Globalisation, Trade and International Institutions
Questions here test the meaning and causes of globalisation, the 1991 reforms, the basics of trade and the balance of payments, and the roles of the IMF, World Bank and WTO.
Globalisation and 1991
Globalisation is the integration of an economy with the world through trade, capital, technology and labour flows. In 1991 India adopted liberalisation, privatisation and globalisation: deregulation of industry, disinvestment, rupee devaluation, a new industrial policy and a welcome to foreign investment. India joined the WTO in 1995.
Trade basics
Exports earn foreign exchange; imports may be of capital goods or consumer goods. The balance of payments records the current account (goods, services, income, transfers) and the capital account (loans, FDI, FPI). A tariff is a tax on imports; a quota is a quantitative limit. FDI brings control and management; FPI is a portfolio holding without control.
Institutions
IMF and World Bank, both from the 1944 Bretton Woods conference - the IMF for short-term balance-of-payments support and the World Bank (IBRD) for long-term development finance. The WTO (1995) replaced GATT (1948) and settles disputes. Also relevant: SAARC (1985), BRICS and the AIIB.
Bihar's link
Migration and remittances, export of makhana, litchi and handicrafts, and competition for local industry are the state-level effects.
Worked example
An imported machine costs ₹10 lakh. A 20 per cent tariff makes it ₹12 lakh, raising revenue for the government and the price for the buyer. If a quota restricts imports instead, the price rises through scarcity but the government collects no tariff revenue. Reasoning: compare who gains - under a tariff the treasury gains; under a quota the gain goes to whoever holds the import licence.
Traps that cost marks
Treating globalisation as exports only; confusing FDI with FPI; saying the WTO came before GATT; forgetting that the IMF handles short-term BoP problems while the World Bank funds development.