Globalisation and the Indian Economy
"The world is FLAT. Goods, capital, ideas, and people move faster than ever before. Globalisation has brought the WORLD to your doorstep."
1. Multinational Corporations (MNCs)
An MNC is a company that OWNS or CONTROLS production in MORE THAN ONE country.
1.1 How MNCs Operate
| Strategy | Example |
|---|---|
| Set up factories where labour is CHEAP | Nike (shoes made in Vietnam, Indonesia). Apple iPhones assembled in China. |
| Produce where RAW MATERIALS are available | Coca-Cola sources sugar from India. |
| Buy LOCAL companies | Walmart bought Flipkart (India). Unilever bought Horlicks (GSK India). |
| Place orders with LOCAL producers | Decathlon sources sportswear from Indian manufacturers. |
| Outsource SERVICES | Indian IT companies (TCS, Infosys) serve US, European clients. Call centres in Bangalore, Hyderabad. |
1.2 Why MNCs Set Up in Developing Countries
| Factor | Advantage |
|---|---|
| Cheap labour | Indian factory worker's wage is ~₹15,000/month vs USA ~₹2,00,000/month. |
| Cheap raw materials | India has IRON ORE, COTTON, TEA in abundance. |
| Less strict regulations | Lower environmental, labour standards (though improving). |
| Large market | 1.4 BILLION consumers — MASSIVE demand. |
| Tax incentives | SEZs offer tax HOLIDAYS. Government SUBSIDIES. |
Common Mistake: Students often think MNCs are ONLY American. TATA (India), Reliance (India), Samsung (Korea), Toyota (Japan), and many Chinese MNCs are ALSo major players.
2. What is Globalisation?
Globalisation = INTEGRATION of PRODUCTION and MARKETS across countries. Goods, services, capital, technology, and ideas flow FREELY across borders.
2.1 Drivers of Globalisation
| Driver | How It Accelerates Globalisation |
|---|---|
| Technology | Internet, video conferencing, satellite communication connect the WORLD in REAL TIME. |
| Transport | Container ships, cargo planes, high-speed rail — goods move CHEAPER and FASTER. |
| Liberalisation | Governments REMOVE barriers (tariffs, quotas) to trade. |
| WTO | International organisation that PROMOTES free trade among nations. |
| Capital flows | Foreign Direct Investment (FDI), Foreign Institutional Investment (FII) — money moves GLOBALLY. |
3. The World Trade Organisation (WTO)
| Aspect | Detail |
|---|---|
| Established | January 1, 1995 (replaced GATT — General Agreement on Tariffs and Trade, 1948) |
| Headquarters | Geneva, Switzerland |
| Members | 164 countries (including India) |
| Goal | LIBERALISE international trade. REDUCE trade barriers (tariffs, quotas, subsidies). |
| Key principle | 'Level playing field' — but RICH countries benefit MORE because they have BARGAINING power. |
3.1 Criticism of WTO
| Criticism | Explanation |
|---|---|
| Rich country bias | Developed countries (USA, EU) SUBSIDISE their farmers → Indian farmers CANNOT compete. |
| Patents and IPR | WTO's TRIPS Agreement FORCES developing countries to accept STRICT patent laws — medicines, seeds become EXPENSIVE. |
| Trade unfairness | Developing countries are told to REMOVE tariffs BUT rich countries keep their TRADE BARRIERS (agriculture subsidies). |
| Environmental & labour standards | WTO rules OFTEN override national laws on environment and labour rights. |
4. Liberalisation in India — The 1991 Reforms
4.1 Why Reforms Were Needed (1991 Crisis)
- India's foreign exchange reserves FELL to just 3 WEEKS of imports.
- We could NOT pay for oil, fertilisers, essential goods.
- India had to SHIP gold to London as collateral for an IMF loan.
- Conclusion: The closed, protectionist model was FAILING.
4.2 What Changed in 1991?
| Before 1991 (Closed Economy) | After 1991 (Liberalised) |
|---|---|
| 'LICENSE RAJ' — needed 50+ approvals to start a business | MOST industries DELICENSED |
| HIGH tariffs (import duties up to 300%) | Tariffs REDUCED to 10–20% |
| FOREIGN investment banned or severely restricted | FDI allowed in MOST sectors (up to 100% in many) |
| Import QUOTAS on most goods | Import quotas REMOVED |
| Government controlled 17 major banks | Private + foreign banks allowed |
| TATA and BIRLA were the only big players | AMAZON, GOOGLE, TOYOTA, SAMSUNG — all entered India |
4.3 Impact of Liberalisation on India
| Positive | Negative |
|---|---|
| FASTER GDP growth (3.5% → 6–8%) | INEQUALITY increased (rich got RICHER) |
| CONSUMER CHOICE exploded (from 2 car models to 100+) | SMALL industries CLOSED (could not compete with MNCs) |
| IT sector BOOMED (Infosys, TCS went global) | JOB growth SLOW (services grew but jobs lagged) |
| EXPORTS increased (pharma, auto parts, software) | FOREIGN ownership of Indian companies increased |
| FOREIGN EXCHANGE reserves improved (600+ bn in 2024) | AGRICULTURE exposure — farmers face GLOBAL price volatility |
5. Special Economic Zones (SEZs)
SEZs are SPECIALLY demarcated zones where businesses get TAX breaks, simpler regulations, world-class infrastructure.
5.1 SEZ Features
| Benefit | Details |
|---|---|
| Tax holiday | 100% tax exemption on export income for FIRST 5 years, 50% for next 5 years. |
| Single window clearance | All approvals in ONE place — no bureaucracy delays. |
| World-class infrastructure | Power, water, roads, ports — GUARANTEED. |
| Flexible labour laws | Easier hiring/firing (controversial). |
| Duty-free imports | Raw materials and machinery can be IMPORTED without paying customs duty. |
5.2 Criticism of SEZs
- FARMERS displaced — agricultural land acquired for INDUSTRY.
- Land acquisition conflicts (Nandigram, Singur in West Bengal).
- LABOUR rights weakened — workers have LESS protection.
- TAX exemptions mean GOVERNMENT loses revenue.
6. Impact of Globalisation on India — A Summary
| Aspect | Change |
|---|---|
| Consumers | MORE choices, BETTER quality, LOWER prices. |
| Producers | COMPETITION from MNCs → some THRIVE, others CLOSE. |
| Workers | NEW jobs in IT, services, MNCs. But JOB security DECLINED. |
| Farmers | Access to GLOBAL markets. BUT competition from SUBSIDISED foreign agriculture. |
| Small industry | MANY closed (could not compete). BUT some NICHES survived (handicrafts, organic). |
| Culture | GLOBAL brands, food, fashion — BOTH opportunity (diversity) and threat (homogenisation). |
7. AP Context
7.1 SEZs in Andhra Pradesh
| SEZ | Location | Focus |
|---|---|---|
| Visakhapatnam SEZ (VSEZ) | Visakhapatnam | IT, pharma, engineering, food processing |
| Kakinada SEZ | Kakinada | Petroleum, chemicals, pharma, food processing |
| Sri City SEZ | Chittoor (near TN border) | Automobile, electronics, manufacturing |
| Nellore SEZ | Nellore | Solar equipment, textiles |
7.2 IT Investment in AP
- Visakhapatnam is EMERGING as an IT hub (Tech Mahindra, Wipro, HCL, and many smaller IT firms).
- AP's IT policy TARGETS: 5 lakh IT jobs by 2029.
- Key initiatives: Fintech Valley (Vizag), AI City (proposed).
- Drawback: AP lost Hyderabad (the IT capital) in the 2014 bifurcation. Vizag is now being DEVELOPED as the NEW IT hub.
7.3 MNCs in AP
- Kia Motors (South Korea) — near Anantapur (Erraguntla).
- Isuzu Motors (Japan) — Sri City.
- Monsanto / Bayer — Seed production in AP.
- PepsiCo, Coca-Cola — Bottling plants.
- Amazon — Warehousing and logistics centres.
8. Exam Focus
| Topic | Marks | Frequency |
|---|---|---|
| MNCs — meaning, role, reasons for setting up in India | 3 marks | HIGH |
| Globalisation — drivers | 2–3 marks | HIGH |
| WTO — pros and cons | 3 marks | Medium |
| 1991 Liberalisation — what changed | 3–5 marks | HIGH |
| SEZs — features + criticism | 3 marks | Medium |
| AP: SEZs, IT investment | 2–3 marks | HIGH (state board) |
9. Quick Self-Test
Q1. What is an MNC and why do they set up in developing countries? A. Company operating in MULTIPLE countries. They come to INDIA for cheap labour, raw materials, large market, and tax incentives.
Q2. What is GLOBALISATION? A. Rapid integration of PRODUCTION and MARKETS across the world. Goods, services, capital, technology flow FREELY across borders.
Q3. What is the role of WTO? A. WTO promotes FREE trade by REDUCING tariffs and trade barriers. 164 member countries. Headquarters in Geneva.
Q4. What did the 1991 liberalisation reforms change in India? A. Abolished LICENSE RAJ, reduced tariffs, allowed FDI, opened banking/insurance to private/foreign players, removed import quotas.
Q5. What are SEZs? Name TWO SEZs in AP. A. Special Economic Zones — tax-free zones for exports. AP SEZs: Visakhapatnam SEZ, Kakinada SEZ, Sri City SEZ, Nellore SEZ.
Q6. How has globalisation IMPACTED Indian farmers? A. Positive: access to global markets. Negative: competition from heavily SUBSIDISED foreign agriculture (EU, US farmers). Many farmers face PRICE volatility.
Q7. Why is Visakhapatnam becoming an IT hub in AP? A. After losing Hyderabad (2014 bifurcation), AP is developing Vizag as its IT capital. Policies, SEZs, incentives attract IT companies.
Q8. Criticise the WTO in TWO points. A. (1) Rich country bias — developed nations maintain farm subsidies while asking developing nations to open markets. (2) TRIPS Agreement — strict patents make medicines and seeds EXPENSIVE.
10. Common Mistakes & Fixes
| Mistake | Fix |
|---|---|
| 'Globalisation = Westernisation' | Globalisation is TWO-WAY. Indian yoga, food, pharma ALSO go global. |
| 'WTO forces India to liberalise' | India VOLUNTARILY joined WTO and signed agreements. WTO does NOT 'force'. But POWER IMBALANCE exists. |
| '1991 reforms were ALL good' | Reforms spurred growth BUT increased INEQUALITY and hurt small industry. |
| 'SEZs only help MNCs' | SEZs also HELP Indian exporters and CREATE local jobs (though criticism about labour rights is valid). |
| 'AP has no MNC presence' | AP hosts Kia (Korea), Isuzu (Japan), PepsiCo, Coca-Cola, Amazon, and many others. |
