GLOBALISATION AND THE INDIAN ECONOMY

LIBERALISATION OF FOREIGN TRADE AND FOREIGN INVESTMENT POLICY

LIBERLISATION: Removing barriers or restrictions set by government is known as liberalization.It has two components.,
1.goods could be imported and exported easily.
2. foreign companies could set up factories and offices here-in India.
TRADE BARRIER—Tax on imports.It is called so because some restriction has been setup.
--govt. can use barriers to increase or decrease(regulate)foreign trade and to decide what kind of goods and services and how much of each should come into the country.
Q. Why did the Indian govt., after independence had put barriers to foreign trade & investments?
--This was considered necessary to protect the producers with the country from foreign competition.
--As the industries were just coming up in 1950’s and 1960’s and the competition from imports at that stage would not have allowed these industries to come up.
--India allowed the imports of essential items as machinery, petroleum, fertilizers etc.
CHANGES AFTER 1991.----WHY?
Around 1991, some far-reaching changes were made in India
The govt. decided that the time has come for Indian producers to compete with producers around the globe.
--It felt that the competition would increase performance of the producers with in the country since they would have to improve their quality.
--Thus the barriers on foreign trade &foreign investments were removed to a large extent.
--This was Liberalisation and with it business were are allowed to take decisions freely about what they wish to export to import.
--The govt. imposes much less restriction than before, & therefore is said to be more liberal.
WORLD TRADE ORGANISATION
It is an organization whose aim is to liberalise international trade.
--It was started at the initiative of developed countries.
--It establishes rules regarding international trade and sees that these rules are obeyed.
--149 countries are at present members of the WTO.
--Though WTO is supposed to allow free trade for all, in practice, it is seen that the developed nations have unfairly retained trade barriers. On the other hand, WTO rules have forced the developing countries to remove trade barriers.
IMPACT OF GLOBALISATION
In the lasy fifteen years, globalisation of the Indian economy has come a long way.
1.MNC’s have increased their investments over the past 15 years, which means that investing in India has been beneficial to them.
a)MNC’S have invested in cell phones, automobiles, electronic, soft drinks, fast foods & in the areas such as banking in urban areas. Thses products have large number of well off buyers.
b) In these industries various new jobs have been created.
c)local companies who are supplying them raw material have also prospered.

2. Several top Indian companies have been able to benefit from the increased competition.
a) They have invested in newer technology and production methods & raised their production & standards.
some have gained from successful collaborations with foreign companies.
b)Globalisation has enabled some large companies to emerge as multinationals themselves as.,Tata motors, Ranbaxy. Asian Paints, Sundaram Fasteners (nuts& bolts).

3. Globalisation has also created new opportunities for companies providing services, particularly those involving IT. The Indian companies are the host of services like, data entry, accounting, administrative tasks, engineering are now being done cheaply in India & are exported to the developed countries.

4.Globalisation& competition among producers-both local and foreign has been of advantage to the consumer, particular of the well off section.
a)Now there is greater choice.
b) They enjoy improved quality and lower prices.
c) As a result these people, today enjoy much high standards fo living than they had before.
BUT THE IMPACT OF GLOBALISATION HAS NOT BEEN UNIFORM.
There are several drawbacks also.

1.Small producers, compete or perish—for a large number of small producers & worker it has posed major challenges.
-- Rising competition has led to shutting down of many units and many workers have been rendered jobless.
--Batteries, capacitors, plastics, toys, dairy products and vegetable oil are the examples of the industries which have been hit hard due to hard competition.
2. Competition and uncertain Employment—Globalisation & pressure of competition have substantially changed the lives of workers, faced with growing competition, most employers prefer to employ workers flexibly.
-This means that the workers are no more secure; they have long working hours, work night shifts on regular basis during peak season, no job security, no benefits as of pension, overtime, medical leave etc.
-Workers are denied their fair share of benefits brought about by globalisation.
-With this the conditions of work in the organized sector has come to resemble that of the unorganized sector.
STEPS TO ATTRACT FOREIGN INVESTMENT
In the recent years central and state govt. in India is taking some special steps to attract foreign companies to invest in India.
--Industrial zones -called SEZ’s, Special economic zones are being setup.
--SEZ’s are to have world class facilities like electricity, water road transport, storage, recreational and educational facilities.
--The industries which will set up their production units here will not have to pay taxes for initial five years.
these companies are allowed to ignore many of rulers that aim to protect the workers i.e., instead of hiring workers on regular basis, companies hire workers flexibly for short period during the peak period.
--this is done to reduce the cost of labour for the company.
STRUGGLE FOR A ‘FAIR GLOBALISATION’
Fair Globalisation: this would create opportunities for all &also ensure that the benefits of globalisation are shared better.
ROLE OF THE GOVERENMENT IN MAKING ‘FAIR GLOBALISATION.’
The govt. can play a major role in the making this possible.
1.Its policies must protect the interests, not only of rich & powerful but all in the country.
2.the govt. can ensure that labour laws are properly implemented and the workers get their rights.
3.It can support small producers to improve their performance till the time they become strong enough to compete.
4.If necessary govt. can use trade & investment barriers.
5.It can negotiate at the WTO for the ‘fairer rules’.
6.It can also align with other developing countries with similar interests to fight against the domination of the developed countries in WTO.
In past few years, massive campaigns and representations have influenced important decisions relating to trade & investments at WTO. This shows that even people can also play an important role in the struggle for fair globalisation.

GLOBALISATION AND THE INDIAN ECONOMY

GLOBALISATION AND THE INDIAN ECONOMY
Today we have wide choice of goods and services before us.
There is explosion of brands.
It is a recent trend and in a matter of years our markets have been transformed.
WHAT ARE REASONS / FACTORS FOR THESE RAPID TRANSFORMATIONS?
Middle of twentieth century:
--Production was largely organized with in the countries
--What crossed the boundaries was mainly the raw materials, food stuff and finished products.
--Trade was the main channel connecting distant countries.
EMERGENCE OF MNC’S—Multi national corporations
--It is a company that owns or controls production in more than one nation.
--MNC’s set up offices & factories for production in the regions where they can get cheap labour and other resources.
--This is done so that the cost of production is low and the MNC’s can earn greater profits.
--Many MNC’s have wealth exceeding the entire budgets of the developing countries , with such enormous wealth they have immense power & influence.
FACTORS/ CONDITIONS TO SET UP A MNC
MNC’s set up production where it is
-- close to the markets.
--where there is skilled labour available at low costs.
--where the availability of other factors of production is assured.
--They look for the government policies that look after their interests.
INVESTMENT:
The money that is spend to buy assets such as land, building, machines and other equipment is called investment.
The investment made by MNC’s is called foreign investment.
Q. Why do MNC’s set up production jointly(with local companies)?
The benefits to the local company of such joint production is two-fold.
MNC’s can provide money for the additional investments like buying new machines for faster production.
2.MNC’s might bring them latest technology for production.

VAROIUS WAYS IN WHICH MNC’s ARE SPREADING THEIR PRODUCTION:
There are variety of ways in which MNC’s are spreading their production and interacting with local producers in various countries across the globe. They do this by various means:

1.By setting up partnerships with local company..
2.By closely competing with local companies or buying them -the most common route for MNC investments is to buy up local companies and to expand production. With their huge wealth they can easily do so..
3. By using local companies for supply - Large MNC’s in developed countries place orders for production with small producers.Eg., garments, footwear, sports item etc. The products are supplied to MNC’s which then sell these under their brand names ti the customers.
As a result, production in these widely dispersed locations is getting interlinked.
MNC’s are exerting strong influence on production at these distant locations.

WAYS BY WHICH MNC’s CONTROL PRODUCTION.
Top MNC’s have enormous wealth and at times even bigger than the budget of the developing countries.
--Another way in which they control production is that MNC’s in the developed countries place orders for production with small producers .
--The products are supplied to the MNC’s, which then sell these under their brand names to the customers.
--These MNC’s have enormous power to determine price, quality, delivery. and labour conditions for these distant producers.
TRADE AND FOREIGN TRADE
HISTORY:
--Various trade routes connecting India and South Asia to markets both in the East and West & extensive trade that took place along these routes.
--It was trading interest which attracted various trading companies such as East India Company to India.
Q. What is the function or purpose of foreign trade?
1--Foreign trade creates an opportunity for the producers to reach beyond the domestic markets i.e., markets of their own countries.
2--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.
3—For the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.
EFFECTS OF FOREIGN TRADE:
There are various positive & negative effects of foreign trade. Its positive effects are
1.With the opening of trade, goods travel from one market to another.
2. Choice of goods in the markets rises.
3. Prices of similar goods in the two markets tend to become equal.
Producers in the two countries now closely compete against each other even though they are separated by thousands of miles.
Foreign trade thus results in connecting the markets or integration of markets in different countries.The economies of various countries are getting interlinked.
EFFECTS OF FOREIGN TRADE THROUGH THE EXAMPLE OF CHINESE TOYS IN INDIAN MARKETS—Chinese toys in India.
Chinese manufacturers got an opportunity to export plastic toys to India.
Q. How did it benefit to India & to China?
To China: Chinese got an opportunity to trade and expand their business.
--As they were selling it at high selling price, they got high profits.
--Within an year 70-80% of toys shops have replaced Indian toys with Chinese toys.
To India:Indian buyers have more choice now.
--Prices are cheaper now.
--designs are new.
--But due to the cheaper prices & new designs , the Indian toy makers face losses, as their toys are selling much less.

Q. What is Globalisation?
It is the process of rapid integration or interconnection between countries.
--There is one more way through which countries are becoming closer and that is Movement of people between countries. People usually move from one country to another in search of jobs or better education.This is also a result of Globalisation.
.
MNC’S are playing major role in the Globalisation process.
MNC’s have been looking for locations around the world , which would be cheap for their production
--As a result of greater foreign investment and greater foreign trade ,has been greater integration of production and markets across countries.
--More and more goods and services, investments and technology are moving between the countries.
--Most regions of the world are in closer contact with each other than a decade back
--Foreign investment in the countries has been rising.
--Foreign trade between the countries has been rising.
--The activities of most of the MNC’s involve substantial trade in goods and also services..
FACTORS THAT HAVE ENABLED GLOBALISATION
TECHNOLOGY: Rapid improvement in technology has been one major factor that has stimulated globalisation process. Due to technology there has been improvements in various fields as in ,
1.TRANSPORTATION TECHNOLOGY.
a) In past fifty years this technological improvements has led to faster delivery of goods across long distances at lower costs.
b) Containers for transport of goods: have led to huge reduction in port handling costs, increased the speed with which goods can reach markets.
c) Airlines: the cost of air transport has fallen, this has enabled much greater volumes of goods being transported by airlines.
2.INFORMATION AND COMMUNICATION TECHNOLOGY:
IT, has played a major role in spreading out production of services across countries.
Remarkable improvements have in the areas of telecommunications, computers &internet.
a)Telecommunications: facilitated by the satellite communication devices, facilities as telegraph, telephone including mobiles, fax are used to contact around the world, to access the information instantly,& to communicate in the remote areas.
b)Computer and internet: computers have entered in almost all the fields.
Internet allows one to share information on almost every thing, we can send instant e-mail and talk through voice-mail across the world at almost negligible cost.