30 August 2015

Chapter – 4 Globalization and the Indian Economy

CBSE NCERT Class X (10th) | Social Studies | Economics

Chapter – 4 Globalization and the Indian Economy

Globalization – Introduction

India has changed tremendously in the last two decades.

Till the 1990’s, choice of goods was limited to the products produced in the country. Today, there is a wide range of commodities for the consumers to choose from in India. One of the main reasons for such rapid transformation is the spread of MNCs. The rise of MNCs resulted in the integration of production, trade, investment and markets across the globe.
The seeds of such MNC’s were sown during colonial times. In the 18th and 19th centuries, Europe-based companies carried out trade with their colonies in Asia and Africa. However, during the colonial period, the colonies produced raw material and food stuff, while the colonising countries produced finished goods. 

From 1950’s, new MNCs grew in North America, Europe and Japan. They wanted to spread to areas where they could produce their goods cheaply and find markets for them. Countries in Asia, Africa, and Central and South America were the ideal places for these MNC’s to set up offices and factories as Labour and other resources were cheap with a huge market potential.

One there was liberalization of policies and trade and production barriers were lifted, MNC’s were able to enter Asian, South American and African countries to set up factories to exploit cheap labour and large markets. Production and markets became global.

Production - Global Interlink

There are many factors that MNCs take into account while setting up factories and offices for production in a country:
  • Proximity to markets where they can sell their products
  • Availability of cheap labour, both skilled and unskilled,
  • Availability of other resources like raw material, and infrastructure
  • Favorable Government Policies

To set up factories, MNCs put in money or foreign investment to buy land, machinery and other equipment.

There are various ways in which the MNCs invest in countries:
  • They collaborate with local companies
  • They buy local companies
  • They place orders with small local producers. MNCs invest in small producers to make and supply the products to them and sell it under their banner.

Thus, by setting up partnerships with local companies, closely competing with the local companies or by buying them up, and by using the local companies for supplies, MNCs exert influence on production at distant locations and interlink them.

Through the ages, foreign trade has been a major link between different countries and civilisations. By trading with other countries and regions, producers can sell their products in new markets and compete there with the local goods.

Consumers hence can have a greater variety to choose from than what is produced domestically. Prices also tend to become more and more competitive as local goods are forced to contend with goods made in another country.

With globalisation, such integration, linking and competition, of markets and trade has increased tremendously.

Globalization and Its Impact

Globalisation has influenced the Indian economy since 1991 but has had an uneven impact on the Indian economy. Some sectors have gained while others have suffered losses. Competition among producers has resulted in lower prices and a greater choice of goods. The biggest benefit has been for the well-off urban middle-class consumers who can afford to buy a wider range of goods.

MNC’s have posted tremendous profits and invested more and more in India since liberalization. MNC investment and production has largely been in the consumer goods sector like automobiles, electronic items, fast foods, cold drinks and mobiles. Some have also invested in sectors like power and banking.

Government policies have favoured MNC’s by providing them state-of the-art facilities in Special Economic Zones (SEZs), a five-year tax holiday, and flexible labour laws. Local companies who have collaborated with MNC’s to supply them raw material or services have also gained from globalisation. Indian companies like Tata Motors, Ranbaxy and Asian paints emerged as multinationals by spreading their operations worldwide.

IT-based companies, like Business Process Outsourcing companies (BPO’s), call centres, data entry operators, accounting firms and administrative service providers are another set of gainers. Small producers, have borne the negative impact as they have been forced to compete with MNCs. Some small producers who were hit the worst by MNC competition include dairy products, toys, vegetable oils, capacitors and batteries. They have either stopped production units or decreased the levels.

Labour employed in the factories, have increased working hours with insecure jobs. MNC’s often employ labour on a temporary basis. They have lost legal protection because labour laws have been liberalised in favour of the MNC’s and big companies. Labourers in most companies have to work overtime to earn their livelihood.

Fair Globalization

The fruits of globalisation have been unevenly distributed. Those with education, wealth or skill, have benefitted the most from globalisation. They include well-off consumers, MNCs, their suppliers and employees, big Indian companies and IT-enabled industries like call centres.

People who are not so educated, wealthy or skilled in some profession, or those who have had to compete with MNCs have suffered. People suffered owing to globalization include small-scale producers and labour.

The government can take steps to ensure that the benefits of globalisation reach everyone:
  • Formulate labour laws that are effective and watertight to ensure rights of workers
  • Have policies to protect the interests of the small producers against the MNCs
  • Erect barriers to protect the domestic economy from foreign trade and unfair competition from developed countries.
  • Align with other developing countries to negotiate with WTO to impose trade restrictions like imposition of tariff and quotas.

Apart from just the government, people from various professions also need to come out and raise their voices against unfair globalization and to protect the rights of its small producers and labourers. In the recent past, people have demonstrated against the unfair trade policies that are often encouraged in the name of globalisation. Such demonstrations have managed to influence some changes in the WTO’s policies regarding free trade.

Factors that Enabled Globalization

Consumers’ rights include the right to safety, the right to be informed, the right to choose, the right to seek redress, and the right to represent in consumer courts.

When producers sell any goods or services, it is their responsibility to ensure their safety for the consumer. It is the right of the consumer to be offered only products that are safe. In case of any damage, the producer should compensate the consumer.

Consumers also have the right to be informed about the goods and services they buy including price, ingredients, batch number, expiry dates and manufacturer’s address.

Certain medicinal drugs need to be handled with care. Their packing must have directions about usage printed on them. Any side effects or risk to potential users must also be mentioned. In case of any misleading or false information, consumers can take the producer to the consumer court.

The Right to Information (RTI) Act, of 2005 gives citizens the right to know about the functioning of any government department. Consumers have the right to select or choose any product that they wish to buy. Consumers possess the right to seek redress and to demand compensation. While seeking any redress, the consumers have the right to represent in consumer courts.

In case of help required, consumers can seek help from consumer forums or councils and Resident Welfare Associations. In 1986, the government passed the Consumer Protection Act (COPRA), which ensures that consumers have the right to represent in consumer courts. COPRA establishes a three-tier structure. They are district level, state level and national level.

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