GLOBALIZATION AND INDIAN ECONOMY SUMMARY

GLOBALIZATION AND INDIAN ECONOMY

Nav Jeevan Mission School

ECONOMICS(X)

CHAPTER 04

  GLOBALISATION:

The way in which the world economy is integrated in the modern world is globalization. Take example of Microsoft. Microsoft is having its headquarters in USA. This company is getting part of its software developed in India and several other countries and Microsoft’s software is being used across the world. Another example can be Ford motors based in USA. Ford is having manufacturing plants in Chennai and cars manufactured in Chennai go for sale in other countries. Moreover, company may be getting gear boxes produced in some other country, seat belts from a different country, lights, and rear view mirrors in some other nation by some other company. Almost all the components get supplied by various vendors to the Ford motor, which assembles them to make the car.

All these activities help in generating employment opportunities across the world. This in turn affects the world economy. You can think of various activities in the step of final production of a product or a service which take place around the world at different locations. This results in interdependence of national economies around the world.

Development of Globalisation

Since early history global trade has been connecting mankind in myriad ways. Silk route of early history helped in connecting Asia from the rest of the world. This trade route not only facilitated movement of goods but also movement of people and ideas. If zero travelled from India to rest of the world then western clothes came to India. Nowadays the way we relish eating pizza or noodles, people abroad are big fans of the Indian curry and chicken tikka.

Early phase of globalization involved export of raw material from Asia and import of finished products from Europe. But from mid twentieth century things began to change.

During mid to late twentieth century certain company’s became multinationals (MNCs) as they spread their economic activities to various parts of the world.

MULTI-NATIONAL CORPORATIONS (MNC)

 An MNC is a company that owns or controls Production in more than one Country. MNCs set up offices and factories for production in regions where they can get cheap labour and other resources, to minimize cost and maximize Profit. They sell their finished products globally and also produce the goods and services globally. The production process is divided into small parts and spread out across the globe.

VARIOUS WAYS BY WHICH MNCs SET UP OR CONTROL PRODUCTION IN OTHER COUNTRIES

1. Set up production jointly with some of the local companies. Joint production provides money for additional investment and latest technology for production.
2. To buy up local companies and then expand production.
3. Place orders for production with small producers.
4. By setting up partnerships with local companies, by using the local companies for supplies, by closely competing with the local companies or buying them up, MNCs are exerting a strong influence on production at these distant locations. As a result, production in these widely dispersed locations is getting interlinked.

FOREIGN TRADE AND INTEGRATION OF MARKETS

·         Exchange of goods – purchase and sale – across geographical boundaries of the countries.

·         Goods travel from one market to another.

·         Choice of goods in the market rises.

·         Prices of similar goods in the two markets tend to become equal.

·         Producers in the two countries closely compete against each other even though they are separated by thousands of miles. Thus foreign trade results in connecting the markets or integration of markets in different countries.

TRADE BARRIERS AND ITS IMPORTANCE

·         Various restrictions which are used by the government to increase or decrease Foreign Trade.

·         Government uses trade barriers to increase or decrease Foreign Trade and to decide what kinds of goods and how much of each, should come into the country.

SPECIAL ECONOMIC ZONES

Setting up of industrial zones by the central and state governments to attract Foreign Companies to invest in India which have world class facilities, electricity, water, roads, transport, and storage, recreational and educational facilities.

CAUSES OF GLOBALISATION:

Need of Cost Cutting: Suppose a company is having two options to get a particular work done. The first option is to get it done in the home country but cost involved will be higher. Next option is to get it done in a different country at a lesser cost. Obviously any company will prefer the second option. Labour cost and cost of certain raw materials are cheaper in India, Malaysia, China and Taiwan. This results in reduced cost of production, which will result in better profit for the company. So you get a computer with certain parts manufactured in Taiwan or Malaysia, processor manufactured in India and software supplied from USA. The final product may get assembled in the market where it will be ultimately used.

Need to find newer markets: If home market’s consumer base has purchased a product and needs no more of it or little bit of it, then the company has to plan to increase the business. This can be done by finding newer markets with new consumer base. Especially in today’s scenario when India and China constitute about one fourth of the world population, any company which wants to get more business can’t ignore these two markets. Try comparing it with your city or village. If vegetables produced in a village can only be sold in that village then it may not find many customers, resulting in low price and may be wastage of vegetables. To get a better price from large customer base the village vegetable grower needs to move to cities.

Stimulus for Globalization:

Earlier countries imposed heavy import duties to restrict goods from outside and to promote local industries. These were part of deliberate trade barriers. But WTO (World Trade Organisation) convinced all member nations to reduce trade barriers. WTO believes in unrestricted economic opportunity across the world In India after 1991, liberalization policies were being followed resulting in MNCs setting up shops in India. The result is for everybody to see. Earlier car meant an Ambassador or a Fiat and two-wheeler meant a Bajaj Scooter or Raj doot Motorcycle. Now people have various options for car and two wheelers.

RESULTS OF GLOBALISATION:

Better Employment Opportunities: At present India is the leader in BPO sector. BPOs provide back office support to many MNCs. A customer calling in USA to sort out his problem may be talking to a call centre employee in Gurgaon. Because of growing economic activities many new centres of economic activity have developed in India. These are Gurgaon, Chandigarh, Bangalore, Hyderabad and Meerut. Earlier Mumbai, Chennai, Kolkata and Delhi used to be major economic centres.

Change in Lifestyle: Eating habits have changed dramatically. Now you may be eating Kellog’s corn flakes for breakfast and Aloo Tikki Burger for lunch. You may be wearing a Levi’s jeans and if you are having a BPO employee as neighbour then you may have listened his accented English.

Uneven Benefits of Development: For every MNC executive there is a larger number of rickshaw puller and daily wage earner. There are still millions who are unable to get two square meals in a day. We still hear news of farmers committing suicide in Maharashtra and Karnataka.

Unfair Means Adopted by Developed Countries: Developed countries still give huge subsidies to their farmers and impose heavy trade barriers. In the bargain developed nations don’t get the desired benefit out of WTO negotiations.

IMPACT OF GLOBALISATION IN INDIA

·         Greater competition among producers – both local and foreign producers has been of advantage to consumers.

·         There is greater choice before these consumers who now enjoy improved quality and lower prices for several products.

·         Foreign investment has increased.

·         Increased competition has encouraged top Indian Companies to invest in newer technology and production methods and raise their production standards.

·         Globalisation has enabled some large Indian Companies to emerge as multinational.

·         Created new opportunities for companies providing services particularly those involving Information Technology.

 WORLD TRADE ORGANIZATION (WTO)

 World Trade Organisation (WTO) is one such organisation whose aim is to liberalize international   trade.

 Started at the initiative of the developed countries, WTO establishes rules regarding international   trade,

 And sees that these rules are obeyed. Nearly 160 countries of the world are currently members of   the WTO (as on June 2014). Though WTO is supposed to allow free trade for all, in practice, it is     seen That the developed countries have unfairly retained trade barriers. On the other hand, WTO rules have   forced the developing countries to remove trade barriers. (164 Countries on July 2016)

CONCLUSION:

Globalization is a reality which is here to stay. Globalization has given more benefits than problems. The economists and policy makers of the world need to fine tune their strategy so that benefits of globalization can reach the masses. The ultimate success of globalization can only be realized when it helps achieve all the parameters of development. These parameters or goals of development are not only about monetary income, but also about better healthcare, education, security and overall quality of life for all.

In order to make globalization more fair, it should ensure that the benefits of globalization are shared better    and government policies must protect the interest of all the people in a country.