Economics: Globalisation and the Indian Economy

The One Thing

Globalisation has connected the Indian economy to the world through multinational corporations, foreign trade, investment, liberalisation and advances in transport and communication technology. Although it creates opportunities for consumers and successful producers, fair globalisation requires policies that protect workers, small producers, consumers and the environment.

Chronology

Who and What

• Globalisation: The process through which countries become more closely connected through the movement of goods, services, technology, investment, information and people. It is driven by MNCs, foreign trade and investment, liberalisation, and advances in transport and communication.
• Multinational Corporation (MNC): A company that owns or controls production, offices or services in more than one country. MNCs organise production across countries to reduce costs, use local advantages, access markets and earn profits.
• Foreign Investment: Investment made by a company or individual from one country in businesses, factories or assets located in another country. MNCs may establish factories, buy local companies, form partnerships, or invest in local production.
• Foreign Trade: The exchange of goods and services between countries through exports and imports. It connects markets, enables producers to sell beyond domestic markets, increases consumer choice and may reduce prices through competition.
• Investment: Money spent on land, buildings, machines, technology or other productive assets.
• Liberalisation: The removal or reduction of government restrictions and barriers on foreign trade and investment.
• Trade Barrier: A government restriction controlling imports or exports, such as taxes, quotas or licences.
• Import Duty: A tax imposed on goods brought into a country from abroad.
• Quota: A limit on the quantity of a particular good that can be imported.
• WTO: The World Trade Organization, established in 1995. It establishes rules for global trade and provides a forum for trade negotiations. Developing countries have argued that its rules may favour richer countries and powerful corporations.
• Production Across Countries: The organisation of different stages of production in different countries according to costs, skills, resources, markets and infrastructure.
• Interlinking of Production: The connection of production activities in several countries through investment, partnerships, contracts and supply chains.
• Global Supply Chain: The international network through which raw materials, parts, labour, services and finished products move from producers to consumers.
• Liberalisation of the Indian Economy: The policy changes introduced in India from 1991 that reduced restrictions on imports, foreign investment and private business activity.
• Competition: A situation in which producers or businesses try to attract consumers through better prices, quality, design or services.
• Fair Globalisation: Globalisation that distributes benefits more equally and protects the rights, livelihoods and environment of weaker sections.

Causes and Consequences

• MNC expansion has driven globalisation. MNCs organise production across countries through three major methods: direct investment, partnerships with local companies and placing orders with local producers. They may set up factories, buy local companies, form partnerships, place orders with local producers or distribute products through local businesses.

• MNCs select locations according to economic and logistical advantages. Relevant factors include cheap labour, raw materials, skilled workers, markets, infrastructure and government policies. This produces the interlinking of production and the development of global supply chains.

• Foreign investment can improve production. Investment by MNCs may bring new technology, capital, employment opportunities and improved production methods. However, MNCs may also benefit from low wages and flexible labour arrangements, creating insecure employment when workers are not adequately protected.

• Foreign trade connects national markets. Exports and imports allow producers to sell beyond their domestic markets and give consumers access to a wider range of goods. In India, this has included cars, mobile phones, electronic goods, clothing and processed foods. Competition may reduce prices and improve quality, design and services.

• Liberalisation changed India’s relationship with the world economy. Before 1991, India used trade barriers to protect domestic industries from foreign competition. In 1991, economic reforms reduced restrictions on imports, foreign investment and private business activity, leading to greater integration with the world economy.

• Transport and communication technology accelerated globalisation. The internet, telecommunications and computers have made international production and trade faster and easier. Faster ships, air freight and better roads have reduced the time and cost of moving goods.

• Globalisation has created unequal outcomes. Successful producers and large Indian companies have benefited from investment opportunities, improved technology, international exports and the ability to compete in global markets. By contrast, small producers, informal workers and weaker economies may face increased competition and insecurity when they cannot compete with large companies or imported goods.

• The WTO provides a framework for global trade but remains contested. The WTO promotes rules for international trade, yet developing countries have argued that trade rules may favour richer countries and powerful corporations. A trade surplus occurs when the value of exports is greater than the value of imports; a trade deficit occurs when imports exceed exports.

• Government policy is necessary for fair globalisation. Governments must regulate MNCs, enforce labour laws, protect consumers, provide infrastructure, support small producers, help domestic industries become competitive and secure fair access to international markets.

• Fair globalisation must include social and environmental protections. Economic growth should be combined with decent employment, social justice, environmental safeguards, consumer protection and support for vulnerable groups.

What Gets Asked

• Explain how MNCs organise production across countries and why they choose particular locations.
• Compare the benefits and disadvantages of globalisation for consumers, large companies, small producers and workers.
• Explain the effects of India’s 1991 liberalisation policies, including the reduction of trade barriers and encouragement of foreign investment.
• Assess how improvements in transport, the internet, telecommunications and computers have accelerated foreign trade and global supply chains.
• Explain the role of the WTO, including the argument that its trade rules may favour richer countries and powerful corporations.
• Evaluate the policies required to achieve fair globalisation, including labour-law enforcement, support for small producers, consumer protection and environmental safeguards.