2. IndianEconomy – Before & AfterGlobalisation
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After Independence, India practised
the policy of self-reliant or import
substitution, which means –
1. Heavy Reliance on Public Sector
2. Restriction on Foreign Investment
3. Centralised Planning, and
4. Regulate, Develop & Protect
Private Sectors.
But, unfortunately this policy couldn’t serve the purpose and resulted into
Increased Poverty, High Rate of Inflation, Mounting Fiscal Deficit,
Unemployment, Deficient Infrastructure.
So, India searched for other option for economic openness
and integration between Indian economy and the Global economy. And,
finally with NEW ECONOMIC POLICY,1991 under the guidance of
Dr. Manmohan Singh, the then Finance Minister of India, India opened its
gates to welcome various MNCs for trade within Indian Market.
3. Today, we use a variety goods and services present in the market by various
brands and manufacturers. Some of these companies are Indian and many
of them are MNCs.
What are MNCs ?
MNCs stands for Multi National Corporations. A MNC can simply be understood as a company that
owns or controls production in more than one nation.
These companies setup their offices and factories for production in the regions where they can get
cheap labour and other resources to reduce their cost of production and earn greater profits.
The money spent by MNCs for purchase of land, building, machinery etc. in a country is called
investment. And, for the nation its regarded as foreign investment.
Few examples of popular MNCs operating in India are :
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Production Interlinked-
MNCs• For the purpose of reducing cost of production, MNCs spread their
different departments of production such as packaging, customer service
etc. in various nations as per the comparative low cost in each
departments.
• Sometimes, MNCs setup their production jointly with some local
companies of that country reduce their market risk of the country. In
addition, for local companies it is an opportunity of obtaining additional
investment and technology.
• Most commonly to conduct its operational activity in a country MNCs
simply purchase a local company. In this way, they are now not required to
setup everything from scratch and they focus on expanding their
production.
• Large MNCs with their enormous wealth, control production. They place
orders to small producers and sell those finished goods under their own
brand names to the customers.
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Foreign trade is regarded as “Integration of
markets in different countries”. It creates
an opportunity for producers to reach beyond
the domestic market and compete with
markets present in other countries. It helps
producers in increasing the demand of their
products by making it reachable for the
customers of other nations.
With the opening of trade,
goods travel from one country to another.
This benefits buyers, as import of goods
produced in another country expands their
choice of goods beyond what is domestically
produced.
With an effective foreign trade in a country,
its economy prosper (mainly when it exports
more than its import). It also increases the
standard of living in people of that country.
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Globalisation…
Lets’ Watch a Video to
understand -
“Globalisation and how it
works”
Click Here to Start
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Globalisation can be understood as a process associated with increasing
openness and integrating the economy of a country with the economies of
other countries under conditions of free flow of trade and capital across
borders.
Globalisation results into free movement of more and more goods and
services, investment technology and people between countries.
2 Major Factors that enabled Globalisation :
• Technology
• Trade Liberalisation & Foreign Investment Policies
Meaning
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Rapid movement in technology has been one major factor that has stimulated the globalisation
process.
With the advancement in technology, faster delivery of goods across
long distances is possible at low costs. Large cargo ships, air transport, road – rail transport
have seen several improvements in few decades. These improvements have enabled quick flow
of goods and people across borders possible, directly contributing to globalisation.
Also, developments in the filed of Information & Communication Technology (ICT) have been
even more remarkable. Satellite communication devices, internet, fax etc. contribute in transfer
of ideas and production of services across countries.
E- banking, Distant Education, Stock Market Trading, Product designing etc. are some areas
influenced by ICT which aggravated the process of globalisation.
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Trade
Liberalisation &
Foreign
Investment
Policies
Liberalisation of an economy means its freedom from direct
or physical controls imposed by the government.
• After Independence, Indian government imposed
various trade barriers and controls on foreign trade and
foreign investment. This was done to protect domestic
producers from international competition and let them
prosper within the country.
• But soon, government experienced its shortcomings
such as corruption, inefficiency, low GDP etc.
• And, then in the year 1991, with the New Economic
Policy, Government of India removed trade barriers to a
large extent.
• This encouraged import – export, foreign investment
and other opportunities for the people of India.
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WTO (World Trade Organisation) is an international organisation
that is concerned with the regulations of international trade
between countries. Its aim is to liberalise international trade.
Currently, 164 nations are its members.
Though, WTO is supposed to allow free trade to all, in practice.
Developed Countries are seen retaining unfair trade barriers. On
the other hand, developing countries are forced to remove trade
barriers by these international organisations.
WTO(World Trade Organisation)
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Impact of Globalisation in
India
Benefits
• Customers enjoy good quality products at low prices due to high
competition.
• Large flow of new ideas and innovations in the country.
• Producers enjoy with new technology and production methods.
• Local producers under joint production with MNCs enjoy benefit of
huge investments.
• Increase in Employment opportunities.
Drawbacks
• Small producers face difficulty in existence against large business
houses.
• It leads to deterioration of environment.
• It possess threat to culture heritage.
• Increased flow of skilled – unskilled labour leads to low salary and
high competition.
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Conclusion
While globalisation has benefited well-off
consumers and also producers with skill,
education and wealth, many small producers
and workers have suffered as a result of the
rising competition. It is necessary for
government to establish a “Fair Globalisation”
, a globalisation which is beneficial for all and
not for only a certain group of people.
For this, Government must take some
possible steps such as implementation of
labour laws, act as umbrella for small-scale
producers, negotiate trade-barrier conditions
with WTO and so on.
Fair globalisation would create opportunities
for all, and also ensure that the benefits of
globalisation are shared better.