Globalisation and the Indian Economy


Last Updated : 13-07-2024 13:35:35
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  • Multinational corporations (MNCs) is a company that owns or controls production in more than one nation.
  • The money that is spent to buy assets such as land, building, machines and other equipment is called investment. Investment made by MNCs is called foreign investment.
  • At times, MNCs set up production jointly with some of the local companies of these countries. The benefit to the local company of such joint production is two-fold. First, MNCs can provide money for additional investments, like buying new machines for faster production. Second, MNCs might bring with them the latest technology for production.
  • But the most common route for MNC investments is to buy up local companies and then to expand production. MNCs with huge wealth can quite easily do so. To take an example, Cargill Foods, a very large American MNC, has bought over smaller Indian companies such as Parakh Foods. Parakh Foods had built a large marketing network in various parts of India, where its brand was well-reputed. Also, Parakh Foods had four oil refineries, whose control has now shifted to Cargill. Cargill is now the largest producer of edible oil in India, with a capacity to make 5 million pouches daily!
  • 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 creates an opportunity for the producers to reach beyond the domestic markets, i.e., markets of their own countries. Producers can sell their produce not only in markets located within the country but can also compete in markets located in other countries of the world. Similarly, for the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.
  • Foreign trade results in connecting the markets or integration of markets in different countries.

What is Globalisation

  • The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries.
  • Globalisation is this process of rapid integration or interconnection between countries.
  • MNCs are playing a major role in the globalisation process. More and more goods and services, investments and technology are moving between countries. 
  • Besides the movements of goods, services, investments and technology, there is one more way in which the countries can be connected. This is through the movement of people between countries.
  • People usually move from one country to another in search of better income, better jobs or better education. In the past few decades, however, there has not been much increase in the movement of people between countries due to various restrictions.

FACTORS THAT HAVE ENABLED GLOBALISATION

Technology

  • Rapid improvement in technology has been one major factor that has stimulated the globalisation process.
  • For instance, the past fifty years have seen several improvements in transportation technology. This has made much faster delivery of goods across long distances possible at lower costs.
  • Goods are placed in containers that can be loaded intact onto ships, railways, planes and trucks. Containers have led to huge reduction in port handling costs and increased the speed with which exports can reach markets.
  • Similarly, the cost of air transport has fallen. This has enabled much greater volumes of goods being transported by airlines.
  • Information and communication technology (or IT in short) has played a major role in spreading out production of services across countries.

Liberalisation of foreign trade and foreign investment policy

  • Tax on imports is an example of trade barrier. It is called a barrier because some restriction has been set up. Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country.
  • The Indian government, after Independence, had put barriers to foreign trade and foreign investment. This was considered necessary to protect the producers within the country from foreign competition. Industries were just coming up in the 1950s and 1960s, and competition from imports at that stage would not have allowed these industries to come up. Thus, India allowed imports of only essential items such as machinery, fertilisers, petroleum etc.
  • Note that all developed countries, during the early stages of development, have given protection to domestic producers through a variety of means.
  • Starting around 1991, some far reaching changes in policy were made in India. The government decided that the time had come for Indian producers to compete with producers around the globe.
  • It felt that competition would improve the performance of producers within the country since they would have to improve their quality. This decision was supported by powerful international organisations.
  • Thus, barriers on foreign trade and foreign investment were removed to a large extent. This meant that goods could be imported and exported easily and also foreign companies could set up factories and offices here.
  • Removing barriers or restrictions set by the government is what is known as liberalisation.
  • With liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export. The government imposes much less restrictions than before and is therefore said to be more liberal.

WORLD TRADE ORGANISATION

  • World Trade Organisation (WTO) is an organisation whose aim is to liberalise international trade.
  • Started at the initiative of the developed countries, WTO establishes rules regarding international trade, and sees that these rules are obeyed.
  • 149 countries of the world are currently members of the WTO (2006).
  • 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. An example of this is the current debate on trade in agricultural products.
  • Agriculture sector provides the bulk of employment and a significant portion of the GDP in India. Compare this to a developed country such as the US with the share of agriculture in GDP at 1% and its share in total employment a tiny 0.5%! And yet this very small percentage of people who are engaged in agriculture in the US receive massive sums of money from the US government for production and for exports to other countries.
  • Due to this massive money that they receive, US farmers can sell the farm products at abnormally low prices. The surplus farm products are sold in other country markets at low prices, adversely Developing countries are, therefore, asking the developed country governments, “We have reduced trade barriers as per WTO rules. But you have ignored the rules of WTO and have continued to pay your farmers vast sums of money. You have asked our governments to stop supporting our farmers, but you are doing so yourselves. Is this free and fair trade?”
  • A typical cotton farm in USA consists of thousands of acres owned by a huge corporation that will sell cotton abroad at lowered prices. affecting farmers in these countries.

IMPACT OF GLOBALISATION IN INDIA

  • Globalisation and greater competition among producers – both local and foreign producers – has been of advantage to consumers, particularly the well-off sections in the urban areas. There is greater choice before these consumers who now enjoy improved quality and lower prices for several products. As a result, these people today, enjoy much higher standards of living than was possible earlier.
  • Among producers and workers, the impact of globalisation has not been uniform. Firstly, MNCs have increased their investments in India over the past 15 years, which means investing in India has been beneficial for them. MNCs have been interested in industries such as cell phones, automobiles, electronics, soft drinks, fast food or services such as banking in urban areas. These products have a large number of well-off buyers. In these industries and services, new jobs have been created. Also, local companies supplying raw materials, etc. to these industries have prospered.
  • Secondly, several of the top Indian companies have been able to benefit from the increased competition. They have invested in newer technology and production methods and raised their production standards. Some have gained from successful collaborations with foreign companies. Moreover, globalisation has enabled some large Indian companies to emerge as multinationals themselves! Tata Motors (automobiles), Infosys (IT), Ranbaxy (medicines), Asian Paints (paints), Sundaram Fasteners (nuts and bolts) are some Indian companies which are spreading their operations worldwide.
  • Globalisation has also created new opportunities for companies providing services, particularly those involving IT. The Indian company producing a magazine for the London based company and call centres are some examples.
  • Besides, a host of services such as data entry, accounting, administrative tasks, engineering are now being done cheaply in countries such as India and are exported to the developed countries.
  • For a large number of small producers and workers globalisation has posed major challenges.
  • Batteries, capacitors, plastics, toys, tyres, dairy products, and vegetable oil are some examples of industries where the small manufacturers have been hit hard due to competition. Several of the units have shut down rendering many workers jobless.
  • The small industries in India employ the largest number of workers (20 million)in the country, next only to agriculture.
  • Globalisation and the pressure of competition have substantially changed the lives of workers. Faced with growing competition, most employers these days prefer to employ workers ‘flexibly’. This means that workers’ jobs are no longer secure.
  • Large MNCs in the garment industry in Europe and America order their products from Indian exporters. These large MNCs with worldwide network look for the cheapestgoods in order to maximise their profits. Toget these large orders, Indian garment exporters try hard to cut their own costs. As Cost of raw materials cannot be reduced,exporters try to cut labour costs. Where Earlier a factory used to employ workers on a permanent basis, now they employ workers only on a temporary basis so that they do not have to pay workers for the whole year.Workers also have to put in very long working hours and work night shifts on a regular basis during the peak season. Wages Are low and workers are forced to work overtime to make both ends meet.While this competition among the garment exporters has allowed the MNCs to make large profits, workers are denied their fair share of benefits brought about by globalisation.

Steps to Attract Foreign Investment

  • In recent years, the central and state governments in India are taking special steps to attract foreign companies to invest in India.
  • Industrial zones, called Special Economic Zones (SEZs), are being set up. SEZs are to have world class facilities: electricity, water, roads, transport, storage, recreational and educational facilities.
  • Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years.
  • Government has also allowed flexibility in the labour laws to attract foreign investment.
  • Companies in the organised sector have to obey certain rules that aim to protect the workers’ rights. In the recent years, the government has allowed companies to ignore many of these.
  • Instead of hiring workers on a regular basis, companies hire workers ‘flexibly’ for short periods when there is intense pressure of work. This is done to reduce the cost of labour for the company. However, still not satisfied, foreign companies are demanding more flexibility in labour laws.

THE STRUGGLE FOR A FAIR GLOBALISATION

  • The above evidence indicates that not everyone has benefited from globalisation. People with education, skill and wealth have made the best use of the new opportunities. On the other hand, there are many people who have not shared the benefits.
  • Since globalisation is now a reality, the question is how to make globalisation more ‘fair’?
  • Fair globalisation would create opportunities for all, and also ensure that the benefits of globalisation are shared better.
  • The government can play a major role in making this possible. Its policies must protect the interests, not only of the rich and the powerful, but all the people in the country.
  • For instance, the government can ensure that labour laws are properly implemented and the workers get their rights.
  • It can support small producers to improve their performance till the time they become strong enough to compete. If necessary, the government can use trade and investment barriers. It can negotiate at the WTO for ‘fairer rules’.
  • It can also align with other developing countries with similar interests to fight against the domination of developed countries in the WTO. In the past few years, massive campaigns and representation by people’s organisations have influenced important decisions relating to trade and investments at the WTO.
  • This has demonstrated that people also can play an important role in the struggle for fair globalisation.

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