Consumers in India today face a wide, fast-widened choice of goods and services. The latest digital cameras, mobile phones, and televisions from the world's leading manufacturers sit on the same shelf. New automobile models arrive every season from nearly every major company in the world — where once only the Ambassador and the Fiat were seen on Indian roads. Shirts, televisions, and processed fruit juices now come in an explosion of competing brands.
This wide-ranging choice is a fairly recent thing. Even two decades back, Indian markets did not carry anything like this variety. In a matter of years, Indian markets have been transformed — and that raises the question this chapter answers: what is bringing this change about, and how is it affecting people's lives?
Until the middle of the twentieth century, production was mostly organised WITHIN countries. What crossed national borders was raw material, food, and finished products — moved by trade.
Colonies such as India exported raw material and food, and imported finished goods. Trade was the main channel connecting distant countries. This changed with the rise of multinational corporations, or MNCs. An MNC owns or controls production itself in more than one nation — not merely the goods that cross a border after being made in one place.
A multinational corporation is a company that owns or controls production in more than one nation. MNCs set up offices and factories where they can get cheap labour and other resources — so the cost of production stays low, and the MNC can earn greater profits.
In general, MNCs look for four things before they set up production somewhere. They want closeness to markets. They want skilled and unskilled labour available at low cost. They want other factors of production they can count on, and government policy that looks after their own interests.
Take a large MNC that produces industrial equipment. It designs its products in research centres in the United States. It has the components manufactured in China. It ships those components to Mexico and Eastern Europe for assembly, and sells the finished products worldwide — while the company's customer care runs through call centres in India.
China is a cheap manufacturing location. Mexico and Eastern Europe sit close to US and European buyers. India supplies both highly skilled engineers and educated, English-speaking youth for customer care. Put together, this combination can mean 50 to 60 per cent cost savings for the MNC. The company is not only selling its product globally — it is producing it globally, with the whole process broken into small parts and spread across the world.
Beyond building their own factories, MNCs spread and control production abroad in three other ways.
They form joint ventures with local companies — a two-way benefit, since the MNC brings money for new machines and faster production, and often the latest production technology too. They buy up local companies outright and expand production under their own control — the most common investment route for a large MNC. And they place orders with small local producers, in industries such as garments, footwear, and sports goods. Women at home in Ludhiana making footballs for large MNCs is one such case; the local producer then supplies under the MNC's own brand name.
In this last route the MNC never owns the production unit at all. It still has tremendous power to set the price, quality, delivery schedule, and labour conditions of these distant, formally independent producers.
Money spent to buy assets — land, buildings, machines, other equipment — is called investment. When an MNC specifically makes this kind of spending, it is called foreign investment. Like any investment, it is made in the hope that these assets will earn profits.
Cargill Foods, a very large American MNC, bought over Parakh Foods, a smaller Indian company that had built a large, well-reputed marketing network across India and owned four oil refineries.
Control of those refineries has now shifted to Cargill, which is today the largest producer of edible oil in India, with the capacity to make 5 million pouches daily. Many top MNCs hold wealth that exceeds the entire budget of the developing-country governments they operate in — a scale of wealth this one buyout makes concrete.
Foreign trade creates an opportunity for producers to reach beyond their own domestic market. Producers can sell not only at home but also compete in markets in other countries. For buyers, importing goods made elsewhere is one way of expanding their choices beyond what is made at home.
For a long time, foreign trade was the main channel connecting countries at all. The trade routes that once linked India and South Asia to markets in the East and West are part of this same long history. So are the trading interests that first drew companies like the East India Company to India.
Ford Motors, an American company and one of the world's largest automobile manufacturers, spreads production over 26 countries. It came to India in 1995 and spent Rs 1,700 crore to build a large plant near Chennai, in partnership with Mahindra and Mahindra, a major Indian jeep and truck maker.
By 2017, Ford Motors was selling 88,000 cars in Indian markets, while exporting another 1,81,000 cars from India to South Africa, Mexico, Brazil, and the United States. One plant was feeding both the domestic market and export markets at once. In more recent years, Ford stopped producing cars for sale within India. It still exports cars and engines on a small scale — a shift the source itself never attaches to a specific year.
Chinese manufacturers learned that toys sold at a high price in India. They began exporting cheaper, newly designed plastic toys into the Indian market.
Within a year, 70 to 80 per cent of Indian toy shops had replaced Indian toys with Chinese ones, and toys became cheaper across Indian markets than before. Indian buyers gained more choice at lower prices. Chinese toy makers gained a bigger market. Indian toy makers, facing far lower sales, faced losses instead.
With trade opened up, goods travel from one market to another, choice rises, and prices of similar goods in different markets tend to become equal. Producers in two countries now compete closely against each other, even when separated by thousands of miles.
Foreign trade, in this way, connects markets across different countries — an effect called the integration of markets.
Globalisation is the process of rapid integration between countries. It is brought about by rising foreign trade, rising foreign investment, and the movement of technology and services between countries, with MNCs playing a major role throughout. Most regions of the world are today in closer contact with each other than they were a few decades back.
One channel has NOT risen nearly as much as the others: the movement of PEOPLE between countries, usually in search of better income, jobs, or education. Most countries still place real restrictions on it.
Rapid improvement in technology has been a major driver of globalisation, in three ways.
Transportation technology — goods loaded intact into containers for ships, railways, planes, and trucks, plus falling air-cargo costs — has cut port handling costs and enabled much faster, cheaper delivery across long distances. Telecommunications — telegraph, telephone, fax, satellite links — let people reach one another around the world, get information instantly, and stay in contact even from remote areas. Computers and the internet now reach almost every field of activity, allowing instant e-mail and information-sharing worldwide at negligible cost.
A news magazine published for London readers can be designed and printed in Delhi. Its text is sent through the internet to the Delhi office. The London office relays design instructions over telecommunication links. The design work is done on a computer in Delhi. The printed magazines are then flown to London.
Even the payment, from a bank in London to a bank in Delhi, is settled instantly through the internet. Information and communication technology has, this way, spread the production of services across countries — the same mechanism behind the call centres in India serving customers abroad.
A trade barrier is a restriction a government sets up to regulate foreign trade — to increase or decrease it. It also decides what kinds of goods, and how much of each, may enter the country.
A tariff, a tax on imports, is one kind of trade barrier. Taxing Chinese toy imports, for example, would raise the price buyers pay for them, automatically cutting imports and letting Indian toy-makers recover. A quota — a government-set limit on how much of a good may be imported — is another.
Removing government-set barriers on trade and investment is called liberalisation. Independent India put up such barriers specifically to protect its own, still-young industries through the 1950s and 1960s, allowing imports of only essential items — machinery, fertilisers, petroleum.
Starting around 1991, the Indian government made far-reaching policy changes. It judged that the time had come for Indian producers to compete with producers around the world. Competition, the reasoning went, would force an improvement in quality — a decision backed by powerful international organisations. Barriers were removed to a large extent: goods could now be imported and exported far more easily, and foreign companies could set up factories and offices in India. With liberalisation, businesses are far freer to decide what they import or export than before.
The World Trade Organisation, or WTO, started at the initiative of developed countries. Its aim is to liberalise international trade — it sets rules for international trade and works to see those rules are obeyed. About 160 countries are currently members of the WTO.
Though the WTO is meant to allow free trade for all, in practice developed countries have unfairly kept their own trade barriers, while WTO rules have forced developing countries to remove theirs. The ongoing debate over agricultural trade is the chapter's own example.
Agriculture provides a much larger share of India's employment and GDP than it does in a developed country. In the United States, agriculture accounts for only about 1% of GDP and a tiny 0.5% of total employment — yet this small share of Americans still receives massive government money for production and export.
That support lets US farmers sell surplus crops, like cotton, abroad at abnormally low prices, hurting farmers in the countries that buy them. It prompts developing countries to ask a pointed question. They reduced their own trade barriers as WTO rules required. Developed countries kept paying their own farmers vast sums instead — is that really free and fair trade?
It is easy to assume the WTO guarantees fully fair, equal free-trade rules for all its roughly 160 member countries, since that is its stated aim.
The WTO's stated AIM is free trade for all, but in PRACTICE developed countries have unfairly kept their own trade barriers. The United States, for instance, still pays its farmers vast sums, even though agriculture is only 1% of US GDP and 0.5% of US employment. WTO rules, meanwhile, have forced developing countries like India to remove theirs. The gap between the stated aim and the practice is exactly what developing countries' own question captures.
Globalisation, and greater competition among local and foreign producers, has benefited consumers — particularly well-off urban sections. They now enjoy greater choice, better quality, and lower prices for many products, and, as a result, a higher standard of living than before.
MNCs themselves have gained too. Their investment in India has risen over the past 20 years, concentrated in industries with large numbers of well-off buyers — cell phones, automobiles, electronics, soft drinks, fast food. It has also grown in services such as urban banking. New jobs have followed in these industries, and local companies supplying them have prospered alongside.
Several top Indian companies have also benefited from the increased competition. They invested in newer technology and production methods, raised their own production standards, and some gained from successful collaborations with foreign companies.
Globalisation has even let some large Indian companies become multinationals themselves — Tata Motors in automobiles, Infosys in IT, Ranbaxy in medicines, Asian Paints, and Sundaram Fasteners among them. It has also opened new work for Indian companies providing IT-enabled services. Data entry, accounting, administrative tasks, and engineering are now done cheaply in India and exported to developed countries, alongside the London-magazine and call-centre examples already seen.
Central and state governments in India have taken special steps to attract foreign investment. Special Economic Zones, or SEZs, are industrial zones built with world-class infrastructure — electricity, water, roads, transport, storage, recreation, education. Companies setting up production there do not pay taxes for an initial five years.
Governments have also allowed flexibility in labour laws. Instead of hiring workers regularly, with the protections organised-sector rules require, companies increasingly hire "flexibly" for short periods during peak pressure, cutting their own labour cost. Foreign companies, still not satisfied, keep asking for more flexibility still.
For a large number of small producers and workers, globalisation has posed major challenges rather than opportunities. Small manufacturers in industries such as batteries, capacitors, plastics, toys, tyres, dairy products, and vegetable oil have been hit hard by rising competition. Several units have shut down, leaving many workers jobless.
Small and medium industries employ the largest number of workers in the country — about 11 crore — second only to agriculture. That is what makes this squeeze a national-scale concern, not a local one.
Ravi took a bank loan in 1992 to start a capacitor-manufacturing company in Hosur, Tamil Nadu. Within three years he had expanded to 20 workers.
His struggle began when the government, as part of its 2001 WTO agreement, removed restrictions on capacitor imports. His main clients, television companies, could now import capacitors at half the price he charged, and switched to assembling MNC-brand products instead of buying his. Ravi now produces less than half of what he produced in the year 2000, with only seven workers left. Many of his friends running similar businesses in Hyderabad and Chennai have closed their units altogether.
Sushila, a 35-year-old garment export worker in Delhi, was once a "permanent worker," entitled to health insurance, provident fund, and double-rate overtime — until her factory closed in the late 1990s.
After a six-month search she found a new job 30 km from home, but only as a TEMPORARY worker, earning less than half her earlier pay, with none of her earlier benefits. She leaves home every morning at 7:30 a.m., seven days a week, and returns at 10 p.m. A day off means no wage at all.
Large MNCs in the garment industry order from Indian exporters, who cannot cut the cost of raw materials — so they cut labour costs instead. They employ workers temporarily rather than permanently, and push long hours and night shifts during the peak season, to win the MNCs' orders.
The conditions of work Sushila's case shows have become common across many industrial units and services in India. Most workers today are employed in the unorganised sector.
Increasingly, conditions in the ORGANISED sector too have come to resemble the unorganised sector — workers like Sushila no longer get the protection and benefits organised-sector employment once gave them.
Not everyone has benefited from globalisation. People with education, skill, and wealth have made the best use of the new opportunities it opened up — well-off urban consumers, MNCs, and Indian companies able to invest and upgrade.
Many others have not shared the benefits. Small producers squeezed out by import competition are one group. Workers in labour-intensive industries, whose jobs shifted from permanent to temporary, are another — even as the overall economy has grown more globally integrated.
It is easy to assume globalisation's gains reach everyone roughly the way they reach consumers — more choice, better prices, rising living standards, workers included.
The impact of globalisation has NOT been uniform. People with education, skill, and wealth — well- off consumers, MNCs, top Indian companies — made the best use of the new opportunities. Many workers, especially in labour-intensive export industries, instead faced rising insecurity. Sushila's case shows a permanent job converted into a temporary one, at less than half the pay and none of the benefits, as garment exporters cut labour costs to win MNC orders. Organised-sector conditions are converging toward the unorganised sector's — not the other way round.
Since globalisation is now a reality, the live question is how to make it fairer — creating opportunities for all, and making sure the benefits of globalisation are shared better.
Government can play a major role here. It can enforce labour laws, so workers actually get their rights, and support small producers until they are strong enough to compete. It can use trade and investment barriers where necessary, and negotiate at the WTO for fairer rules. It can also align with other developing countries against developed-country domination of the WTO.
People themselves have a role too. In recent years, massive campaigns and representation by people's own organisations have already influenced real WTO decisions on trade and investment.
Globalisation is the process of rapid integration between countries, driven by rising foreign trade and foreign investment, with MNCs playing a major role and production organised in increasingly complex, cross-border ways. Technology — especially IT — plus the liberalisation of trade and investment policy, plus pressure from the WTO, have together enabled this integration.
But while globalisation has benefited well-off consumers and producers with skill, education, and wealth, that is only half the story. Many small producers and workers — Ravi, Sushila, and lakhs like them — have suffered from the rising competition it brought. Fair globalisation would create opportunities for all, and make sure globalisation's own benefits are shared better than they are today.