Chapter 4 Solutions — Globalisation and the Indian Economy

After Independence, the Indian government put barriers to foreign trade and foreign investment mainly 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 develop. India therefore allowed imports of only essential items such as machinery, fertilisers, petroleum, etc.

Around 1991, the government decided to remove these barriers because it felt that Indian producers were now ready to compete with producers around the world. It was assumed that this competition would improve the quality of goods produced within the country. This decision was supported by powerful international organisations, and thus barriers on foreign trade and foreign investment were removed to a large extent.

Companies, especially MNCs, look for the cheapest way to produce goods so as to earn greater profits. To reduce costs, they seek flexibility in labour laws.

Flexibility in labour laws allows companies to hire workers 'flexibly' for short periods when there is intense pressure of work and to let them go when the work is over. This helps companies reduce the cost of labour, since they do not have to keep a permanent workforce or provide the security and benefits associated with regular employment, thereby increasing their profits.

MNCs set up, control and produce in other countries in several ways.

First, they set up production jointly with some of the local companies of these countries, providing money for additional investments and bringing in the latest technology for production.

Second, and the most common route, MNCs buy up local companies and then expand production. With their huge wealth they can easily do so.

Third, MNCs place orders for production with small producers. Garments, footwear, sports items, etc., are examples of these industries where production is carried out by a large number of small producers around the world; the products are supplied to the MNCs which then sell these under their own brand names to customers.