GLOBALIZATION AND THE INDIAN ECONOMY MCQ HINTS 1. MNC stands for Multinational Companies. 2.

Money spend to buy assets such as land, buildings, machinery and other equipment is called investments. 3. Connecting of markets or integrating markets in different countries is termed as foreign trade. 4. WTO is World Trade Organization It aims to liberalize international trade. 5. 149 countries of the world are members of WTO as given in 2006 6. The movement of goods and services, investments and technology between countries is termed as Globalization.

Three Marks questions 1. What was the reason to put trade barriers before 1991 by the Indian government? Why did the government remove these barriers? Prior to 1991 Indian trade was restricted and contained to domestic industry. Many changes have been brought in it after 1991. Reasons for trade barriers: i. Prior to 1991 Indian industry was in its formation stage and hence cannot stand in competition with the Multinational Corporations, to protect the domestic industry from dying out trade barriers were placed. Prior to 1991 it was essential to create job opportunities for the backward section of the Indian society and also subsidized goods like food product were to be made available to people below poverty line hence we imposed barriers.

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Reasons to remove barriers: i. ii. After 1991 India has enough stabilized industrially and also has achieved food security. Indian economy needed a lot foreign investment to secure more industry to create jobs and stabilize its depleting foreign reserves. India also wanted Indian industry to be established abroad and wanted to create opportunities for Indian business houses to globalize thus we preferred liberalization and globalization.

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How would flexibility in labor laws help companies? Flexible labor laws are essential to stabilize business and industry. They can also be instrumental in attracting more foreign investment. i. ii. iii. Companies can hire workers for short periods when there is pressure of work. This has made companies more flexible in completing orders. Cost of labor can be reduced substantially with temporary hiring rather than permanent hiring. Foreign companies have always demanded the need to temporary hire workers rather than employ them permanently. Companies can also outsource production to other units, this not only cut labor costs but can also be a help in generating additional employment.

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How does the MNC set up and control production in other countries? MNC always look for labor cost effective destinations to save on labor cost and manage market competition i. MNC either directly set up production units in other countries or outsources production to already existing domestic industry this is done to considerably cut labor costs and produce goods cost effective to secure price competition in the market. At time many MNC by not directly venturing in other countries outsource production to them for example garment manufacturers of USA outsource production of garments to Indian industry. This is also done to cut labor costs as India provides labor at much cheaper rates than they find in USA MNC mostly employ short term labor for production in keeping with the demand of the goods. Short term labor contracts are often more cost effective than permanent labor contracts.

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Why do developed countries want developing countries to liberalize their trade and investment? What do you think the developing countries should demand in return? Developed countries have always complained of the developing countries following protectionist trade practices. i. Developed countries are eager to secure investment in the developing countries to not only secure cheap labor but also see them as fast growing markets. Most MNC want developing countries to open trade to encourage developed countries share in the domestic market. Liberalized trade in developing countries and establishing of MNC in them will reduce all forms of domestic competition to MNC goods as direct foreign investment needs no local partner in establishing production enterprises.

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3 iii. Developing countries must exert the demand of labor stability, better working conditions for labor, more transfer of technology and generation of more employment from developed countries as a return to opening their markets.

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The impact of globalization has not been uniform. Examine the statement. Globalization has not been fair. Wherever the WTO has gathered to meet people have protested it as they feel it has been unfair to developing countries and favor the developed countries. i. ii. The MNC are rarely bothered of the labor issues of the host country as they are more interested in cutting costs than providing employment. This many feel is a form of economic imperialism. The effects of at domestic level are also not encouraging of the globalization initiated by WTO. The benefits of the economic prosperity have been only limited to a few where as the majority is still to benefit from the gains of globalization. WTO has also been unfair to the needs to developing economies and has always tilted in favor of the developed countries. The WTO rules force the developing economies to open their markets without seeking any good bargain.

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How has liberalization of trade and investment policies helped the globalization process? Liberalization of trade and investment has certainly helped in globalization i. Globalization is all about integrating world markets and any trade barriers or protectionist trade practice will hinder it. The liberal trade policies have strengthened investment in India as more Foreign Direct Investments (FDI) have poured into Indian markets. A more liberal trade practice has also encouraged better transfer of technology and has integrated the Indian markets with world. Barrier free trade is a key to fast integration of Indian trade with world trade. Liberalized trade regimes have also encouraged the faith of foreign investors in Indian markets. The chance to compete with MNC products has made Indian industry technologically strong to gain investments abroad thus globalizing the Indian trade and commerce.

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How can the government counter the unfair trends of globalization? Globalization has not been fair. In many cases like the labor globalization has been a mixed blessing. i. People with education, wealth and skill have made the most out of globalization. The fruits of it are not yet delivered to the illiterate and poor. The impact has drawn wider gulf between the rich and the poor.

4 ii. iii. The government should ensure that labor laws are implemented properly and the workers get their rights. Government has also to ensure that labor enjoys a continuous employment. Government has to provide incentives to domestic industry to bring it at par with the international standards. Further the government should negotiate better deals from WTO and must join countries who have similar demands.

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In what ways has competition affected workers, Indian exporters and foreign MNCs in the garment industry? Competition has affected all of them in many different ways Workers: i. Globalization and the pressure of competition have substantially changed the lives of the workers. Working hours have increased and wages have been reduced. ii. Faced with growing competition most employers these days prefer to employ workers flexibly. This means worker jobs are no longer secure. Indian Exporters: i. Indian garment exporters try hard to cut their own costs. As the cost of the raw materials cannot be reduced so labor costs are compromised. ii. Indian exporters now employ workers on temporary basis to cut labor costs rather than employing them for full year. MNC: i. The competition among garment exporters has benefitted the MNC to make large profits. ii. MNC in America and Europe order their products from Indian exporter and domestic competition has made them make huge profits.

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One of the present debates in India is whether companies should have flexible policies for employment. Specify your views with examples. Companies need to have flexible labor policies but at the same need to be monitored by the government. i. The entire process of globalization is to integrate economies. Workers are at the receiving end as from exporters to manufactures to make profits cut on labor cost by employing them on contract basis. This has made the labor market insecure of compared to the earlier security it enjoyed. The government has to initiate a policy that makes the implementation of labor laws more stringent in order to protect the workers. Flexible policies of employment is in certain a major factor in cost reduction and increase margins of profits as other factors cannot be price controlled.

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10. What are SEZ? How do they attract foreign investors? SEZ are also referred as Special Economic Zones. They are initiated by central and state governments to attract foreign investment. They attract foreign investors as the SEZ assures i. The SEZ assures world class facilities like electricity, water, roads, transport, and storage, recreational and educational facilities. ii. Companies who set up production in the SEZ do not have to pay taxes for an initial period of five years. 11. What are the significant impacts of globalization on India? OR How has Globalization benefited the people in India? Globalization has had a mixed impact on the Indian situation. The impact can be studied as i. ii. Consumers have benefitted the most from globalization as they enjoy improved quality and lower prices for several products. This has resulted in many Indians enjoying a higher standard of living. The MNC with interest in communication, automobiles, electronics, beverages, fast food and banking in urban sector have created a huge market for jobs. The benefit has also gone to local raw material suppliers who have gained a lot from these MNC. Top Indian companies like TATA, Reliance have invested in new areas like technology and have been due to globalization got opportunity to either successfully enter into collaborations with foreign players or spread their own operations worldwide.

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12. Should more Indian companies emerge as MNC? How will it benefit the people in the country? Rise of Indian MNC is essential for the growth of Indian economy. i. The large the number of Indian MNC the more secure will be Indian economy. Indian MNC will acquire business abroad and ear the much needed foreign exchange thus reducing the dependence on foreign MNC to invest in India. Indian MNC will also help secure the domestic Indian industry. Most domestic industry bows out when it comes to compete with foreign MNC, Indian MNC will outsource a production to domestic industry to sustain it. People in certain will benefit from this. In the first instance jobs will be created and secondly Indian industry will be better controlled by the government rules governing labor rights hence will secure their jobs.

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6 13. Why are SEZ opposed in India? SEZ have been opposed in India by section of Indian population. There are many reasons that have resulted in such protests i. SEZ are designed to attract foreign investments by providing world class facilities. In most cases it has been observed that the state governments in haste to attract this investment opt to construct SEZ in arable lands, local farmers and their sympathizers resort to protests to displace these SEZ. Many local workers unions have also a scare of foreign investment as they feel will be either making them jobless or amount to reduction of privileges they enjoy. These worker unions also protest the establishment of SEZ. At times local political outfits incite the people against the SEZ for political gains. Mostly parties in opposition discourage any act of the ruling party that can enhance their image in public thus they become a factor to oppose SEZ.

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14. Distinguish between foreign trade and foreign investments. FOREIGN TRADE It results in connecting the markets or integration of markets in different countries. It does not indulge in transfer of technology or industry. The aim is only concentrated to integrate countries for market needs. Integrating markets through foreign trade is usually not much affecting the labor. The concept of foreign trade is to capture foreign markets for trade. FOREIGN INVESTMENT It is the money invested by a foreign MNC in another country to secure its economic gains. The money is spent in usually acquiring assets like land, building, machines, and other equipments. It amounts to transfer of technology and opening of industry as the sole purpose is to increase profits. Labor costs are reduced to increase to margins of profits. Flexible labor policies have made labor more insecure than they have been before.

15. What is globalization and liberalization of foreign trade? Globalization: i. It is the process of rapid integration or interconnection between countries. This has resulted in more and more goods and services, investments and technology are moving between countries. ii. Satellite communications have further enhanced the globalization into a new field of information and communication technology. Liberalization of foreign trade:

7 i. ii. Removing of barriers or restrictions set by government for international trade commerce and allowing free passage to foreign goods into Indian markets is called as liberalization of foreign trade. Liberalization has encouraged domestic industry to perform better to compete with the foreign goods. The removal of barriers has resulted in easy import and export of goods than before.

16. What was main channel in connecting the countries in the past? How is it different now? Until the middle of the twentieth century production was largely organized within country but it has changed now i. ii. iii. The earlier channel of connecting countries was referred as colonialism. Colonies such as India exported raw materials and food stuffs and imported finished goods. Trade was the main channel of connecting the countries. Distant nations kept relations because of trade. In the current times multinational corporations have emerged on the scene. They control production and distribution and use the cheap labor to make maximum profits.

17. How do the MNC control production in globalized world? MNC are large and vast industrial houses and have basis in nearly all countries of the world. They control large shares in the globalized world i. MNC set up production where it is close to the market. It also evaluates the availability of cheap skilled and unskilled labor. MNC also analyze the proximity of the production unit to the source of raw material. The money that MNC invest is called as foreign investment. This money is usually invested to acquire assets like land, buildings, machines and other equipments. MNC at times set up production jointly with some of the local industry. The local industry benefits in two-folds, firstly the MNC provides latest technology and secondly most of the investment id of the MNC. ******************** SAYONARA!!... GRADE X

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