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UNIT – 1 BUSINESS AS A SOCIAL SYSTEM Business is an integral part of social system and it is influenced by other elements of society which, in term, is affected by the business. Today the whole society is a business environment. Davis and Blomstorm point out that in taking an ecological view of business in a systems relationship with society; three ideas are significant in addition to the systems idea. The three ideas are: 1. Values 2. Viability 3. Public visibility 1. VALUES: Business like other social institutions, develops certain belief systems and values for which they stand, and there beliefs and values are a source of institutional drive. These values drive from a multitude source, such as the mission of business as a social institution, the nation in which business is located, the type of industry in which it is active and the nature of employees. These values become guides for employee’s decisions in the interface of business. Second, they become strong motivators for people in a business.
2. VIABILITY Davis and Blomstorms define viability as the drive to line and grow, to accomplish the potential not yet reached, and to achieve all that a living system is capable of becoming. If a business is to be a viable, vigorous, institution in society, it must initiate its share of forces in its own environment rather than merely adjust to outside forces. Every business needs a drive and spirit all its own to make it as a positive actor on the social stage rather than reactor or a reflector. 3. PUBLIC VISIBILITY The term public visibility refers to the extent that organizations activities are known to person outside the organization. Public visibility is different from idea of public image. The term public image refers to what people think about an organizations act, while are known. The importance of public visibility is that it subjects business activities to public examination, discussion and judgment. These are became business is integral part of social system. It is a social organ to help accomplish the social goals. INTERNAL AND EXTERNAL ENVIRONMENT OF BUSINESS [TYPES OF ENVIRONEMTN] I. INTERNAL ENVIRONMENT FACTORS
1. Value system: The value systems of the founders and those at the helm of affairs have important bearing on the choice of business, the mission and objectives of the organization, business policies and practices. It is a widely acknowledged fact that the extent to which the value system is shared by all in organization is an important factor contributing to success.
2. Mission and Objectives: The business domain of the company, priorities, direction of the development, business philosophy business policy etc are guided by the mission and objective of the company. Example: Ranbaxy’s thrust in to the foreign markets and developments have been driven by its mission – “to become a researcher based international pharmaceutical company.”
3. MANAGEMENT STRUCTURE AND NATURE
The organizational structure, the composition of board of directors, extent of professionalization of management etc, are important factors influencing business decisions. Some management structures and styles delay decision making while some other facilitate quick decision making. The Board of Directors being the highest decision making body which sets the direction for the development of the organization and which oversees the performance of organization, the quality of the Board is a very critical factor for the development and performance of company. 4. INTERNAL POWER RELATION Factors like the amount of support the top management enjoys from the different levels of employees, share holders, and Board of Directors have important influence on the decision and their implementation. The relationship between the members of the board and between chief executive and the Board are also critical factors. 5. HUMAN RESOURCES The characteristics of the human resources like skill, quality, morale, commitment, attitude etc., could contribute to the strength and weakness of the organization.
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C) FINANCE 0 financial policies. These include the factors like … 1. COMPANY IMAGE AND BRAND EQUITY The image of the company matters while raising finance. brand equity. distribution network have direct effect on marketing. distribution logistics EXTERNAL ENVIRONMENT FACTORS It consists of 2 types. D) Physical Assets – production capacity.H. 7. i. launching new products etc. Micro Environment The micro environment is also known as the task environment and operating environment became the micro environment forces have a direct bearing on the operations of the firm. Brand equity is also relevant in several of these cases.e. forming joint ventures or other alliances. soliciting marketing intermediaries. entering purchase on sale contracts. Micro environment 2. OTHER FACTORS A) Research and development determine a company’s ability to innovate and compete. those who supply the inputs like raw materials and components to the Hossein.K Page 4 . 1. SUPPLIERS An important force in the micro environment of a company is the suppliers. technology. B) Marketing – quality of marketing men. financial position and capital structure are also affecting business performances.6. Macro environment I.
Hossein.H. Hence multisource of supply often helps reduce risks. households. 4.K Page 5 . ability to provide non financial assistance etc are very important. 2.” 5. attitudes. industries and other commercial establishment and govt. A company may have different categories of customers like individuals.company. CUSTOMERS A business exist only became and its customers. The importance of reliable source of supply is for the smooth functioning of business. selling and distributing its goods to final buyers. and other institution. 3. COMPETITORS A firm’s competitors include not only other firms which market the same products but also all those who compete for the discretionary income of the consumers. Besides the financing capabilities. lock out or any other production problem with that supplier may seriously affect the company.” The marketing intermediaries includes middlemen such as agents and merchants who “help the company find customers or close sales with them. their policies and strategies. It is very risky to depend on a single supplier became of skills. MARKETING INTERMEDIARIES The immediate environment of the company may consist of number of marketing intermediaries which are “firms that aid the company in promoting. FINANCIERS Another important micro environmental factor is the financier of the company.
The important macro environment factors as follows: I. 1. If the customers are highly demanding.K Page 6 .H.6. the use of new method of production. Customers Needs / Expectation Technological orientation and R&D effects of a company may also be influenced by the customer needs and expectation. Innovative drive of company The term innovation means introduction of new product. In several cases the customer and the supplier have a collaborative relationship to develop the product or solutions. citizen action publics and local publics are some examples. “The technical. The macro environment is generally uncontrollable than micro environment. PUBLICS “A public is any group that has an actual or potential interest in an impact on an organizations ability to achieve its interests. companies would be compelled to be innovative. MACRO ENVIRONMENT It is also called as general environment and remote environment.” 2. It includes both hardware and software to solve problems and promote progress. industrial and commercial steps which leads to marketing of new products and to commercial use of new technical process and equipment. Hossein.” Media publics. TECHNOLOGICAL ENVIRONMENT Technology is one of the important determinants of success of a firm as well as economic and social development of nation. the success of the company depends on its adaptability to the environment.
K Page 7 . Hossein. Suppliers offering Many times technological changes are encouraged by the suppliers of a company.3. policy The govt. contributes to the development to the technology by its own direct involvement by establishing research organization and funding R & D. The govt. 5.H. Demand conditions The size of demand influences the choice of the technology . like a capital goods supplier etc. 9. Research organization The technological environment of business is enriched by researched organizations which develops new technologies and provide other technical inputs. 6. Govt. 4. may encourage private R & D by various incentives. The size of demand influences the choice of the technological scale. Social forces Certain social forces like pretext against environment pollution or other ecological problems demand for eco-friendly products. Competitive dynamics Competition compels the adoption of the best technology and constant endeavor to innovate. 8. Substitutes Emergence of new substitutes or technological improvements or substitutes which alter technological change. Fast growing trend of demand would encourage development of technology of large scale. 7.
III. Social class 8. Age structure 2. The economic environment includes the structure and nature of the Hossein.” i. Management in Men. ethnic. Material. Family size 5.K Page 8 .e. income levels. tastes and preferences. Income distribution 4. and market is people in the sense that the demand depends on the people and their characteristics – the number. Education 7. ECONOMIC ENVIRONMENT Business partners and strategies are influenced by the economic characteristics. Religion 9. Race 10. age composition.II. Gender 3. attitudes and sentiments. growth rate. Nationality Demographic factors such as size of population..H. density of population. Machinery and Money. nature of family have very significant implication for business. Occupation 6. Important demographic bases of market segmentation include the following: 1. DEMOGRAPHIC ENVIRONMENT The importance of demographic factors to business is clear from the facts that “Management is men” & “Market is people. beliefs. rural – urban distribution.
economic policies etc. secondary (industrial) & tertiary (secondary) sectors. middle and high income economies. The widely used method of classification of the economies is on the basis of per capita income. policies affecting business. The land holding pattern also makes productivity improvements difficult. 3. efficient collection and processing of products become difficult. Middle income economies are sub divided into lower middle and upper middle income where income per capita is neither very high nor low. the stage of development of economy. economic resources. High income economies are economies with very rich income per capita. because of the small and fragmented nature of land holdings. For example. Nature of the Economy The general level of development of the economy has lot of implication for business – it has significant bearing on the nature and size demand. Accordingly the low income. Structure of the economy Factors such as contribution of different structure like primary (agricultural). medicine. small sectors to economy.K Page 9 . These factors and the nature of each sector have business implication. Important economic policies are Hossein. 1. Economic policies There are several economic policies which can have very great impact on business.economy. global economic linkages.H. level of income. Low income economies are economies with very low per capita income. large. 2. govt. India is one of the largest producers of agricultural products.
K Page 10 .a) Industrial policy It defines the scope and role of different sectors like private. d) Foreign investment and technology policy Foreign investment and technology policy will increase domestic competition at the same time it would benefit many domestic firms – by permitting global sourcing of capital and technology. e) Fiscal policy Govt. For example a policy of protecting the home industry may greatly help the import competing industries. This mean the firm should come up with quality. while liberation of the impart policy may create difficulties for such industries. state of operation. It may influence the location of industrial undertakings.H. strategy in respect of public expenditure and revenue can have significant impact on business. Hossein. The pattern of public expenditure may affect the develop of industries. b) Trade policy It can affect the fortunes of firms. Such as govt. joint and cooperative. product mixes etc. c) Foreign exchange policy Exchange rate policy and policy in respect of cross border movement of capita are important for business. a reduction of taxes like excise duty or sales tax may help improve the demand. public. For ex: when industry suffers from recession. Choice of technology. and marketing and after sales service etc. cost. often use tax incentives or disincentives to encourage or discourage certain activities. by increasing the quantity and quality of domestic supply of many goods and services.
in hilly areas Jeeps are greater demand than cars. such as natural endowments. Topographic factors may affect the demand pattern in some cases. weather and climatic conditions.f) Monetary policy The central bank. Thus geographical and ecological factors.K Page 11 . The natural environment determines what can be got done in a society and how institution can function. can significantly influence savings. Geographical factors: differences in geographical condition between markets may sometimes call for changes in the market mix. Climatic and weather conditions: It affects the location of certain industries like cotton textile industry. 1..g. 2. For example – 1% reduction in cash reserve ratio will significantly increase loan able funds with commercial banking systems. topographic factors.H. NATURAL ENVIRONMENT The natural environment ultimately is the source and support of everything used by business – every raw material. Industries with material index tend to be located near the raw material sources. life sustaining factor etc.g. It influences the location of some industries. IV. energy resource. E. Hossein. vocational aspects in the global context etc. Resource availability is the fundamental factor is the development of business in the society. are all relevant to business. E. investments and consumer spending in economy. by its policy towards the cost and availability of credit.
who are owners is a primary one. 2. in region where temperature is very high in summer. food. conservation of non-replenish able resources have resulted additional responsibilities and problems for business. medicines etc. building materials. Ecological factors: It assumes great importance. weather and climatic conditions may call for modification to the products. policies aimed as preservation of environment purity and ecological balance. E. further. Weather and climatic factors can affect the demand pattern of clothing.H. packaging storage conditions etc. govt. there is good demand for desert coolers.K Page 12 .g. The fact that the investments in the business should be recognized. Responsibility to shareholders The responsibility of a company to its shareholders. 1. To protect the interests of the shareholders and to provide a reasonable dividend. CORPORATE SOCIAL RESPONSIBILITY The important generally accepted responsibilities of the business to different sections of the society are described below. the depletion of natural resources. Responsibility to employees The success of an organization depends to a very large extent on the morale of the employees and their whole hearted co-operation. 3. the company has to strengthen and consolidate its position. The responsibility of the organization to the workers include – Hossein. environmental pollution another disturbance of the ecological balance have carried great concern.Weather and climatic factors affect the demand of certain types of products.
smoothen the distribution system to make goods easily available. to improve quality and introduce better of new products. The payment of fair wages 2. To do research and development. To supply goods at reasonable prizes 5.K Page 13 . An opportunity for participating in managerial decisions to the extent desirable. 3. Reasonable chances and proper system for accomplishment and promotion 7. improve quality. 8. Responsibility to consumers The customer is the foundation of business and keeps it in existence. The installation for efficient grievance handling system 9. The provision of labor welfare facilities to the extent possible and desirable 5. Hossein. Proper recognition. appreciation and encouragement of special skills and capabilities of workers. 4. 3. To take the steps to remove the imperfection in the distribution system including black marketing or anti-social elements. To ensure that the product supplied has no adverse effect on the customer. The provision of best possible working condition 3. Establishment of fair working standards and norms 4. Some important responsibilities of business to customers are – 1. To improve the efficiency of the functioning of business so as to increase productivity and reduce prizes. It has been widely recognized that customer satisfaction shall be the key to satisfying the organizational goals.H. Arrangements for proper training and education of the workers 6.1. 2.
Responsibility to community A business has a lot of responsibility to the community around its location and to society.6. 2. 7. 9. To understand customer needs and to make necessary measures to satisfy these needs.K Page 14 . Assisting in the overall development of locality 4.H. 4. Promotion of small scale industries 9. To avoid misleading the customers by improper advertisement. risks and care to be taken while using the products. promotion of education and population control 10. Rehabilitating the population displaced by operate of the business 3. To provide opportunity for being heard and to redress genuine grievances. Contribution to the national effort to build up a better society Hossein. To provide sufficient information about the product including adverse effects. Contributing to research and development 7. Taking steps to conserve scares resources and developing alternatives 5. Develop of backward areas 8. The responsibilities include – 1. 8. Improving the efficiency of the business operation 6. Taking appropriate steps to prevent environmental pollution and preserve ecological balance.
H. The professionalization of business management. NOTE: In the 1930’s Rotary International developed the code of ethics that is still used extensions. be reflected in the increasing acceptance of business ethics. being a social organ. 3. should therefore. black marketing or profiteering. authority and dignity. It uses 4 questions that are called the 4 way of ethical behavior for any business forces – • Is it truth? • Is the fair to all concerned? • Will it build goodwill and friendship? • Will it be beneficial to all concerned? LIST OF IMPORTANT ETHICAL PRINCIPLES THAT A BUSINESS SHOULD FOLLOW: 1.K Page 15 . This means that the business should be conducted according to certain self-recognized moral standards. Do not resort to hoarding. Business. Do not destroy or distort competition Hossein. A profession is bound by certain ethical principles and rules of conduct which reflect its responsibility. shall not conduct itself in a way detrimental to the interests of society and the business sector itself. 2. Do not deceive or cheat customers by selling substandard or defective products by under measurements or by any other means.BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY BUSINESS ETHICS The term business ethics refers to the system of moral principles and rules of conduct applied to business.
Refrain from secret kickbacks on payoffs to customers. Pay taxes and discharge other obligation promptly 8. ethical norms its performances. Ensure payment of fair wages to and fair treatment of employees. even informal. administrators.H. Do not tarnish the image of competitors by unfair practices. Transparency Accountability Investor protection Page 16 Hossein. suppliers. Objectives 1. politicians etc. Corporate governance is concerned with the values. the direction of development and visibility of its performances and practices. It is about the value orientation of organization.4. integrity and accountability of the management. To build up an environment of trust and confidence amongst those having completing and conflicting interest. 7. Ensure sincerity and accuracy in advertising. Make accurate business records available to all authorized persons. 2. The concept of corporate governance primarily hinges on complete transparency. to control production. vision and visibility. 5. price etc to the common detriment. 6.K . labeling and packaging. 10. To enhance shareholders value and protect the interest of other shareholders by enhancing the corporate performances and accountability. ISSUES IN CORPORATE GOVERNANCE Corporate governance is defined as the process and structures by which business and affairs of corporate sector is directed and managed. Do not farm cartel agreements. 9.
Regulations of product mix.. assumes significance. The reservation of industries to small scale. Regulatory Role Government regulation of the business may cover a broad spectrum extending form entry into business to the final results of business.K Page 17 .H. promotional activities etc. finance. public and co-operative sectors. The state also regulates relationship between enterprises. They are. Hossein. marketing. The promotional role of the state also encompasses the provisions of fiscal. 1. In developing countries. licensing system etc. Business fortunes and strategies are influenced by the economic characteristics and economic dimension. The government normally plays four important roles in an economy. the promotional role of the govt. transport. regulate the entry. 2.. amount to regulation of conduct to business. where the infrastructural facilities for development are inadequate and entrepreneurial activities are scarce. Promotional Role The promotional role played by the government is very important is developed as well as in duping countries. monetary and other incentives and development of priority sectors and activities. The state will have to assume direct responsibility to build up and strengthen infrastructure such as power. institutions for training and other promotional activities.- Societal needs Value creation for stakeholders ECONOMIC ROLE OF GOVERNMENT The government plays an important role in almost every national economy of world.
K Page 18 .3. Business freedom: There should not be necessary govt. 4. dearth of private entrepreneurship. A number of factors such as socio-political ideologies. Hossein. Planning role State plays an important role as planner. 2. GLOBAL ENVIRONMENT Globalization is an attitude of mind – which views the entire world as a single market so that the corporate strategy is based on the dynamics of the global business environment. foreign investments etc. absence of inadequate competition in certain segments and resultant exploitations of consumers have contributed for the growth of state owned enterprises. Expanding business globally 2. To maximize profit 4. For growth Essential conditions for globalization 1. Facilities: Enterprise can develop globally from home country bare depends on facilities available like the infrastructural facilities. Giving up distinction between domestic and foreign market and developing global outlook of business. 3. Globalization encompasses the following: 1. Entrepreneurial Role Entrepreneurial role includes establishing and operating business enterprises and bearing risks. restriction like import restriction.H.
financial market reforms. a company doing international marketing contracts with firms in the foreign countries to manufacture the products while retaining the responsibility of marketing the product. Competitiveness: A firm may drive a competitive advantage from any one or more of the factors such as low costs and price. Management contracting: In this supplier brings together a package of skills that will provide an integrated service to clients without risk on owner. HR etc. R & D support. Finalizing is a form of licensing in which a parent company grants another independent entity the right to do business. R&D. Resources: It decides the ability of firm to globalize. Govt. Exporting: Exporting the most traditional mode of entering global market. Turnkey contracts – A turnkey contracts is an agreement by seller to supply a buyer with a facility fully equipped and ready to be operated. 5. 2.K Page 19 . 3. product quality. Licensing & franchising: It involves minimal commitment of resources and effort on the part of international marketer. How to go global? Important foreign market entry strategies – 1. Wholly owned manufacturing facilities: It provides the firm with complete control over production and quality. are easy way of entering foreign markets.3. 5. support: Govt support can encourage globalization. marketing strength etc. It does not have risk in the development. technology superiority. Resourceful companies may find it easier to thrust ahead in global market. Hossein. Contract manufacturing. company and grand image. 4. 6. like infrastructural facilities. product differentiation. Resources include finance. 4.H.
Horizontal Merger: Takes place where the two margin companies’ products similar product in the some industry. Joint ventures: Joint venture is a very common strategy of entering foreign market. General Motors acquisition of fisher body company (an auto parts manufacturer). Vertical Merger: Occur when two firms each working at different stages in the production of the same good combine. Third country location: Third country location is also an entry strategy.7. It provides instant access to markets and distribution network.K Page 20 .g. when there is no commercial transaction between two nations for some reasons. 2. a firm in one of their nations which wants to enter the other market will have to operate third country base. 12. 8.g. in 1998 – combination of Chrysler cooperation and similar sense to create Dainles Chrysler. Types of Mergers 1. E. Hossein. Counter trade: It is a form of international trade in which certain export and import transaction are directly linked with each other. Assembly operations: Assembly facilities in foreign markets are very ideal when there are economies of scale in the manufacture. 11. Strategic alliances: It is also used as market entry strategy it is also known as coalition. E. this strategy seeks to enhance the long term competitive advantage of the firm by farming alliance with competitors. 10. 9. Mergers and acquisitions: It have very good market entry strategy as well as expansion strategy.H. A joint venture may brought about by a foreign investor buying an interest in a local company. When an assembly operations are labour intensive and labour is cheap in foreign country. Any form of association which implies collaboration for more than a transitory period is a joint venture.
Acquisition of Montgomery Ward and Co. E.H.g.K Page 21 . (a retailer) by Mobil Oil Company) Hossein.Conglomerate Mergers: takes place when two firms operate in different industries..
chemicals. development of small industries etc. Objectives: It was promoted as an instrument for implementation of the govt. gave the public sector a dominant role in the industrial development of the nation led to rapid growth of the State Owned Enterprises (SOEs) sector in India. fertilizers and pharmaceuticals etc..K Page 22 .. 1.’s socioeco policies. Policy on the public sector has been guided by the Industrial Policy Resolutions 1956 and 1991 which gave a strategic role in the economy. on one hand and consumer goods. contracts and consultancy services. tourist service. trading and marketing activities.H. India was based agrarian economy with weak industrial base. Hossein.UNIT – 2 ECONOMIC STRUCTURE OF INDIA Mixed economy of India consists of public and private sector. low level savings and investments and near essence of infrastructural facilities. coal. on the other. Public sector The object of accelerating the pace of eco-development and the political ideology. heavy engineering. petroleum. services. These enterprises came to cover a wide spectrum of activities in basic strategic industries like steel. financial services. minerals and metals. To help in the rapid eco growth and development and industrialization of the country and create the necessary infrastructure for economic development. transportation.
K Page 23 . To earn return on investment and thus generate resources for development. the production & control of atomic energy and the ownership and management of railway transport would be the exclusive monopoly of the company. about 98% of zinc with 90% of coal. To promote balanced regional development 6.H. To promote redistribution on income & wealth 4. Many of the loss making PSE have been either in non-priority sectors or in the sectors where the private sector has proved to be more efficient. save and earn foreign exchange for the economy. iron and steel. After 6 months industries were coal. telegraph and wireless apparatus. copper & primary lead. Growth & performance of public enterprise The Industrial Policy Resolution of 1948 made it clear that the manufacture of arms and ammunitions. PSEs as a whole have made huge profits mainly because of the enormous profits made by several public sector monopolies. Hossein. ship building. more than ½ of steel and aluminium and 1/3 rd of fertilizers. excluding radio receiving sets and mineral oils. To create employment opportunities 5. aircraft manufacture. manufacture of telephone. lignite.2. IP of 1956: All the industries of basic & strategic importance or in the nature of public utility services should be in public sector. At the beginning of the 1990. To promote import substitution. public sector was dominant in many industries. 3. To assist the development of small scale and ancillary industries 7. Entire output in case of petroleum.
Essential infrastructure goods and services 2. Irrational product mix 7.Why PSE fails? Even though formulation of plan is good. PSE not only for commercialization but to generate employment. 1. Exploration & exploitation of oil and mineral resources 3. long term development of economy 4.H. Land acquisition 3. 4. Huge cost. Promoted with long gestation period 5. Technology upgradation. Foreign financing 9. time over runs in project implementation 2. New PS policy: Policy announced on 24-7-1991 the priority areas of growth. promoting balanced regional development etc. Why PSE? 1. 2. Technology development & building of manufacturing capabilities. Procurement of equipment 4. Low return on investment on account of price constraints imposed on certain infrastructural goods and services of PE.K Page 24 . inadequate R & D. Manufacture of goods where strategic considerations Hossein. Locational & investment decisions 6. Periodical wage revision. 3. over manning. Imposed marketing arrangements 8. Sick industries taken over by PU. Civil work and other imponderable [not able to estimate] 5. 1.
Railway transport The new industrial policy also indicated that the public sector would withdraw from the following cases: 1. policies: 1. Industries based on low technology 2. Inefficient and unproductive areas 4. equity in all non-strategic PSU to 26% or lower. tin. 2. Bring down govt. Fully protect the interest of workers Hossein. Mining of copper. lead. molybdenum. sulphur.H. zinc. Coal & Lignite 4. Small scale and non strategic areas 3. Restructure & revive potentially viable PSUs 3.PSE-8 1. if necessary. Mining of iron ore. 6. chrome ore. gold and diamond. Arms & ammunition: defence equipment. Mineral oils 5. wolframite 7. Atomic energy 3. aircraft 2. Areas with low or zero social responsibility or public purpose 5. Mineral specified in the schedule to the AE (control of production & use) order 1958.K Page 25 . Areas where private sector has developed sufficient enterprise and resources Govt. manganese ore. gypsum. 8. Close down PSUs which cannot be revived 4.
A disinvestment department was also set up. Public Sector Ratnas Govt. in 1997 July unfolded its strategy to grant autonomy to come PSUs on an experimental basis was to select some vanguard PSUs to support them in their drive to become global giants. After in-depth interministerial discussions. Nine PSUs were selected. These are Navaratnas. 1. Bharath Heavy Electricals Ltd (BHEL) 2. Bharath Petroleum Corporation Ltd (BPCL) 3. Hindustan petroleum Corporation Ltd (HPCL) 4. Indian Oil Corporation Ltd (IOC) 5. Indian Petrochemicals Corporation Ltd (IPCL) 6. National Thermal Power Corporation Ltd (NTPCL) 7. Oil & Natural Gas Corporation Ltd (ONGC) 8. Steel Authority of India Ltd (SAIL) 9. Videsh Sanchar Nigam Ltd (VSNL) GAIL & MTNL were given same status. All these were given freedom to incur. 1. Capital expenditure 2. Decide on joint venture 3. Set up subsidiaries/officers board 4. Enter into technology & strategic alliances 5. Raise funds from capital markets (international & domestic) 6. Enjoy substantial operations and managerial autonomy 7 other PSUs have been given the title ministers.
Private Sector The Industrial Policy Resolution of 1956 has made it very clear that “as an agency for planned national development, in the context of the country’s expanding economy, the private sector will have the opportunity to develop & expand. Outside the schedules of A&B would be undertaken ordinarily through the initiative and enterprise of the private sector. It was the policy of the state to encourage the development of these industries in the private sector, in accordance with the programmed formulated in successive Five Year Plans, by ensuring the development of transport, power and other services and by appropriate fiscal and other measures. The IPR of 1956 has clearly stated that the “private sector have necessarily to fit into the frame work of the social & economic policy of the state and will be subject to control & regulation in terms of industries (Development & regulation) Act and other relevant legislation. Private sector is dominant in the FMCG, Capital Goods Industries. New IP of July 24, 1991 – Expands the role of PS due to privatization. Economic Planning in India: From Mixed to a Market economy. These are three types of economy. These are the free enterprises/market economies or capitalist economy and at the other end are the centrally planned economy or communist countries. In between these two are the mixed economy. 1. The communist countries have a centrally planned economic system. Under this rule, the state owns all the means of production, determines the goals of production & controls the economy according to a central master plan. No
consumer sovereignty. Consumption plan in a centrally planned economy is dictated by state. Ex: USSR, Chez Republic, Hungary, Poland and China. 2. In b/n capitalist and free market economic system is the mixed economy, under which both public & private sector co-exist as in India. In many mixed economies, the strategic & other nationally very important industries are fully owned or dominated by the state. 3. The freedom of PS is the greatest in the market economy. In market economy a. The factors of production (labour, land, capital) are privately owned. b. Income is in monetary form – from sale & profits c. Members have freedom of choice – consumption, occupation, savings and investment. d. Not planned, controlled and regulated by govt. This is far from real one. Ex: US, Japan, Australia and Canada Structure of Economy The contributions of sectors like primary (agri), secondary (industrial) and tertiary sectors form structure of economy. As economy develops share of primary sectors in development, employment & GDP declines. Manufacturing also declines. The service sector is largest & fast operating sector. They contribute upto 60% of world GDP and is less in developed countries. 1980 – 70 1990 – 98 Developing 3.5 3.7 Developed 3 3.3
The share of service sector increased from 1980 – 39% to 46% in 2000 in India. Internationally it has increased 1990 – 12%.
ii) To consider national plan iii) To consider important question of social & economic policy iv) Review working of plans Formulation of Plans: To prepare five year plan usually spread over a period of 23 years. CM of States and Union Territories and Members of the Planning Commission. National Development Council: It is presided over by PM and is composed of UCM.K Page 29 . Union State Ministers are also invited to participate in deliberations. i) To prescribe guidelines. The Planning commission Planning Commission was set up in 1950 March functions: (i) make resources available. (ii) Balanced and effective utilization of country’s resources. increase in competitiveness of downstream industries.H. planning. Economic Planning of India The pattern of economic development in India is very significantly affected by govt. Review of the Plans First Five year Plan – April 1st – 1951 Third Five year plan – 1966 Hossein. increase in quality. Secretary of PC acts as secretary of NDC. Functions.This indicates decrease in price.
e. devaluation of rupee by 36. Ultimate removal of unemployment & poverty 3. within 2 years and formulated a 5 year plan for 1980-85 (6 th Plan) 7th Plan – April 1st 1985 8th plan – 1992 9th – 1997-2002 Objectives: 1. Increased standard of living Five year Plan (2002-07) Should aim at an indicative target of 8% GDP Gross for 02-07. March 1978 instead of 1979 and formulated a draft five year plan for 1978-83.H. 6869). Janata Party in 1977 terminated the 5th plan at the end of 4th year i. It also introduced the concept of “Rolling Plan. decrease in savings. utilization of the natural resources 2. in 1980 terminated 5 year plan formed by Janata Govt.” Under this plan “when one year elapses another year is added to the planning – horizon so that we will always have a ‘Five year plan.’ Formation of Congress Govt. This period is referred to as “Plan Holiday.K Page 30 . increase in price. Hossein. 4th Five Year Plan was put off by 3 years.5% in June 1966. This period had annual plans (66-67. Central Change: Premature end to five year plan.Fourth got delayed due to disrupted the development process like the aggressions of China & Pakistan and severe drought in the country. 1965-66 – Fall income.
The M.H. 9.T. Universal access to primary education by 200% 4. but also education.Increase in GDP. Increase in literacy 72% by 2007 & 80% by 2012. Increase in employment 3. Increase in forest and tree lover to 25% by 2007 and 33% by 2012. consumption of food and other consumer goods. Performance Although we have failed to achieve targets & 30% still under poverty line. health. Characteristics of Industries Until 1991. Decreased population – 2001 – 2011 – 16. Act controlled merges. 7. 10. increased human well being. control. the development of the private sector was under strict Govt. amalgamations and takeovers. the Companies Act gave enormous control over the management and control of functioning of the industries. Decreased poverty – 20% by 2007 and 10% by 2012 2. 8. availability of drinking water and basic sanitation.2% 5. Villages – access to drinking water (portable) by 2012. 6. per 1000 live births by 2007 and to 28% by 2012. 1. was exercised through industrial licensing. Low like the Industries (Development & Regulation) Act.K Page 31 . Decrease in Mattress Mortality Ratio (MMR) decrease 20% per 1000 live births by 2007 and to 10% by 2012. Cleaning of all major polluted river by 2007 & notified stretches by 2012. Hossein. India is one of the largest industrial powers in the world and has the 3 rd largest stock of scientific manpower.P. Decrease in Infant Mortality rate (IMR) 45%.R.
In early decades of planning. Joint Sector has been promoted to facilitate the utilization of the resources and talents of the private sector and function with social orientation of public sector. certain capital intensive or large scale. Import Substitution & Export Contribution Import substitution assumed importance after the second plan. Co-op.K Page 32 . Imports cannot be expanded. cotton textiles and fertilizers. Village & small industries – Not given the deserving importance.H. the growth of consumer non-durables was more than durables. 4. electricity are bound to grow. Establishment of basic and heavy industries has been a reason for self-reliance in respect of capital goods and modern technology build defence strength. sector: Made progress in industries like sugar. In the process of capital accumulation. The Development of Industries 1. pharmaceuticals. The Export Policy Resolution of 1970 emphasized the importance of development and expansion of export oriented production. The Import Hossein. sectors producing non-importable commodities. dyestuffs etc. considerable import substitution took place in many important areas – in capital goods. transport. Some units are reserved for them and the products too. 5. In case of consumer goods. Public Sector 3. Private Sector 2.Capital Goods Vs Consumer Goods Basic and capital goods were considered as pride of place and the consumer goods given low priority. Growth of this sector promotes industrial democracy & discourages concentration of economic power in few hands. organic chemicals.
Creates demand supply imbalance. The backward area development by industrialization is not given importance. The high protection from foreign competition.H. employment. Capacity Utilization Under utilization – amounts to wastage of scarce resources. high costs and poor quality also very severely affected India’s export performance. leads to costpush inflation.K Page 33 . indifference towards consumers and lack of innovativeness. and “initial testing” troubles of new industries which is incapable in the developing economy. poor quality. Under utilization of Industrial policy is due to factors like as “planned excess capacity” calculated to meet the demand in the foreseeable future. tech “invisibilities” which may create capacity in excess [present demand]. Hossein. affect balance of trade. resulted in high costs. In mid 1950’s Jute & cotton industries (textiles) were denied foreign exchange and with liberalization non-essential industries were given import substitution. The import restrictions. Regional Disparities: Removal – Third Plan Large investments were made in backward areas.Substitution Industrializaiton Strategy (ISI) followed in India has had adverse effects. Incentive system was introduced in 4th plan. saving and investment.
3% annual growth.An Evaluation Since 1951. Agricultural Sector Agriculture contributes over 1/4th of India’s GDP. 1967-68 to 1978-79. Virtual sufficiency achieved • Between 1950 & 2000. 0. Phases of Development: From 6th Plan Phases I 1900-1947 – No growth. 50 years of industrialization • Technological. Hossein.H. Substantial diversification 2. IP increased 22 fold. operational development • Development of skilled manpower was also achieved. Growth annually by 2. The rural market accounts for well over 55% of the demand of FMCGs. 7th year revival states: 1.K Page 34 . supplies raw materials for number of industries and contributes 1/5th of the export earnings. stagnation period II. India is a major industrial power in world. 1950-1980 – Advance in modernization of agriculture. large investments have been made in building up capacity over a wide spectrum of industries. Self-reliance [achieved] 4. managerial. due to steps taken in 1. Produce large & broad range of industrial products 3. Technology based on scientific research 2. • GDP increased by 13% in 1950-51 to 25%. Wide range of services 3.8%. provides 2/3rd of population livelihood. Capital & basic goods contribute 1½ of total value added in manufacturing 5.
voluntary bodies and general public] are taking interest in irrigation. 1. Union & State governments are developing the area under irrigation by executing major. medium and minor irrigation projects and exploiting ground water potential. Private sectors like [farmers organization. According to these projects the Irrigation department may use water in bulk from the agency at mutually agreed price for distribution to the farmers. It also been mobilized through issue of public bonds. Irrigation: Increases agri productivity & employment opportunities.4. Eighties – Attention to markets & trading investments frame work to minimize the handicaps of small & marginal farmers and maximize benefits of agri. Expansion & Development of Inputs & Services: Central & state Govts. Ground water development is done through own financing or institutional financing or both.H. agri implements. This supports industries like cement. steels etc) will also increase demand for pumpsets. insecticide and pesticides and fertilizers. steel etc. Irrigation electrification (aluminium cables. Madhya Pradesh and Andrapradesh have initiated the action for privatization of irrigation projects through projects like build own operate (BOO) or build own operate transfer (BOOT) or Build own lease (BOL) basis. Hossein.K Page 35 . States like Maharashtra. PVC pipes. Rural electrification programs (energisation of pumpsets) is also being implement. banks etc. Role in development of agriculture sector..
Hossein. This council helps in inter and intra collaboration with National & International Institutions. commercial banks and primary co-operative are the major source.The most far reaching event was the introduction of high yielding varieties (HYV) of a number of field crops and hybrids of millets in particular. Has revolutionalized agri and increased production of foodgrains in country. educating & extensively educating the farmers. NABARD – National bank for Agricultural & Rural Development was established – plays financial and development roles of RBI and Agri Refinance and development Corporation (ARDC). rice. Farm Research Institute is run by public and quasi public institutions. 1963 – National Seeds Corporation (NSC) 1969 – State Farms Corporation of India (SFCI) – For quality seeds After liberalization – foreign firms were also set up. 1973 – Indian Council for Agricultural Research set up for research. 1971 – The Agro Service Centre Scheme – Employment for trained entrepreneurs. maize. 1965 – The Food Corporation of India Rice Milling Storage Production of nutrition’s processed foods. insecticides and pesticides. The Central / State Warehousing Corporation. Inputs at door step of farmers. jowar and bajra. Banks are also giving credit to agri projects (RRB). Ex: International Atomic Energy.H.K Page 36 . For all related activities and finances relating to it. animal husbandry and fisheries. This covers wheat. The HYV increases demand for plant nutrients and protectants like fertilizers.
The organization look after this is Food Corporation of India. Hossein. Agri Price Policy: Is decided by The Commission for Agri Costs and Prices (CACP). marketing. cold storage.. The Jute Corporation of India and the Co-operatives with the National Agricultural Cooperative Federation of India (NAFED) as their Apex Organization. The Cotton Corporation of India.K Page 37 . vegetable oils. market practices.Agricultural Marketing: 6th Plan – Three essential elements of marketing. Support prices adjusted with cost of production to ensure fair returns to the farmers. Arrangements for procurement of agri produce at support prices. research. The main objective of the regulated market is to save the farmers from the exploitation of unscrupulous market intermediaries and to ensure a fair price for their produce. grains & agri products are graded and stored and sell at advantageous price. Co-op Marketing: It was started to help small farmers. extension. if prices decrease. butter. Directorate of Marketing & Inspection Functions are to give advice to the Central & State Govts. Agmark for Cotton. 1. Promote grading and standardization. Marketing is the important function of co-op.H. ghee. rice and wheat. cream. Regulated Markets: The regulated market is a market where the activities are regulated by law and is meant for dealing in a specific commodity or group of commodities. 2.
1990-98 – 3. Exports of commercial services have been borrowing on every continent throughout the 1990s. moong. Hossein.Agri commodities like wheat and paddy have procurement prices fixed for them.3% The service sector of India grew at 6. Due to competition in services there is reduction of prices and improvement in quality.9% during the above periods. The growing importance of services is reflected in the international trade too. jute and tobacco.8% and 5. The share of services in the GDP of India increased from 39% 1980 to 46% 2000. The growth rate of trade in services has been faster than that of goods. urad.5% compared to the GDP growth rate of 3%. the average annual growth rate of value added in the service sector in the developing economics was 3.H. Statutory Minimum Price: for sugarcane.K Page 38 . soyabean and cotton (kapas). Growth in services and in additions the electronic commerce has added to the new trade pattern.9% and 7. compared to the corresponding GDP growth rates of 5. 1980 – 1990. The service sector is the largest and fastest growing sector. mustard. Minimum Support Prices: for barley. The service sector now contributes more than 60% of the world GDP. gram. ground nut.7% & 3. sunflower seed.9%. Services are used in production of goods and other services. Trends in Service Sector: As an economy develops the share of the primary sector in the GDP and employment declines and those of other sectors increase. Between 1970 and 1990 international trade is services increases by an average of 12% & 8% during 1990-97.
Contribution of service to value added as % of GDP. expenditure as % of GDP 10% in 20th century 20% in 1960 50% in 1995 In developing countries. 1960 in 1990 it was double of 1960.0%.7% increase Consumer durables has a negative growth of 6.7% 2002-03 – 4. Region/country World High Income Economics Low and Middle Income (developing countries) India Trends in GDP Govt.5% industrial production by 7. the central govt.H.0% 2002 – 03 – 5. expenditure was nearly 15% of GDP. 2003-04 – 8. 1997 – 1998 – Economy growth 2001 – 4.K Page 39 .4% total industrial stood at 2.3%. economies 1980 56 59 42 39 1990 60 64 46 42 1999 61 64 54 46 Unit – III Hossein.
Price stability 5. Balance of payment is in disequilibrium 3. Sluggish economic growth I.K Page 40 . Greater equality in the distribution of income and wealth Hossein. Maximum feasible output 2.H. Central Bank administers both 2. Johnson: Policy employing the central banks control of the supply of money as an instrument for achieving the objective of general economic policy.Monetary and Fiscal Policy Monetary and Fiscal policy are two powerful instruments of economic management. Determines the supply of money as well as the supply of bank credit Main objectives are: 1. 1. The Monetary Policy Def: Hary G. High rate of economic growth 3. Fuller employment 4. Why? Necessary? In free enterprise economy. According to economists: Monetary policy is the changes in the supply of money. Inequality in distribution of income and wealth 5. Involuntary unemployment 4. debits and credits) 2. Prices in free market fluctuate (govt. Credit policy is the changes in the supply of credit (different in broader sense) Both policies 1. Instruments of control are some at aggregate level 3.
1. With this cash balance is increased in individual portfolio and securities with them are exchanged for the central bank notes. 2.6.K Page 41 . This consists of two major schools of thought. the households keep their resources in the form of cost. Keynesian theory It states that changes in the money supply work their way through the system in a way that does not result in a close and stable linkage between changes in the money supply and changes in the level of income. financial assets (bonds. Portfolio Mechanism: The way monetary policy affects the assets portfolio of households and firms. 1. Central Bank of the country conducts an open market (exchange) purchase and increase the money supply. Two primary mechanisms is applied. The Keynesian school: Treats changes in the market rate of interest that result from changes in money supply as the significant aspect of the monetary policy.H. To understand this. There are two theories. It emphasizes on credit effect. Monetarist theory: See the close and stable linkage. shares and real assets (plants and buildings. securities. apartments and land etc. Health balance of payments These objectives are met under long-run price stability at maximum feasible o/p. The monetary transmission mechanism is the mechanism by which changes in the money supply produce effects that interact with the real sector to create changes in income and in the price level. This Hossein.) Assume that.
By this substitution they increase the value of these assets and reduce market rate of interest. An increase in money supply can lead directly to on increase in spending on real assets. 2. income and prices.H. They regard money and real assets as close substitutes. This will continue until no further substitution can be made and is profitable. The money supply increase demand – increase national income and product via changes in the market rates in interest. The Monetarist School: The direct change in the money supply as the most relevant aspect of monetary policy. WNH = H + PNK Hossein. The monetary policy changes cause the actual stock to differ from the desired stock and household always want desired stock of income and money balance. This directly changes the level of aggregate demand. The Wealth Mechanism: Its based on the manner in which changes in the quantity of money affect non-human wealth and how this in turn affects aggregate demand. They follow Keynesian school but do not hold the changes in the interest rate as a pre-requisite for the changes in the demand for goods and service. The end result may need not be change in interest rate at all. To correct this they buy financial assets.creates temporary imbalance of excess cash. it may be a change in the general price level on its output. The household maintain a desired stock of money relative to their income.K Page 42 . II. The reduced rate of interest will inturn encourage the firms to increase via the investment multiplier. Where. there is a portfolio adjustment involving a movement out of money directly into goods. According to this “as a consequence of an increase in money supply.
↑ H . Therefore equity owners will consider themselves wealthiest and consumption expenditures will rise.g. Instruments Targets of Monetary policy: The instruments of monetary policy refer to the exo variable that the Central Bank can change at its discretion with a view to controlling and regulating the money supply and the availability of credit. bonds and prices will ↑ of equities. H ↑ ↑ H will ↑ Net wealth of households and since consumption is a function of wealth. The consumption ↑ if central bank ↑ quantity of money and price levels remain constant. causing ↑ in PVK. The second way is : Changes in PVK E. consumption ↑. This inturn increases the desirability’s of equities (common stocks) relative to govt.H. Hossein.H = Quantity of nominal high powered money [is the sum of currency. If Central Bank conducts an open market operation that increases demand for government securities. thereby raising their prices and lowering their interest rate. The measures of monetary policy are classified under two categories. required reserves and excess reserves] PVK = Market [on nominal present value of cash] If price level falls.K Page 43 .↑ WNH and consumption of current income ↑ “Real balance effect is one mechanism through which monetary policy can affect aggregate demand by changing non-human wealth.
When commercial banks possess excess liquidity the open market operation does not work effectively. The RBI Act. the central bank changes the rate. During the period of depression. It rediscounts only approved bills and the first class bills of exchange. open market. II. Of its functions – it is lender of lost Resort Central Bank. 3. bonds & securities are not popular due to low rate of return. II. defines Bank rate as the standard rate at which (the bank) is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase under this act. operations are not effective for lack of demand for credit. Open market has limited effectiveness due to under developed security and capital market. 4. they approach the Central Bank to get their bills of exchange rediscounted. 2. …. Govt. 1935. For rediscounting the bills of exchange. This rate is traditionally called “Bank rate or discount rate. faces a shortage of cash reserves. quantitative measures of monetary control: 1.I.” Hossein.K Page 44 . Discount Rate (on Bank rate policy) Is the rate at which the Central Bank rediscount the bills of exchange presented by the commercial banks. Traditional measures are open market operations Effectiveness of Open Market Operations 1. Quantitative measures of monetary control Qualitative and selective credit controls I.H. Why Rediscount? When commercial banks.
↑ or decrease depending on whether it wants to expand or contract the flow of credit from commercial bank. ↑ Discount rate (interest rate) decrease net worth of govt. This was first adopted by Bank of England in 1839.K Page 45 . 2. Bankers lending rate is adjusted to deposit rate. ↑ DR. ↑ Bank rate. It also ↑ interest rate structure and decrease demand for funds.g. Reduces the banks capacity to borrow. It was an effective bank of market was introduced in 1922. Limitations Hossein. This action of the Central Bank reduces the flow of the credit in three ways. When discount rate of Central Bank ↑. Central banks want to control the flow of bank credit.H. This turns borrowers into depositors. 1. It ↑ credit creation capacity – reduces discount rate and vice versa. The Central Bank can change this rate . it will raise the discount rate. E.Bank Rate is the rate which the Central bank charges on the loans and advances to the commercial banks. savings in bank are in form of deposits. discourages business sector to get their bills of exchange discounted. bonds (treasury bills and promissory notes). the Central Bank rate is 1% point higher than the discount rate charged by the commercial banks. Generally.” 3. ↑ cost of credit. A reverse process is “cheap money policy. ↑ deposit rate. This policy is called “Dear Money Policy”. This is called Bank rate policy or discount rate policy. Commercial Bank raises their discount rate. against which commercial banks borrow funds from the Central Bank. to achieve this objective.
Central bank imposes CRr. 100 Million. 75 M (100-25) = 75 M Total Credit = 400 m Hossein. It controls legal powers to change. E. Variations in the discount rate become effective only where demand your credit is interest elastic. & cRR = 20% a) Banks can loan Rs. 2. Bank decrease CRR.H. iii) The CSR & SRR: Cash reserve ratio. SRR. CRR is non-interest bearing often keep their cash reserves below the safe limits. If deposit of commercial bank = Rs. Loan = Rs.g. It is a legal requirement. It might lead to financial crisis in banking sector. 3. multipliers decrease = 4. credit. CRR is the percentage of total deposits which commercial banks are required to maintain in the form of each cash reserve with the Central Bank.1. when it demands monetary expansion. With growth in credit institutions & financial intermediaries. because they have their own financial resources. to control money supply. The share of banking credit has declined. rules and keep only small ratio in the form of reserves. Therefore it is called statutory reserve ratio.K Page 46 . Objection: 1) Prevent shortage of cash (Depositors) CRR depends on govt. Effective only when commercial bank borrows from Central bank. the Capital Market has widened. 80 million b) Credit or deposit multiplier = 5 100 x 5 = 500 million or 80 x 5 = 400 million If money supply decrease CRR increase by 25%. When economic conditions demand monetary contraction the Central bank cRr.
Credit priority sectors and weak industries are starved of necessary fund and bank credit goes to non-priority sector.K Page 47 . II. Hossein. SLR: Statutory Liquidity Ratio The proportion of total deposits which commercial banks are required to maintain with them in the form of liquid assets (cash reserve. qualitative or selective credit controls is used. They lead either to expansion or to contraction of the total credit. Authorities face problems like. Qualitative or Selective Credit Controls The qualitative methods of monetary control affect (when effective). the large and financially strong sectors or industries tend to capture the lions share. bonds) in addition to CRR. The impact is uniform. i) Credit Rationing: When there is shortage of institutional credit available for the business sector. the entire credit market in same direction. These are not served well by quantitative measures.H.& Additional credit = 75 x 4 = 300 M 100 M decrease considerable impact on money market and if it is CRR = 20% then situation changes. in the total instalments. gold & govt. i) ii) iii) Rationing the credit Diverting the flow of credit from non-priority sectors Curbing speculating tendency based on the availability of bank credit.
By 1956. power and stocking and future mortgaging and borrowing. Hossein. objective is to control speculative activity in the stock market. the central bank writers letters to and holds meetings with the banks on moey and credit matters.K Page 48 . cotton textile and yarns. This was used by RBI first time in 1949. The gap between the value of the mortgaged property and amount advanced is called lending margin.a) Imposition of upper limits on the credit available to large industries and firms. cotton. 10 M. vegetable oil. ii) Change in lending margins: Banks lends Jew % only on value of the mortgaged properly.g. with clear directive to the banks to carry out their lending activity in a specified manner. 6 M. Lending margin = 40% [can be increase in central bank with view to increase or decrease credit]. Therefore prices shoot up due to artificial scarcity. iii) Moral Suasion Method by persuading and convincing the commercial banks to advance credit in accordance with the directive of the central bank in the economic interest of the country. E. amount advanced = Rs. if value of stock = Rs. decrease price secures loans. sugar. extensive use in scarce agricultural products – like food grains. But not effective in underdeveloped country. In this method. This increases the buying. This is widely used in India.H. oil seeds. b) Charging higher interest rate on bank beyond a certain limit. Khandsari and gur.
Although financial intermediaries cannot create credit thro’ the process of credit multiplier. 2. Non-Banking financial intermediaries: Structural change reduces effectiveness of monetary policy.Limitations of Monetary Policy: 1. Its divided into two parts: i) Inside tag or preparatory lag: a) Identifying nature of probability b) Identifying sources of probability c) Choice of appropriate policy action d) Implementation of policy action ii) Outside lag or response lag: The time taken by households and the firms to react in response to the policy action taken by the monetary authorities. Under development of money & capital market Effectiveness of monetary policy is less developed countries is reduced considerably because of the under developed character of their money and capital markets. their huge share in the financial operations reduces the effectiveness of monetary policy. Problems in forecasting Reliable assessment of magnitude of the problem recession or inflation as it helps in determining the appropriate policy measures.K Page 49 . The time lag: the time taken in checking out the policy action. its implementation and working time. This lag is long. 4. Hossein. 3.H.
Eco growth 2. India’s taxation policy 1950-1990: Was formulated to meet the financial needs of the country in the postindependence period.FISCAL POLICY Def: As the govt’s programme of taxation expenditure and other financial operations to achieve certain in national goals. RBI was originally established as share holder’s bank in 1935 with the nationalization in the west central government on January 1.K Page 50 . performed certain central banking functions such as acting as banker’s bank and banker to the govt. Eco justice or equity Two instruments used are taxation and public expenditure. I. Hossein. The imperial Bank (SBI) of India – though commercial bank. But the result was unsatisfactory for the development of the money market and commercial bank. The country had no Central Bank prior to establishment of RBI. Objectives: 1. Promotion of employment 3.H. had the sole authority to issue currency. Economic stability & higher priority 4. 1949 acquired entire capital and became a state owned institution. Role of RBI in Regulatory Banking Sector The structure of Indian Banking System evolved during the preindependence period without any control and direction. the Central govt.
Reserve system was introduced. Rs. a minimum reserve system of Rs. According to RBI (Amendment Act). 115 Cr in gold coins) was to be kept. General Central Banking Functions: The model for RBI is the Bank of England and its Central banking functions are similar. 115 Cr. 400 Cr in foreign securities. 515 CR (Rs. 2. Sells treasury bills 3. repayable within 90 days from the date of advance. Makes wages and means of advance short term loans. Bankers to Govt.Functions of RBI I. 200 G. Hossein. RBI [Govt] 1. 2. of this value of good was not to be at any time less than Rs. behalf and carry out exchanges and remittances. The provisions regarding maintenance of reserves was again amended on October 31st 1957.. It is bankers agent & advisor. which foreign exchange reserve to Rs. on quantum and terms of new loans 2. The RBI has obligations to transact the banking business of the central and state govts.K Page 51 . manages the public debts and issues new loans.H. Issue of currency notes Originally provision was for issuing currency notes according to proportional reserve system but not elastic and did not suit the developmental planning. It accepts money and makes payment on the govt. Advices Govt.
515 Cr (Rs. Banks. 5. Branch Expansion 3. 200 Cr. Amalgamation 6.H. financial matters and planning & resource mobilization. Hossein. The regulatory functions of RBI under Banks Regulatory Act 1949 are: 1. 1934 and Banking Regulation Act 1949. Reserve system was introduced. receipts and payments. Licensing of Banks 2. RBI considers factors such as the financial its tending policy and securities offered.4. The provisions regarding maintenance of reserves were again amended on October 31. 400 cr in foreign securities Rs. 15 Cr. Bankers Bank: Controls commercial banking system under the RBI Act. Liquidity of assets of commercial bank 4. Reconstruction and liquidation According to RBI (Amendment) Act.K Page 52 . these banks should submit weekly statement of their transactions to the RBI] and state Co-op. a minimum reserve system of Rs. of this value of gold was not take at any time less than Rs. While making advances to it. It can deny residenting without any reason. Assists scheduled commercial banks [Banks where affairs are not conducted in a manner detrimental to depositors interest must maintain a cash reserve (as decided by RBI). With RBI against their demand and time liabilities RBI can also direct the bank to maintain 100% CR against all deposits received after a specified date. 3. RBI is the sole agent for transacting govt. The amount of gold (coin and billion) and foreign exchange reserve to Rs. Advices on banking policies. 1957 which reduced. 15 Cr in gold coins) was to be kept. Management and methods of working 5.
reserve requirement changes. To small investors. 4. direct action. behalf and carry out exchange and remittance. steady income. 100 Cr) of NABARD has been provided by the RBI. It accepts money and makes payment on the govt.2. Half of capital (Rs. manages public debt and issues loans. Advices on banking policies. Banker to the Govt. Makes ways and means of advance – short term loans. agent and advisor. SBI is the sole agent for transacting govt. Advices govt. Assisted development of short term coop credit for agri and also participated in establishing the agri refinance and development coop covers in 1963. receipts and payment 5. 1. Established UTI in 1969 to mobilize savings. Sells treasury bills 3.K Page 53 . rationing of credit and moral Hossein.H. Developmental activities RBI established the deposit insurance corporation of India in 1962 with the 12% of period of security to deposits. financial matters. on quantum and term of new loans 2. repayable within 90 days from the date of advance. It is banker. UTI offers the advantages of reduced risk. open market ops. RBI Govt. The RBI has the obligation to transact the banking business of the central and state government. Control of Credit by RBI RBI Act of 1934 & BR Act of 1949 RBI like any central bank resort sto bank rate manipulations. liquidity etc.
7. It also influences commercial banks lending policy. RBI role from lender of last resort changed to that of an active agency for promotion of appropriate specialized agencies of agricultural.K Page 54 . RBI bulletin – monthly – presents was only above function but also provides results important studies and investigations conducted by RBI. finance the setting up of NABARD in 1982.H. Stabilises external value of Rupee and therefore its function is of an custodian of nations foreign exchange reserves. Hossein. Its obligatory for the RBI to budget sell currencies of all IMF members.suatium. rate of interest. but are ineffective. Agricultural Finance Other integrated scheme of agriculture credit was implemented. 6. Credit control Has all authority to use qualitative and quantitative methods of credit control. Report on currency and finance is an annual publication which provides comprehensive review of various development of economic and financial importance. 5. Collection and publication of data The RBI has been entrusted which the task of collection of compilation of statistical into related to banking and other financial sectors of economy. form of securities against loans and portfolio distribution.
Banks must hold adequate quantity of such credit instruments which will be rediscounted by the central bank as per the legislation. RBI has been extensively undertaking “Switch operations” (purchasing of one sale of another or vice versa).H. Sedcondly in the absence of a will organize bill market. they should get bills rediscounted from central bank. Fiscal Policy Def: Is the government’s programme of taxation.K . expenditure and other financial operations to achieve certain national goals. Last two conditions are not satisfied in India. Objectives are: i) ii) iii) Economic growth Promotion of employment Economic stability & Page 55 Hossein. Bank do not maintain any excess can be reserve agreement deposit and if extra ordinary demands are made by the depositors. The silver several little purposes. The objectives are derived from the aspiration and goals of the society.Effectiveness depends on 3 factors Commercial banks in the country should not be oversee to availing rediscounting facility from the central bank. Firstly commercial bank are not much dependent on RBI for financial assistance. they lack adequate quantity of eligible bill which can be rediscounted from the RBI. Carries of money market each pre requisite for the success of RBI bank rate policy. securities. Open Market operations RBI can authorizes the RBI to conduct purchase and sale ops in the govt. treasury bills and other approved securities.
K Page 56 . RBI attempted to raise resources by selling govt. RBI Act was again amends in 1962 which fixed CRR at 3% for all liabilities. security holdings wherever RBI increase CRR. The logphole was what a minimum of 25% SLR could be maintained. Now RBI doesn’t purchase securities against each payment. enabled the CB’s to liquidate their govt. RBI can raise amounts 15% System of different rates In 1960 RBI introduced a system of lending rates on slab basis. This tech is been implied for last 2½ decades for controlling inflation. SLR: BR Act 1949. CRR – RBI Act 1956 – RBI acquired the power to change reserve requirement of CB’s between 5 & 20% in reserve respect of their demand liabilities between 2 & 8% in respect of their time liabilities. employment and equality. The objectives are growth.H. Hossein. RBI direct scheduled bank to keep certain reserves of their liabilities created after a specified date in cash. Range is 3-15%. There is fiscal bias. The two basic instruments that are used to achieve the social goals are taxation and public expenditure. It was effective for 4 years till it was replaced by her liquidity ratio system. RBI’s sales of govt’s securities has been kept up by imposing a statutory condition on various financial institutions to invest a portion of chair income/deposits in the govt. securities for meeting development as well as defence requirements. and other approved securities.iv) Economic justice or equity These objectives vary from country to country and from time to time.
1. Direct Taxes Administration Committee: (Tyagi Committee) 1958 i) ii) iii) iv) A scheme of integration of direct taxes To prevent tax evasion To simplify the procedure of tax compliance The committee on rationalization & simplification of the tax structure (Bhoothalingam committee) – 1967 to suggest measures to reform the tax system and to prevent tax evasion. reformulated to make it fair. It is formulated. Indirect taxation enquiry committee (Jha Committee) – 1976 – To find and examine the sources of anomalies on the indirect tax system and to explore the possibility of implementing Value Added Tax (VAT) system in place of excise duties. v) vi) Direct taxes enquiry committee (Wanchoo committee) 1971 – to suggest tax reform measures to prevent tax evasion.Formulation of Tax Policy Tax policy existed due to recommendations of dozens of tax enquiry committees and review panels and deliberations on the recommendations in the parliament. 2. Nicholas Kaldor.H. Taxation Enquiry Committee (TEC) 1953-54 to suggest suitable tax measures for mobilizing additional tax revenue. Nicholas Kaldor Committee – 1956 under chairmanship of Prof. equitable and efficient. vii) Direct tax laws committee (Chaksi committee) 1978 to suggest measures to simplify and rationalize tax laws to improve the implementation viii) Basic Function of tax policy: Tax policy was designed to perform two basic functions. This started in early 1950’s by appointment of a number of committees. Hossein.K Page 57 . tax expert of Britain to suggest new tax measures to augment govt. revenue. 3.
Gift tax 4. The state and central government levies taxing power extensively and intensively. external borrowing on foreign aid had the potentials of yielding adequate development finance. Financial resources has to be increased 4 times. Taxable potential was very low as income was low and per capita borrowing was lower. Expenditure tax 5. estate duty 2. So taxation policy was formulated.H. Estate government imposes tax on Hossein. so that rate of capital formation could be stepped up from 5% of national income to say 20%. Wealth tax 3. Capital gains tax A tax rates were imposed on direct indirect taxes. The known source of development finance taxation. The problem faced was how to mobilize adequate financial resources to finance the development programmes chalked out in 5 year plans. High import duty is imposed on almost all items of exports. The taxes imposed are from 1950. domestic borrowing. The repayment near slow. Revenue function Revenue collection is the primary objective of India’s tax policy.India’s Taxation Policy 1950-1990 Was formed primarily to meet the financial needs of the country in the postindependence period. Central Excise duty is imposed on all imaginable non-agriculture products. 1.K Page 58 New in 1950 .
production and final disposal.1) Agricultural income tax on large holding tax 2) Surcharge of cash crops 3) Profession tax 4) Tax on urban property 5) Sales tax on motor spirit 6) Motor vehicle tax 7) Tax on passengers and goods. b) Credit Guarantee Scheme for S & M I Came into force in July 1980. capital is better mobilized.K Page 59 . The capital varies in rural areas they have to borrow from money lenders or land owners and pay high interest rate. entertainment Industrial Finance Sources of finance for small and medium scale industries Both medium and small scale industries require capital for plant and machinery.H. a) Loans by Commercial Banks For long time CBs did not bother small and medium scale industries. Others CBs were slow in lending by March 1966 they had made advances amount to Rs. In urban areas. The schemes was extended to all branches of SBI. SBI with RBI took the initiative of setting up a pilot scheme for the provision of credit for small scale industries. The banks charge rate of interest often ranging between 24 to 36% and not be able to raise necessary capital. 90 crores to small units with nationalization more advance to S & M industries. the administration was with RBI. this is a important phase. but was transferred to the Deposit Insurance & Credit Guarantee Hossein. the objective of the scheme was to provide a measure of protection to specified banks irrespective of their loans to small borrowers in the priority sectors of S & MI.
protecting and promoting the S / I in India. 4. 4. In order to manufacture ancillaries and component parts required by the large-scale industries. 1. To provide financial.000 crores. Principal interest for SBI 2. 250 crores – which can be increased to Rs. 2.K Page 60 . Coordinate functions of other banks and financial institutions Hossein. Authorised capital of SIDBI is Rs. To secure coordination between large and small scale industries to enable small scale.000 crores.Co-op (DICGC). This operates 5 schemes – 4 for small borrowers and one for S & MI. Functions are 1. It conducts surveys and secures contracts from central government. It also introduced hire purchase of machineries on easy payments. (NSIC) Was set up in February 1955. 515 Credit institute are participating in the 5th scheme. order for output of SI unit. SIDBI Set up by Govt. financing. c) National Small Industrial Co-op. technical and other assistance to fulfil orders. 25. To underwrite and guarantee loans from banks and other credit institute.600 crores. 3. The advances to small borrowers is Rs. To secure govt. of India under a Special Act of the Parliament in April 1990 as wholly owned subsidiary of SIDBI.H. for the purpose of assisting. It has taken over the outstanding portfolio of IDBI relating to the small scale sector worth over Rs. Role: 1.
Mission: 1. Hossein. Stimulate the promotion of new industries 2. Provided financial support to NSIC for providing leasing. Extends financial support to state small industries development corporation for providing scarce raw materials to marketing the end products of industrial units in the SSI. 4. Grants direct assistance as well as refinance loans extended by primary lending institute for financing export of products manufactured by last for industrial concerns in SSI. 3. Participates in equity capital and in debenture and underwrites new issues of shares and debenture.3. 2. 3.H. expanding channel for marketing. Administer small industries for fund and national equity fund.K Page 61 . Assist the expansion and modernization 3. SIDBI was set up to ensure larges flow of financial assistance to SSI. Guarantees loans from other private investment sources. 5. hire purchase and marketing support to IU. both rupee loans and foreign currency loans. Refinances loans and advance extended by primary lending institute and provide resources support system. 2. Technical upgradation and modernization of existing units. Long term or medium term loans. Rediscount on discounts bills arising from sale of machinery. Functions: 1. Furnish technical and managerial aid 1.
8090 crores. instalment sale. Hossein. While its disbursement amounted to Rs. It provide leasing assistance for computerization. equipment of energy conversation. This consisted of foreign currency. jointly undertaken by Indian companies. funded by US AID with a grant of US 40 M to support selected research and technical development proposal in Indian energy sector. ICICI has undertaken the administration and management. Provides financial services such as deferred capital. export orientation and pollution control etc. 4. Apart from HDFC. KICI promoted the housing development finance corporation (HDFC). guarantee and subscription of shares and debentures. Programme for acceleration of commercial energy research (PACER). In 1977. 5. Technical Development and Information Company of India Ltd (TDICI) promoted by ICICI to finance the transfer and upgradation of technical provide technical information/ 3.480 crores in 1955 up to March 1990. leasing credit. modernization / replacement. rupee loans.4.H. 2.K Page 62 . The total financial assistance amounted to Rs. 12. loans. Programme for the Advancement of Commercial Tech (PACT) set up with a grant of us $ 10 M provided by US AID to assist market oriented R & D activity. other institute are 1. CRISIL – Credit Rating Information Services of India Ltd set up ICICI in association with UTI to provide credit rating services to corporate sector. asset credit and venture capital. Commenced leasing operation in 1983.
By investing the sale proceeds of the unit and also the initial capital fund of Rs. the LIC. 3. 2.H. Primary objective: [two fold] 1. the SBI and scheduled banks and other financial institutions. By selling units of the trust among as many investors as possible in different parts of the country. By paying divides to those who have bought the units of the trust. 5 crores in industrial and corporate securities. Enable them to share the benefits and prosperity of the reply granting industrialiszation in the country. by the large and growing number of small investors in the middle income group of the community. to extend facilities of investment in equity capital of companies. Initial capital was 5 Crores which was subscribed fully by RBI.UTI – Unit Trust of India UTI was formally established in February 1964. Hossein.K Page 63 . 2. Stimulate and pool the savings of the middle and low income group. The management and direction is entrusted in the hands of the trust and in hands of Board of Trustees. It could be achieved in three fold: 1.
the Govt. Wholly subscribed by the Central Govt. was set up on January 1982 to take over operations of the internal financial wing of the IDBI (to provide financial assistance to exporters and importers). On August 1984. It provides refinance facilities to CB’s and FI against export – import. Financing for exports and imports of good and services 2. assisting and promoting industrial development and rehabilitating industrial concern. IRBI was established in March 1985.Industrial Reconstruction Bank of India (IRBI) Was set up in 1971 April an institution named IRCI – Industrial Reconstruction Corporation of India under Indian Companies Act to look after “sick” industries and for speedy reconstructions and rehabilitation and developing infrastructure facilities like transport and marketing etc. Financing of joint ventures in foreign countries Hossein. and foreign currency from other countries. Export – Import Bank of India Commonly known as Exem Bank. 100 Cr. IRBI extends credit to sick small scale units emphasis on continuous modernization.K Page 64 . can raise currency from govt. 200 crore and paid up capital is Rs. Capital Resources Authorized capital of Exim Bank is Rs. for revival. of India passed and act converting the IRCI into Industrial Reconstruction Bank of India (IRBI). Financing for exports & imports of machinery 3. Functions: 1. improve productivity and upgrade technology.H.
underwriting of a direct subscription to industrial securities. Till 1976 it was a wholly owned subsidiary of the RBI. Can refinance term loans to industrial concerns repayable within 3 to 25 years given by the IFCI and State finances. technical refund loans and equipment finance loans. soft loans. Loans to foreign govt.K Page 65 . Loans to cities in India include a) Export bills re discounting schemes of short bills b) Refinance of export credit. Loans to Indian companies a) Direct financial assistance to exporters b) Technical consultancy services c) Oversees investment d) Pre-shipment credit 2. Functions of the IDBI 1. IDBI – Industrial Development Bank of India Set up 1947 to provide long term finance in industry. c) Overseas Investment d) Pre-shipment credit 3. shares and bonds or debentures. In 1976. companies & PI are provided under: a) Overseas buyers credit scheme b) Lifes of credit to foreign govts and relending facility to banks overseas. 2. It subscribes to purchase and underwrite the issue of stocks. IDBI was delinked from RBI and was taken over the Govt. Indirect Assistance: 1. Hossein.H. of India. Direct Assistance: By way of projects loans.Presently 9 lending operations are undertaken: 1.
replacements and modifications etc. Special Assistance: IDBI Act 1964 has provided for the creation of a special fund known as the development assistance fund. 3. Banks are primary sources. Hossein.K Page 66 . Ownership securities Are the shares by which the owned capital is raised.H. 2. Refinance term loans repayable between 3-10 years given by scheduled banks or state cooperative banks. It provides assistance to backward areas in relation to industrial development with the financial institute gives advances to small scale sector for regional development and soft loan scheme.2. Corporate Securities Corporate securities are instruments by capital is raised by joint stock companies. Is required for permanent working capital. small expansions. It can refinance bank and state cooperative banks. There are two classes: 1. Medium term finance 1-5 years may be regarded as medium term. Industrial Finance 1. Short-term finance: Refers to the funds required for a period of less than one year required to meet variables seasonal or temporary working capital requirement.
Kinds of shares: 1. Non-participating PS: Entitled to only fixed share of dividends and have no claim in surplus profit. Dividends are fixed 2. Participating preference shares: Shareholders receive a fixed rate of dividend in priority to ordinary share. 7. Those who hold PS get their dividends before others 3. 2. Irredeemable PS: That cannot be purchased back Hossein. Cumulative PS: Have fired dividends whether these are profits or no profits.H. Preference shares: are those which have preference that right to the payment of dividend during the life time of the company and a preferential sight to the return of capital when the company is wound up. 5. 3.K Page 67 . 6. If profits are not sufficient then dividend are accumulated and paid the next year. the CCP share can be converted to equity any time between the third and fifth years of the issue. Characteristics 1. have sight to participate in the balance of profit in an agreed proportion together with ordinary shareholders have voting rights. 4. Convertible cumulative PS: Introduced in 1955. Non cumulative PS: They cannot claim arrears of dividends of any year out of the profits of subsequent year. During wind up also they get the money first. do not have voting right. Kinds 1. Redeemable PS: Shares which can be purchased back by the company at any time.
Equity Shares Shares that are not preference shares are equity shares. They don’t have fixed rate of dividend. Once the claims of dividend of PS are complete the FS get them. They are irredeemable and holders handle normal voting rights. Two types of equity shares: According to company’s act. 1. With voting rights 2. With differential rights as to the dividend, voting or otherwise in accordance with such rates of subject to conditions as may be prescribed. Included by the Act by companies (Amendment) Act 2000. 3. It may consolidate and divide all or any part of share capital into shares of a large amount. 4. May correct all or any of its fully paid up shares into stock and vice versa. 5. Can sub divide the existing shares into shares of lower denominations. 6. Can also cancel shares which have not been take up and reduce its capital 7. Can be done by company and don’t need court permission. Creditorship Securities Consists of Debentures and bonds and credit instruments that are used by companies to raise funds. The complaint raised is known as “Borrowed Capital or Debt Capital.” Debentures: A document under the company’s scale which provides for the payment of a principal sum and interest thereon at regular intervals which is agency secured by a fixed or floating charge on the company is property or undertaking which acknowledges a loan to the company.
Classes: 1. Redeemable and sure deemable (perpetual) 2. Mortgage and simple 3. By a charge on the assets or property of the company 4. Spread over in different cities 5. Estimates of deposit and annual turnover is not available 6. RBI has no control over the lending activities Nidhi operate – South India Some kind of mutual funds Restricted only to the member Indigenous bankers are individual firms which receive deposits and give loans and thereby operate as banks. The activities not regulated. They do not constitute a homogeneous group. Organized Sector Commercial Banks, FI, Mutual Funds and Discount and Finance House of India Limited. The principal constituents of the Indian Money Market is 1. The Call Money Market: Overnight and money at short notice for periods upto 14 days. It is meant to balance the short term needs of banks, exist in developed markets. 2. Market which deals with treasury bills is called treasury bills market. They are short term liability of the Central Govt. Issue to meet revenue deficits. The market is undeveloped. RBI is the captive holder of these bonds. It is also auctioned. 3. The Repo Market: Is a money market which helps in collateralized short term borrowing and lending through sale purchase operations of debt
Hossein.H.K Page 69
instruments. It is sold by their holder to an investor with an agreement to repurchase them at a predetermined rate and date. 4. The Commercial Bill market: Is sub market where commercial bills trade bill are handled. The commercial bill is a bill drawn by one merchant firm on the another. They arise only out of domestic transactions. Purpose is to reimburse seller, but buyer delays payments. 5. The Certificate of Deposit Market: Issued by bank to depositors of funds that remain on deposit at the bank for a specified period. They are similar to term deposits but are negotiable and trade able in the short term money market. 6. Commercial Paper: Is short term instrument of raising funds by corporates. It’s a sort of unsecured private placement: Is the sale of an entire issue of securities by a company directly to one or few investors, usually financial institutions. The appeal made to sell and buy through brokers. E.g. Insurance companies, investment companies, trust accounts, pension and provident funds etc. the growth of institutional investors ha increased the scope of private placing. Methods: 1. Standing Behind the issue: Underwriter guarantees the sales of a specified number of shares within a specified period. If it doesn’t sell underwriter buys it. Convertible and unconvertible Convertible debentures the holders have the option to convert their debenture holdings into equity share of the company at a specified rate after a specified period.
2.New Issues – Marketing of Securities The securities market may be divided into: i) New Issue Market and ii) Stock Exchange Limitations: 1. Money Market Money market refers to a mechanism whereby on the one hand borrowers manage to obtain short term loanable funds and on the other. this is a flop. The indigenous bankers are financial intermediaries. artisans and other selfemployed persons.H. The chit funds are saving institutions. it is not advisable. Chit Funds – Not in Kerala and Tamil Nadu 1. Among these the most prominent are financial companies. They charge from 36-48% of interests. The Indian Money Market: Is not integral – of two types 1. They give loans to retail on wholesalers. If company fails to generate sufficient response. For a new company with new and unknown promoters. chit funds and Nidhis. tenders succeed in getting credit worthy borrowers for their money.K Page 71 . Have regular members who make subscription 2. Organised and 2) Un organized Unorganized sector Confined to small towns and villages. Collection is given to member of the fund Hossein.
2. Purchase price may be negotiated or may be determined by competitive bidding. The Consortium Method: Syndicated Method Underwriting is jointly done by a group of underwriters who form a syndicate for this purpose. Help stabilize capital markets Participation Certificate Like certificate of deposits PCs are also issued by banks normally for periods ranging from three months to 6 months. as didn’t receive any positive response. Maximum period to one year. In need of funds. Hossein. Money Market mutual Funds Was introduced by RBI in April 1992. risk is widespread. it allows a bank to obtain from other banks and financial institutions.K Page 72 . Advantages 1. Reduces specialized functions 4. Initial guideline were not attractive. Assist in mobilization of funds in the capital market 6. To make is attractive Rs.H. 50 crore is been given as limitation to the banks and FI from November 1995. the objective was to provide an addition short term avenue to the individual investors.Outright Purchase The underwriter purchase the issue outright and resell the securities to investors. Relieves the issue of the risk. Adopted for new issues. Have expert knowledge of the capital market conditions 5. To fulfil minimum requirements 3.
One doesn’t have effect on others. Introduction of stamp duty 2. population and wasteful consumption. Reform measures 1. Rural areas still to be covered. poverty. The indigenous bankers have no connections with RBI. Oct – June require additional finance a monetary stringency is crated.H. There is no coordination and cooperation between them. Deregulation of interest rates from May 1985 by RBI have activated MM 3.K Page 73 . basically farm regulated. Too many concession rates. The introduction of Repo in December 1992.Characteristics 1. Lack of Rational Interest Rate Structure Due to lack of coordination between banks. its an agreement with CBs and RBI. Inadequate Banking facilities Though we have opened CBs everywhere. no fixed interest. but still lack in banking facilities. Seasonal stringency of funds and fluctuation in interest rates India. low per capita income. and has bearing on funds demand and supply. Lack of integration No coordination between organized and unorganized sector. Due to small savings. inappropriate lending and borrowing. Hossein. Many MM Instruments are realtered 4. Shortage of funds in the MM The loanable funds far exceed its supply. 2.
H. User also opt for both markets. A business enterprise can raise capital from various sources. Some institution serve both money and capital market. Short term and long term rates are interdependent.K Page 74 . 2. Suppliers / refers to operate in both markets within their frame work of investment. Long term trends can be raised either through issue of securities by borrowing from certain institutions. Public Corporations Business units Lenders are: Individual investors Institutional investors Banks Special Industrial financing institutions The MM and CM are interdependent 1.Capital Market Capital – Health used in the production of funds wealth. Borrowers of Capital are: Central & State Govts and Local Govts. 4. It is the money and money value investors in business unit. Hossein. 3.
Mobilization of savings and accusation of capita formation Paucity of resources and increasing demand for investments by industrial organization in India. For financing Five Year Plans 2. 3. Raising long term capital Permanent capital is raised for a permanent present born companies require funds permanently.Role of Capital Markets in India’s Industrial Growth 1. but also functions to allocate resources to the most efficient industries.H. Promotion of Industrial Growth Stock exchange is a central market through about resources are transferred to the industrial sector of the economy.K Grant of long term and medium term loans in entrepreneurs. 5. Encourage people to invest in productive rates than non productive channel. To channalise their funds in a particular company. Ready and continuous market: Stock market is every element of marketability makes investment with more liquid as compared to other assets. 4. The exchange gives investors to buy on sell their securities while permanent capital with the companies remain same. 7. 6. Proper channelisation of funds Not only creates liquidity through its pricing mechanism. Page 75 . Provision of a variety of services FI provide variety of services i) Hossein. Capital upto is important.
Provides safety to investors. 3. The prices are openly communicated to the public known as “Market quotations.H.” 4. Ready and continuous market Provides a convenient place where shares can be bought and sold. Protection to Investors The functioning is regulated and conducted by well laid rules.ii) iii) iv) v) Provision of underwriting facilities Assistance in promotion of companies Participation in equity capital Expect advice i\on management of investment in industrial service Function Provides services to both corporate and investor class sectors useful services. 1. 2. The prevailing market price of a security and relative yield are the guiding factor for the people in channel is their funds in particular company. After 1992 scare everything comes under (SEBI).K Page 76 . Hossein. Proper channelisation of funds Flow of funds is into most efficient industries. Easy marketability make investment in securities more liquid as compared to other assets. Provides information to assess the real worth of securities Trading is continuous and prices are determined by their supply and demand.
Benefits to community: a) Promotes industrial growth and eco. 7. building etc. Advantages 1.K Page 77 . Accelerates capital formation The positive features of the stock market encourage peoples to save and invest in corporate securities. Development Inculcates habits of saving and accelerates the process of capital for margin Optimum utilization of saree resource Give picture of the economic of state and country Manages fund for public sector Hossein.H. Economic barometer Stock exchange prices are important economic indicated of the performance. The twin fee market of recoverable return and liquidity are definite incentive to the people to invest in securities. 8. this stimulates industrial growth.5. Impact of company performance 9. Promotion of Industrial Growth The funds are invested in productive channels than unproductive sections like real estate. Raising long term capital Stock exchange offers investors opportunity to investors to buy and sell their securities while retaining the permanent capital. 6.
Types of Dealings 1. Authorised clerk: Act on behalf of their members employer do not get commission. Trading the speculators are interests in dealings. All transactions are taken into account. Non members are not allowed to enter the floor. possess enough experience and are financially sound can become its members. Also known as they commission men. Forward Delivery contracts: Involves speculative transactions are known as forward. 2.H. 3. Hossein. Membership: It is registered and governed by various regulations. Clearing house: An institution share accounts brokers are settled. It is done on fixed settlement days on the end of every fortnight through clearing house only. Functions 1) Ensure – Rules are observed by members 2) To protect the interests of the investing public 3) To approve the quotation of new shares. component.K Page 78 . It ensures that the person is of good moral conduct. They enjoy special privileges. Ready delivery contracts: These involves investment transactions care known as cash trading. noted seven days from date of contract. The government is empowered to nominate not more than three members on the government body. Remisieres act as agents for the members and receive commission on the business procedure by them. The settlement is done within a fixed time.Management: It is managed by an Executive Committee Council of Management / Governing body which is an elects body. When settled same day it is spo delivery contracts.
H. 6. Speculation and speculators: Speculation – Refers to making quick profits by anticipating the changes in the prices of shares. CDs and CPs and corporate debentures and the main participation in this market are bank. The WEM is concerned with trading in govt. Calcutta Stock Exchange association in 1903 and the Madras Stock Exchange Association (Private) Ltd in 1931. securities.. PSU bonds. Bulls: Speculators who are optimist and crytallise in prices and purchase shares. Bears: Speculators who sell in anticipation and fall of prices in future. Ahmedabad. All transactions in debt securities through brokers. Speculative transactions are carried out in the stock exchange day in and day out. financial institutions and large corporate. treasury bills. when the Securities (Contracts) Regulation Act 1956 was passed only % stock exchanges viz. received recognition. Chennai. The capital market segment of NSE Hossein. Stages: who buy large amount of a new issue of share enabling them to sell these shares at a profit. 5. National Stock Exchange of India (NSE) Was set up in November 1992 by IDBI. Mumbai. 23 stock exchanges are recognized. UTI and other finance institutions. Mumbai was followed by Ahmebad share and store brokers association in 1894. Kolkatta. Growth of Indian Stock Markets The first organized stock exchange was established in India at Mumbai in 1857 and was styled as the native share and stock brokers associations.4. This is aimed to ensure transparency and facilitate regulation. Hyderabad and Indore.K Page 79 . NSE commenced operations in the whole debt market (WDM) in June 1994 and trading in equities was started in the Capital Market (CM) segment in November 1994. Delhi. 7.
Export Contribution Export contribution can be divided in three phases. both the segments of the NSE have grown substantially over the years. The limitations of being in Mumbai and the limitation of India’s public telecom network. It is a limited liability company and brokers are franchises. The regime in which trading on NSE operates is characterized by 4 key innovations: 1. preferences shares etc. were avoided by using. NSE is not owned by brokers. oil seeds and vegetable oil. debentures. 2) Export duties affected the export commodities 3) Growing strength of domestic demand was increased.provides facility for trading of equal instruments. 3. tea. Phase I – a) 1952-66 – First three year plan [passively b) 1966-73 – export insufficient expansion 1) FD loans because of Jute. warrants. textile. The physical floor was replaced by anonymous computerized order matching with strict price time priority 2.000 satellite terminals all over the country. Traditional practices of unrealiable fortnightly settlement cycle with the crepe clause of badly were replaced by a strict weekly settlement cycle without badla. hide a etc. Hossein.K Page 80 . raw cotton. Satellite communications NSE has a net work of 2. cotton. 4.H.
Now in the recent times changing towards modernity. I Phase – Import substitution mostly took the form of domestic production of consumer goods. 2. Effective nominal exchange rate of the rupee depreciate in the 1970. the government. The immediate aim of import substitution in this country was the conservation of foreign exchange. To save scarce foreign exchange for the import of more important goods. The result is industrial sections as achieved diversification and depth necessary for future growth. To achieve self reliance in the production of as many goods as possible. Import Policy 1.Phase II – started in 1973 and lasted for decrease. Import Substitution Objectives are: 1. Indian Society Social system is a very broad concepts. traditions and culture is rich in Hossein. 3. Indian Society basically a traditional society. It includes the people.K Page 81 . The family values. political.H. 2. Exports were given high priority. II Phase – Emphasis shifted to the replacement of the import of capital goods. educational and industrial economic environments imbibed in it. III Phase – Emphasis was on reducing the dependency on imported technology by developing and encouraging the use of indigenous techniques. It long fun objective was to initiate structural changes of far reaching significance in the economy.
The society stands for certain beliefs. The change is gradually taking place. The quality of life have improved due to employment and high earning. Taylor defines.India than any other country. Culture is There is human product of social interaction Provides pattern for meeting biological and socio needs. E. morals. of prejudices exists in these environment. B. Handed down from generation to generation Symbolic quality Learned by each person Page 82 Hossein.H. belief art. from ethical and tradition to modern and silicon. Indian society is very sensitive culture of Indian society has changed slowly. “culture of civilization is that complex whole which includes knowledge. custom and other capabilities and habits acquired by man as a member of social.K . Acceptance of new is not immediate. law. Women in middle class families enjoy greater freedom. No. values which are a source of institutional drive. Culture Refers to that part of the total repertoire of human action (15 product) which is socially as opposed to genetically transmitted. The different languages keep people bonded together. but will require much more time to adapt to modernization. The society is also turning into liberalization.
or an articraft like wooden bowl). 2. customary. Follows norms of proper behavior.e. Knowledge and belief: Refers to a peoples prevailing motions of reality. sex. shaking hands or saying namaste. Ideals: Refers to societal norms which define what is expected. complexes and patterns that make up the cultural system. Each stratum has its own role limitation and rank. Stratification i. References: Refers to society’s definitions of those things in life which are attractive or unattractive as objects of desire. religion. income is an important aspect of social status and cultural organization. Cultural pattern (specific and enduring system of trait complexes) [Refers to major segments of the culture. The organism of culture is determined to a large extent by major social institutions. Organization of culture Refers to the social structure and the integration of traits. Cultural traits (unit as observation [like normal behavior. The important common institutions of modern cultures are the eco system. expressionistic.] Hossein. caste. differentiation based on criteria such as age. the political administrative system. family. the educational system. They include myths and metaphysical beliefs as well as scientific realities.K Page 83 . education. aesthetic and recreational institutions. right or proper in a given situation. They are established to mice and common societal needs.- A basic determinant of personality For continued functions of society Elements of Culture 1. occupation.H.
Cultural transmission takes place by means of symbolic communication. Orgburn says that various parts of modern culture do not change at the same rate. products and skills. Culture accumulates more techniques. Cultural Transmission The important character is its transmissive quality.Cultural adaptation Refers to the manner in which a social system or an individual fits into the physical or social environment.K Page 84 . oil energy crisis. E. a rapid change in one part of our culture requires read. wrong nations. Hossein. It also facilitates cultural diffusion is the spread of cultural elements from one place to another. in security and caused by strangers of new environment. ideas. Cultural conformity Individuals in a community either conform or deviate from cultural norms. conservation. It is transmitted from one generation to the next and to the new members admitted to the culture.H.g. sentiment factors. Adaptation is essential for survival e. Culture Shock: Environment changes produces culture. movement from urban to rural and vice versa. political factors and vested interests. By William F. and that since there is a correlation and interdependence of parts. The important factors that contribute do cultural lag are ignorance. Investments through other changes in various co-related parts of that culture.g. Can be done through high educational change and communication. shock – a feeling of confusion. Cultural conformity follows that the most important process in society is that which ensures that people do indeed meet their role obligation. A symbol is any sign signal or word that conveys a meaning.
Success is the function of individual and society is made up of leaders follows. rather than on pure efficiency and written contracts. Feminine: Appreciates inter-personal relationship put quality of life before material acquisition. prioritizing and for doing task in sequential order – one thing at a time societies of developed world. appalled concern for individuals and less fortunate. It is used for ordering one’s life. 3. religion and trust. Hossein. figures and performance. Achievements is more important than building long term relationship. Masculine and Famine culture: Masculine: Appreciates aggressiveness and assertiveness while respecting the goal of material acquisition. Monochronic: How a culture views time. Low context and high context cultures: High context is one that places great value on the intangible aspects of a negotiation or business deal. atmosphere and attitudes towards respect. Monochromic and Poly chronic societies. Business can be done without meeting face to face. Business hinges more on personal relationships – friends doing business with friends. Mitchell observes “Business tends to be more pedestrian in cultures with a majority of feminine trail. Low context: Assumes a high degree of shared knowledge on the behalf of a transaction partner and thus deals only with tangible aspects of the deals as facts.K Page 85 . Atmosphere and personal relationship means little. 2. They look beyond facts and figures and take into consideration factors like personal relationships.Cultural Traits 1.H.
UK.g. Spain friend association. Specific Vs. Emotional Emotional are held in check E. Universalism: ideas and beliefs can be applied Particularism: holds that the environment dictates how ideas should be applied. Universalism vs.g. Mexico and Swiss 7. Hossein. China. Diffuse Individuals have a large public space Both public and private space are and they readily let others enter and similar in size & individuals guard their share & a small private space they public space affords entry into private guard closely and share with only close space as well. Neutral Vs. greet each other enthusiastically E. 4.g. Japan Emotions are openly and naturally UR expressed. talk loudly when exited. particularism: Fans Tompenaalis identified five cultural dimensions.g.Polychronic: uses time to accomplish diverse goals simultaneously and to interact with as more individuals as possible – even at same time. E. E. 5. US & Swiss Individuals are open & extra separation No open to public space of work and private life open to public space.K Page 86 .H. People smile a great deal. India.
Mamta Banerjee. the situation is quite different in others. The restrictions and regulations. Chandrababu Naidu (CEO). but now with the liberalization. globalization.8. procedures. Coalition governments of different political practices are becoming common. Some political leaders are so powerful that they wild enormous control over the party. the countries are in a competition to woo foreign capital and technology. incentive system as all very different in Indian political system. Thisnindicates some shifts in the power centres firms have to deal with.K Page 87 .g. including several countries which are making rapid eco progress and having liberal policies towards foreign capital and technical is not very democratic. The constituents of the coalition are parties with very different economic ideologies. Achievement Vs.H. Advani. E. There is a universal trend towards political decentralization. Universally. Jailalitha. Hossein. Indian politics believes in nationalism. making the scenario complex or confusing / uncertain. The government system in a number countries. or social connections. Accords status based Give high status to high achievers Politics There are not radical differences in the philosophic of major political parties in some countries. Ascription People are accorded status based on Status is attributed based on who or how well they perform their functions. the desire of ethnic groups to become independent of the supremacy of others is growing. gender. what a person is. Uma Bharathi. on age. trade policies. As a result there has been an influx of foreign investment to the countries like ours.
Lower wages 3. Indian economy is still under developed.K Page 88 . Displacement of labour [unemployment] 2. The per capital income is very low and 60% to 70% seek employment. Safe working conditions 10. Short working hours 8. Gap between management workers 5. The increase of life expectancy has increased the population. Loss of identity as man becomes machine 7.Positive of modernization on business and society 1.H. Leads to innovations 2. Old crafts and craftmenship declines 6. Increases productivity 3. Skilled jobs 9. Cost reduction 5. Hossein. Spread of competition outside the national boundary 6. Aged immobility [idleness] 4. Produce technically superior goods 4. In fast changing society Even after 58 years of independence. Efficient use of raw materials 11. Greater output 7. Widespread unemployment is a normal feature. On standards of living increase Negatives 1.
44% and the per capita income (2004) is as low as $ 620 which is not even 1/6 th of the USA’s income. With increase in population the rise in the slum population has also caused problems. The feeding increases and usage of natural resources also increases.Poverty level is as high as 48.H. Low productivity is a cause of worry.K Page 89 . Water.027 million against 361 million in 1951. This has led to harassment of the workers. Indian society is dependent on agricultural sector.3% and urban 32. In India life expectancy is 33 years compared to 70 years in middle income economies. air. Hossein. deforestation is also part of this evil. pollution has increased. beliefs of traditions are decreasing. Racisim. In 2001 India’s population was 1. noise.4% are under poverty line. Land acquisition. A shift to urban cities have brought in urban culture and values. Another factor is low capital formation results in slow growth and it is also due to technological backwardness. Child labour and corruption has creped into the society as a devil which cannot be fought. This rapid growth in population has resulted in unemployment. In rural India 37. casteism is also a major social issue.
Environmental Issues Till recently the business had not cared for ecological effects of its activities. It also contaminated water and polluted air. With increase in income. municipal wastes increases and carbon dioxide emissions per capita increase With increase in income some problems decrease.H. Rural electricity Hossein. Guided entirely by its profit maximization goals the industry caused tremendous damage to exhaustible natural resources such as minerals and forests. E. The pollutants discharged by these industries damage the health and reduce output from local agriculture and industry damage infrastructure and buildings. Environmental degradation is in the process. ocean are important in delimining the life support system of the global and micro climates.K Page 90 . Some of the wastes that are thrown are not disposable safely. Excessive usage of non renewable resources have caused threat to the extension of distinction. 1. Parts of natural environment may serve more than one function. and they also provide the space and opportunity for marine past times. they assimilate many different wastes.g. Expensive of industrial towns has caused for pollution to reach population. Public sanitation system 2. The ability of natural environment to absorb waste is not infinite. they are sources of many minerals and other resources.
The low and lower-middle are facing environment issues like – 1. beliefs and attitudes. Drainage 4. lowmiddle income. social interactions. The hazards caused to environment will exhaust those resources that are basically needed for survival.World development Report 2003 categorizes cites into low income cities. degree of formality and informality and in the types of social relationships and in the systems of statutes and roles. Land management Environmental degradation causes soil erosion and productivity. This includes significant alterations in social structure. cultural definitions and in the products of socio-economic-cultural action. Materialism has creeped in his modernization. upper-middle income and high income cities. positions. values. Sanitation 3. modes of production. Air pollution 7.H. inventions. occupational patterns. Modernization has brought in change in the Indian society. Solid waste management 6. Modernization has resulted in changes in size of society. status and roles. Social structures change in size. water supply service 2. social institutions. Water resources 5. Hossein. social mobility.K Page 91 . new standards of living has resulted in modernization. The development of new techniques.
religion. Modernisation has also and is also saving lifes. Due to the gender bias there is tremendous fall in the birth rate. Role of communication in educating common man. Developments in the field of nuclear science. automation and even rationalization are hinderance to labour. occupation. New techniques of cooking ranges have reduced the time spent in kitchens.H. to irrigate land. Demographic Environment and Gender The demographic environment includes age structure.Modernisation has brought women from home to office differentiated their tasks and distinguished their earnings. education. Modernization has led to fall in birth rates even though the population is growing over one percent annually. Modernization have made material progress rapid and widespread. though unequal. pose a serious threat to the very survival of human race. Films has immoral effect on society. family size. and nationality. income distribution. The technologies. gender. There is a steady raise in income. Production of artificial rains have shown positive signs of success. Machines have taken over man. FLC. Hossein. has bought a social change. though they offer great scope for advancement. There is concentration of economic power in few hands. makes desert bloom and brings music in our living rooms. Modernization has number of adverse effects on society. social class.K Page 92 . dams are built to control floods and generate power. It has reduced the social distance between the urban and rural areas. There is an explosive growth of the global population. race.
beliefs and attitudes. Dams are built to control flood. various. occupational patterns. Space of modernization of Indian society Modernisation has brought in change in the Indian society.Heterogeneous culture is being adopted. has bought a social change. status and roles. degree of formality and informality and in the types of social relationships in the systems of statutes and roles. inventions. The development of new techniques. This includes significant alterations in social structure. new standards of living has result in modernization. Hossein. social interactions. modes of production. The marketers have to involve in diverse roles to satisfy each and every member of the society. to irrigate land. Role of communication in educating common man. social mobile. Production of artificial rains have shown positive signs of species. Modernization have made material progress rapid and widespread though unequal. social structure change in size. Modernisation has brought women from home to office. Materials has creeped in win modernization. positions. cultural definitions and in the products of socio-economic-cultural action. But this will increase multi cultural complexities and adds new challenges and opportunities. New techniques of cooking ranges have reduced the time spent in kitchens. social institutions. generate power. differentiated their tasks and distinguished their earnings. The immigration problem gets reduce due to political friendline between the countries. It has reduced the social distance between the urban & rural areas.H.K Page 93 . Modernization ahs resulted in changes in size of society.
There is concentration of economic power in few hands. FERA empowered RBI to regulate or exercise direct control over the activities of foreign companies and foreign nationals in India. Important of technical was consider on merits it substantial exports were guaranteed over a period of 5 to 10 years and reasonable proposals for exports. The Foreign Exchange Regulation Act (FERA) 1973 served as a tool for implementing the national policy on foreign private investment in India. Hossein. was issued lists where lists of industries were. a) i) Foreign investment may be permitted b) Only foreign tech collaboration (but no foreign investment) may be permitted. Films have immoral effect on society. Tech collaborations were to be considered on the basis of annual royalty payments which were linked with the value of actual production.K Page 94 . opportunity for promoting foreign investment in India shall also be fully exploited has liberalized the Indian policy towards foreign investment and tech. % of royalty depended on production and limit to 5 years (payment). Govt. policy till 1991 India was following a very restrictive policy town foreign capital and technical.H. New Policy The industrial policy statement of July 24. Govt. RBI has given general permission to hold title of immovable properties.Modernisation has number of adverse effects your society. which observes that while freeing the Indian economy from official controls. 1991.
FDI is eligible for automatic approval. 1. suburban. classification and tabulation. Unit Dec. histogram. Hypothesis or anova Segmenting Consumer Market 1. only 36 industries were eligible for automatic approval of FDI upto to 5!% of the total equity. correlation. Industries in which FDI does not exceed Statistic: 1. rural c) Climate d) Cety size e) Population Density Hossein.The new policy has also made the import of capital goods automatic provided the foreign exchange requirement for such import is ensured through foreign equity.H. Probability multiple and partial correlation pass on distribution 3. Now there are different types industries depending on the ceiling of foreign equity participation.K Page 95 . 2. 1996. Definition. Silent Feature 1. strawness. Geographic a) Region b) Urban. standard deviation. scope and application. Regression.
under increase no children II stage – married head. 40 or older.H.2. under 40. Six of user: Give lower prices to those buyers who buy in large quantities. Usual purchasing procedure 4. Psychographic Bases: How people act Different to measure a) Personality b) Life style c) Readiness to buy Segmenting Industrial market: 1. under 40 young children with or without older children III Stage – married head. no children 3. older children IV stage – married head. no children under 20 V Stage – head living along over 40. Kind of business activity 2. Users geographical location 3. Demographic Income Age Education Stage in life cycle Social class Sex Occupation Religion Race I Stage – single or mallied head.K Page 96 . Hossein.
Why? Concept of market segmentation is based on the fact that market is not homogeneous. To apply market segmentation successfully a particular segment must be measurable accessible of sufficient size to make it. With the changing preferences of the customers the producers. but heterogeneous in the potential buyers are homogeneous. worthwhile cultivating. Segmentation Industrial Industrial users Large quantities industries Employ professional to buy Specialised buying Consumer Ultimate consumers Buy in smaller quantities For consumption over short period No systematic in buying Use little time to buy Buys broad spectrum goods INTERNATIONAL BUSINESS ENVIRONMENT UNIT 5 Hossein. But a group of potential buyers do share contain characteristics of distinctive significance to marketing and each group is a market segment. segmentation was need. produced “differentiated products” to serve different market segments. Market segmentation requires a balancing of production and marketing cost and price.K Page 97 .H. achieve greater production efficiency. They took single market notion with them. When main industries shifted to mass production. lower product cost.Segmentation – Need 1900’s markets were segmented automatically each product was tailored to the needs of the buyer who had ordered it. to standardize.
Undisclosed information (trade search) 7. Intellectual property rights may be defined as “information with commercial value. The patent grants the patent holder the exclusive right to make use or sell the patented products. nonobvious and useful. Geographical indication 1. Hossein.H. Layout designs of integrated circuits 6.K Page 98 . Industrial designs 5. apparatus. by providing an opportunity to recoup the cost of inventions and to make profit out of inventions.” The Uruguay Round (UR) agreement on trade related aspects of Intellectual Property Rights (TRIPS) covers seven intellectual properties – 1. article.ISSUES IN INTELLECTUAL PROPERTY RIGHTS Protection of intellectual property rights has become an issue of wide and serious discussions. (ii) machine. Patents 2. inventions mean any new and useful (i) process of manufacture. The main purpose of the patent system is to benefit the society. According to Indian patents Act 1970. Trademarks 4. (iii) substance produce by manufacturer and any new and useful improvements in them. Patent. PATENTS Patent is a legal protection granted for an invention that is new. Copyright and related rights 3. encourage research and dup and thereby contribute to society.
Disadvantages: charging higher rate 2. traditional knowledge. new form of known substances. scientific principles. it also imposes on him the duty of fully disclosing the inventions. have become very popular terms. According to Trade Mark Act 1999.While the patents grant the exclusive right to the inventor to exploit his inventions for commercial gain for a specific period of time. Trademark is a brand a part of a brand that is given legal protection because it is capable of exclusive appropriation. abstract theory. TRADEMARKS Brands and trade marks used very extensively in modern marketing to maintain product identity and to help product promotion. A trade marks protects the sellers exclusive rights to use brand name or brand mark. trade mark means a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person for those of others and may include shape of goods their packaging and combination of colors. and mixture of known compounds. Under the 1970 Act. distribute.H.K Page 99 . patent expiry period is 5-7 years for some and 14 years to other products or 20 years. discovery of natural substances. perform or display their creative works. COPYRIGHT Exclusive privileges to authors to reproduce. Criteria: Life of authors & 70 years from creation of work Copy right act 1957 3. Hossein. Not patented: Atomic energy.
materials which is new or original which has eye appeal of the product or its ornamentation. Availability of Technology and managerial competition Multinational companies are that companies: 1. To avoid duplication Term of Protection 10 years from the date of registration. 2.H. Reputation. Which produce in abroad as well as in headquarter Hossein. contours. To achieve higher rate of profit 2. Subject matter: 1. Goodwill and 3. Expanding the production capacities beyond the demand of domestic country 3. logo used by manufacturer to identify goods which are distinctive and non-descriptive in nature.It includes words. symbol. 4. configuration. Limited home market 5. shape. MULTINATIONAL COMPANY Why to go global? 1. colors.K Page 100 . Secure competition in the home country 4. political stability and instability 6. patterns. DESIGN ACT 2000 A registered design is a monopoly right for the appearance of the whole or a part of a product resulting from the subject matter – lines. texture.
4. 4. Possesses a management team with geometric orientation Favorable impact of MNC’s 1. The work to equalize the cost factors of production around the world.H. MNCs enable the host countries to increase their exports and decrease their imports. Help to improve standard of living 8. The MNC’s main objective is profit maximization. Harmful effects of MNC’s 1. Which have certain minimum number of ratio of foreign to total number of employees. 7. Which drive some minimum percentage of its income from foreign operations. 3. The reasons resources of MNCs enable them to have very efficient research and development systems. MNCs provide an efficient means of integrating national economies. The transnational corporations have become vehicle for the transfer of technology. MNCs stimulate domestic enterprise 11. 5. 6.K Page 101 .2. Employment of highly sophisticated management techniques 9. They kindle management revolution in the host countries 10. Which operate in certain minimum number of nations 3. It also helps increase competition and break domestic monopolies. not the development needs of the countries. It helps increase the investment level and thereby the income and employment in host country. Hossein. 5. 2.
Interference in the other affairs of the country 5. FOREIGN INVESTMENT IN INDIA [FDI] Foreign investment is playing an increasing role in economic development. MNC’s may destroy competition and acquire monopoly powers 3. change the consumption habits for their benefits against interest of local community.2. Economic reforms and the far reading political changes have resulted in very substantial changes in international capital flows. The flow of direct foreign investments to India has been comparatively limited because of the type industrial development strategy and the very cautious foreign investment policy followed by nation. MNC’s retard growth of employment in the home country 4. Foreign investment has assisted and is assisting the economic growth of country. employment.H. 3. FDI generated large employment opportunity. 1. FDI is only capital inflow that has been strongly associated with higher GDP since 1970. Depletion of non-renewable resources 7. the India began to experience a surplus on the balance of payment and very remarkable improvement in the reserves positions. 2. FDI shifts the burden of risks of investment from domestic to foreign investors. exports etc.K Page 102 . FDI now contributes to a significant share of the domestic investment. Hossein. They undermine the local culture and traditions. Faulty technology transfer 6.
K Page 103 . subject to certain conditions. several factors like domestic economic policy and domestic economic situation were deterrent to foreign investments by Indian companies. India companies made very little investments abroad. sources. both domestic and foreign was limited. By restricting the areas of operations and growth. Foreign equity participation was normally subject to 40%. the scope of private investment. 5. as well as inward remittances was subject to stringent laws like Foreign Exchange Registration Act (FERA) 1973. These discourage foreign investments. 2. INDIAN INVESTMENT IN FOREIGN COUNTRIES Until 1991. 3. and therefore. These factors either limited the scope of foreign investment in India.. Payment of dividends abroad. of India’s policy had been one of the encouraging foreign investments by Indian companies. Added to this was the attraction of protected Hossein. repatriation of capital etc. Although Govt.H. Foreign investment was normally permitted only in high technology industries. the govt. When the public sector needed foreign investment.Direct foreign investment in India is adversely affected by the following factors – 1. there was a marked preference for the foreign govt. Corporate taxation was high and tax laws and procedures were complex. The public sector was assigned as monopoly or dominant position in most important industries. 6. policies seriously constrained the potential of Indian companies to make a foray into the foreign countries through investment. 4.
have been removed. in many cases.domestic market which was.H. a seller’s market and this made Indian companies to ignore foreign markets. The curbs on growth. Hossein. areas of business opened to private companies have been substantially enlarged and foreign tie up policies have been liberalized. The new economic policy of India is expected to encourage foreign investments by Indian companies. Further. financing restriction has been based. All these factors should encourage the Indian companies to invest in other countries and to take advantage of the economic liberalization in many countries. the domestic market is becoming increasingly competitive. even by mergers and acquisition. Indian companies have established subsidiaries and joint ventures in a number of countries in different manufacturing and service sectors.K Page 104 .
Ensuring full employment 3. Objectives The primary objective of GATT was to expand international trade by liberalizing trade so as to bring about all round economic prosperity. or other type of commercial policy of a member country should not be undertaken without consultation of other parties to the agreement.K Page 105 . Developing full use of resource of the world 4. Hossein. as a result of the international desire to liberalize trade. Expansion of production and international trade Rules of GATT 1.H. And the other important objectives are 1. The countries that adhere to GATT should work towards the reduction of tariffs and other barriers to international trade. Raising the standard of living 2. 2. Any proposed change in tariff.GATT General Agreement on Trade and Tariffs The predecessor of WTO was born in 1948. which should be negotiated within the framework of GATT.
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