Globalisation and the Indian Economy: Class 10 Economics · Chapter 4

Pick up three things near you: your phone, your shoes and a packet of biscuits. Read the small print. The phone may carry a famous foreign brand but say Made in India. The shoes may be stitched in Agra for a German company. The biscuit maker may be Indian, but its oven and flavourings might come from Europe. Thirty-five years ago, an Indian shop offered far fewer brands, and most of what it sold was made by Indian firms for Indian buyers.

This chapter is about that change: what drove it, and what it has meant for different people. It uses a narrow, economic meaning of globalisation: countries joining up through foreign trade and through investment by multinational companies. Its cultural and political sides, and money moved through shares and bonds, are left out. If you have read History Chapter 3, The Making of a Global World, you know that trade has linked distant places for centuries. Here we look at the present phase, which gathered speed in India from the 1990s.

4.1 Production across countries

Picture a shirt bought in Kolkata in 1930. Its cotton may have grown in Gujarat, sailed to a mill in Lancashire and come back as cloth. Goods and raw materials crossed oceans, but each stage of making happened inside one country, and the link between countries was trade. Colonies like India were kept as suppliers of raw cotton, jute and indigo and as buyers of British factory goods.

From the middle of the twentieth century a new kind of firm grew in importance. A multinational corporation (बहुराष्ट्रीय कंपनी), or MNC, has factories, offices or farms that it owns or controls in two or more countries. It may have its head office in one place, factories in a second, research labs in a third and service centres in a fourth.

Why would a company spread itself so thin? The short answer is cost. An MNC places each stage of work where it can be done most cheaply or most usefully. That may be where wages are lower, where raw materials are close, or where skilled people are available. Lower costs mean bigger profits, and profit is what the company's owners want.

The striking thing about Velora is not that its bikes are sold in many countries; plenty of companies export. It is that no single country makes a Velora. The work has been chopped into stages, and each stage lands wherever it is done best or most cheaply. Vietnam offers low assembly costs, and Hungary sits close to European buyers, so finished bikes travel only a short way. Taiwan and Korea have factories with long experience in frames and batteries. India offers software engineers, and graduates who can talk to customers in fluent English across many time zones. Each choice trims a little from the cost, and together they can save a great deal.

India's part in such chains often comes through services. Call centres and back offices in Bengaluru, Gurugram, Pune and Hyderabad answer customers in other continents, using phone lines, computers and the internet.

4.2 Interlinking production across countries

Before an MNC builds anything, it studies the place. Four questions decide most choices. Is the place close to buyers, so goods need not travel far? Are workers, both skilled and unskilled, available at low wages? Can the company be sure of other resources, such as land, power, water and good roads? And will the government's policies protect its interests, for example through low taxes or quick approvals?

Once these boxes are ticked, the company spends money on land, buildings, machines and other equipment. Spending of this kind is called investment (निवेश). When the money comes from a company based in another country, it is foreign investment (विदेशी निवेश). Nobody invests for fun: the point is that these assets should earn profits.

MNCs reach into other countries along four main routes, shown in Fig. 4.2.

1. Setting up its own factory or office. The company builds a plant from scratch and runs it.
2. Producing jointly with a local company. The MNC brings money for new machines and the latest technology; the local partner brings knowledge of the market, suppliers and land. Both share the profits.
3. Buying up a local company. This is the commonest route of all. The MNC takes over a firm that already has buyers, a brand and a sales network, and grows it.
4. Placing orders with small producers. The MNC owns no factory at all. Independent workshops make the goods to its design, and its label goes on at the end.

Why buy rather than build? A purchase delivers customers, staff, warehouses and a trusted name on day one. In 2018 the American retailer Walmart paid about 16 billion US dollars for a 77 per cent share of Flipkart, the Indian online marketplace. Overnight Walmart gained Flipkart's customers, warehouses and delivery network. A national traders' association objected that the deal would give the new owner unfair power over small shopkeepers, but the Competition Commission of India approved it. The yearly sales of the very largest MNCs run into hundreds of billions of dollars, more than the whole annual budget of many developing countries' governments. Wealth on that scale buys a great deal of influence.

The fourth route is common in garments, shoes, toys and sports goods. Thousands of small workshops in places like Jalandhar, Meerut and Tiruppur make cricket bats, footballs and T-shirts that are sold abroad under famous brand names. A ball that leaves the workshop for a few hundred rupees may sell in a London shop for several times as much. The brand can switch suppliers easily, so it can dictate how much it pays, what standard it demands, when the goods must ship, and even how the workshops treat their workers.

Whichever route it takes, the MNC links what happens in one country to decisions made in another. A design change in Amsterdam alters the work in a Jalandhar workshop; a new order from Tokyo keeps a Pune parts maker busy. In this way, production in places far apart is getting interlinked.

4.3 Foreign trade and integration of markets

Trade is the oldest link between countries. Spices, cotton cloth and indigo left Indian ports for Arabia, Africa and Europe for centuries. The hope of profit from such trade first brought the East India Company here. History Chapter 3 tells that story. What does foreign trade (विदेश व्यापार) actually do for an economy?

It does two things. For sellers, it opens markets outside the home country. A mango grower in Ratnagiri can sell in Dubai as well as in Mumbai, though there she must hold her own against growers from Pakistan and Egypt. For buyers, imports widen the range of goods beyond what the home country produces, often at lower prices.

The umbrella story follows a general pattern. Once two markets open to each other, the price gap for the same good shrinks until it is about the cost of transport. Makers in both places become rivals, even if thousands of kilometres apart, and the efficient ones gain while the rest lose ground. Shoppers in each place get more to choose from, and goods keep flowing between the two. In effect, two markets merge into one. Economists call this the integration of markets (बाज़ारों का एकीकरण).

4.4 What is globalisation?

Put the pieces of this chapter together. Velora assembling bikes in Vietnam, Kaito making engine parts in Pune and Walmart owning Flipkart are all cases of foreign investment. Each also creates trade: battery cells shipped to Vietnam, engine parts shipped from Pune to Thailand. Multiply such cases by thousands of companies over three decades. The result is a world in which investment and trade across borders have both soared, and a large share of that trade runs between units of the same MNCs.

Making and selling are now woven across borders, and countries are tied to one another far more closely than a generation ago. Economists call this process globalisation (वैश्वीकरण). MNCs are among its main drivers.

Countries are now linked through several kinds of flows, shown in Fig. 4.4: goods, services, investment and technology. A fifth link is people. Indian nurses work in the Gulf and in Britain, and lakhs of Indian students study abroad. Yet this flow has grown far less than the others, because countries decide who may enter and work, through visas and work permits. Workers cross borders much less freely than money or machines.

How far has India joined in? A common yardstick is the trade share. It takes the value of a country's exports and imports of goods and services together, as a percentage of its GDP (the value of everything it produces in a year).

Fig. 4.5 uses real data from the World Bank. In 1990 India's trade share was only about 15 per cent. It passed 49 per cent in 2010 and stood at about 46 per cent in 2025. Foreign investment flowing into India grew even faster, from well under one billion US dollars a year in 1990 to tens of billions a year since 2010.

Different agencies count foreign investment in different ways, so news reports quote different numbers. The World Bank's figure above is net: it subtracts investment that foreign companies withdrew. India's own Department for Promotion of Industry and Internal Trade (DPIIT) reports gross inflows, which include profits that foreign firms reinvest here. For 2025–26 it put them at over 94 billion US dollars (News On AIR, June 2026). Both series tell the same story: since 1991, foreign investment has become a large and lasting part of India's economy.

4.5 Factors that have enabled globalisation

MNCs have always wanted cheap places to produce and new markets to sell in. Why did globalisation speed up only in the last few decades? Three forces made it possible: better technology, the liberalisation of trade and investment policies, and pressure from international bodies such as the WTO.

Technology

Start with transport. In 1956 a converted oil tanker sailed from New Jersey to Texas carrying 58 steel boxes of the same size. That voyage launched the shipping container. A container is packed and sealed at the factory, lifted by crane from truck to ship to train without ever being opened, and unpacked only at the buyer's warehouse. Ports that once needed armies of workers and a week or more to load a ship now turn ships round far faster. Handling costs fell sharply and goods reached distant markets faster. Air freight also became cheaper, so fresh flowers, fish and medicines can now reach the other side of the world within a day or so.

The second revolution was in information and communication technology (ICT): telephones and mobile networks, satellites, computers and the internet. A manager in Mumbai can hold a video meeting with a supplier in Shenzhen and share a drawing in a cloud folder. She can then pay the invoice online in minutes, at almost no cost. Information that once took weeks by post now moves instantly. This lets companies run offices and factories in several countries as if they were next door to one another.

Liberalisation of foreign trade and foreign investment policy

Go back to the umbrella market. Suppose the Indian government decides to charge a tax of 25 per cent on every imported umbrella. An umbrella that reached India at ₹200 now costs the importer ₹250. Imports become less attractive, fewer come in, and Indian makers, who can sell at ₹250, win back buyers.

An import tax like this is one kind of trade barrier (व्यापार अवरोधक): a restriction that a government places on trade. Another is a quota, a fixed limit on how many units of a good may be imported. Barriers work like a set of taps: a government can open or close them to let more or less trade through, and choose which goods pass and in what quantity.

Try it yourself in the explorer below. Raise the import tax or tighten the quota and watch what happens to the price buyers pay, the number of imports and the sales of Indian makers.

Why would a government want such taps? A young sapling needs a fence until its trunk can survive grazing goats. Indian planners after Independence saw new industries the same way. Many steel plants, machine-tool makers and chemical factories were new in the 1950s and 1960s, and cheap goods from long-established foreign rivals could have flattened them. So India kept high barriers on both trade and foreign investment, and imported mainly what it could not yet make, such as machines, fertilisers and crude oil. India was not unusual in this: Britain, the United States and other rich countries had also sheltered their own producers while they industrialised.

The fence came down from 1991. That year India ran desperately short of foreign exchange: its reserves could pay for only a few weeks of imports. The government answered with a new economic policy. Its reasoning was that Indian industry had grown up behind the fence and now needed the push of world competition to raise quality and cut costs. The International Monetary Fund and the World Bank, which lent India money during the crisis, also pressed for opening up. Import taxes were cut, licences and quotas were scrapped over the following decade, and foreign companies were allowed to own factories and offices in most industries.

This policy has a name: liberalisation (उदारीकरण). A government that lifts its own restrictions is being more liberal, that is, less controlling. Under liberalised trade, a firm that wants to import a machine or export a shipment of shirts mostly decides for itself instead of waiting for official permission.

4.6 World Trade Organisation

Behind India's opening stood a body of opinion that was strong in the 1990s: free trade makes everyone richer, so every barrier should go and every country should open up. Powerful international organisations argued this case.

The World Trade Organisation (विश्व व्यापार संगठन), or WTO, carries the idea into practice. Set up on 1 January 1995 in place of an older agreement called GATT, with its headquarters in Geneva, it was created largely at the urging of developed countries. Its members agree on rules for international trade, and when one member accuses another of breaking them, the WTO settles the dispute.

Is the game played evenly? Many developing countries say no. In their view, the rules pushed them to lower their barriers quickly, while developed countries found ways to keep protecting their own producers. Nowhere is the quarrel sharper than in farming.

In the United States, agriculture makes up about 1 per cent of the economy and employs under 2 per cent of workers. Yet the US government supports its farmers with large sums every year, and the European Union and Japan support theirs heavily too. Much of US cotton, for instance, comes from very large, highly mechanised farms run as businesses. With this support, farmers in rich countries can sell surplus crops abroad at very low prices. A small cotton farmer in Vidarbha or in Mali, who gets little help, may then struggle to sell her cotton at a price that covers her costs.

The argument continues at WTO meetings. Developing countries, including India, have also defended their right to buy and store food grains at fixed prices to feed poor families. Some exporting countries call this a hidden subsidy. Whether trade is fair depends a great deal on who writes the rules.

4.7 Impact of globalisation in India

Thirty-five years after 1991, the effects of globalisation can be seen in every Indian town, but they are not the same for everyone. Let us sort the evidence group by group.

Start with the shopper. Ask a grandparent what buying a scooter or getting a telephone connection meant in the 1980s: waiting lists that ran for years, a handful of models and high prices. Today a buyer in a city can compare dozens of phones, televisions or cars online, with Indian and foreign brands competing on price and quality. The biggest winners are better-off households in towns and cities, who buy most of these goods; their everyday standard of living has risen a great deal.

For producers and workers, the story is more mixed.

1. Foreign companies keep coming. The FDI bars in Fig. 4.5 are themselves evidence that India has paid off for them. Look where they went: into what well-off Indians buy, such as smartphones, cars, consumer electronics, packaged drinks, burger and pizza chains, banking and online shopping. Jobs followed, inside these companies and in the Indian firms that supply them; the auto-parts clusters around Chennai, Pune and Gurugram grew largely on such orders.
2. Strong Indian firms got stronger. Facing foreign rivals at home, the best Indian companies upgraded their machines, adopted global quality standards and, in some cases, tied up with foreign partners to learn faster. Several Indian two-wheeler makers now export to dozens of countries.
3. Some Indian companies have become MNCs themselves. In 2008 Tata Motors bought the British car maker Jaguar Land Rover. Bharti Airtel runs mobile networks in many African countries, and Indian IT firms such as TCS, Infosys and Wipro have offices across the world.
4. IT-based services have boomed. Software, call centres, accounting, data processing, engineering design and back-office work are done in India and sold to clients in rich countries, as the Melbourne–Pune example showed.

Small producers: compete or perish

Talk to a wooden-toy maker in Channapatna, or to a small maker of tyres, plastic goods, batteries or electronic parts. You may hear the same complaint: cheaper imports and big brands took away the market. Small dairies and edible-oil mills have faced the same squeeze. Many small units have closed, and their workers have had to look for other jobs.

Why does this matter so much? About 11 crore people worked in India's micro, small and medium enterprises (MSMEs) in 2015–16, according to the National Sample Survey (73rd round). This is the latest such figure that the Ministry of MSME quotes. Only agriculture gives work to more people.

Competition and uncertain employment

Competition also reaches the factory floor. An employer who must match prices set in Dhaka or Hanoi wants to pay for labour only when there is work to do. So more and more workers are hired flexibly: for a season, through a contractor or for a fixed term, and let go when orders dry up. What is flexibility for the employer is insecurity for the worker.

Fig. 4.11 follows one order for T-shirts down India's garment export chain.

1. The brand. A clothing company in Europe or America asks suppliers in several countries for quotes and gives the order to the cheapest.
2. The exporter. To win, an Indian exporter quotes a lower price. Cloth, thread and buttons cost what they cost, so the saving has to come out of wages.
3. The contractor. Instead of keeping tailors on the payroll all year, the exporter takes them through a labour contractor for the busy months only.
4. The worker. In peak season she works very long days and many nights; in slack months she may have nothing. Her basic wage is so low that overtime is the only way to cover her family's needs.

Stories like Lakshmi's are heard in many industries and services. You saw in Chapter 2 that the unorganised sector already employs the bulk of India's workers. Now the line between the two sectors is blurring too: a worker in a registered export factory may have little more security than a daily-wage labourer. In this chain the brand's profits are safe and the exporter survives, but the worker at the bottom carries the most risk and takes home the smallest slice.

4.8 The struggle for a fair globalisation

Look back at the balance sheet in the comparison above. Those who started with an advantage, such as a degree, a skill in demand or money to invest, were best placed to seize the new chances. A tailor on an eleven-month contract or a chain-maker losing her orders had far less to work with.

Turning the clock back is neither likely nor what most countries want. The debate today is about the terms: how can globalisation be made fair? Fair globalisation (न्यायसंगत वैश्वीकरण) would give every group a real chance to gain, and spread the rewards more evenly across people and countries.

Governments hold many of the levers, but only if their policies weigh the interests of all citizens, not just the most powerful. Think back to the people in this chapter:

• For workers like Lakshmi: inspectors and courts that make employers actually pay the wages, overtime and social security that the law already promises.
• For producers like Gurpreet: cheap credit, steady power, good roads, and help with technology and training until they can stand on their own; and, where truly needed, temporary trade or investment barriers.
• For farmers squeezed by subsidised imports: hard bargaining at the WTO for fairer rules, in alliance with other developing countries. India, for example, negotiates on farm trade as part of the G-33, a group of developing countries.

Ordinary people have a voice too. Campaigns by farmers' groups, trade unions, health activists and other people's organisations around the world have changed decisions at the WTO. In December 2005, thousands of farmers and activists from many countries marched outside the WTO meeting in Hong Kong. Earlier, in 2001, after years of campaigning by health groups, WTO members agreed in the Doha Declaration that patent rules should not stop countries from protecting public health. That opened the way for low-cost generic medicines, many made in India, to reach patients in poor countries. The rules of globalisation, in other words, are written by people, and people outside government can help rewrite them.