Globalisation and the Indian Economy — Practice

Question 1

What does the abbreviation LPG stand for in the context of India's 1991 reforms?

Accepted Answer

✦ Answer: LPG stands for Liberalisation, Privatisation, and Globalisation — the three components of India's 1991 economic reforms. Liberalisation removed industrial licensing ('Licence Raj'). Privatisation reduced the dominance of the public sector. Globalisation opened India to foreign trade and investment by lowering tariffs and allowing FDI.

Question 2

How do multinational corporations (MNCs) spread production across countries? Explain with examples.

Accepted Answer

✦ Answer: MNCs use four main methods to spread production:
  1. BUY LOCAL COMPANIES: MNCs purchase existing companies to gain quick access to local markets. Example: Unilever bought Hindustan Lever.
  2. JOINT VENTURES: MNCs partner with local firms — sharing capital, technology, and risk. Example: Maruti-Suzuki partnership.
  3. CONTRACT PRODUCTION: MNCs outsource manufacturing to local producers who supply goods to MNC specifications. Example: Nike contracts production to factories in Vietnam, India, and Bangladesh.
  4. DIRECT INVESTMENT (FDI): MNCs set up their own factories. Example: Samsung's manufacturing plant in India.
  The key MNC LOGIC: locate production where LABOUR and COSTS are low; sell where MARKETS are large. This creates global value chains where different parts of a product are made in different countries.

Question 3

Who are the winners and losers of globalisation in India? How can globalisation be made fairer?

Accepted Answer

✦ Answer:
  WINNERS:
  (1) IT and BPO sector: India became a global hub for software services and business process outsourcing — millions of skilled jobs created.
  (2) Skilled professionals: engineers, doctors, managers with international exposure saw their salaries rise significantly.
  (3) Middle-class consumers: access to a much wider range of high-quality goods at competitive prices.
  (4) Large industries and exporters: access to global capital, technology, and markets.
  
  LOSERS:
  (1) Small manufacturers: cheap imported goods (toys, electronics, textiles) from China and elsewhere flooded the market, destroying many small businesses.
  (2) Agricultural workers: Indian farmers compete with heavily subsidised agricultural produce from developed countries — unfair competition.
  (3) Unorganised sector workers: SEZ labour laws weakened, job insecurity increased.
  (4) Informal sector: did not benefit from growth of organised, formal-sector globalisation.
  
  MAKING GLOBALISATION FAIRER:
  (1) Developed countries must END farm subsidies that undercut developing country farmers — demand fair WTO rules.
  (2) India should protect vulnerable sectors (textiles, small industry) through targeted policies, not just across-the-board liberalisation.
  (3) Invest in education, skill development, and social safety nets so that globalisation's benefits reach more people.
  (4) Strengthen labour laws in SEZs to prevent exploitation.
  (5) Demand technology transfer in MNC joint ventures — not just cheap labour contracts.

Practice — Globalisation and the Indian Economy

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