Samacheer Kalvi 10th Social Science Chapter 24 Exercise Solutions — Globalization and Trade | KalviGavani

a) Nationalisation of industries b) Integration of national economies with the world economy c) Closing domestic markets to foreign goods d) Increasing import duties

a) 1947 b) 1971 c) 1991 d) 1995

a) 1985 b) 1991 c) 1995 d) 2000

a) Buying shares in the stock market b) Investment by a foreign entity in a domestic company with controlling ownership c) Government investment in foreign countries d) Loans given by the World Bank

a) Increase in trade barriers b) Free flow of capital across borders c) Nationalisation of private companies d) Reduction in foreign investment

a) Trade-Related International Property System b) Trade-Related Aspects of Intellectual Property Rights c) Tariff Reduction and Import Policy Standards d) Trade Regulations for International Product Safety

a) A zone with higher tax rates b) A designated area with relaxed business regulations to attract FDI c) A zone restricted to government enterprises only d) An area where imports are completely banned

a) Trade surplus b) Balance of trade c) Trade deficit d) Balanced budget

a) IMF b) World Bank c) WTO d) UNCTAD

a) Shifting factories outside city limits b) Contracting business processes to external firms, often in other countries c) Exporting manufactured goods d) Importing raw materials

Globalisation is the process of integrating a country's economy with the world economy through the free flow of goods, services, capital, technology, and labour across national borders. It removes barriers to international trade and investment, connects markets worldwide, and enables MNCs to operate globally. Globalisation has been accelerated by advances in transport, communication, and information technology.

The World Trade Organization (WTO), established in 1995, is the global organisation that sets and enforces rules for international trade. It replaced GATT (General Agreement on Tariffs and Trade, 1947). Key differences: (1) GATT was a provisional agreement; WTO is a permanent organisation; (2) GATT covered only trade in goods; WTO also covers services (GATS), intellectual property (TRIPS), and investment measures (TRIMS); (3) WTO has a stronger dispute settlement mechanism with binding rulings; (4) GATT allowed countries to block rulings; WTO decisions are adopted unless there is a consensus against them.

Multinational Corporations (MNCs) are companies that operate in two or more countries. They set up production facilities, offices, or subsidiaries outside their home country to access new markets, cheaper labour, or natural resources. Examples: (1) Google (USA) — operates in India, Europe, Asia, offering search, cloud, and advertising services worldwide; (2) Tata Consultancy Services (TCS) (India) — provides IT services in the USA, Europe, and dozens of other countries. MNCs drive FDI, technology transfer, and employment.

Foreign Direct Investment (FDI) is investment made by a foreign company or individual in a business of another country, involving controlling ownership (typically 10%+ voting power). Countries seek FDI because it brings: (1) Capital for business expansion and infrastructure; (2) Technology transfer and modern equipment; (3) Employment generation and skill development; (4) Access to global markets and export growth; (5) Increased competition that improves product quality and lowers prices. India actively promotes FDI through SEZs, Make in India, and relaxed FDI norms in various sectors.

The LPG reforms were India's economic restructuring programme introduced in 1991 in response to a balance of payments crisis. Liberalisation — dismantling the Licence Raj, reducing tariffs and quotas, allowing private sector in previously reserved areas. Privatisation — disinvestment in public sector enterprises, encouraging private ownership and competition. Globalisation — opening the economy to foreign trade and investment, integrating with global markets, allowing FDI and MNC operations. These reforms shifted India from a closed, state-controlled economy to a more market-oriented, globally integrated one.

Balance of trade is the difference between the value of a country's exports and imports of goods. Trade surplus occurs when exports exceed imports — the country earns more foreign exchange than it spends. Trade deficit occurs when imports exceed exports — the country spends more foreign exchange than it earns. India generally has a trade deficit because it imports large quantities of crude oil, gold, electronics, and machinery. However, India often has a surplus in services trade (IT exports). Persistent trade deficits can strain foreign exchange reserves and weaken the currency.

Special Economic Zones are geographically demarcated areas within a country where business and trade laws are more liberal than in the rest of the country. They offer: tax holidays and exemptions, duty-free import of raw materials and capital goods, simplified regulatory procedures, single-window clearance for approvals, and developed infrastructure. India's SEZ Act was passed in 2005. SEZs aim to attract FDI, boost exports, generate employment, and develop infrastructure. Examples include SEZs in Chennai, Noida, and Mangalore.

Outsourcing is the practice of contracting out specific business processes (like customer support, accounting, software development, data entry) to external companies, often located in other countries. India has benefited enormously: (1) The IT-BPO sector employs millions and earns billions in export revenue; (2) Cities like Bengaluru, Hyderabad, and Pune became global outsourcing hubs; (3) It created a large middle class with higher disposable income; (4) It spurred development of supporting infrastructure — telecom, office space, transport; (5) It improved English-language and technical skills in the workforce. However, outsourcing jobs are vulnerable to automation and geopolitical shifts.

Globalisation has several key features:

1. Free Trade: Reduction or elimination of tariffs, quotas, and other trade barriers allows goods and services to move freely between countries. WTO agreements facilitate this by setting rules that member countries must follow.

2. Capital Mobility: Capital flows freely across borders through FDI, portfolio investment, and foreign institutional investment. Investors can set up businesses, buy shares, and invest in infrastructure in other countries.

3. Technology Transfer: Advanced technology, production methods, and management practices spread from developed to developing countries through MNCs, joint ventures, and licensing agreements. This accelerates industrialisation and innovation.

4. Labour Mobility: Though more restricted than capital, skilled professionals (IT engineers, doctors, nurses, academics) move across countries for work. This is facilitated by immigration policies and bilateral agreements.

5. MNC Operations: Multinational corporations produce, distribute, and market across multiple countries. They optimise production by locating different stages in different countries based on cost advantages (cheap labour, raw materials, or proximity to markets).

6. Cultural Integration: Globalisation spreads ideas, lifestyles, entertainment, and consumer preferences across borders. Western brands, fast food chains, and media become global, while cuisines and cultural practices from one country find markets in others.

7. Financial Integration: Global financial markets are interconnected. Stock markets, currency exchanges, and banking systems worldwide respond to events in other countries in real time. Financial crises can spread rapidly across borders (e.g., 2008 global financial crisis).

8. Information Flow: The internet, satellite communication, and digital platforms enable instant exchange of information worldwide. E-commerce, online education, and digital services operate across borders without physical presence.

Benefits:

1. Larger Markets: Domestic producers can sell to global markets, not just local consumers. Indian IT companies, pharmaceutical firms, and textile manufacturers access customers worldwide.

2. Technology Access: Developing countries gain access to advanced technology, modern production methods, and R&D through MNCs, joint ventures, and technology licensing. This raises productivity and product quality.

3. Employment Generation: FDI and MNC operations create jobs directly and indirectly. India's IT-BPO sector employs over 4 million people. Manufacturing MNCs provide factory employment.

4. Consumer Choice: Citizens access a wider variety of goods and services at competitive prices — from smartphones and cars to education and entertainment.

5. Higher GDP Growth: Integration with global markets has accelerated India's GDP growth from about 3.5% (pre-1991) to 6–8% (post-reform period). Exports, FDI, and technology have all contributed.

6. Foreign Exchange Earnings: Exports of goods and services earn foreign exchange, strengthening reserves and stabilising the currency.

Drawbacks:

1. Inequality: Benefits concentrate among urban, educated, and skilled workers while rural and unskilled workers may see little improvement. The gap between rich and poor widens.

2. Threat to Local Industries: Small-scale and domestic industries struggle to compete with MNCs that have greater capital, technology, and marketing power. Many small businesses have closed.

3. Cultural Homogenisation: Western culture, brands, and entertainment spread at the cost of local traditions, languages, and cultural practices. Traditional crafts and art forms face decline.

4. Environmental Concerns: Globalisation encourages industrial production and consumption, leading to pollution, deforestation, and carbon emissions. MNCs may shift polluting industries to countries with weaker environmental regulations.

5. Economic Dependency: Over-reliance on foreign capital, technology, and markets makes the economy vulnerable to global shocks — the 2008 financial crisis, the COVID-19 pandemic, and supply chain disruptions demonstrated this.

6. Labour Exploitation: MNCs may exploit cheap labour in developing countries with low wages, poor working conditions, and limited labour rights. The race to the bottom in labour standards is a concern.

7. Loss of Economic Sovereignty: WTO rules and trade agreements can limit a country's ability to protect its industries, set tariffs, or regulate in the public interest.

The World Trade Organization (WTO), established on 1 January 1995 with headquarters in Geneva, Switzerland, is the only global body that deals with rules of trade between nations. Its role and functions include:

1. Administering Trade Agreements: WTO oversees implementation of trade agreements — GATT (goods), GATS (services), TRIPS (intellectual property), and TRIMS (investment measures). All 164+ member countries must comply.

2. Forum for Trade Negotiations: WTO provides a platform for member countries to negotiate new trade agreements and reduce existing barriers. The Doha Round (launched 2001) aimed at further liberalisation, especially for developing countries.

3. Dispute Settlement: WTO operates a formal dispute settlement mechanism. When a member believes another member is violating WTO rules, it can file a complaint. A panel examines the case and issues a ruling that is binding unless rejected by consensus. This is the WTO's most powerful function.

4. Monitoring National Trade Policies: WTO reviews member countries' trade policies periodically through the Trade Policy Review Mechanism. This ensures transparency and holds members accountable.

5. Technical Assistance and Training: WTO provides technical assistance and training to developing and least-developed countries to help them understand and implement WTO agreements effectively.

6. Cooperation with Other Organisations: WTO cooperates with the IMF, World Bank, UNCTAD, and other international organisations to ensure coherence in global economic policy.

7. Special and Differential Treatment: WTO provisions recognise that developing countries need flexibility. Longer timeframes for implementing agreements, technical assistance, and special provisions for least-developed countries are built into WTO rules.

WTO and India: India is a founding member of WTO. It has used the dispute settlement mechanism (e.g., against US steel tariffs) and has advocated for developing country interests in agriculture, services, and intellectual property. India has raised concerns about TRIPS and access to medicines, and has pushed for greater market access in services.

India's trade policy has evolved through distinct phases:

Phase 1 — Import Substitution (1947–1991): After independence, India adopted a protectionist trade policy focused on import substitution — producing domestically what was previously imported. High tariffs (over 200% on some goods), strict import licensing (the Licence Raj), and quotas restricted imports. The goal was self-reliance and industrialisation behind protective walls. Exports were also controlled. While this built an industrial base, it led to inefficiency, limited choice, and slow growth (the "Hindu rate of growth" of ~3.5%).

Phase 2 — Liberalisation (1991 onwards): The 1991 BOP crisis forced a radical shift. Foreign exchange reserves had fallen to about $1 billion. India pledged gold to secure an IMF loan. The conditions required: dismantling the Licence Raj, reducing tariffs (from over 200% to around 10–30% over time), removing import quotas, allowing FDI in many sectors, and encouraging exports. The rupee was devalued to make exports cheaper. This was the LPG package.

Key changes post-1991:

1. Tariff Reduction: Import duties were progressively reduced from very high levels to moderate levels, making imports and exports easier. 2. FDI Liberalisation: FDI was allowed in most sectors, initially up to 51% and later up to 100% in many sectors (except strategic areas like defence and nuclear energy). 3. SEZs: The SEZ Act 2005 created zones with tax holidays, duty-free imports, and simplified procedures to attract export-oriented FDI. 4. IT and Services Exports: India leveraged its English-speaking, technically skilled workforce to become a global IT services and BPO hub. Software exports grew from virtually nothing to over $100 billion annually. 5. Trade Diversification: India expanded its trade partners beyond traditional ones (UK, USSR) to the USA, EU, ASEAN, and other regions. 6. WTO Membership: Joining WTO in 1995 committed India to multilateral trade rules, giving it both obligations and rights in global trade.

Current Trade Scenario: India's total trade (goods + services) exceeds $1 trillion annually. Major exports include IT services, pharmaceuticals, textiles, gems and jewellery, petroleum products, and automotive parts. Major imports include crude oil, gold, electronics, coal, and machinery. India generally runs a goods trade deficit but a services trade surplus.

Balance of trade is the difference between the value of a country's merchandise exports and imports during a given period (usually a year). It is a major component of the current account in the balance of payments.

Trade Surplus (Exports > Imports): When a country sells more goods abroad than it buys, it earns more foreign exchange than it spends. Example: China has consistently maintained a trade surplus because its manufacturing exports (electronics, machinery, textiles) far exceed its imports. A surplus builds foreign exchange reserves, strengthens the currency, and allows investment abroad.

Trade Deficit (Imports > Exports): When a country buys more goods from abroad than it sells, it spends more foreign exchange than it earns. Example: India has a persistent goods trade deficit because it imports large quantities of crude oil (its largest import), gold, electronics, and coal. The deficit is partially offset by a services surplus (IT exports, remittances).

Effects on the Economy:

1. Foreign Exchange Reserves: Persistent trade deficits drain foreign exchange reserves. India's reserves dipped dangerously low in 1991, triggering the BOP crisis. Adequate reserves are essential for currency stability and import payments.

2. Exchange Rate: A trade deficit puts downward pressure on the domestic currency (more demand for foreign currency to pay for imports). The rupee tends to depreciate when the trade deficit widens. A surplus has the opposite effect.

3. Domestic Production: A large trade deficit may indicate that domestic industries are uncompetitive — consumers prefer imported goods. This can hurt local employment and manufacturing. However, imports of capital goods (machinery, technology) can boost future production capacity.

4. Inflation: Currency depreciation caused by a trade deficit makes imports more expensive, contributing to imported inflation (especially for essential imports like crude oil). This feeds into general price levels.

5. Debt and Borrowing: Persistent deficits may force a country to borrow from international institutions (IMF, World Bank) or commercial lenders, increasing external debt and debt-servicing burdens.

6. Economic Growth: A moderate deficit is not necessarily harmful if it funds productive imports (machinery, technology) that boost future growth. But a deficit driven by consumption imports (gold, luxury goods) can be problematic.

India manages its trade deficit through services exports, NRI remittances, FDI inflows, and foreign portfolio investment to maintain overall balance of payments stability.