Chapter 4 — Globalisation and the Indian Economy

A MNC is a company that owns or controls production in more than one nation. It sets up offices and factories in regions where it can get cheap labour and other resources to reduce production costs and earn greater profits. Examples include Ford Motors, Cargill Foods, Nike, and Coca-Cola.

Globalisation is the process of rapid integration or interconnection between countries through foreign trade and foreign investment by MNCs. It involves greater movement of goods, services, investments, and technology between countries, resulting in the integration of production and markets across the globe.

Three major factors have enabled globalisation: (1) Rapid improvements in technology, especially transportation (containers, air transport) and information technology (internet, telecommunications, computers) that enable faster, cheaper movement of goods and instant communication; (2) Liberalisation of trade and investment policies, which removes government barriers; and (3) The WTO (World Trade Organisation), which establishes rules to promote free international trade.

Liberalisation is the removal of government barriers and restrictions on foreign trade and foreign investment. It allows businesses to freely decide what to import or export and enables foreign companies to set up factories and offices. Starting around 1991, India removed many trade barriers to encourage competition, believing it would improve producer performance.

The World Trade Organisation (WTO) is an international organisation started to liberalise international trade. It establishes rules regarding international trade and ensures these rules are obeyed by its approximately 160 member countries. However, in practice, developed countries have retained unfair trade barriers while forcing developing countries like India to remove theirs.

Globalisation has benefited well-off consumers, particularly in urban areas, by providing greater choice of goods, improved quality, and lower prices. For example, Indian buyers now have access to the latest models of automobiles, digital cameras, mobile phones, and televisions from leading worldwide manufacturers, which were unavailable two decades ago.

Globalisation has posed major challenges to small producers and workers. Rising competition has forced many small manufacturers to reduce production and close their units, causing job losses. Workers face uncertain employment as companies now hire workers 'flexibly' on temporary contracts instead of permanent positions, resulting in lower wages, no job security, and loss of benefits like health insurance and provident funds.

Fair globalisation would create opportunities for all people and ensure that the benefits of globalisation are shared equitably rather than only benefiting the wealthy and powerful. It requires government policies that protect workers' rights, support small producers, enforce labour laws, and negotiate fairer rules at the WTO for developing countries.

MNCs spread production in several ways: (1) by setting up factories and offices in countries where labour and resources are cheap; (2) by establishing partnerships with local companies and providing investment and technology; (3) by buying existing local companies and expanding their production; and (4) by placing orders with small producers around the world who manufacture products sold under the MNC's brand name.

Foreign trade is the exchange of goods produced in one country for goods produced in another. It creates opportunities for producers to reach beyond their domestic markets and for buyers to access goods from other countries. As goods move between markets, prices tend to equalise and producers compete across borders even though separated by thousands of miles, resulting in integration of markets in different countries.

Developed countries like the US give massive subsidies to their farmers, allowing them to sell farm products at abnormally low prices globally, which harms farmers in developing countries. Although the WTO rules state that all countries should liberalise trade, developed countries have ignored these rules while forcing developing countries like India to remove trade barriers, creating an unequal and unfair situation.

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