goods and services are produced and marketed throughout the world. Under this,
the companies set up their production units or branches in more than one country for its
operations. It includes:

(a) Increase in foreign trade.

(b) Import and export of techniques of production.
(c) Flow of capital from one country to another.
(d) Migration of people from one country to another.

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?

Ans. The Indian government put barriers to foreign trade and foreign investment to protect
the domestic producers from foreign competition, especially when industries had just
begun to come up in 1950s and 1960s. At this time, competition from imports would have
been a death blow to growing industries. Hence, India allowed imports of only essential
goods.

In 1991, the government wished to remove these barriers because it felt that domestic
producers were ready to compete with foreign industries. It felt that foreign competition
would improve the quality of goods produced by Indian industries. This decision was also
supported by powerful international organisations. This marked the beginning of the New
Economic Policy in India.

3. Why do developed countries want developing countries to liberalise their trade and
investment? What do you think should the developing countries demand in return?

Ans. Developed countries with the help of latest technology have surplus production and
for this, they require market to sell their products. Developing countries provide favourable
conditions for the developed countries either in the form of market or centres of
production. Therefore, developed countries want developing countries to liberalise their
trade and investment so that the MNCs can set up factories in less expensive developing
nations, and thereby increase their profits, at lower manufacturing costs. The developing
nations should demand for fair trade practices to be followed by the developed nations
under which they should stop giving subsidies to their agricultural sector. Unfair trade
barriers should be removed.

4. “The impact of globalisation has not been uniform.” Explain this statement.

As. Since its introduction, globalisation of Indian economy has come a long way. Now,
there is greater choice before consumers available at lower prices for several products.
People are enjoying much higher standards of living than in earlier times. Local companies
supplying raw material etc. to MNCs have prospered. Production standards have been
raised.

But the other side of the picture is not very bright. Flexibility in labour laws has worsened
the conditions of workers because they are appointed on non-regular basis to avoid
facilities such as provident fund, gratuity etc. Job opportunities have increased only for
skilled and educated people. Only a few companies have successfully made
collaborations with foreign companies or emerged as multinationals. There are a number
of industries such as toys, tyres, batteries, plastics etc. where the small manufacturers
have been hit hard due to stiff foreign competition.

Thus, we can say that the impact of globalisation has not been uniform.

5. How has liberalisation of trade and investment policies helped the globalisation
process?

Ans. Liberalisation of trade and investment policies have made foreign trade and
investment easier. Earlier, several developing countries had placed barriers and
restrictions on imports and investments from abroad to protect domestic production.
However, to improve the quality of domestic goods, these countries have removed the
barriers. Thus, liberalisation has led to a further spread of globalisation, because now
business houses are allowed to make their own decisions on imports and exports. This has
led to a deeper integration of national economies into one conglomerate whole.

6. How does foreign trade lead to integration of markets across countries? Explain with an
example other than those given here.
Ans. Foreign trade provides opportunities for both producers and buyers to reach beyond
the markets of their own countries. Goods travel from one country to another. Competition
among producers of various countries as well as buyers prevails. Thus, foreign trade leads
to integration of markets across countries.

For example, during Diwali season, buyers in India have the option of choosing between
Indian and Chinese decorative lights and bulbs. So, this provides an opportunity to expand
business.

7. Globalisation will continue in the future. Can you imagine what the world would be like
twenty years from now? Give reason for your answer.

Ans. After twenty years, there are possibilities that there would be positive changes in the
process of globalization. There would be healthy competition, improved productive
efficiency, increased output, fair distribution of income, more employment opportunities,
better living standards, more access to information and modern technology. The following
are the reasons in its support.

(a) Increase in the number of countries supporting the demand for fair rules in
international trade keeping in mind the needs and situation of the developing
countries.
(b) Increased availability of qualitative and quantitative human resources due to
greater access to education.
(c) Increased resource and industrial base in major countries due to
establishment of production units.
(d) Growth of young entrepreneurship.

8. 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?

Ans. My view is that globalisation has helped India to develop. For this, the reasons are:

(a) MNCs are making investments in India in different sectors such as insurance,
banking and food processing units.
(b) People have wider choices to make.
(c) Standard of living of people has increased.
(d) Increase in the volume of trade in goods and services.
(e) Inflow of private foreign capital and export orientation of the economy.
 (f) More availability of investible funds in the form of FDI.
(g) Helps in development and strengthening of domestic economy of India.
(h) Improved productive efficiency and healthy competition.
(i) Increase in volume of output, income and employment.

9. What would happen if the government of India puts heavy tax on import of Chinese toys?
Explain any three points.

Ans. (a) If the government of India puts heavy tax on import of Chinese toys, their price will
go up. They will become relatively expensive.

(b) As a result, they will lose their market in India, i.e., their demand will fall in India.

(c) Indian toys will become relatively cheaper. So their demand will increase. Hence, more
profit will be earned by the Indian toy makers.

10. On account of globalisation, what are the three ways by which countries can be
connected?

Ans. On account of globalisation, the countries can be connected through:

(a) Movement of people between the countries in search of better education, better
jobs, better incomes etc.
(b) Movement of goods and services between the countries by way of exports or
imports.
(c) movement of investment and technology between the countries.

11. Explain any three advantages of globalisation.

Ans. The three advantages of globalisation are:

(a) Rapid improvement in technology, especially, the development in the field of

information and communication technology is an outcome of globalisation.
Liberalisation of foreign trade and foreign investment policy by removing barriers on
foreign trade and foreign investment, so as to facilitate easy import and export of
goods, has also been due to globalisation.
(b) Globalisation and the close competition among the producers-both local and
foreign producers- has been of advantage to the consumers, especially the well-off
section in the urban areas. They have greater and better choices to make. As a
result, these people today enjoy much higher standard of living than earlier.
 (c) Globalisation has also created new opportunities for companies producing
services, particularly those involving in Information Technology. Besides this, a
number of other services like data entry and accounting are now being done
cheaply in countries like India and are being exported to developed countries.

12. How has transportation technology stimulated the globalisation process? Explain with
suitable examples.

Ans. Transportation technology has stimulated the globalisation process in the following
ways:

(a) Faster trains connecting every nook and corner of a country and faster planes that
cover the distance within a few hours have enabled the faster delivery of goods.
(b) Improvements done in transportation technology in the past fifty years have also
helped in the quick movement of goods. For example, containers carrying goods
have led to huge reduction in port handling costs and an increased speed, with
which exports can reach markets.
(c) Reduced cost of air transport has enabled much greater volumes of goods being
transported by airlines.

13. “Technology has stimulated the globalisation process.” Support the statement with
examples.

Ans. Technology has stimulated the process of globalisation in the following ways:

(a) Transportation technology has witnessed several improvements in past fifty years.
This has made much faster delivery of goods across long distances possible at
lower costs, such as use of containers have led to huge reduction in port handling
costs and increased the speed with which exports can reach markets.
(b) Also, the cost of air transport has fallen. Ultimately, it has stimulated the
globalisation process.
(c) Telecommunication has also shown remarkable development. Computers, internet,
e-mail, voice- mail, etc. are used intensively to contact one another around the
world.
(d) There has been a remarkable development in information and communication
technology. It has enabled to access information instantly and communicate even
in the remotest areas.
(e) Call centres use this to satisfy their customers abroad or provide outsourcing
services from anywhere.
14. What is trade barrier? Why did the Indian govern- ment put up trade barriers after
independence? Explain.

Ans. Trade barrier refers to some restrictions imposed by the government to regulate
foreign trade and to decide what kind of goods and how much of these should come into
the country.

The Indian government did put up trade barriers after independence because of the
following reasons.

(a) It was considered necessary to protect the producers within the country from
foreign competition.
(b) Industries were just coming up in the 1950’s to 1960’s so the competition from
imports at this stage would not have allowed them to flourish. Imports of only
essential items were allowed.

15. “A wide ranging choice of goods are available in the Indian markets.” Support the
statement with examples in context of globalisation.

Ans. The Indian market has been transformed in recent years. The consumers have a wide
variety of goods and services to choose from, which were not available earlier. For
example, the latest models of mobile phones, television, digital cameras of leading
manufacturers and other well known brands of the world are easily available in the
markets. New models of cars and automobiles are launched every season. The top
companies in the world have introduced their popular brands in India for various products
like shirts, fruit juices, cosmetics, toys, furniture, stationery etc. All this has been possible
only due to globalisation.

16. Describe the major problems created by the globalisation for a large number of small
producers and workers.

Ans. The major problems created by the globalisation for a large number of small
producers and workers are:

(a) The small producers or workers either have to compete or perish.

(b) Small scale industries like batteries, capacitors, plastic toys etc. have been hit hard
due to global products and have suffered great losses in their businesses.
(c) Several small factory units are forced to shut down.
 (d) Millions of workers have gone jobless and jobs are no longer secure.
(e) It has increased income inequalities among various countries.
(f) Unorganised sector has expanded.

17. How has globalisation benefited India? Explain with five examples.

Ans. The impact of globalisation on India are:

(a) It has enabled some large Indian companies to emerge as MNCs such as Tata
Motors, Infosys.
(b) It has also created new opportunities for companies providing services like
information technology.
(c) Greater competition among producers has been of special advantage particularly to
the well-off sections of consumers in the urban areas. They have greater choice and
enjoy improved quality and lower prices for various products. Thus, they are
enjoying a higher standard of living.
(d) In these industries and services, new jobs have been created and also the
companies supplying raw materials to these industries have prospered.
(e) Several of the top Indian companies have been able to benefit from the increased
competition.
(f) They have invested in new technology and production methods and raised the
standard of their products. Some of them have gained from successful
collaboration with foreign companies.

18. What is the effect of globalisation on small producers and workers?

Or

What major challenges has globalisation posted for small producers and workers?

Ans. The effects of globalisation on small producers and workers are:

(a) Small producers and workers have been hit hard the most due to the rising
competition. Several of the small units have been shut down thereby rendering
many workers jobless.
(b) Large MNCs especially in the garment industry in Europe and America, order their
products from Indian exporters.
(c) They look for the cheapest goods in order to maximize their profits.
 (d) So for getting the large orders from them, the exporters try to cut labour costs wages
given are low, and workers are forced to work overtime to make both ends meet.
(e) Though MNCs are able to make large profits, the workers are denied their fair share
of the benefits of globalisation.

19. How has globalisation been advantageous to both producers as well as consumers in
India? Explain.

Or

How has globalisation affected the life of Indians?Explain with examples.

Ans. Advantages of globalisation for consumers:

(a) They have greater choice.

(b) Better quality of products are available for consumption due to competition.
(c) It has reduced the cost of goods and services considerably.

Advantages of globalisation to producers:

(a) They now have access to international markets for their products.
(b) They have easier access to foreign investment to enhance their production.
(c) Collaboration with MNCs have added up their performance and profits.

20. Barriers on foreign trade and foreign investment were removed to a large extent in India
around 1991. Justify the statement.

Ans. It was around 1991, that some far-reaching changes in foreign trade policy were made
in India. The government decided that time had come for Indian producers to compete with
producers around the globe. It felt that the global competition would definitely improve the
performance of producers within the country, since they would have to improve their
quality to face the stiff competition from all over the globe.

So, keeping the above need in mind, the government removed the barriers on foreign trade
and foreign investment to a large extent. This implied that goods could be imported and
exported easily and also foreign companies could set up factories and offices in India, i.e.,
foreign investment could be promoted now. It was against this background that policy of
liberalisation was introduced to promote trade and businesses with the rest of the world. It
was a right step for India's economic development.
21. 'Information and Communication technology has played a major role in spreading out
production of services across the countries. 'Justify the statement with examples.

Ans. Indeed the development in the field of information and communication technology
has been very remarkable. Information and communication technology has facilitated the
spread of production of services across the globe. Telecommunication facilities like
telephone, mobile phones and fax are used to contact one another around the world, to
access information instantly and to communicate from remote areas. It is globalisation,
which has created new opportunities for companies providing services, especially those
involving information technology. Call centres across the country are an example. Not only
that, a number of other services like data entry, accounting other administrative tasks are
now being done cheaply in India and are exported to the developed countries.