Globalisation

Topic: Globalisation and MNCs · NCERT: Class 10, Ch 4 "Globalisation and the Indian Economy"; Class 11, Ch 3 "Liberalisation, Privatisation and Globalisation: An Appraisal"; Class 11, Ch 7 "Environment and Sustainable Development"; Class 11, Ch 8 "Comparative Development Experiences of India and its Neighbours"

Meaning

Globalisation is the integration of a country's economy with the world economy. It happens through policies that create networks and activities across economic, social and geographical boundaries, so the world starts to work as "one whole", a "borderless world" (NCERT Class 11). The Class 10 definition is narrower: the "process of rapid integration or interconnection between countries", through foreign trade and foreign investment by MNCs.

It matters because events far away now reach India. A crisis or boom in another country can change jobs, prices and incomes here. One common way to measure how open an economy is:

Trade openness ratio = (Exports + Imports) ÷ GDP × 100

Explanation

How countries get linked: the channels

• Class 10 names only two channels:
• Foreign trade: buying and selling goods and services across borders.

• Foreign investment by MNCs: a multinational corporation (MNC) is a company that owns or controls production in more than one country. The money it spends abroad on land, buildings, machines and other equipment is called foreign investment.

• Class 10 leaves some things out:

• Portfolio investment: buying shares and bonds of foreign companies or governments, without any control over how the business is run.

• The cultural, political and social sides of globalisation.

• The wider list has five channels: goods, services, investment, technology and people.

• People have moved the least:
• People move for better income, better jobs or education.
• But countries restrict this movement through visas, work permits and immigration rules.
• So globalisation has mostly meant goods, services and money moving across borders, not people.

What gets integrated: production and markets

• Integration of production: one product is designed in one country, its parts are made in others, and it is put together somewhere else.
• Integration of markets: the same goods sell in many countries, and buyers get more choice.
• Historical shift:
• Until the mid-20th century, production stayed mostly inside each country. Only raw materials, food and finished goods crossed borders.
• Colonies like India sent out raw materials and food, and bought finished goods back (raw cotton out, mill cloth in).
• Trading interests brought companies like the East India Company to India.
• The new phase (the last 2-3 decades, per NCERT): MNCs spread production itself across countries, and trade grows alongside.
• The key change: from trading finished goods to organising production across borders.

Three definitions compared

Source	Scope	Channels named
NCERT Class 10	Narrow	Foreign trade + MNC investment
NCERT Class 11	Wide, driven by policy	Economic, social and geographical networks
IMF	Economic, can be measured	Trade, capital flows, technology (plus people) [2][4]

• IMF definition: "the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, freer international capital flows, and more rapid and widespread diffusion of technology" [2].
• Interdependence: countries depend on each other for goods, money and ideas.
• Capital flows: money moving across borders as investment or loans.

• Diffusion of technology: new methods and machines spreading from one country to others.

• The IMF groups economic globalisation into four main flows: goods and services, labour/people, capital and technology [4].

• A newer IMF explainer (2024) lists goods, services, investment, technology, data, ideas and workers [3].

Measuring it: the trade openness ratio

• Worked example: exports ₹30 lakh crore, imports ₹35 lakh crore, GDP ₹200 lakh crore.

• (30 + 35) ÷ 200 × 100 = 32.5%

• A higher ratio means the economy is more tied to world trade. The economy is then more open to the gains from world trade, and to shocks from abroad.

In India

• 1950s-1980s (protection): India kept foreign goods and investment out to protect its own young industries.
• It had one of the most restrictive trade policies in Asia, with high tariffs (taxes on imports), non-tariff barriers and complex import licensing [6].

• Quantitative restrictions (QRs): limits on the amount of a good that can be imported.

• The 1991 opening: the L and P reforms led to globalisation. Class 11 puts it this way: "Globalisation is the outcome of the policies of liberalisation and privatisation."

• How openness rose:
• Foreign trade to GDP: 11.6% (1985-86) → 14.1% (1990-91) → 21% (1995-96) [5].

• Trade in goods and services: 16% of GDP (1990-91) → 47% of GDP (2008-10) [6].

• Removal of QRs on imports was completed in April 2001.

• Present:
• Total exports (goods + services) reached a record US$ 824.9 billion in 2024-25, up 6.01% from US$ 778.1 billion in 2023-24 (RBI report) [7].
• Services exports reached a record US$ 387.5 billion (2024-25), up 13.6% [7].
• Total exports are estimated at US$ 860.09 billion in 2025-26, up 4.22% from US$ 825.26 billion in 2024-25 (Department of Commerce estimate) [8].
• The two 2024-25 figures (824.9 and 825.26) come from different agencies and different revisions. Always quote the source with the number.

Don't confuse with

• Liberalisation: removing restrictions that the government has set, such as industrial delicensing or removing QRs (April 2001). It is a policy. Globalisation is the outcome.
• Privatisation: the government gives up ownership or management of its enterprises, through disinvestment (selling part of its shares) or a strategic sale (selling a controlling stake, with management). It is about who owns firms, not about links with the world.
• Portfolio investment vs MNC (foreign) investment: portfolio investment buys shares and bonds with no control over the business. MNC investment means owning or controlling production abroad. Only MNC investment is in the Class 10 definition.
• Old international trade vs modern globalisation: old trade moved raw materials, food and finished goods while production stayed at home. Modern globalisation spreads production itself across countries.

Prelims Hooks

• Class 10: globalisation is rapid integration or interconnection between countries through foreign trade and foreign investment by MNCs. Portfolio investment is not included.
• Class 11: globalisation is the outcome of liberalisation and privatisation policies, and it creates a "borderless world".
• Trap (Class 10, Ex. 13(i)): in recent decades, goods, services and investments moved fast across borders. People is the wrong option, because migration is restricted.
• Trade openness ratio = (Exports + Imports) ÷ GDP × 100. India: 14.1% (1990-91) → 21% (1995-96) [5].
• The IMF definition stresses goods and services trade, freer capital flows and diffusion of technology [2].
• Removal of QRs (April 2001) is liberalisation, not privatisation. India's total exports were a record US$ 824.9 billion (2024-25) [7].

Mains Points

• Globalisation is a policy choice, not fate. Class 11 treats it as the outcome of L and P policies.
• So governments can shape how fast and how fairly it happens through trade, investment and labour rules.

• India's move from protection before 1991 to openness shows this: trade/GDP rose from 16% (1990-91) to 47% (2008-10) [6].

• Globalisation is uneven, and interdependence cuts both ways.

• Capital and goods move freely, but labour faces visa and migration limits. This helps capital-rich countries more than labour-rich India, so India pushes for services and mobility chapters in trade talks.

• Openness brings markets, technology and jobs (services exports US$ 387.5 billion in 2024-25 [7]), but crises abroad reach India faster. India needs buffers: forex reserves, export markets in many countries, and strong domestic industry.

• From colony to production partner: under colonial trade, India sent out raw materials and bought back finished goods.

• Today India can join global value chains (the steps of making one product, spread across countries).
• The real test of India's globalisation policy is whether it moves up into the high-value steps.

Related concepts

• Trade
• International market

Read more

• What globalisation means