Globalisation and the Indian Economy — Notes

Globalisation is the process of rapid integration or interconnection between countries. Countries connect through four channels:

1. Trade in goods and services;
2. Investment, mostly by multinational corporations;
3. Technology (machines, software, know-how);
4. People moving for work and study, which remains the most restricted channel because of visas and immigration rules.

Foreign trade integrates markets: producers sell beyond their domestic markets, buyers get goods from other countries, and competition crosses borders, so the markets of different countries become connected and consumers get wider choice.

A multinational corporation (MNC) owns or controls production in more than one nation. MNCs set up offices and factories where they are close to markets, where labour and other resources are cheap, and where government policies help, so that their costs fall and profits rise.

Investment is money spent on assets such as land, buildings, machines and equipment; investment by MNCs in other countries is foreign investment. By investing, producing and selling in many countries, MNCs move goods, services, capital and technology across borders, which makes them a major force in globalisation. A single product (a phone, a scooter) may be designed in one country, use parts from several others and be assembled in a third.

Transport technology: goods are packed in containers that move intact between trucks, trains, ships and planes, cutting handling time and port costs; bigger ships and cheaper air freight have lowered the cost of moving goods over long distances.

Information and communication technology: computers, the internet, mobile phones and satellite links let information travel instantly. Firms can coordinate production spread across countries, and services can be produced in one country and delivered in another: software maintenance, medical-scan reading, animation, accounting, call centres.

A trade barrier is a restriction on foreign trade set by the government: a tax on imports (tariff), a quota on quantity, or a licence. Governments use barriers to decide what, and how much, comes into the country.

• After independence, India put barriers on foreign trade and investment to protect producers whose industries were just starting; only essentials such as machinery, fertilisers and petroleum were imported freely.
• From 1991, the government decided that Indian producers should compete with producers around the globe, expecting competition to improve their performance. Barriers on trade and investment were removed to a large extent.

Removing barriers or restrictions set by the government is called liberalisation. With liberalisation, businesses can decide freely what to import or export. In recent years India has also signed trade agreements that cut duties with partners such as the UAE and Australia (2022) and the United Kingdom (signed 2025).

The WTO aims to liberalise international trade. It sets rules for international trade that members agree to follow, and helps settle trade disputes. It came about at the initiative of the developed countries; it has more than 160 members, and India has been a member since it began in 1995.

Criticism: the WTO is supposed to allow free trade for all, but in practice developed countries have kept some barriers and pay large subsidies to their own farmers, while developing countries are pressed to remove protection. Developing countries argue for fairer rules.

Assessed through the interdisciplinary project, not the board paper.

How MNCs spread production: joint production with local companies; buying local companies; large orders with small producers (garments, footwear, sports goods). Production in many countries becomes interlinked.

Attracting investment: Special Economic Zones (SEZ Act 2005) with world-class facilities and tax benefits; production-linked incentives (since 2020); easier rules for foreign investment.

Impact on India: consumers, especially well-off urban ones, gained choice, quality and lower prices; MNCs invested and created jobs; some Indian companies became multinationals (e.g. Tata Steel bought Corus in 2007; Bharti Airtel expanded into Africa in 2010); IT and service firms found new markets. But many small producers were hurt by competition, and employers' demand for flexibility made many jobs temporary and insecure.

Fair globalisation creates opportunities for all and shares the benefits better: the government should enforce labour laws, support small producers, use trade barriers where needed, and negotiate with other developing countries for fairer WTO rules; people's organisations also campaign for fairness.