Class X Economics Chapter 4 | Globalization and the Indian Economy

1. What is the meaning of market?

Market is the place where people regularly gather to buy and sell goods and services.

2. Who is a consumer?

A consumer is a person who buys goods and services for their personal use.

3. Briefly explain the transformation of markets in recent years.

Markets have undergone major transformation in recent years.

Consumers now have access to a greater range of goods and services.

International products are now available in our markets. For example, we can now buy smart phones or laptops made by leading international companies. Just like smart phones and cameras, the choice of cars available in the Indian market has also improved significantly. Today cars of all brands can be bought in India. More and more choices are available in the case of every other product as well.

4. State the main motive of MNC.

The main motive of any multinational company is to earn more and more profits.

5. Why are MNCs setting up their customer care centres in India?

MNCs are setting up their customer care centres in India because India has a large percentage of educated English speaking youth who can interact with customers from all over the world. Also, India has a large number of skilled engineers who can understand the technical aspects of products and recommend ways to fix problems.

6. What is a multinational company?

A multinational company is a company that owns or controls production in more than one country.

7. Name the major items imported by India

Machinery, fertilizers, gold and silver, pearls and precious stones etc.

Interlinking production across countries

8. Differentiate between investment and foreign investment

When money is spent to buy land, machinery, building and other equipment it is called investment. Foreign investment is investment made by an MNC.

9. Why are Special Economic Zones created?

Special Economic Zones are created to attract foreign investment.

10. Name one strategy used by producers to cut production costs

Reducing labour costs is one way to cut production costs.

11. What is meant by investment?

Money spent to buy assets such as land, machinery and building is called investment.

12. Explain the meaning of an MNC? Why is it so successful today?

  • A multinational company is a company that owns or controls production in more than one country.
  • MNCs are highly successful because of the following reasons.
  • They set up offices and factories in countries where labour and raw materials are cheap. This enables them to cut production cost and thus earn huge profits.
  • They use latest production technologies.
  • They divide the production process into small parts and goods or services are produced globally.
  • In addition to selling products globally, they produce goods and services globally.
  • MNCs have huge wealth and they can easily ramp up production. Sometimes they produce goods in collaboration with local companies; however, most of the time they just buy out local companies.
  • All of these strategies enable them to cut cost by 50-60%.

13. How do MNCs help in the development of local companies?

When MNCs set up production with local companies, they provide money for additional investments. Using this money, local companies can buy more machinery and increase production.

MNCs bring with them the latest technology for production. This helps local manufacturers to update their production technologies.

When MNCs associate themselves with local companies, the latter get to enjoy better brand recognition.

MNCs provide local companies a large marketing network spread across the world.

14. Where do MNCs set up their production units? How do they control their production in other countries?

MNCs like to set up their production units in countries where labour and resources are cheaper. Most multinational companies have their base in developed countries; however, most of their manufacturing units are in developing countries like China, India or Vietnam where skilled and unskilled employees are available at low salaries.

In order to expand into the local markets, MNCs often set up production jointly with local companies.

Sometimes they buy out local companies to expand production and market reach.

MNCs place orders for products with small producers of other countries.

MNCs have huge wealth. Many of them are richer than some developing countries. Consequently, they have the power to control the price, quality, labour conditions and delivery of products for distant local producers.

15. What are the factors that MNCs consider before setting up production units in a foreign country?

  • MNCs set up production units in countries where labour and resources are cheap.
  • They set up production units in places that are close to markets.
  • They set up production in places where both skilled and unskilled workers are available at low wages.
  • They prefer to venture into countries where government policies are favourable to them.

16. How are multinational companies different from national companies?

Multinational companies own or control production in more than one country. National companies own and control production in just one country.

MNCs set up production units in places where labour cost is low. This enables them to cut production costs and earn huge profits. Since national companies have operations in just one country, they do not have the opportunity to hire cheap labour.

Since the cost of production is low for MNCs, they can earn huge profits. National companies do not have a lot of options to cut costs and hence their production costs are comparatively higher and profit margins lower.

Foreign Trade and Integration of Markets

1. Mention some benefits of foreign trade.

Foreign trade enables manufacturers to venture beyond domestic markets.

Buyers also benefit from foreign trade as it gives them more choices.

2. Mention some items exported by India?

Iron ore and tea

3. What will happen if tax is imposed on foreign goods?

If tax is imposed on foreign goods, they will become costlier. This will reduce their sales and at the same time it will increase the sales of goods manufactured within the country.

4. How does foreign trade integrates markets of different countries? / Foreign trade is an important component of globalization. Explain.

  • Foreign trade allows both producers and consumers to reach beyond their domestic markets.
  • It facilitates the flow of goods, services and investment across different countries.
  • It leads to intense competition among producers of various countries.
  • Competition often causes prices to drop and quality to increase and thus it benefits the consumer.
  • Sometimes foreign producers set up joint production with local producers.
  • Foreign trade also causes similar products to have more or less the same price in different markets.

What is globalisation?

1. Explain the importance of globalisation / How has globalisation benefitted India?

Globalisation is the process by which goods move easily between countries. It is the integration of markets and trade.

Benefits of globalisation

  • Globalisation brings greater foreign investment and greater foreign trade.
  • It creates job opportunities and income in the economy.
  • Globalisation causes more and more goods and services, technology and investment to flow between countries. Thus, globalisation brings most regions of the world in closer contact.
  • Globalisation has enabled more and more people to move into other countries in search of better jobs, education or better salaries.
  • It has given consumers more choices.
  • Globalisation leads to greater competition among producers. This reduces prices and improves the quality of goods and services.
  • Globalisation has created new opportunities for companies providing IT related services.

2. MNCs are playing an important role in globalisation. Explain.

  • MNCs have a major role to play in facilitating globalisation because they are the major factors facilitating the flow of goods and people between countries.
  • MNCs set up production units in countries where production costs are low and raw materials and resources are readily available. This way, they reach beyond domestic markets.
  • MNCs create employment opportunities in places where they run production.
  • Often times, they start joint ventures with local companies to expand production.
  • They source raw materials from local companies and bring with them advanced technology.
  • MNCs not only sell their products globally; they also produce globally.
  • They bring foreign products to local markets and thus lead to the integration of different markets across the world.
  • Globalisation would not be such a huge success if there weren’t multinational companies selling their products everywhere.

3. How are MNCs able to cope with the huge demands all over the world and control prices?

  • MNCs own and control production in more than one country.
  • They have production units in countries where labour and resources are cheap.
  • MNCs not only sell their products globally; they also manufacture them globally.
  • Oftentimes, in order to increase production and gain a stronger foothold in international markets, they get into joint production with local companies.
  • Sometimes, they buy out local companies to expand production. Since, MNCs have huge wealth, they can do this easily.
  • All of these factors enable these companies to determine price, quality and labour conditions of production.

4. Explain the meaning of globalization in your own words.

Globalization is the process that has transformed the entire world into one big market. It can also be defined as the integration of markets across the world through foreign trade and foreign investment by multinational companies. Globalisation has made people economically interdependent at the international level. Thanks to globalisation, producers in India can sell their products and services in other countries. Likewise, manufacturers in other countries can sell their products in our country. Workers also move from one country to another country.

5. Why is globalization two-faced?

  • Globalization is two-faced because it has not benefitted everyone. The people who were benefitted the most by globalization were the educated, skilled and wealthy.
  • Globalization caused many small producers and workers to go out of business due to the rising competition. Small businesses cannot compete with multinational companies.
  • Globalization is beneficial for large multinational companies, but it is harmful to workers in poor countries as they are exploited by these conglomerates who pay them only a meagre salary.
  • Globalization certainly enabled large Indian companies like Tata Motors and Ranbaxy to become multinational companies. At the same time, it caused many small businesses to shut down.
  • Globalization has largely been beneficial to consumers as the rising competition brought prices of commodities down and at the same time improved their quality.

Factors that have enabled globalization

1. What is privatisation?

Privatisation refers to the shifting of ownership of a government owned enterprise to private ownership.

2. What are trade barriers?

Trade barriers are the laws, restrictions, practices or institutions which make trade between two countries more difficult than trade within the country.

3. Mention any two factors which have enabled globalization

Technological advances and liberalization of foreign trade and foreign investment are the two main factors that enabled globalization.

4. When did India liberalize its foreign trade?

India liberalized its foreign trade from around 1991.

5. How has technology helped globalization?

Technology has benefitted globalization in many ways.

  • Improvements in transport technologies made it possible to transport goods to distant places at lower costs.
  • Improvements in IT sector have enabled instant delivery of services across the world.
  • Improvements in telecommunication technologies have made geographical boundaries irrelevant by making people and businesses stay connected all the time.
  • Computers are now used in almost every field and the internet and email allow use to send and receive text and voice mail across the world at negligible costs.

6. What are trade barriers? Why trade barriers were imposed by the Indian government?

Trade barriers are restrictions imposed by the government on imports and exports to protect the interests of producers within the country. An example of this is the tax imposed on imported goods.

For example, tax is often imposed on imported goods to make them costlier in the domestic market. This will reduce their demand and consumption. This is done to protect the interests of domestic producers.

Indian government imposed trade barriers on foreign trade and foreign investment after independence for the following reasons.

(a) It was necessary to protect domestic producers from foreign competitors.

(b) Government also used trade barriers to determine what kind of goods should come to the country.

(c) After independence, Indian industries had just started coming up and it was necessary to protect them from foreign manufacturers.

(d) Government used trade barriers to regulate foreign trade.

7. Why did India change its economic policy in 1991?

India changed its economic policy in 1991 for the following reasons.

(a) The government felt that time had come for Indian companies to compete with international companies.

(b) It was also believed that competition would improve the performance of Indian companies as they had to improve the quality of their products to compete with foreign brands.

(c) International organizations like WTO and IMF also influenced the government to remove trade barriers.

(d) Liberalization allowed businesses to make independent decisions about what to export and import.

(e) It also enabled foreign companies to set up factories and offices here. The foreign direct investment created plenty of job opportunities in the country and boosted its economic growth.

8. Explain the factors that have enabled globalisation.

(a) Improvement in transport technology

Thanks to improvements in transportation technology, it became possible to move goods between countries at negligible costs.

(b) Improvements in information technology

Improvements in information technology have made the world a global village by facilitating 24 x 7 connectivity. Thanks to the internet and email, we can now send text and voice messages from one part of the world to another part and receive instant replies. This facilitates communication between manufacturers, suppliers, customers and all other stake holders.

(c) Liberalization

Most nations have removed the barriers to foreign trade and foreign investment and thus promoted globalisation.

(d) Multinational trade agreement

These agreements promote free trade and free flow of goods and investments between countries.

(e) Multinational companies

Multinational companies have invested in almost all countries and have led to greater integration of markets and production. Thus, they have played an important role in facilitating globalization.

World trade organization

1. What is World Trade Organization?

World Trade Organization is an international organization that works with the objective of liberalizing international trade.

2. Write a short note on World Trade Organization (WTO)

World Trade Organization is an international organization that works with the objective of liberalizing international trade. It establishes rules regarding international trade and ensures that those rules are obeyed by member nations. As of July 2016, WTO had 164 countries as members. It provides a forum for negotiations and for settling disputes. While the objective of WTO is to eliminate all trade barriers, in practice, however, it is often seen that rich countries have still maintained many trade barriers to give an unfair advantage to their producers.

Impact of globalization in India

1. What is meant by Special Economic Zones (SEZ)?

Special Economic Zones are the industrial zones set up by central and state governments to attract foreign companies to invest in India.

2. Which sector benefitted the least from the globalization of India?

The unorganized sector benefitted the least from the globalization of India.

3. How does globalization raise competition in the market?

In order to facilitate globalization, the government removes import duty on foreign goods. Consequently, foreign products can sell for the same or lower price than domestic products. This increases competition in the market and encourages companies to improve their quality because when prices are the same, people will choose the best product available.

4. How do large companies manipulate the market?

Large multinational companies have the financial power and political clout to manipulate the market. MNCs are so rich that they can determine the price, quality and labour conditions for small producers of other countries.

Since MNCs can spend a great deal of money on marketing, small businesses cannot compete with them. Also, they use the latest production technologies and employ cheap labour. This enables them to cut costs and sell their products for lower prices. Small, domestic manufacturers have none of these advantages and often fail to compete with big businesses. For example, after the advent of globalization, small producers of plastics, toys, capacitors, batteries, vegetable oils and dairy products went out of business because of their inability to compete with large companies.

5. How has globalization impacted Indian agriculture?

Globalization has had a severely negative impact on Indian agriculture for the following reasons.

Cheap imported agricultural products have flooded Indian markets since globalization and this has severely affected Indian farmers who cannot sell their products at such low prices.

The liberalization of foreign trade and investment in India is orchestrated by powerful international organizations like WTO. While WTO works to eliminate trade barriers, the truth is that many developed countries have retained trade barriers on agricultural products to protect the interests of their farmers.

For example, while more than 60% of the Indian population is employed by the agricultural sector, in the US this sector employs less than 0.5% of the total population. Yet, these farmers receive massive subsidies and other assistance from the US government for production as well as export of agricultural produce.

This enables them to sell their farm products at ridiculously low prices which Indian farmers cannot match.

Thus, globalization has adversely affected the farming sector in India by reducing the demand for locally grown farm products and forcing farmers to sell their produce at a loss.

6. Globalization has been advantageous to consumers. Explain.

It is true that globalization and the resultant competition among producers have been advantageous to consumers all over the world.

Thanks to globalization, consumers now have more choices. They no longer have to be content with the goods or services produced within the country. This competition among domestic and international producers has also increased the quality and reduced the price of goods.

For example, today, people all over the world have access to the latest electronic gadgets and cars made by leading international brands. In this way, globalization has increased the living standards of people.   

Even in the case of products such as clothing and drinks, an explosion of choices is available.

Obviously, globalization has been advantageous for consumers.

7. Describe the impact of globalization on workers.

While globalization has generated more jobs, it is not possible to claim that its impact on workers has been completely positive.

Globalization has created more job opportunities, but many employees now work on a temporary basis. Their jobs are no longer secure and they can be fired at any time.

Because of globalization, multinational companies are looking to set up factories in countries where labour is cheap. Unfortunately, this has also led to the exploitation of poor workers in poor countries. They are often forced to work under inhuman conditions for meagre salaries. They are also made to work longer.

During peak seasons they often have to work in night shifts on a regular basis.

While employees in developed countries are protected by benefits like minimum wages and overtime wages, poor workers in developing countries employed by MNCs are denied of any such benefits.

8. How will it impact workers if employers try to cut down the cost of production to compete in the global market?

While employers try to cut down the cost of production, it has a severely negative impact on employees.

The cost of production mainly depends on two factors – the cost of raw materials and the cost of labour. Since the cost of raw materials cannot be reduced, employers looking to cut production costs will try to reduce labour costs. They use several strategies to accomplish this.

They will only employ workers on a contract basis. This eliminates the need to pay additional benefits to workers. While a permanent employee is assured of a salary every month of the year, contract employees are only paid for the days and hours they work.

Employees are also forced to work long hours to increase production and still they are not paid any overtime wages.

They are forced to work night shifts regularly during peak seasons.

Their salaries are low and they are denied a fair share of the benefits brought about by globalization.

9. Give any five arguments against globalization. / Bigger companies means more exploitation. Explain.

When MNCs enter domestic markets, they often lead to the closure of small scale producers who cannot compete with them.

MNCs buy successful local companies with the objective of expanding production and market reach.

Large corporations have the power and influence to determine the price, quality and labour conditions for small producers of other countries.

Small industries in India employ a large number of people. The advent of MNCs has forced many of them to shut down and rendered many people jobless.

10. Mention some steps taken by central and state governments to attract foreign investment in India.

Central and state governments have set up Special Economic Zones with the sole objective of attracting foreign investment. These SEZs have world class facilities, excellent means of transport, cheap electricity, water, storage, and educational and recreational facilities.

Companies which set up their units in SEZs are exempted from paying tax during the first five years.

The government has also made labour laws more flexible to attract MNCs to invest. Companies are allowed to hire employees on a contract basis to cut their production cost.

The government has also removed trade barriers on foreign trade and investment to facilitate easy import and export of goods.

The struggle for fair globalization

1. Why is there a need to make globalization fair? How can governments make globalization a fair deal?

There is a desperate need to make globalization fair because globalization has benefitted only well-off consumers and skilled, educated and wealthy producers.

It has failed to eliminate world poverty. It has also failed to bring economic equality. Actually, due to globalization, the rich have become richer and the poor have become poorer.

It has also led to the exploitation by workers. They are forced to work long hours for low wages. Worse still, there is no job security.

Governments can take certain steps to make globalization a fair deal.

It should bring policies to protect the interests of all people.

It should ensure that labour laws are properly implemented and workers are not exploited.

It should protect small scale companies until they are able to compete with MNCs.

It should join hands with other developing countries to ensure that developed countries do not dominate WTO.

Class X Economics Solutions

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