Page 114 - Understanding Economics for Class 10

EXERCISES

1. What do you understand by globalisation? Explain in your own words.
Ans. Globalisation is a process of rapid integration or interconnection between countries through
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foreign trade and foreign investments by Multinational Corporations (MNCs). More and more
goods and services, investments and technology are moving between countries. Migration of
people from one country to another is also a way of globalisation.

2. What were the reasons for putting barriers to foreign trade and foreign investment by the Indian
government? Why did it wish to remove these barriers?
Ans. The main reason for putting barriers to foreign trade and foreign investment by the Indian government
was to protect the producers and small industrialists of our country from foreign competition.
But later, it was accepted by the government that foreign competition would encourage Indian
industrialists to improve the quality of their products, and that removing these barriers would
increase trade and the quality of products produced in the country.

3. How would flexibility in labour laws help companies?
Ans. Flexibility in labour law helps companies to attract foreign investments. Instead of hiring
workers on a regular basis, companies hire workers flexibly for short periods when there is
intense pressure of work. Workers are not provided with any extra benefit. This is done to
reduce the cost of labour for the company. However, foreign companies are still demanding
more flexibility in labour laws.

4. What are the various ways in which MNCs set up, control or produce in other countries?
Ans. (i) MNCs set up, control or produce in other countries by investing in setting up of factories
and offices for production in a country, MNCs look for place which is close to the markets;
cheap labour is available.
(ii) To increase production, MNCs collaborate with some local companies or MNCs buy local
companies.
(iii) The other way in which they control production is by placing orders for production with
small and local producers. These local producers have cheap labour and produce it efficiently
(at lower cost).

5. Why do developed countries want developing countries to liberalise their trade and investment?
What do you think should the developing countries demand in return?
Ans. Developed countries want developing countries to liberalise their trade and investment so that
they can set up their industries in small and developing nations, which are less expensive and
can earn them more profit. Labour and other resources are cheap in these countries which
results in low manufacturing costs, and more profit. Also, setting up factories and industries
in developed countries increases competition.
The developing countries should, in turn, ask for
(i) A fair removal of trade barriers in order to protect their own industries. If it is mutually
decided that there will be free trade and no barriers will be imposed then all countries should
follow it (developed countries also). If developed countries keep supporting their domestic
industries, then industries in developing countries will find it difficult to stand competition.
(ii) They should also ask MNCs to pay for setting up their base in developing countries.

E-100 Economics Class X