Chapter 4: Globalisation and the Indian Economy
Production Across Countries
Until the middle of the twentieth century, production was largely organised within countries; only raw materials, food and finished goods crossed borders. This changed with the rise of Multinational Corporations (MNCs) — companies that own or control production in more than one nation. MNCs set up offices and factories in regions where they can get cheap labour and other resources, closeness to markets, availability of skilled and unskilled labour at low cost, and government policies that look after their interests. In this way, production is organised in increasingly complex ways — the production process is divided into small parts and spread out across the globe.
Interlinking Production Across Countries
- Investment: Money spent to buy assets such as land, building, machines and other equipment. Investment made by MNCs is called foreign investment, made with the hope of earning profits.
- Ways in which MNCs spread production and interlink markets:
| Method | How it works | Example |
|---|---|---|
| Joint production with local companies | MNC provides money for additional investment and brings the latest technology | MNC setting up production jointly with an Indian company |
| Buying up local companies | MNCs with huge wealth simply purchase existing local companies and expand production | Cargill Foods (US) bought Parakh Foods — Cargill is now the largest producer of edible oil in India (capacity: 5 million pouches daily) |
| Placing orders with small producers | Large MNCs order products from small producers worldwide and sell under their own brand names; they have tremendous power to fix price, quality, delivery and labour conditions | Garments, footwear, sports items supplied to MNC retailers |
| Setting up wholly-owned factories/offices | Direct production close to markets or cheap resources | MNC production plants and call centres in India |
Foreign Trade and Integration of Markets
Foreign trade creates an opportunity for producers to reach beyond the domestic market. Similarly, buyers get the choice of imported goods. With the opening of trade, goods travel between markets, prices of similar goods in the two markets tend to become equal, and producers in the two countries now compete directly even though they are separated by thousands of miles. Thus foreign trade results in connecting (integrating) the markets of different countries. Example: during the cotton harvest in India, Chinese buyers importing Indian cotton raise prices for Indian producers, while Chinese textile mills get cheaper raw material.
What is Globalisation?
Globalisation is the process of rapid integration or interconnection between countries. MNCs are playing a major role in this process. More and more goods and services, investments and technology are moving between countries; there is also (though more restricted) movement of people between countries in search of better income and jobs.
Factors that have Enabled Globalisation
- Technology: Rapid improvement in transportation technology has made much faster delivery of goods across long distances at lower costs. Even more remarkable are developments in information and communication technology (IT) — telecommunication, computers, internet, e-mail, voice-mail — which allow information to be shared instantly and services (like publishing a magazine designed in Delhi for a London company) to be produced and delivered across the world.
- Liberalisation of foreign trade and foreign investment policy: Removing barriers or restrictions set by the government is known as liberalisation. A trade barrier (e.g., tax on imports) is a restriction used by governments to increase or decrease (regulate) foreign trade and decide the kinds of goods and their quantities entering the country.
- After independence, India put barriers on foreign trade and investment to protect its infant industries from foreign competition (only essential imports like machinery, fertilisers and petroleum were allowed).
- Starting 1991, the government decided that Indian producers were ready to compete; barriers were removed to a large extent so that businesses could make decisions freely and the economy could integrate with the world.
- Pressure of international organisations — the WTO: The World Trade Organisation (about 160+ member countries) aims to liberalise international trade and see that member countries follow its rules on trade barriers. In practice, developed countries have unfairly retained trade barriers (e.g., huge subsidies to their farmers) while forcing developing countries to remove theirs.
Impact of Globalisation in India
| Positive impact (mainly on) | Negative impact (mainly on) |
|---|---|
| Consumers, particularly the well-off urban sections: greater choice, better quality and lower prices of goods (mobile phones, automobiles, electronics) | Small producers: batteries, capacitors, plastics, toys, tyres, dairy products and vegetable oil industries hit hard by competition; several units shut down, many workers jobless |
| MNCs increased investment in cell phones, automobiles, electronics, soft drinks, fast food, banking services — new jobs created, local suppliers prospered | Workers: employers now prefer flexible employment — workers hired temporarily during peak season, no job security or worker benefits, long hours, night shifts |
| Top Indian companies gained from increased competition — invested in newer technology and raised standards; some (Tata Motors, Infosys, Ranbaxy, Asian Paints, Sundaram Fasteners) emerged as MNCs themselves | Benefits of globalisation have not been shared equally — "fair globalisation" is still to be achieved |
| New service opportunities for Indian companies — IT, data entry, accounting, call centres, administrative tasks done cheaply in India and exported | Government spending on small producers' support fell after liberalisation; competition from cheap imports (e.g., Chinese toys) squeezed Indian makers |
The Struggle for a Fair Globalisation
Fair globalisation would create opportunities for all and ensure that its benefits are shared better. The government can play a major role by:
- Ensuring labour laws are properly implemented and workers get their rights;
- Supporting small producers to improve their performance until they become strong enough to compete;
- Using trade and investment barriers where necessary;
- Negotiating at the WTO for "fairer rules" and aligning with other developing countries with similar interests to fight the unfair practices of developed countries.
People's organisations and campaigns also matter — massive campaigns and representation by people's organisations have influenced important WTO decisions on trade and investment.