What is globalisation
Globalisation is the rapid integration of countries through free movement of goods, services, capital, technology, ideas and people. It has three dimensions:
- Economic — trade, investment, finance integration;
- Technological — telecom, internet, transport revolutions;
- Cultural — film, food, language, lifestyle interactions.
MNCs and how they spread across countries
A multinational corporation (MNC) owns or controls production in more than one nation. MNCs locate offices, factories, or services in different countries to: reduce production costs, access markets, source raw materials, reach cheaper labour or specialised skills.
Five ways MNCs spread
- Buying up local companies — Cargill buying Parakh Foods (2007); Sun Pharma buying Ranbaxy (2014);
- Greenfield investment — Hyundai Chennai, Samsung Greater Noida, Apple iPhone Foxconn Sriperumbudur;
- Joint ventures — Maruti-Suzuki (1982);
- Contract production — Walmart contracting Indian textile mills; apparel and electronics;
- Franchises — McDonald's, KFC, Domino's.
India is now both a destination (cheap labour, large market) and a source of MNCs — TCS, Infosys, Tata, Mahindra, Bharti operate across the world.
Foreign trade integrating markets
Foreign trade is the exchange of goods and services across countries — exports and imports. It integrates markets in five ways:
- Consumer choice — more variety to choose from;
- Competition — across producers in different countries;
- Price convergence — similar prices globally after shipping and tariffs;
- Integrated markets — markets connected via trade flows;
- Shared impacts — recession in USA hurts Indian textile exports; oil prices in West Asia affect Indian fuel prices.
India's trade snapshot: exports ~22% of GDP; imports ~24%. Top exports — refined petroleum, pharma, jewellery, software services, textiles, autos. Top imports — crude oil, gold, electronics, machinery, coal. Top partners — USA, China, UAE, Saudi Arabia, Singapore, EU.
Technology — the enabler
Technology has been the most powerful driver of globalisation in the last 50 years:
- Container shipping (since 1956) — reduced cost of shipping a ton by ~90%;
- Air freight and modern logistics;
- Telecommunication — satellite, fibre-optics, mobile;
- Internet — instantaneous global communication;
- IT and digital services — software exports possible without physical movement.
1991 reforms — India's globalisation moment
In 1991, India faced a balance-of-payments crisis with foreign exchange reserves down to ~$1.2 billion (two weeks of imports). India pledged 47 tonnes of gold to the Bank of England.
PM P.V. Narasimha Rao and FM Manmohan Singh launched comprehensive economic liberalisation on 24 July 1991 (Singh's first Budget). The reforms — collectively called Liberalisation-Privatisation-Globalisation (LPG):
- Industrial Policy 1991 — abolished industrial licensing for most industries; reduced public sector reservation;
- Trade policy — phased reduction of import duties (~85% to ~12%); removal of quantitative restrictions;
- FDI — allowed in most sectors; 100% FDI under automatic route in many;
- Exchange rate — rupee made convertible on current account; market-determined;
- Banking — Narasimham Committee reforms; new private banks allowed;
- Capital markets — SEBI given statutory status (1992); demat (1996); FII investment allowed;
- Disinvestment of public sector enterprises.
Impact: GDP growth from ~3.5% ("Hindu rate") to ~7-8%; forex reserves from $1.2 bn to ~$650 bn (2024); India became 5th largest economy; hundreds of millions out of poverty. But inequality widened and agricultural distress deepened.
WTO framework
The World Trade Organization (WTO), established 1 January 1995 (Marrakesh Agreement 1994), is the global rules-based system for international trade. Successor to GATT 1947. ~164 members.
Three main agreements:
- GATT (Goods) — tariff and non-tariff barrier reductions;
- GATS (Services) — services trade liberalisation;
- TRIPS (IP) — minimum standards for patents, copyrights, trademarks.
India is a founding WTO member. WTO has been criticised for: rich-country agricultural subsidies that hurt developing-country farmers; TRIPS expanding patent protection making medicines expensive; services trade rules favouring developed countries. India has consistently pushed back on agricultural subsidies (Bali Package 2013, Nairobi 2015, MC13 Abu Dhabi 2024).
Impact — winners and losers
| Winners | Losers |
|---|---|
| Consumers (more choice, lower prices) | Small-scale industries hit by imports |
| IT and services exports (skilled workers) | Traditional agriculture (cheap edible oil, cotton imports) |
| Large Indian companies that became MNCs | Toy makers, handicraft sectors |
| Urban middle class | Subsistence farmers |
| Export-oriented sectors | Tribal communities (mining, displacement) |
Globalisation in India has lifted hundreds of millions out of extreme poverty — but inequality (Gini, top-1% wealth share) has also risen sharply.
Fair globalisation
Fair globalisation distributes benefits more evenly across people, especially poor and small producers, while still allowing growth.
Policy measures
- Strategic use of trade barriers — tariffs, anti-dumping;
- Intellectual property protection for traditional knowledge (Yoga, Basmati, Neem battles in WTO);
- Support for small producers — credit, infrastructure, technology, market linkages;
- Fair WTO rules — agricultural subsidies, TRIPS flexibility;
- Labour protection — minimum wages, social security;
- Environmental standards;
- Support for vulnerable sections — fishermen, weavers, tribal communities;
- Fair Trade certification.
India's recent approach
- Atmanirbhar Bharat (2020) — strategic self-reliance balanced with trade;
- PLI schemes for 14 manufacturing sectors — outlay ₹1.97 lakh crore;
- RCEP withdrawal (2019) — over concerns about Chinese imports;
- Carefully-negotiated FTAs — UAE 2022, Australia 2022, ongoing UK and EU talks;
- WTO pushback on agricultural subsidy discipline.
NCERT exercise solutions — selected answers
Q1. What do you understand by globalisation? Explain in your own words.
Globalisation is the process by which COUNTRIES become INCREASINGLY INTEGRATED in terms of MOVEMENT OF GOODS, SERVICES, CAPITAL, TECHNOLOGY, IDEAS, and PEOPLE. It means: a toy made in China can be bought in Indian markets; an Indian software company can serve American clients without leaving Bengaluru; an Indian student can study in Australia; an MNC can have its design team in California, manufacturing in China, and assembly in India. Globalisation is driven by TECHNOLOGY (especially internet, container shipping), TRADE LIBERALISATION (removal of tariffs/quotas), CAPITAL MOBILITY (free flow of investment), and MNCs (with global value chains). It has BOTH BENEFITS (cheaper goods, more choice, growth, exports) AND COSTS (small producer pressure, inequality, environmental harm).
Q2. What was the reason for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers?
BARRIERS WERE PUT BECAUSE: (1) The Indian economy was very weak after independence; needed PROTECTION FOR INFANT INDUSTRIES; (2) Government wanted to PROMOTE SELF-RELIANCE (Nehru's import substitution model); (3) Conserve scarce FOREIGN EXCHANGE; (4) Government wanted to direct economy via PUBLIC SECTOR LEADERSHIP. BARRIERS WERE REMOVED IN 1991 BECAUSE: (1) BALANCE OF PAYMENTS CRISIS — forex reserves down to 2 weeks of imports; (2) Indian industries had become inefficient under protection — quality poor, prices high; (3) Government finances under stress — needed FDI and exports; (4) WORLD HAD CHANGED — Soviet model failure (1991), China's reforms (post-1978), other Asian success stories; (5) Need to integrate with global economy to benefit from technology, capital, markets.
Q3. How would flexibility in labour laws help companies?
FLEXIBILITY IN LABOUR LAWS means: companies can hire and fire workers more easily; pay variable wages; use contract/temporary labour; less compliance burden. THIS HELPS COMPANIES because: (1) Reduces operating costs; (2) Allows scaling up/down with market conditions; (3) Makes companies COMPETITIVE INTERNATIONALLY (especially against China, Bangladesh with flexible laws); (4) Attracts FDI; (5) Enables MNCs to use Indian operations as global production hubs. BUT — flexibility also means WORKERS LOSE PROTECTION — no job security, no social benefits, lower wages. The CHALLENGE is balancing competitiveness with worker welfare. India's LABOUR CODES (2019-2020) attempt this — Code on Wages, Industrial Relations Code, Social Security Code, OSH Code. NCERT's view: flexibility benefits companies but may HURT WORKERS; need to balance the two.
Q4. What do you understand by liberalisation of foreign trade?
LIBERALISATION OF FOREIGN TRADE means: REMOVING BARRIERS (tariffs, quotas, licences) that had been placed on imports and exports. India did this from 1991 onwards. KEY ELEMENTS: (1) ABOLISHING IMPORT LICENSES required for most goods; (2) PHASING DOWN TARIFFS (import duties) — from average ~85% in 1991 to ~12% today; (3) REMOVING QUANTITATIVE RESTRICTIONS (QRs) on imports; (4) ALLOWING FOREIGN COMPANIES to invest in India easily (FDI in most sectors automatic); (5) MAKING RUPEE CONVERTIBLE on current account. CONSEQUENCES: India became deeply integrated with global economy; consumer prices fell; competitive pressure increased; foreign investment flowed in; exports grew (especially services). LIBERALISATION is the cornerstone of the LPG reforms of 1991.
Q5. How does foreign trade lead to integration of markets across countries? Explain with an example.
FOREIGN TRADE allows producers and consumers to REACH BEYOND domestic markets. When two countries trade: (1) Producers in both countries compete with each other → quality improves, prices adjust; (2) Consumers in both countries have more choice; (3) Markets effectively become 'one market' for that product. EXAMPLE: Before 2001, India had quantitative restrictions on Chinese imports. After QRs were removed (WTO commitment), Chinese plastic toys, electronics, smartphones flooded Indian markets at prices 30-50% below Indian competitors. Indian buyers got cheaper goods; many Indian manufacturers had to upgrade or close down. NOW the markets for these products are INTEGRATED — Indian and Chinese producers compete in BOTH countries; prices in India and China move together for these goods.
Q6. Why is it that MNCs are spreading their production across countries?
MNCs spread production to: (1) ACCESS CHEAP RAW MATERIALS (oil in West Asia, lithium in Latin America, rare earths in Africa); (2) ACCESS CHEAP LABOUR (China, Vietnam, Bangladesh, India for textiles; Mexico for autos); (3) ACCESS NEW MARKETS (China and India for consumer goods); (4) AVOID HIGH TARIFFS by producing inside the importing country; (5) BENEFIT FROM GOVERNMENT INCENTIVES (tax breaks, land subsidies); (6) DIVERSIFY RISK across geographies; (7) Be CLOSE TO CUSTOMERS for service-oriented businesses. EXAMPLE: Apple designs iPhone in California, manufactures components in Korea/Japan/Taiwan, assembles in China (recently moving to India), markets globally. This GLOBAL VALUE CHAIN allows Apple to optimise on every dimension.
Q7. Should more sectors be opened up for FDI?
ARGUMENTS FOR opening more sectors: (1) FDI brings CAPITAL, TECHNOLOGY, MANAGEMENT EXPERTISE; (2) Creates EMPLOYMENT; (3) ENHANCES COMPETITION; (4) HELPS EXPORTS; (5) Brings INTERNATIONAL STANDARDS. ARGUMENTS AGAINST: (1) MAY DAMAGE DOMESTIC INDUSTRIES (small retail vs Walmart/Amazon); (2) PROFIT REPATRIATION reduces national savings; (3) DEPENDENCY on foreign capital and decisions; (4) ENVIRONMENTAL OR LABOUR CONCERNS — race to bottom; (5) STRATEGIC SECTORS need state control (defence, atomic energy). BALANCED VIEW: opening sectors should be CAREFULLY CALIBRATED based on (i) national security implications; (ii) domestic industry's ability to compete; (iii) consumer welfare; (iv) employment impact. India's current approach — most sectors 100% FDI under automatic route; defence and some others under approval route; multi-brand retail with conditions.
UPSC PYQ tagging
UPSC angle
Globalisation is foundational for GS-3 (Indian economy) and GS-2 (international institutions — WTO). Strong answers cite the 1991 reforms, specific WTO chapters (TRIPS, agriculture), MNC global value chains, and the Atmanirbhar Bharat strategic recalibration.
- 2017 GS-3: "Examine the impact of liberalization on companies owned by Indians. Are they competing with the MNCs satisfactorily?"
- 2019 GS-3: "Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP?"
- 2020 GS-3: "Examine the role of Special Economic Zones (SEZs) in India's foreign trade. To what extent have they delivered?"
- 2024 GS-3: "Discuss India's stance at the WTO Ministerial Conferences. What are the key issues affecting India's negotiating position?"
- Likely 2026: "Examine the impact of FTAs (UAE, Australia) and the withdrawal from RCEP on India's trade strategy."