Globalization and the India Economics
Q1. What were the main features of development strategies from
1951-1991?
Ans. 1) Central planning commission was setup in 1950 to direct
investment in priority sectors.
2) All basic heavy industries were exclusively are reserved for the
public sector.
3) The private sectors were subject to industrial licensing and
controls to establish industries and business.
4) Free imports were restricted unless with a quota or license.
5) Banks and financial institution were under the government
control.
6) FERA (Foreign Exchange Regulation Act) was enforced to
regulate Foreign Direct Investment (FDI).
5) Banks and financial institution were under the government
control.
Q2. What were the positive aspects of development strategies
from 1951 – 1991?
Ans . 1) It helped India forming a strong industrial base and the
increased industrial sector and production.
2) The no. of people living below the poverty line declined.
3) In five decades of developments strategy, we have reached self
- sufficiency.
4) Productivity has increased, though lower than International
standards.
5) A based for export oriented industries have been created.
6) Saving was mobilized for development from our own resources.Q3. What were the negative aspects of development strategies in
1951-1991?
Ans. 1) Inefficiency of our industries cost a major problem that it could
not face competition.
2) Laws made to regulate the private sector were one of the
reasons for slow growth of industrial sector.
3) Public sector undertaking suffered from inefficient management
and ended up in losses.
Q4. Explain the need for economic reforms of 1991.
Ans. The need for economic reform of 1991 were felt because of:-
1) Public sector performed very badly and could not achieve
desired objectives.
2) Increase in fiscal deficit that the government heading towards
debt – trap.
3) Adverse balance of payments due to low Foreign exchange
Reserves.
4) Gulf crisis was a major reason due to which the prices of petrol
increased in 1990 – 91.
5) Rise in prices i.e., inflation rate in India increased from 6.7% to
16.7%.
Q5. Explain the main aspects of New Economic policy of 1991.
Or
Explain liberalization, Globalization and Privatization.
Ans . 1. Liberalization : means liberating the trade and industry from
unwanted government controls and restrictions. It means reduced role of the government in trade and industry and a greater role for private
sector and market forces.
2. Globalization : indicates the opening of the economy for the
world market. It means integrating our economy with the world
economy. The economic gap between different nations is reduced by
removing all restrictions between nations and the movement of goods,
services, capital, technology and labour.
3. Privatization : may be defined as a transfer of ownership and
control from public sector to private sector. Under new economic
reforms, policy of encouraging the private sector has been accepted.
Q6. Explain the factors that have enabled Globalization in India.
Ans. 1) Rapid improvement in technology :-
This has been one of the major factors that have stimulated the
Globalization process. The last 50 years has seen several improvements
in transportation technology. This has made much faster delivery of
goods across long distances possible at less cost.
2)Development in information and technology:-
Tele communication facilities like telephone, telegraph, fax, mobiles
etc. which are used to contact one another around the world to access
information instantly and to communicate from remote areas have
developed rapidly. This has been facilitated by satellite communication
devices. Computer and interne have made it possible to share and
obtain information on almost anything one wants to know. Internet
also allows sending e-mail and talk (voice-mail) across the world at low
cost. Thus, it enables the globalization.
3) Liberalization of foreign trade and foreign policy:-
The Liberalization of foreign trade by liberalizing the trade barriers like
tax on import etc. has enabled Globalization. Barriers of foreign
investment were also removed to a large extent. This meant that goods could be imported and exported easily and also foreign companies
could set up factories and offices in our country. Thus, liberalization of
foreign trade and foreign investment enabled globalization.
Q7. Evaluate the Globalization process (impact) in India.
Ans. Due to Globalization and liberalization many visible and invisible
changes took place in Indian economy. It helps in foreign trade
economy and investment in India. Its impact can be studied through
the following points :-
a) The visible changes are :-
i) Better communication facility at low prices.
ii) Many food companies have entered the country and taken over
the market, e.g. Pepsi.
b) The invisible changes are :-
i) India’s balance of payment in 1999 to 2000 remained comfortable.
ii) During 1999-2000, exports made a recovery of 11.6%.
iii) The total imports expanded sharply by 16.5 % in 1999 – 2000.
iv) Capital inflows improved significantly in 1999- 2000.
v) Software service exports emerged as the second largest item of
invisible receipts.
vi) The imports of gold and silver declined.
vii) Indian companies which were finding difficulties to compete with a
powerful foreign business houses are seeking for collaboration.
viii) The exchange rate of rupee in real effective terms became stable
in 1999-2000.
ix) The foreign Direct Investment (FDI) from other countries to India
increased (from Rs.174 crores in 1991 to Rs. 9338 crores in the year
2000). x) The Foreign Exchange Reserves increased and the balance of
payment position became favourable. The industrial growth increased
between 1991 – 2001, although it was still not up to the expected level.
xi) India’s share of the world’s trade in goods and services increased
marginally.
xii) Price rise declined from 12% in early 90’s to 5% in late 90’s.
xiii) There was a major decline in poverty and improvement in the
literacy rate.
xiv) New jobs were created in the economy as an impact of
Globalization but it is still insufficient to meet the increased job
requirement in the country.
Q8. What do you mean by Multinational Corporations (MNC) ?
Ans. A Multinational Company / Corporation are a large companies that
owns and controls productions in more than one nation . They setup
offices and factories for production in regions (Nations) where they can
get cheap labour and other resources. This is done so that the cost of
production is low and the MNC’s can earn greater profits. They produce
and sell goods globally.
Q9. What are the reasons for putting barriers to foreign trade and
foreign investment by the Indian government? Why did it wish to
remove these barriers ?
Ans. The government of India, after independence , has put barriers to
Foreign Trade and Investment because it was considered necessary to
protect the producers within the country from Foreign competition, in
the early stages of development. But later, in 1991, the government f India wished liberalization of
these barriers and remove unwanted controls because the government
decided that the time had come for Indian producers to compete with
producers around the world. These competitions will only improve the
quality of goods and services will be available for consumers and Indian
producers will rise up -to International standards.
Thus, the barriers on Foreign Trade and Foreign Investment were
removed to a large extent. Therefore, import and export became easy
and also the foreign companies could set up factories and offices here
in India. As a result, the government imposes less restriction than
before and is said to be more liberal.
Q10. How do flexibility in labour loss help companies?
Ans. With liberalization and globalization, the MNC’s are allowed to
open their factories and offices in any country of the world. Labours are
the most important factor among other factors of production because
they are bound by labour loss. Therefore, labour laws should not be
rigid. Flexibility of labour laws helps a company in the following ways :-
1) The labours can travel in any part of the world to do the work in
any type of company without restriction.
2) It is easier for the MNC which have setup their branches
throughout the world to get cheap labour.
3) Companies can also engage workers on temporary basis. So, that
they do not have to the workers for the whole year.
Q11. What are the various ways in which MNC’s setup all central
production in other countries?
Ans. 1) MNC’S setup all control production in other countries where it is
close to the market, where skilled and unskilled labourers are available at a low cost. Also, where the availability of other factors of production
are assured.
2) MNC’s setup production jointly with some local company of the
country, where they want to establish themselves by providing money.
3) Large MNC’s in developed countries place orders for
production with small producers, e.g. garments , foot wears, sports
items , etc. these small producers supplies goods to MNC’S and these
large MNC’s sell these products under their own brand names. They
have the power to determine the price, quality, delivery and labour
condition for these small producers from whom they buy the products.
Q12. The impact of ‘Globalization has not been uniformed’ . Explain the
statement.
Ans. Globalization could not bring uniform impact throughout the
country. this can be substantiated with the following :
People with education skills and wealth may have the best use
of new opportunities but poor people have not shared the benefits of
Globalization. It is now uniform because fair Globalization would create
good opportunities for all and also ensure that the benefits are shared
better. Therefore, the government can play a major role in making this
possible. It’s policies must protect the interest, not only of the rich and
powerful , but also for all the people in the country.
In this context , government can take the following steps for a fair and
uniform Globalization :-
1) Government can ensure that labour laws are properly
implemented and workers het their rights.
2) It can support small producers to improve their performance till
the time they become strong enough to compete.3) If necessary , government can use trade and investment barriers
by negotiating at the World Trade Organization (WTO) for fairer
rules.
4) Government can also align with other developing countries with
similar interest to fight against the domination of developed
countries.
Conclusion:
In past few years, campaigns and representations by people’s
organization have influenced important decisions relating to trade
and investment of WTO. This has demonstrated that people can
also play important role in the struggle for fair and uniform
Globalization.
Q13. What is WTO ? Explain it’s main functions .
Ans. The World Trade Organization ,i.e. WTO was established on
1
st
Jan , 1995 by the members of UN’s to promote trade among
different countries. It’s head quarter is located in Geneva. Its
main objective was to provide equal opportunities for trade in the
International markets for all the member countries.
Main functions of WTO :
1) Acting as forum ( organization) for multilateral trade organization.
2) Implementing the multilateral trade agreements.
3) Seeking to resolve trade disputes.
4) Cooperating with other International institutions of economic
policy making.
5) Promoting International trade by removing tariff and non – tariff
barriers for member countries.
Q14. What are the arguments in favour of WTO ?Ans. The following are the arguments in favour of WTO :-
1) WTO promotes free trade among different countries which
leads to specialization . Hence, every country produces
those goods in which it has comparative advantage over
others.
2) WTO has resulted in increase in world output, increase in
world income, increase in world trade and increase in
employment.
3) The consumers also gain because of WTO as they get
products at a reduced prices, because of specialization.
4) There is every possibility that every country who
participates in world trade will benefit from WTO.
5) WTO is an effective instrument for the settlement of trade
disputes between trading countries.
6) The developed countries now liberally invest in developing
countries and thus they provide finance to the developing
countries to improve their industrial base and to create
more job opportunities.
Q15. Give arguments against the functioning of WTO.
Ans. Arguments against WTO are :-
1. It is argued that WTO operations will result in undue
interference in will result in the internal affairs of different
countries and thus harm their authority.
2. It is pointed out that WTO is dominated by the developed
countries particularly by U.S.A ,Japan and European union.
Thus,the developing countries are hardly consulted in
negotiation.3. It is also argued that developed countries have succeeded in
building up new economic order for their own interest but it
sacrifices the interest of poor and developing countries.
4. The critics of WTO points out that while the developing
countries feel cheated as they have been forced open their
economy for the developed nations, their access to the market
of developed countries have been restricted by protective
measures like ‘Anti –dumping method’.
5. The developing country should also demand a more liberal
policy of trade and investment from developed countries so
that exchange can be on equal base.
6. They also fear that MNC, due to their large resources and
capacities would harm the local companies of developing
countries.
Q16. Explain the positive and negative impact of WTO on Indian
economy.
Ans. Positive impact:-
1. It is hoped that with the help of WTO India’s share in world
exports would improve from 0.5% to 1%.
2. The phasing up of multi – fiber arrangement will benefit India as
exports of textiles and clothing will increase.
3. The prospects for agricultural exports would improve. The WTO
has strengthened multi- lateral rules. This will create favourable
environment for India in the New World Economic Order.
4. India would be able to get advanced technology from developed
countries. It will strengthen the process of technological up
gradation in the economy.Negative impacts:-
1. Agreement on trade mark , copyrights ,patents etc. is likely to
work against India. Prices of many life saving essential drugs
may go up. It will also have adverse effect on agriculture and
food security.
2. The WTO agreement is adversely going to affect our self –
relined group growth based on technology and other resources
available locally.
3. It would be difficult for our service sectors like banking ,
insurance , tele – communication , etc. to face competition
from foreign firms dealing with services.
4. The real threat emerging out of this new world order is
emergence of a new colonial world order. Even the sovereignty
of India as a nation is at stake.
5. Ever since the creation of WTO, Indian economy has been
facing a wide – spread down trend. Our agricultural sectors ,
particularly small scale and commerce have been severely
affected.
Q 17. Explain the following terms :-
1. Bilateral agreement: whenever a country is involved with
other country ,it makes an agreement with each country
separately such an agreement and trade between two
countries is called bilateral agreement.
2. Import quotes : it is the restriction on the amount of
commodities to be imported. It is put in order to prevent
competition from foreign products.
3. Export quotes : in order to protect the local consumers , the
government puts some restriction on exports that certain
goods cannot be exported beyond a certain limit. This limit is
called export quotes. 4. Trade barriers : trade barriers are a check on the import and
export of goods by which every government regulates
foreign trade. The barriers provide protection to the
domestic goods from foreign competition.
5. SEZ ( special economic zones) : Special 3Economic Zones are
being developed in India to attract foreign companies. SEZ
would have world class facilities of electricity, water, roads,
educational facilities , etc. The companies who setup their
factories in special economic zones will not have to pay taxes
for an initial period of five years.
Q18. What is sustainable economic development?
Ans. Sustainable economic development was defined by
Brundland Commission in 1987 as ‘ the meeting of the
needs of the present generation without compromising the
ability of future generation, to meet their own needs’. Hence,
this development enables all generations, i.e., present and
future to make best use of their potential. It also means
using of exhaustible resources wisely so that the profits from
their use are re -invested in technology or in other forms of
capital.
Hence, sustainable development is dynamic , long term
process which includes socio – economic development and
also better quality of life.
Q19. Why is there a need for sustainable economic
development ?
OR
Why is sustainable economic development essential for
growth?Ans. Sustainable economic development should take place
without damaging environment and it should not
compromise on the needs of the future generations. It is
considered important because:
1. Rapid economic growth and industrialization led to
ruthless exploitation of natural resources.
2. The stock of natural resources like coal, etc. required for
energy is limited.
3. The growth of all countries will be endangered if limited
resources are completely exhausted. Although fossils fuel
and minerals helps in the development, their misuse
harms the environment and the natural balance.
Therefore, sustainable economic development becomes
important because it maintains harmony (here
It stands for balance) between economic growth and
environmental preservation.
Q20. Give any five arguments in favour of and against
Globalization.
Ans. Arguments in favour of Globalization :
1. The idea of Globalization is much supported by
International Organizations like UN , The International
Monetary Fund, World bank , WTO, etc.
2. Supporters of Globalization say that there is proof t
show that among the poorest countries that trade with
other nations, most of them had achieved higher per
capita income and reduction in poverty.
3. A few countries that have decreased tariff barriers
have gained in employment and National income
completing industries.4. It is argued that more countries started trading with
each other and hence, their standards of living are
improved because of Globalization.
5. A number of rising Nation of the developing world like
Mexico ,Turkey, Egypt and Thailand has provided vocal
support for Globalization.
Arguments against Globalization :-
1. There is inequality in the countries due to pressure
of market forces due to Globalization i.e. the rich
and powerful captured the market throughout the
world.
2. Large corporations invest in poor countries only
because they can make greater profits as wages are
low in poor countries and their natural resources
can be used.
3. The free market does nothing to redistribute wealth.
4. There is an argument that the global companies
generally locate polluting industries in poor
countries , destroy their forest wealth or develop
mines with inadequate control and safety.
5. Social organizations see Globalization as a special
spread of capitalism in which the labourers of the
poor countries are exploited for the benefit of the
rich country.
Q21. How does foreign trade lead to integration of
market across countries? Explain.
Ans. Foreign trade has also been an important
channel connecting different countries they had different routes connecting India and South Asia to
markets in the east and the west.
Foreign trade creates an opportunity for the
producers to reach beyond the domestic markets .
producers can sell their produce not only in the
market located within the country but can also
compete in markets located in other countries of
the world similarly for the buyers import of goods,
produce in another country is the one way of
expanding the choice of goods beyond which is
domestically produced.
In general with the opening trade good travels
from one market to another, choice of goods in the
market rises. Prices of similar good in the two
markets tend to become equal. Now producers in
two countries closely compete against each other.
Thus, foreign trade results in connecting
market or integration of markets in different
countries.
Q22. Suggest steps within can be taken to attract
foreign investment.
Ans.
1. In the recent years, central and state government in
India has taken special step to attract foreign
companies by setting of Special Economic Zone
(SEZ). Their zones of world class companies
concerning electricity, water, roads, transport,
storage, educational and recreational facilities .2. Companies who set up their units in the SEZ do not
have to pay tax for starting period of first five years
.i.e. they get a tax holiday.
3. The government has allowed flexibility in labour loss
to attract foreign investment. Now, the companies
can hire workers for a short period when there is
lots of work to be completed in the company due to
high demand of goods. This is done instead of
keeping permanent labourers. Thus, this helps the
company to reduce the cost of production.
.
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