Professional Documents
Culture Documents
Indian Govern Society
Indian Govern Society
Contents
Chapter I
Natur
e and str uctur
e of the economy ........................................................................ 1
Nature
ucture
1.1 Nature and Structure of the Economy .................................................................... 1
1.2 Functions of the State and the Economic Role of the Government ................... 3
1.3 The Legal and Constitutional Environment ........................................................... 5
1.3.1 Company Laws ................................................................................................... 6
1.3.2 Foreign Exchange Regulation Act .................................................................. 7
1.3.3 The Sick Industrial Companies (Special Provisions) Act, 1985 ............... 7
1.3.4 The Monopolies and Restrictive Trade Practices Act(MRTP),1969 ........ 8
1.3.5 The Consumer Protection Act, 1986 .............................................................. 8
1.3.6 The Environment Protection Act, 1986 .......................................................... 9
1.4 Demographic Facts ..................................................................................................... 10
Summing Up ....................................................................................................................... 10
Self-assessment ................................................................................................................ 11
Chapter II
The social environment and its influences on business ...................................... 12
2.1 Parameters of Quality of Life .................................................................................... 12
2.1.1 The Physical Quality of Life Index ................................................................. 14
2.1.2 Introduction to the Human Development Index .......................................... 14
2.2 Socio Economic Protective Legislations .................................................................. 15
2.2.1 Prevention Of Food Adulteration Act (1954) ................................................ 15
2.2.2 The Drugs And Cosmetics Act (1940) .......................................................... 16
2.2.3 Standards of Weights And Measures Act (1956) ......................................... 16
2.2.4 Public Liability Insurance Act ......................................................................... 16
2.3 Consumer Protection Overview ............................................................................... 16
2.3.1 Shortcomings of the CP Act, 1986 .................................................................. 17
2.3.2 Other Dimensions of the CP Act, 1986 .......................................................... 17
Summing Up ....................................................................................................................... 17
Self-assessment .................................................................................................................. 18
Chapter III
Industry ............................................................................................................................... 19
3.1 Privatisation .................................................................................................................. 19
3.1.1 Ownership Measures ........................................................................................ 20
3.1.2 Organisational Measures ................................................................................. 20
3.1.3 Operational Measures ...................................................................................... 21
3.2 Disinvestment .............................................................................................................. 21
3.2.1 The Rangarajan Committee on Disinvestment ............................................ 21
3.3 Privatisation in India and the World: .......................................................................
A comparison of Political dynamics ......................................................................... 22
3.3.1 Privatisation or Disinvestment? ...................................................................... 24
3.3.2 Privatisation in India: A Balance Sheet ......................................................... 24
3.4 Competition Policy and Law ...................................................................................... 26
3.4.1 The MRTP: A redundant Act? ......................................................................... 26
3.4.2 The New Competition Law: an advance over MRTP .................................. 27
3.5 Industrial Reforms ...................................................................................................... 27
Summing Up ....................................................................................................................... 29
Self-assessment ................................................................................................................ 29
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Chapter IV
The Financial System ....................................................................................................... 30
4.1 Money Market ............................................................................................................. 30
4.1.1 Money Market in India .................................................................................... 31
4.1.2 Instruments traded in the Money Market .................................................... 31
4.2 Gilt Edged Market or Government Securities Market ........................................ 34
4.2.1 Zero Coupon Bonds ........................................................................................... 35
4.2.2 Floating Rate Bond ............................................................................................ 35
4.2.3 Tap Stock ............................................................................................................. 35
4.2.4 Partly Paid Stock ............................................................................................... 35
4.2.5 Capital Indexed Bonds ..................................................................................... 35
4.3 Capital Market Reforms .............................................................................................. 36
4.3.1 Primary Market Reforms ................................................................................. 36
4.3.2 Secondary Market Reforms ............................................................................ 36
4.4 Buy back Ordinance .................................................................................................. 37
4.4.1 Buy back and experience with MNCs ........................................................... 38
4.5 Banking Sector Reforms ............................................................................................ 38
4.6 An Introduction to Fiscal, Monetary and Credit Policy ....................................... 41
4.6.1 Fiscal Policy ........................................................................................................ 41
4.6.2 Monetary and Credit Policy ............................................................................ 44
Summing Up ....................................................................................................................... 46
Self-assessment ................................................................................................................ 46
Chapter V
The
5.1
5.2
5.3
5.4
5.5
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Content
Chapter VIII
Business ethics ......................................................................................................... 85
Overview of issues in business ethics ....................................................................... 86
8.1.
General business ethics .................................................................................. 86
8.1.1 Ethics of accounting information ...................................................... 86
8.1.2 Ethics of human resource management .......................................... 86
8.1.3 Ethics of sales and marketing ........................................................... 87
8.1.4 Ethics of production ........................................................................... 87
8.1.5 Ethics of intellectual property, knowledge and skills ................... 88
8.2
International business ethics and ethics of economic systems .............. 88
8.2.1 International business ethics ............................................................ 88
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Chapter X
Industrial Growth and Environmental degradation ..................................... 107
10.1
Causes of pollution ........................................................................................... 108
10.2
Type of industries and type of pollution ...................................................... 108
10.2.1 Causes of industrial pollution waste ............................................... 109
10.2.1.1 Water Pollution Industries ................................................... 110
10.2.1.2 Oil .............................................................................................. 110
10.2.2 Causes of Air Pollution ...................................................................... 111
10.2.2.1 Industries ................................................................................. 111
10.2.2.2 Transport ................................................................................. 112
10.2.2.3 Dwelling ................................................................................... 112
10.3
Environmental law .......................................................................................... 114
10.3.1 Environmental governance and regulation .................................... 114
10.3.1.1 Environmental protection .................................................... 114
Environment and rehabilitation .................................................. 115
Environmental Governance and regulation in India................ 115
10.3.1.2. Legislative efforts ................................................................. 115
Role of the Judiciary ...................................................................... 116
Working of Environmental regulation ........................................ 116
Enforcement .................................................................................... 118
Monitoring ....................................................................................... 118
Summing up ................................................................................................................ 120
Self Assessment ........................................................................................................ 120
Answer to Self-assessment ......................................................................................... 121
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Chapter I
Natur
e and Str uctur
e of the Economy
Nature
ucture
Lear
ning Objectives
Learning
Reading this chapter would enable you to understand
1.1 Natur
e and Str uctur
e of the Economy
Nature
ucture
The purpose of business is to create wealth for all the agents involved in the
process of business. The method of creating wealth and the extent to which
it can be created depends on the nature and structure of the economy in which
business is being carried out. Economic policy dimensions influence business
fortunes and strategies. The economic policy in turn is influenced by the nature
of the economy and the nature of the economy is influenced by the dominant
political and cultural thought.
Over the last 100 years or so, the world has seen three kinds of politicoeconomic structures of the economy.
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b)
c)
It is a general belief that the free market system creates the urge for hard
work and innovation. However, it also has its attendant problems. Antagonists
say that the ownership of resources determines the structure and the extent
of freedom of the economy. In such an economy, ownership is concentrated
in the hands of a few and state control is replaced by control by an oligopoly.
Whereas, under the ownership of the state social goals are pursued, the nature
of social goals may depend on the value system of the politburo but
nevertheless society benefits at large.
The experience, however of erstwhile communist countries having a command
system of economy has been very dismal. There has only been equality of
poverty and that too amongst the masses. The ruling elite became richer and
richer in these systems.
Looking at these experiences, the World Bank Report on Good Governance
released in the year 1997 talked about the hazards of extremes of governance
and too little governance. It argued that erstwhile European countries have
seen too much governance, which has resulted in a market that lacks an
entrepreneurial spirit. Whereas, countries like Somalia, Congo, etc. have
seen too little governance resulting in the creation of anti market conditions.
The World Bank Report therefore talked about the right dose of governance
that acts as a facilitator for the smooth conduct of market functions. It is
not government's business to be in business.
The job of the government is to create conditions for enterprise rather than
running the enterprises themselves.
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1.2 Functions of the State and The Economic Role of the Gover
nment
Government
The STATE, in its wider sense, refers to a set of institutions that possess the
means for legitimate coercion, exercised over a defined territory and its
population referred to as society. The STATE monopolises rule making within
its territory through the medium of an organised government.
As per the rulings of the Supreme Court of India, even semi autonomous
bodies receiving grants from the government will be categorised as state.
Government, on the other hand refers to the process of governing. The
process of governing requires a set structure, which exercises power.
Because of this, the terms state and government are used interchangeably.
The STATE, primarily consists of three broad kinds of institutions, with three
distinct sets of powers with their assigned roles. These are:
Legislatur
e, whose role is to make the law: This role is performed by
Legislature
the parliament in democracies while the King or the monarch does the
same in autocracies.
Executive
Executive, which is responsible for implementing the law: They are
also sometimes referred to as the government'.
Judiciary
Judiciary, which is responsible for interpreting and applying the law.
These three institutions are woven in different ways to give different forms of
government. The different forms of government decide the way economic
matters are conducted and handled by the state.
In an autocratic state all the above institutions are combined into one and all
the powers are vested in the monarch or the king. In a theocratic state, like
the Vatican City, all the powers are vested in the Church or whatever the
highest religious body of the land is. In a democracy these powers are
distributed according to the form of democracy, which can be
It will be seen that the Presidential form of government offers greater stability
than the parliamentary cabinet form, particularly if the largest party does not
have an absolute majority.
Fiscal Decisions: (related to taxation, expenditure, etc.) are taken much
faster in a presidential form than in a parliamentary form of government.
However, the danger is that the presidential form can drift into a dictatorship
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1.
2.
Entr
epr
eneurial Role: Due to ideological reasons and dearth of private
Entrepr
epreneurial
enterprise and capital, the direct participation of government was very
common in the socialist and developing countries. However, since the
1980s a belief has gathered momentum that government has no business
to be in business'. However, in underdeveloped countries, where the
infrastructures for development are inadequate and entrepreneurial
activities are scarce, this role of the government assumes special
Planning Role: How to use the limited resources to the best advantage
is a question that every underdeveloped country faces. The role of
government as a planner becomes important here. However, some
countries have argued for indicative planning (just giving signals to the
economy through tools of taxation and government expenditure) rather
than involving the government in production and allocation duties.
4.
Company Laws
Bonus Ordinance
Factory Legislations
Full and fair disclosure of all reasonable information relating to the affairs
of the company.
A. Capital Market
Every Stock Exchange must have rules approved by the Central Government
or the SEBI.
Securities and Exchange Board of India Act, (SEBI) 1992
Promulgated as an ordinance on January 30, 1992, the SEBI Bill was passed
by both Houses of Parliament and became effective on April 4, 1992.
The objects of the SEBI Act are to develop the securities market on healthy
and orderly lines and to provide adequate protection to investors. To this end,
it is necessary to promote a market, which ensures:
1.
2.
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3.
4.
The Capital Market in India has witnessed tremendous growth in the recent
past. There is increasing participation by the investing public. It is, therefore,
imperative to sustain the confidence of the investors by protecting their
interests. The Government has vested SEBI with the necessary statutory
powers to deal effectively with all matters relating to the capital market. SEBI
has been established on the pattern of the Securities and Exchange
Commission (SEC) of the USA.
1.3.2 Foreign Exchange Regulation Act (FERA)
The FERA Act of 1973 reflected the requirements for a highly regulatory
system. The main features of this act were:
1.
If the activities of a foreign company account for not less than 75 percent
of its total annual turnover, such a company will be allowed to continue
its activities subject to the condition that it will increase Indian
participation, within a specified period, to not less than 26 percent of
the equity capital of the company.
2.
If the same accounts for not less than 60 percent of its total annual
turnover, it will be required to increase the Indian participation to not
less than 49 percent of the equity of the capital. In such cases, a condition
will be stipulated that the company concerned should undertake to
export a minimum of 10 percent of its total annual turnover within a
period of two years commencing from the date of approval by the Reserve
Bank of India.
3.
4.
5.
6.
2.
3.
4.
For the first time in the history of consumer legislation in India, the Consumer
Protection Act, 1986, extends statutory recognition to the rights of consumers.
The Act recognises the following six rights of consumers.
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1.
2.
3.
Right to choose, i.e., the right of access to a variety of goods and services
5.
Right to seek redressal i.e., the right to seek redressal against unfair
practices or restrictive trade practices or unscrupulous exploitation of
consumers. It also includes the right to a fair settlement of the genuine
grievances of consumers.
6.
1.3.6
Implications of demography:
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1.
2.
3.
4.
5.
Summing Up
Over the last 100 years or so, the world has seen three kinds of politicoeconomic structures. The free market economy, the commanding heights
and the mixed kind of economy. The Fiscal role of the government is largely
determined by the above politico-economic structures. Accordingly the role
of the government expresses itself into either a regulatory one, or an
entrepreneurial one or one of planning or still a combination of all three. The
constitution of governance becomes the prime factor which directs the role
of the government. Also the laws that are passed by the government affect
the economic environment in their capacity to effect business decisions. Lastly,
the demographic profile of an economy and the dynamism of the same affects
the economic environment to a great extent.
Self-assessment
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1.
2.
3.
4.
5.
7.
8.
The BIFR is a _______ judicial body to look into the problems of sickness
of companies.
9.
India is the ________ largest market in the world in terms of the number
of consumers.
10.
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Chapter II
The social environment and its influences on
business
Lear
ning Objectives
Learning
Reading this chapter would enable you to understand:
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The debate over what best maximises the quality of life is millennia old with
Aristotle giving it much thought and eventually settling on the notion of
eudemonia as central.
The term has often been used, since the 1980s, in connection with the
presence or absence of so-called victimless crimes, its users in this sense
citing the incidence of these to gauge the inherent level of disorder in a
society at a particular time. Users of the term in this application who tend
to be political and/or social conservatives often refer to victimless crimes
by the alternate name of "quality-of-life crimes." In conjunction with this,
American sociologist James Q. Wilson has articulated what he calls the
Broken Window Theory, which asserts that relatively minor problems left
unattended (such as public urination by homeless individuals) send a
subliminal message that disorder in general is being tolerated, and as a
result, more serious crimes as well end up being committed (the analogy
being that a broken window left unrepaired exudes an image of generalised
dilapidation). Wilson's observations have propelled the political agenda
of many prominent American mayors, most notably Rudolph Giuliani in
New York City and Gavin Newsom in San Francisco.
Understanding the quality of life is today most important in health care, where
monetary measures do not readily apply. Decisions on what research or
treatments to invest the most in are closely related to their effect on a patient's
quality of life.
One method for measuring the quality of life is subtracting the standards
of living. An example of this would be, people in rural areas and small
towns are generally reluctant to move to cities, even if it would mean a
substantial increase in their standard of living. One can thus see that the
quality of life of living in a rural area is of enough value to offset a higher
standard of living. Similarly people must be paid more to accept jobs that
will lower their quality of life, night jobs, ones with extensive travel pay
more and difference in salaries can also give a measure of the value of
quality of life. One attempt to take quality of life more into account in
government decisions is the notion of a seventh generation standard, which
argues that the effect of any decision today should be judged by its effect
in six generations. These measures are often associated in the United States
with the proposed Seventh Generation Amendment proposal to the U.S.
Constitution, and in Canada with the Canada Well-Being Measurement Act
co-authored by Mike Nickerson of the Green Party of Ontario and Joe
Jordan, a Liberal Party of Canada Member of Parliament. This strategy
still would be very difficult to implement as predicting the future is never
easy. Decision makers seven generations ago in the early mid-nineteenth
century would have great difficulty comprehending today's realities.
Several First Nations in both Canada and U.S. seem to have independently
originated this standard, prior to European contact, which seems to represent
the age ratio between the longest-lived elders and newborns expressed in
terms of generations, i.e. humans live at most 100-115 years, and reproduce in
most tribal cultures at about 15-17 years old, a ratio of about seven to one. So,
according to the standard, any child born as a decision was being made would
be able to assess its impact over its entire life as an elder.
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enrolment.
For Costa Rica, with an adult literacy rate of 95.8 percent in 2002 and a combined
gross enrolment ratio of 69 percent in the school year 2001/02, the education
index is 0.870.
Adult literacy index
= 95.8 - 0/100 - 0
= 0.958
Gross enrolment index
= 69 - 0/100 - 0
= 0.690
Education index = 2/3 (adult literacy index) + 1/3 (gross enrolment index)
= 2/3 (0.958) + 1/3 (0.690) = 0.870
3. Calculating the GDP index
The GDP index is calculated using adjusted GDP per capita (PPP US$). In the
HDI income serves as a sur rogate for all the dimensions of human
development not reflected in a long and healthy life and in knowledge. Income
is adjusted because achieving a respectable level of human development does
not require unlimited income. Accordingly, the logarithm of income is used.
For Costa Rica, with a GDP per capita of $8,840 (PPP US$) in 2002, the GDP
index is 0.748.
GDP index = log (8,840) log (100)/ log (40,000) log (100)
= 0.748
4. Calculating the HDI
Once the dimension indices have been calculated, determining the HDI is
straightforward. It is a simple average of the three dimension indices.
HDI = 1/3 (life expectancy index) + 1/3 (education index) + 1/3 (GDP index)
= 1/3 (0.884) + 1/3 (0.870) + 1/3 (0.748)
= 0.834
2.2 Socio Economic Protective Legislations
Numerous legislations have been passed in the interest of the consumer and
the public. Some of the important ones are:
a)
b)
c)
d)
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This Act provides for the uniform control of manufacture, distribution and
sale of drugs. It also covers the import of drugs and provides for the
maintenance of uniformity in standards. This is essential in the light of
continuous research and development and the use of various organic synthetics.
Manufacture and sale of misbranded or spurious drugs attracts a maximum
penalty of imprisonment for ten years and confiscation of all property, etc.
used for such manufacture.
2 . 2 . 3 Standar
ds of W
eights and Measur
es Act (1956) (Amended in
Standards
Weights
Measures
1976)
Uniform standards of weights and measures based on the metric system
were established by this act. The central gover nment has set the
specifications for any weight and measure in accordance with the
recommendations made by the Inter national Organisation of Legal
Metrology.
2 . 2 . 4 Public Liability Insurance Act
The first Act of its kind in the world was passed in December 1990 to provide
immediate cash to registered and non-registered companies, to meet
unforeseen liabilities arising out of accidents.
2.3 Consumer Pr
otection Overview
Protection
There has virtually been a tradition of exploitation of consumers in India due
to shortages and a sellers' market. Consumers as buyers always had poor
bargaining power. Manufacturers and traders often follow unfair and unethical
practices. Though many legislations have been enacted, they have failed to
provide any ef fective protection to consumers due to lack of ef fective
implementation. It is common knowledge that a number of deaths take place
every year due to food adulteration, spurious liquor, and contaminated /
substandard medicines, etc. Many manufacturers and traders, including
multinationals, indulge in unethical practices. They make tall claims for their
products which turn out to be false. The service sector is no exception to
unethical practices and allurements.
To check the onslaught on consumers, a host of legislations have been
enacted from time to time. These include Sale of Goods Act, 1930; Essential
Commodities Act, 1955; the prevention of food adulteration act, 1954;
Prevention of Black Marketing and Maintenance of Supplies of Essential
Commodities Act, 1980; Standards of Weights and Measures Act, 1956;
Agricultural Products Grading and Marketing Act (AGMARK), 1937; Indian
Standards Institution Certification Act, 1952; MRTP Act, 1969, etc.
The MRTP Act acquired the elements of consumer protection legislation with
amendments in 1984 when unfair trade practices were brought in its fold.
However, in spite of these changes in the MRTP Act, need was felt for a more
comprehensive consumer protection legislation. As a consequence, the
Consumer Protection Act, 1986 was born. It is described as a unique legislation
of its kind in India to offer protection to consumers. The Act was designed
after an in-depth study of consumer protection laws and arrangements in the
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U.K., the U.S.A., Australia and New Zealand. The main objective of the Act is
to promote better protection to consumers. Unlike other laws, which are
punitive or preventive in nature, the provisions of this act are compensatory
in nature. The Act intends to provide simple, speedy and inexpensive redressal
to consumers' grievances.
2.3.1 Shortcomings of the CP Act, 1986
Summing Up
The debate on the economic welfare of people which always centred around
the level of income gave rise to a lot of discontent amongst scholars because
of its inadequacy to compare dif ferent economies. Quality of life was
considered to be a better comparable parameter than income. Efforts were
made to explain this parameter through PQLI and HDI. Preservation of
quality of life resulted in many legal measures which aimed at giving higher
and better consumption standards. Various socio-political legislations were
passed towards this end. The Consumer Protection Act was one of the most
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Self -assessment
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1.
2.
3.
4.
5.
6.
7.
The Public Liability Insurance Act was passed in the year ___________.
8.
9.
10.
Industry
Chapter III
Industry
Lear
ning Objectives
Learning
Reading this chapter would enable you to understand:
Concept of Privatisation
Methods of Privatisation
3.1 Privatisation
Privatisation deals with the transfer of businesses from the state to the private
sector. This commonly involves complex contractual structures to be put in
place, and the industries concerned are usually closely regulated.
Privatisation in a narrow sense indicates transfer of ownership of a public
sector undertaking to private sector, either wholly or partially. But in another
sense, it implies the opening up of the private sector to areas, which were
hitherto reserved for the public sector. Such deliberate encouragement of
investment in the private sector in the economy, will over a period of time
increase the overall share of the private sector of the economy. This is the
broader view in which privatisation of the economy can be effected. The basic
purpose is to limit the areas of the public sector and to extend the areas of
private sector operation including heavy industries and infrastructure.
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Ownership measures
Organisational measures
Operational measures
3 . 1 . 1 Ownership Measures
The Degree of privatisation is judged by the extent of ownership transferred
from public enterprises to the private sector. Ownership may be transferred
to an individual, co-operative or corporate sector. This can have three forms:
a)
b)
c)
d)
b)
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Industry
c)
1.
2.
reserves the right to review the lease to the same person or to grant
the lease to another bidder depending upon the circumstances of the
case.
Restr ucturing is of two types: financial restructuring and basic
restructuring.
Financial Restr
ucturing implies the writing off of accumulated losses
Restructuring
and rationalisation of capital composition in respect of debt-equity ratio.
The main purpose of this restructuring is to improve the financial health
of the enterprise.
Basic Restr ucturing is said to occur when the public enterprise
decides to shed some of its activities to be taken up by ancillaries or
small-scale units.
Disinvestment
method. Till then, the auction method with wide participation may be
adopted.
2.
3.
4.
5.
6.
7.
Ten percent of the proceeds of privatisation may be set apart for lending
to public enterprises on concessional terms for meeting their expansion
and rationalisation needs.
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Industry
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Industry
2.
3.
4.
5.
6.
7.
Industry
Industrial Refor ms
alcoholic beverages,
sugar,
cigars and cigarettes,
electronics,
aerospace and defence products,
hazardous chemicals and
pharmaceuticals.
The special permission needed under the MRTP Act for any investment by
the so called large houses which was an additional instrument of control
over large houses, in addition to Industrial licensing was also abolished. Its
stated objective was to prevent concentration of economic power but in
practice it only served as another barrier to entry, reducing potential
competition in the system.
Abolition of these controls have given Indian Industry much greater freedom
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Software companies located in these regions account for almost the entire
software and services exports of the country, highest number of firms and
employment in the sector.
Summing Up
It is not the business of government to be in business. This has been the
mantra around the world especially since the decade of 80s. India has tried its
own brand of privatisation which gathered speed after 1991. MRTP laws in
this context became archaic and a new legislation called competition law
acquired its space. This gave more importance to competition than to control.
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Industry
We have also witnessed numerous debates for and against privatisation, the
most important argument against privatisation is that it is a tool for deficit
management. A lot has depended on the political ideologies of the time along
with practical realities facing the world today. The liberalisation wave in
particular has seen the software segment in India expanding to phenomenal
proportions.
Self -assessment
1.
2.
3.
India was not a likely candidate for rapid privatisation, because it did
not satisfy two necessary conditions for rapid privatisation: severe
_________ crisis, including high inflation, and a strong
___________ that could ram policies through.
4.
5.
6.
7.
8.
Whereas, the MRTP act was based on size as a factor, the NCL is based
on ____________ as a factor.
9.
10.
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Chapter IV
The Financial System
Lear
ning Objectives
Learning
Reading this chapter would enable you to understand
30/MITSDE
monetary assets; it meets the short term requirements of the borrowers and
provides liquidity or cash to lenders. It is the place where short term surplus
investible funds at the disposal of the financial and other institutions and
individuals are bid by borrowers, again comprising institutions and individuals
and also by the government.
4.1.1 Money Market in India
The Money Market str ucture has undergone a change over the years,
particularly under the impetus of economic reforms. Unlike in developed
economies where Money Markets are promoted by financial intermediaries
out of efficiency considerations, in India, as in many other developing countries,
the evolution of the money market and its structure has been integrated into
the overall deregulation process of the financial sector.
The Reserve Bank has gradually developed the Money Market through a five
pronged effort.
1.
Interest rate ceilings on inter bank call/notice money, inter bank term
money, rediscounting of commercial bills and inter bank participation
without risk were withdrawn effective May 1, 1989.
2.
3.
ii)
5.
are evened out. The Call/Notice money market has graduated into a broad
and a vibrant market from a restricted and narrow one, consequent on the
steps initiated with the onset of the process of liberalisation and deregulation.
Presently Banks and PD (Primary Dealers) operate as both lenders and
borrowers with a large number of financial institutions and mutual funds
operating only as lenders. Corporate entities who have lendable surplus are
permitted to lend through Primary Dealers.
Since the withdrawal of the ceiling on the call rates, the call money rate has
shown a tendency to fluctuate significantly on occasions. The sharp imbalances
that arise in demand supply of money due to the combination of several factors
have led to the volatile behaviour of call money rate. The most important of
these has been the bunching of banks needs for short term funds in order to
meet CRR compliance. Another factor has been the withdrawal of substantial
liquidity from the system at one time to take care of Government needs. The
volatility in the call money rates has also been the result of the asset liability
mismatches of some large banks and their over reliance on call money market
for liquidity management. There have been a variety of other reasons as well,
like bunching of payment of tax at specific periods, slow off -take of credit,
etc.
With the deregulation of the interest rate and widening of the market through
a large number of participants, the call money market has been playing an
increasingly important role in equilibrating the banking system demand and
supply of short term funds. However, despite widening of the call money
market and DFHI's attempt to smoothen liquidity needs as mentioned earlier,
there had been a relatively high degree of volatility in the call money market
in the post 1991 period. In order to reduce the instability in the call money
market, RBI has taken several steps in the past few years. Since December
1992, initially it had injected liquidity through DFHI and STCI. In the
subsequent years, RBI has been moderating liquidity and volatilities in the
call money market, through continuous use of repos and refinance operations
and change in procedure for maintenance of CRR requirements.
In pursuance of the recommendation of the Narasimhan Committee II, RBI
has taken a decision to restrict the call, notice, term money market as purely
an interbank market with additional access only to PDs. Steps have been taken
to phase out non-bank participants from the call/notice/money market with
the development of an active repo market and market for other money market
instruments.
T er
m Money
erm
Inter bank market for deposits of maturity beyond 14 days and upto three
months is referred to as term money market. The entry restrictions are the
same as those for Call/Notice Money except that, as per existing regulations,
the specified entities are not allowed to lend below 14 days .The market in
this segment is presently not very deep. The declining spread in lending
operations, the volatility in the call money market with accompanying risks
in running asset/liability mismatches, the growing desire for fixed interest
rate borrowing by corporates, the move towards fuller integration between
forex and money markets, etc. are all the driving forces for the development
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of the term money market. These, coupled with the proposals for rationlisation
of reserve requirements and stringent guidelines by regulators/managements
of institutions, in the asset/liability and interest rate risk management, should
stimulate the evolution of the term money market sooner than later.
d Operations (Repo)
Ready Forwar
Forward
Repo is a money market instrument, which enables collateralised short
term borrowing and lending through sale purchase operations in debt
instruments. Under a repo transaction, a holder of securities sells them
to an investor, with an agreement to repurchase at a predetermined date
and rate. In the case of a repo, the forward clean price of the bonds is set
in advance at a level which is different from the spot clean price by adjusting
the difference between repo interest and coupon earned on the security.
In the money market, this transaction is nothing but collateralised lending
as the terms of the transaction are structured to compensate for the funds
lent and the cost of the transaction is the repo rate'. In other words, the
inflow of cash from the transaction can be used to meet temporary liquidity
requirement in the short term money market at comparable cost.
Repo rate is nothing but an annualised interest rate for the funds transferred
by the lender to the borrower. Generally, the rate at which it is possible to
borrow through a repo is lower than the same offered on unsecured (or clean)
inter bank loan for the reason that it is a collateralised transaction and the
credit worthiness of the issuer of the security is often higher than the seller.
Other factors affecting the repo rate include, the credit worthiness of the
borrower, liquidity of the collateral and comparable rates of other money
market instruments.
Commercial Paper (CP)
The introduction of Commercial Paper (CP) in January 1990 as an additional
money market instr ument was the first step towards securitisation of
commercial bank's advance into marketable instruments.
Commercial Papers are unsecured debts of corporates. They are issued in the
form of promissory notes, redeemable at par to the holder at maturity. Only
corporates who get an investment grade rating can issue CPs, as per RBI
rules. Though CPs are issued by corporates, they could be good investments
if proper caution is exercised.
The market is generally segmented into the PSU CPs i.e., those issued by
public sector and departmental undertakings and the private sector CPs. CPs
issued by top rated corporates are considered sound investments. CPs are
mostly issued to finance current transactions and seasonal needs for funds
and are not tied to any specific transaction.
The instrument provides banks and other institutions an opportunity to invest
their short term surpluses in high earning securities. It is an unsecured and
negotiable instrument, and is usually issued in a bearer form and on discount
to face value basis. Market forces freely determine the discount rate. The CP
yield is slightly lower than the prime lending rate and is higher than comparable
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Tap Stock
A gilt edged security from an issue that has not been fully subscribed and is
released into the market slowly when its market price reaches predetermined
levels. Short taps are short dated securities and long taps are long dated
stocks. These stocks were introduced by GOI on July 29, 1994.
4.2.4
These bonds were floated on December 29, 1997 on tap basis. The tap was
kept open up to 28th January 1998 and an amount of Rs 704 crore was mobilised.
These bonds are of four year maturity and carry a coupon rate of 6 percent.
The objective of the capital indexed bonds was to provide a complete hedge
against inflation for the principal amount of the investment.
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2.
3.
4.
5.
6.
4.3.2
1.
2.
3.
4.
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The eligibility criterion for issuers has been strengthened. At the same
time SEBI took several measures to provide issuers with more flexibility
in the issue process. Stringent and detailed disclosure norms have been
prescribed, and greater transparency in the draft prospectus is required.
Further, separate criteria for finance companies have been prescribed.
A criterion for accessing the securities market has been strengthened.
Issuers proposing to make their first offer of equity to the public should
have a track record of dividend payments in three years of the
immediately preceding five years. This condition is relaxable under
specific conditions.
In October 1993, regulations for underwriters of capital issues and capital
adequacy norms for stock brokers in the stock exchanges were
announced.
SEBI notified regulations for bankers to issues in July 1994. The
regulations make registration of bankers to issues with SEBI
compulsory. They stipulate the general obligation and responsibilities
of the bankers to issues and contain a code of conduct. Under the
regulations, inspection of bankers to an issue will be done by the Reserve
Bank on request from the SEBI.
Offer documents need no longer be vetted by SEBI. Merchant Bankers
and Issuers, however, remain responsible for ensuring compliance with
the norms on disclosure and investment protection prescribed by the
SEBI.
The government of India at the end of 1995 permitted IPO's through
the Book Building' route. Book building is a process to ascertain the
indicative subscription bids of interested investors to the public issue
of securities. The advantages of this technique of obtaining advance
feedback are that it helps in optimal pricing and removes uncertainties
regarding mobilisation of funds.
Secondary Market Refor
ms
Reforms
The stock exchanges have been directed to broad base their governing
boards and change the composition of their arbitration, default and
disciplinary committee.
The government has allowed foreign institutional investors (FIIS) such
as pension funds, mutual funds, investment trusts, asset or portfolio
management companies, etc. to invest in the Indian Capital market
provided they register with SEBI.
Trading modalities have been modernised. The National Stock Exchange
introduced on-line electronic trading in 1994. The system allows brokers
located in 140 cities and towns all over the country to trade in a single
unified market, matching buy and sell orders with price priorities. It
also ensures transparency for investors and assurance of best prices.
Competition, thus led BSE also to introduce an on-line trading system
in 1995, with linkages to brokers all over the country.
Dematerialisation of stocks, introduced in 1996, eliminated delays and
uncertainties in transfer of ownership. The process of demat and trading
through depositories has helped to push the volume of business rapidly.
5.
6.
The SEBI has made it compulsory for credit rating of debentures and
bonds of more than 18 months' maturity.
The maximum debt equity ratio of banks is 2:1 and the minimum debt
service coverage ratio required is 1:2.
From the open market, through the book building process or the stock
exchange.
From odd lot holders.
The ordinance allowed companies to buy back shares to the extent of 25 per
cent of their paid up capital and free reserves in a financial year. The buy back
had to be financed only out of the company's free reserves, securities premium
account, or proceeds of any earlier issue specifically made with the purpose
of buying back shares. The ordinance also prevented a company that had
defaulted in the repayment of deposits, redemption of debentures or preference
shares, and repayment to financial institutions from buying back its shares.
Moreover, a company was not allowed to buy back its shares from any person
through a negotiated deal, whether through a stock exchange, spot
transactions, or any private arrangement.
It also allowed the promoters of a company to make an open offer (similar to
acquisition of shares) to purchase the shares of its subsidiary. This allowed
foreign promoters to utilise their surplus funds and make an open offer to
acquire a 100% stake in their Indian subsidiaries.
The buy back of shares was allowed only if the Articles of Association of the
company permitted it to do so. The ordinance also required the company to
pass a special resolution at a general meeting and obtain the shareholders'
approval for the buy back. In addition, companies were not allowed to make a
public or rights issue of equity shares within a period of 24 months from the
day of completing the buy back, except by way of bonus issues and conversion
of warrants, preference shares or debentures.
4.4.1 Buy back and experience with MNCs
In October 2000, Royal Philips Electronics of Netherlands (Philips), the Dutch
parent of Philips India Limited, announced its first offer to buy back the shares
of its Indian subsidiary. The open offer was initially made for 23 percent of the
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2.
3.
4.
5.
6.
7.
40/MITSDE
in harmonising the role and operations of the DFIs were examined and
the RBI enabled the reverse-merger of a large DFI with its commercial
banking subsidiary which is a major initiative towards universal banking.
Recently, another large term-lending institution has been converted to
a bank. While guidelines for mergers between non-banking financial
companies and banks were issued some time ago, guidelines for mergers
between private sector banks have been issued a few days ago. The
principles underlying these guidelines would be applicable, as
appropriate, to public sector banks also, subject to the provisions of
the relevant legislation.
Impressive institutional and legal reforms have been undertaken in
relation to the banking sector. In 1994, a Board for Financial Supervision
(BFS) was constituted comprising select members of the RBI Board
with a variety of professional expertise to exercise undivided attention
to supervision'. The BFS, which generally meets once a month, provides
direction on a continuing basis on regulatory policies including
governance issues and supervisory practices. It also provides direction
on supervisory actions in specific cases. The BFS also ensures an
integrated approach to supervision of commercial banks, development
finance institutions, non-banking finance companies, urban co-operative
banks and primary dealers. A Board for Regulation and Supervision of
Payment and Settlement Systems (BPSS) has also been recently
constituted to prescribe policies relating to the regulation and
supervision of all types of payment and settlement systems, set standards
for existing and future systems, authorise the payment and settlement
systems and determine criteria for membership to these systems. The
Credit Information Companies (Regulation) Bill, 2004 has been passed
by both the Houses of the Parliament while the Government Securities
Bills, 2004 is under process. Certain amendments are being considered
by the Parliament to enhance the Reserve Bank's regulatory and
supervisory powers. Major amendments relate to the requirement of
prior approval of the RBI for acquisition of five percent or more of shares
of a banking company with a view to ensuring fit and proper' status of
the significant shareholders, aligning the voting rights with the economic
holding and empowering the RBI to supersede the Board of a banking
company.
There have been a number of measures for enhancing the transparency
and disclosure standards. Illustratively, with a view to enhancing further
transparency, all cases of penalty imposed by the RBI on banks as also
directions issued on specific matters, including those arising out of
inspection, are to be placed in the public domain.
While the regulatory framework and supervisory practices have almost
converged with the best practices elsewhere in the world, two points
are noteworthy. First, the minimum capital to risk assets ratio (CRAR)
has been kept at nine percent i.e., one percentage point above the
international norm; and second, the banks are required to maintain a
separate Investment Fluctuation Reserve (IFR) out of profits, towards
interest rate risk, at five percent of their investment portfolio under the
categories held for trading' and available for sale'. This was prescribed
at a time when interest rates were falling and banks were realising large
gains out of their treasury activities. Simultaneously, the conservative
accounting norms did not allow banks to recognise the unrealised gains.
Such unrealised gains coupled with the creation of IFR helped in
8.
4.6 An Intr
oduction to Fiscal, Monetary and Cr
edit Policy
Introduction
Credit
4.6.1
Fiscal Policy
The allocation function of budget policy, that is, the provision for social
goods. It is a process by which the total resources are divided between
private and social goods and by which the mix of social goods is chosen.
ii)
iii)
41/MITSDE
T ax Refor ms
The blueprint for tax reforms in India was provided by the Tax Reforms
Committee (TRC)(1994) headed by R.J. Chelliah. The following goals were
enunciated by the committee.
i)
reduction of rates of all major taxes, viz, customs, income tax, and central
excise;
ii)
iii)
iv)
Pr
ogr
ess chart on tax rrefor
efor ms
Progr
ogress
In 2002-03, the GOI had set up another committee to review fiscal reforms
and suggest an appropriate framework under the chairmanship of Mr. Vijay
Kelkar, Chief Economic Advisor. Regarding the revenue objective, the
committee postulated that the reforms should be fully or at least, nearly
revenue neutral in their totality; however, the system should become more
income elastic. Several of the recommendations of the TRC have been
implemented while action on some, especially on the administration front, is
under way.
Rationalisation attempted has widened the tax base and improved tax revenues
substantially during the year 2003-04. The current thinking is of widening the
Service Tax in the indirect tax portfolio to make a significant contribution to
the revenue stream.
While progress has been made in the area of tax reforms, the tax structure
in India still remains very complicated with high rates of taxation with
regard to both direct and indirect taxes. In the area of personal income
tax, reforms have succeeded in establishing a regime of moderate tax rates,
which compare well with other countries. The maximum rate of personal
income tax has come down from 56 percent at the start of the reform to 30
percent. The rate of corporation tax on Indian companies, which varied
from 51.75 percent to 57.5 percent in 1991-92, depending upon the nature
of the company, has been unified and reduced to 35 percent.
However, Corporate tax rates are still quite high in India despite the reductions
announced in the Union budget for foreign companies. As per the GCR 200102, India ranked 50th out of a total of 75 countries ranked in the GCR on
corporate income tax rates in 2001.
Experience in other countries shows that a shift to VAT would help improve
revenue generation but this is not possible in India due to federal pressures.
42/MITSDE
2. Public Expenditure
There are four broad categories of public expenditure in India. These are
defence, education, health, employment and wages, and subsidies.
In the four and a half decades of economic planning in India, the share of
Government expenditure in GDP has increased from 10 percent to about 35
percent. The growth has been more or less uniform in all decades. In the
eighties, in fact, there was no noticeable acceleration. Between development
and non-development expenditure, the former has increased relatively faster
than the latter. However the distinction between development and nondevelopment expenditure as used in of ficial publications has no special
significance in economics, except in a broad sense. The share of Government
expenditure in GDP in India is five percentage points above the average of the
low income countries.
i)
ii)
iii)
iv)
While presenting the Budget for 1999-2000, the Hon'ble Minister for
Finance had observed that the high rate of growth of non-developmental
expenditure by the Government is a growing and critical source of
concern. He had further observed that the most effective and lasting
solution to this problem is to begin the process of downsizing the
Government. While proposing certain initiatives in this regard, he had
also indicated that in order to carry out the process of downsizing in a
systematic way towards reducing the role and the administrative
structure of the Government, an Expenditure Reforms Commission
headed by an eminent and experienced person would be constituted.
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ii)
Accordingly, an ERC was constituted and by now it has given ten reports
on rationalising government expenditure.
While it will be necessary to reduce government expenditure by cutting
non-essential expenditure, at the same time, it is important to increase
government expenditure in important areas. The government needs to
give greater attention to, and provide greater resources for, education
and health. In the sphere of raising literacy levels and providing greater
access to basic health services, the state governments are required to
play a much more enlarged role.
The RBI has indicated stable interest rates in the current scenario. Benchmark
interest rate such as Bank Rate, Cash Reserve Ratio (CRR) and Repo Rate are
kept unchanged at 6 percent, 4.5 percent and 4.5 percent respectively. Clearly,
the policy expects to maintain the growth momentum, stability in prices and
macroeconomic activities.
The RBI's stance has changed from a soft bias to neutral in the current
credit policy. This could be an indicator for higher interest rate going
forward. Globally, interest rates are on a rising spree, which is likely to
have a significant impact on Indian interest rates. Developing Asian
countries like Philippines and Indonesia have a much higher interest rate
vis-a-vis India. Even the chairman of the US Federal Reserve, Mr. Allan
Greenspan has stressed strongly on hardening of the US interest rate.
These global forces will also have a significant impact on Indian interest
rates in the long-term.
For
ex Reserves
Forex
The RBI has maintained that, building a higher level of foreign exchange
reserves taking into account anticipated current account deficit and liquidity
at risk' arising from capital movement has been a top priority. The current
account of balance of payments remained in surplus consecutively during
FY03 and FY04 and expects a similar trend in FY05 as well.
Emergence of the Left Parties as a strong group in the new government is
expected to annoy overseas investors and may cap Foreign Direct Investment
in India. However, the country is sitting comfortably on a huge foreign kitty
that currently stands at a whopping US$145 bn. as on September 2005. The
plight of foreign money going out of Indian shores will have a negative impact
on rupee value.
Cr
edit Of ftake
Credit
The RBI has estimated a strong credit growth of 16-16.5 percent during FY05.
Non-food credit accounts for 90 percent of bank credit. The current Monetary
and Credit Policy has pegged non-food credit growth at 17.6 percent during
FY04, piggybacking a strong 18.6 percent increase in housing and retail sector
lending. The surge in retail growth was mainly on account of lower prices and
availability of cheap money.
Summing Up
The wave of financial reforms introduced many new kinds of instruments in
the money and capital markets. This gave a lot of momentum to funds transfer
and hence impacted the profitability of enterprises. Along with this, reforms
were carried out in the primary and secondary markets. The buy back
ordinance was one major step to give a boost and also the required security to
primary and secondary markets. Banking sector reforms were carried out in
order to improve the profitability of banks and also to tune them towards
their new found role of competing in an atmosphere of competition.
45/MITSDE
46/MITSDE
1.
2.
The volatility in the call money rates has also been the result of the
_________ mismatches of some large banks and their over reliance on
call money market for liquidity management.
3.
4.
5.
6.
7.
The blueprint for tax reforms in India was provided by the Tax Reforms
Committee (1994) headed by __________.
8.
9.
The RBI has an optimistic outlook on the Indian economy and expects
to achieve 6.5-7.0 percent real GDP growth during FY05 on account of
sustained growth in the __________ sector, normal monsoon and good
performance of exports.
10.
In the four and a half decades of economic planning in India, the share
of Government expenditure in GDP has increased from ________ percent
to about _______ percent.
Chapter V
The Political System
Lear
ning Objectives
Learning
Reading this chapter would enable you to understand
The origin of democracy in the world
Parliamentary and presidential forms of democracy
Direct and Indirect forms of democracies
A peep into the constitutional reforms of India
A peep into judicial reforms in India
Contents
5.1
Evolution and History of Democracy
5.2
Parliamentary and Presidential Forms of Democracies
5.3
Direct and Indirect Forms of Democracies
5.4
Direct Democracy: An Experience
5.5
Constitutional Reforms
5.5.1
Controversy Regarding Constitutional Reforms
5.6
Judicial Reforms in India
Summing Up
Self-assessment
47/MITSDE
limited to once every several years, and voters merely get to choose their
representatives in the legislative or executive branches (with the exception
of occasional referendums).
After the fall of Athens, the Periclean democracy was restored in less than a
year. However, even though Athens had previously encouraged democracy in
her allies and dependent states; she was no longer in a position to do so.
Democracy declined.
In comparison, although the Roman republic elected its leaders, and passed
its laws by popular assemblies, the system had been effectively gerrymandered
in the interest of the rich and well-born. The Romans favoured similar systems
in the states they controlled.
5.2 Parliamentary and Pr
esidential For
ms of Democracies
Presidential
Forms
People do not exercise power directly in representative forms of democracy
such as the parliamentary and presidential systems of government. Instead,
power is transferred to state bodies, which, in turn, perform the acts of state
in the name of the people. The British parliament in London is regarded as
the home of the most common type of constitutional system - the
parliamentary system of government. While most other western European
countries have this form of political system, democracy in the United States
is based on a presidential system.
When making a comparison between the presidential and parliamentary
systems of government, the following formal differences can be noted:
48/MITSDE
The American president and the members of Congress are elected during
separate elections. In a parliamentary system of government, however,
the government and members of parliament are elected in a single
election, even when the possibility of differing coalitions exists.
5.3 Dir
ect and Indir
ect For ms of Democracies
Direct
Indirect
A Direct democracy is one which gives provisions for recall and plebiscite. It
means that the elected representative can be recalled any time the electorate
feels that he or she is not up to the mark. Also, all important issues are
settled through the process of plebiscite or referendum. However, this is a
costly approach and not possible in large economies or countries. Most of
the countries have the Indirect kind of democracy. India, though has introduced
the system of recall at its Panchayati raj level.
5.4 Direct Democracy: An Experience
Switzerland is often seen as an example of direct democracy. On taking a
closer look, however, this claim cannot be maintained; and this despite
the fact that direct democracy does play a large role, especially in the
form of the canton referendums. The constitution of the Swiss
Confederation was written in 1848 (revised in 1874) and recognises the
Federal Assembly as the highest-ranking state body. The Assembly is made
up of the National Assembly (lower house) and the Council of States
(representatives of the cantons). The Federal Council (Budesrat) - the
government - is elected by the Federal Assembly for a four-year term. Its
position vis--vis the Federal Assembly is not very strong. The Swiss
constitution awards the greatest importance to parliament. In constitutional
reality, however, and mirroring other democratic systems closely, the
government has developed into the most important of the three state
powers. Because the Federal Council has no powers to dissolve the Federal
Assembly and the Federal Assembly cannot vote the government out of
of fice, the Federal Council, whose members remain in of fice for an
extended period, actually has a strong position in constitutional reality.
Control over both parliament and the government is the job of those
entitled to vote. The electorate not only chooses its representatives but
also decides important issues by means of referenda, an integral part of
the Swiss government. Constitutional amendments may be initiated by a
petition of 50,000 voters and must be ratified by referenda. Federal legislation
may also be made subject to referenda. If the representative elements of
the Swiss constitution are strong, the plebiscite elements are only slightly
weaker.
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Unlike Germany's experience with direct democracy between 1918 and 1933
during a period referred to as the Weimar Republic, elements of direct
democracy in the Swiss constitution have proved sustainable. These direct
elements in the Swiss constitution have become long-lasting rather than
leading to revolution or chaos. The belief that all democratic power is derived
from the people - "pouvoir constituant" - has been realised most sharply in
Switzerland. The Swiss electorate has more direct political influence and more
possibilities open to it for controlling government than any other democracy.
Nonetheless, in order for the government and political system to work
properly, representative bodies are essential.
5.5
Constitutional
Refor
ms
Reforms
Parliamentary democracy
2.
3.
Electoral reforms
Centre-state relations
4.
5.
6.
7.
Socio-economic Development
5.5.1 Contr
oversy Regar
ding Constitutional Refor
ms
Controversy
Regarding
Reforms
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For more than a decade, the BJP has been advocating radical changes
in India's constitutional framework with Lal Krishna Advani, the then
Union Home Minister, leading the campaign for a switch-over to a
presidential system of governance. According to him, the American
type of Presidency would be more efficient in India's political milieu
than the Westminster model of parliamentary democracy, which the
country has been following since it became independent in 1947.
Advani points out that while free and fair elections are fundamental
to democracy, the doctrine of basic structure of the Constitution
does not bind India to the existing parliamentary scheme.
Advani was vocal in demanding a fixed term of five years for Parliament
to offset the legacy of rickety coalitions. He also wanted that Parliament
should admit a motion of no confidence against an existing government
only if the mover, as in Germany, can demonstrate the legislative strength
to provide an alternative.
Electoral reforms are urgent. India should switch over to at least a partial
proportional representation in Parliament. That would ensure stability,
also a more genuine political representation. At least 20 percent of the
legislators should be elected indirectly from universities and other
professional bodies to improve the quality of legislative work. The
Constitution should be amended to permit the leader of the government
to take Ministers on his Council from outside Parliament, as in Japan,
without impairing the principle of collective responsibility to the
legislature. The legislators, on nomination to the Council of Ministers,
should resign from the houses to which they are elected, as in France,
so that they do not waste their time and resources on politicking and
pandering to local constituencies.
Article 356 allows the President of India to assume all the powers of the
State governments through the office of the Governor, and to place
their legislatures under the authority of Parliament. This he can do on
the satisfaction that a State government is unable to function in
accordance with the provisions of the Constitution.
In 1951, Punjab became the first victim. The Chief Minister Bhargava
did not favour Nehru's policy to suppress the Sikh agitation for a
linguistic reorganisation of Punjab. He was forced to resign. President's
rule was proclaimed to keep the State Legislative Assembly in suspended
animation, while the Union government groomed an alternative leader.
President Rajinder Prasad was unhappy. He told Nehru that the situation
in Punjab did not justify the use of Article 356 and the intervention set
a very bad and a very wrong precedentNehru was not impressed.
The next State to suffer the abuse was Kerala in 1959, when it came
under the Communist Party's government with EMS Namboodaripad
as the Chief Minister. The pretext was the deterioration of public
order, a deterioration engineered by the Union government.
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In Part XII of the Constitution, the Centre reserved for itself the power to
impose the most remunerative and elastic of taxes by arguing that it needed
finances to fulfil its responsibilities for defence, foreign relations, etc.
Moribund resources, like land revenue, were left to the provinces. Inevitably,
their tax base began to shrink rapidly. Of the combined aggregate resources
during the period 1951-85, the Union government raised 71.5 per cent and
the States only 28.5 percent. The Union's resources were squandered on
defence, interest payments and discharging other non-productive liabilities.
With all its talk about planning and the efficiency of central control, nearly
all public sector enterprises continuously incurred staggering losses.
Economic development in the States was further stunted by the Central
monopoly of key industries although Entry 24 in the States' List of the
Constitution placed industry as a State Subject. Through the Industrial
Policy Resolution of 1948, the Union assumed monopoly over key defence
industries. A revision in the Industrial Policy Resolution of 1955 transferred
the remaining important sectors including oil, electricity, machine tools,
fertilisers and dr ugs from the States to the Centre. The Industries
Development and Regulation Act 1951 took further 37 items away. This
meant that the Union alone could grant licences, regulate production and
distribution of these items. The Act, amended ten times since then, places
171 items divided into 38 different categories, under Central control. All
this has created much heartburn among federal units and therefore all of
them feel that there is need for reforms in this area.
Conclusion
Today, India's economy seems to have moved irreversibly in the direction of
globalisation and open market even as the vast masses of people remain trapped
in abysmal levels of poverty, illiteracy, disparities of regional development,
the regime of controls, and the absence of accountability. It is widely
acknowledged that globalisation is a double-edged process. It has the potential
to provide opportunities to the local democracy of citizenship, through
decentralisation of information and technology, and by creating local units of
human associations to link up with planetary processes. But for this to happen,
the arrangements of governance have to harmonise with the heterogeneous
and autonomous character of the initiatives. The structures of authority have
to give way, vertically and horizontally, to the sovereignty of political
engagement that alone can make the community of experts conscious of local
needs. Decentralisation of political power downwards, consolidation of
international networks for co-operation in the fields of knowledge and diffusion
of responsibility to the civil society are the preconditions for the process of
globalisation to be beneficial to all. International competitiveness that does
not care for the strengthening of community infrastructure, local employment
and environment will destroy what little meaning to democracy there remains
in a country that has joined the race very late.
5.6 Judicial Refor ms in India
The Indian Judicial system is badly in need of reforms. The statutes, laws and
by- laws are archaic and based on ancient principles of law. It is common
belief that law has not kept pace with the changes in society the last century.
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2.
The Speedy Justice Mechanism and local justice models - The best
practices in speedy justice models (such as the small claims courts in
the US) in various countries should be studied, compared, critically
analysed and documented. Based on the outcome of the study, a set of
best practices suitable to Indian conditions should be recommended.
3.
4.
Summing Up
Democracy is a form of government which belongs to the people, being elected
by the people and for the people. USA is an example of the presidential form
of democracy whereas UK is an example of the parliamentary form of
democracy. Direct democracy is one which has a system of recall. Switzerland
is an example of Direct Democracy. India is basically an indirect and
parliamentary form of democracy. In India, what is supreme is the constitution.
Unlike UK where parliament is the supreme or USA where Judiciary is the
supreme, Indian constitution makers thought it was better to keep the
constitution the supreme.
This Indian constitution is in dire need of reforms. There have been
controversies regarding different aspects of reforms. There has been an
advocacy to move towards a presidential system of governance. Also, certain
articles and provisions like article 356 have been sought to be changed.
Concomitant to constitution reforms are the judicial reforms which are yet
much warranted in India.
Self-assessment
1.
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2.
3.
4.
Article 356 allows the President of India to assume all the powers of the
State governments through the office of the Governor, and to place
their legislatures under the authority of __________.
5.
In all, the Union has used Article 356 more than _________ times to
interfere in the affairs of the States.
6.
In Part ________ of the Constitution, the Centre reserved for itself the
power to impose the most remunerative and elastic of taxes by arguing
that it needed finances to fulfil its responsibilities for defence, foreign
relations, etc.
International Linkages
Chapter VI
Inter national Linkages
Lear
ning Objectives
Learning
Reading this chapter would enable you to understand
Nature of WTO
Principles of WTO
TRIPS
TRIMS
Subsidies
Government Procurement
Dispute settlement
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2.
National tr
eatment: Treating foreigners and locals equally- Imported
treatment:
and locally-produced goods should be treated equally at least after the
foreign goods have entered the market. The same should apply to foreign
and domestic services, and to foreign and local trademarks, copyrights
and patents.
Fr
eer T
rade thr
ough negotiations: Lowering trade barriers is one
Freer
Trade
through
3.
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5.
The original GATT did apply to agricultural trade, but it contained loopholes.
For example, it allowed countries to use some non-tariff measures such as
import quotas, and to subsidise. Agricultural trade became highly distorted,
especially with the use of export subsidies which would not normally have
been allowed for industrial products. The Uruguay Round produced the first
multilateral agreement dedicated to the sector. These were launched in 2000,
as required by the Agriculture Agreement.
The new rules and commitments under the Agriculture Agreement are:
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International Linkages
6.3 Agr
eement on Sanitary and Phytosanitary Measur
es
Agreement
Measures
This is a separate agreement on food safety and animal and plant health
standards. It allows countries to set their own standards. But it also says
regulations must be based on science. They should be applied only to the
extent necessary to protect human, animal or plant life or health, and they
should not arbitrarily or unjustifiably discriminate between countries where
identical or similar conditions prevail.
Member countries are encouraged to use international standards, guidelines
and recommendations where they exist. However, members may use measures
which result in higher standards if there is scientific justification. They can
also set higher standards based on appropriate assessment of risks so long
as the approach is consistent, not arbitrary. They can to some extent apply
the precautionary principle, a kind of safety first approach to deal with
scientific uncertainty. Article 5.7 of the SPS Agreement allows temporary
precautionary measures.
6.4 Agr
eement on T
echnical Bar riers to T
rade
Agreement
Technical
Trade
The Technical Barriers to Trade Agreement (TBT) tries to ensure that
regulations, standards, testing and certification procedures do not create
unnecessary obstacles.
The agreement recognises countries' rights to adopt the standards they
consider appropriate, for example, for human, animal or plant life or health,
for the protection of the environment or to meet other consumer interests.
Moreover, members are not prevented from taking measures necessary to
ensure their standards are met. In order to prevent too much diversity, the
agreement encourages countries to use international standards where these
are appropriate, but it does not require them to change their levels of protection
as a result.
6.5 Agreement on Textiles and Clothing
Since 1995, the WTO Agreement on Textiles and Clothing (ATC) has taken
over from the Multifibre Arrangement. By 1 January 2005, the sector was to
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be fully integrated into normal GATT rules. In particular, the quotas would
come to an end, and importing countries would no longer be able to
discriminate between exporters. The Agreement on Textiles and Clothing
would itself no longer exist: it's the only WTO agreement that has selfdestruction built in.
6.6 General Agr
eement on T rade in Services
Agreement
The agreement covers all internationally-traded services, for example, banking,
telecommunications, tourism, professional services, etc. It also defines four
ways (or modes) of trading services:
6.7
Cr
oss Bor
der Supply or Mode 1 - services supplied from one country
Cross
Border
to another (e.g. international telephone calls)
Consumption abroad or Mode 2 - consumers or firms making use
of a service in another country (e.g. tourism)
Commercial Presence or Mode 3 - a foreign company setting up
subsidiaries or branches to provide services in another country (e.g.
foreign banks setting up operations in a country)
Presence of Natural Persons or Mode 4 - individuals travelling
from their own country to supply services in another (e.g. fashion
models or consultants)
General Agreement on Trade Related Aspects of Intellectual
Pr
operty Rights
Property
International Linkages
regulates the actions countries can take to counter the effects of subsidies. It
says a country can use the WTO's dispute settlement procedure to seek the
withdrawal of subsidy or the removal of its adverse effects. Or the country
can launch its own investigation and ultimately charge extra duty (known as
countervailing duty) on subsidised imports that are found to be hurting
domestic producers.
The agreement defines two categories of subsidies: prohibited and actionable.
It originally contained a third category: non-actionable subsidies. This category
existed for five years, ending on 31 of December 1999, and was not extended.
The agreement applies to agricultural goods as well as industrial products,
except when the subsidies are exempt under the Agriculture Agreement's
peace clause, which expired at the end of 2003.
Pr
ohibited subsidies: subsidies that require recipients to meet certain
Prohibited
export targets, or to use domestic goods instead of imported goods.
They are prohibited because they are specifically designed to distort
international trade, and are therefore likely to hurt other countries' trade.
They can be challenged in the WTO dispute settlement procedure where
they are handled under an accelerated timetable. If the dispute settlement
procedure confirms that the subsidy is prohibited, it must be withdrawn
immediately. Otherwise, the complaining country can take counter
measures. If domestic producers are hurt by imports of subsidised
products, a countervailing duty can be imposed.
by taking equivalent action, for instance, it can raise tariffs on exports from
the country that is enforcing the safeguard measure. In some circumstances,
the exporting country has to wait for three years after the safeguard measure
is introduced before it can retaliate in this manner, i.e. if the measure conforms
with the provisions of the agreement and if it is taken as a result of an increase
in the quantity of imports from the exporting country.
To some extent developing countries' exports are shielded from safeguard
actions. An importing country can only apply a safeguard measure to a
product from a developing country if the developing country is supplying
more than 3 percent of the imports of that product, or if developing country
members with less than 3 percent import share collectively account for
more than 9 percent of total imports of the product concerned.
6.10 Agreement on Trade Related Investment Measures
The Trade-Related Investment Measures (TRIMs) Agreement applies only to
measures that affect trade in goods. It recognises that certain measures can
restrict and distort trade, and states that no member shall apply any measure
that discriminates against foreigners or foreign products (i.e. violates national
treatment principles in GATT).
It also outlaws investment measures that lead to restrictions in quantities
(violating another principle in GATT).
It includes measures which require particular levels of local procurement by
an enterprise (local content requirements). It also discourages measures
which limit a company's imports or set targets for the company to export
(trade balancing requirements).
Under the agreement, countries must inform fellow-members through the
WTO of all investment measures that do not conform with the agreement.
6.11
Agr
eement on Gover nment Pr
ocur
ement
Agreement
Procur
ocurement
In most countries the government, and the agencies it controls, are together
the biggest purchasers of goods of all kinds, ranging from basic commodities
to high-technology equipment. At the same time, the political pressure to
favour domestic suppliers over their foreign competitors can be very strong.
An Agreement on Government Procurement was first negotiated during the
Tokyo Round and entered into force on 1 January 1981. Its purpose is to
open up as much of this business as possible to international competition.
It is designed to make laws, regulations, procedures and practices regarding
government procurement more transparent and to ensure they do not protect
domestic products or suppliers or discriminate against foreign products or
suppliers.
The agreement applies to contracts worth more than the specified threshold
values. For central government purchases of goods and services, the threshold
is SDR (Special Drawing Rights ) 130,000 (some $185,000 in June 2003). For
purchases of goods and services by sub-central government entities, the
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International Linkages
threshold varies but is generally in the region of SDR 200,000. For utilities,
thresholds for goods and services are generally in the area of SDR 400,000
and for construction contracts, in general the threshold value is SDR 5,000,000.
6.12 Settlement of Disputes
Settling disputes is the responsibility of the Dispute Settlement Body, which
consists of all WTO members. The Dispute Settlement Body has the sole
authority to establish panels of experts to consider the case, and to accept
or reject the panels' findings or the results of an appeal. It monitors the
implementation of the rulings and recommendations, and has the power to
authorise retaliation when a country does not comply with a ruling.
what the United States should do. The agreed period for implementing the
solution was 15 months from the date the appeal was concluded (20 May 1996
to 20 August 1997).
The case arose because the United States applied stricter rules on the
chemical characteristics of imported gasoline than it did for domesticallyrefined gasoline. Venezuela (and later Brazil) said this was unfair because
US gasoline did not have to meet the same standards, It violated the
national treatment principle and could not be justified under exceptions
to normal WTO rules for health and environmental conservation measures.
The dispute panel agreed with Venezuela and Brazil. The appeal report
upheld the panel's conclusions making some changes to the panel's legal
interpretation. The United States agreed with Venezuela that it would amend
its regulations within 15 months and on 26 August 1997 it reported to the
Dispute Settlement Body that a new regulation had been signed on 19
August.
6.14 Foreign Exchange Management Act
The Foreign Exchange Management Act (FEMA) is a law to replace the
draconian Foreign Exchange Regulation Act, 1973. Any offence under FERA
was a criminal offence liable to imprisonment, whereas FEMA seeks to
make offences relating to foreign exchange, civil offences. Unlike other
laws where everything is permitted unless specifically prohibited, under
FERA nothing was permitted unless specifically permitted. Hence the tenor
and tone of the Act was very drastic. It provided for imprisonment of even
a very minor offence. Under FERA, a person was presumed guilty unless
he proved himself innocent whereas under other laws, a person is
presumed innocent unless he is proven guilty.
With liberalisation, a need was felt to remove the drastic measures of FERA
and replace them by a set of liberal foreign exchange management regulations.
Therefore FEMA was enacted to replace FERA.
FEMA extends all over India. It applies to all branches, offices and agencies
outside India owned or controlled by a person resident in India and also to
any contravention thereunder committed outside India by any person to whom
this Act applies.
Regulation and management of foreign exchange
Except with the general or special permission of the Reserve Bank, no person
can :a.
b.
c.
d.
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International Linkages
e.
Financial transaction means making any payment to, or for the credit of any
person, or receiving any payment for, by order or on behalf of any person, or
drawing, issuing or negotiating any bill of exchange or promissory note, or
transferring any security or acknowledging any debt.
No person resident in India can acquire, hold, own, possess or transfer any
foreign exchange, foreign security or any immovable property situated outside
India except with the general or special permission of the Reserve Bank.
Any person may sell or draw foreign exchange to or from an authorised person
if such sale or drawal is a current account transaction. However, the Central
Government may, in public interest and in consultation with the Reserve Bank,
impose such reasonable restrictions for current account transactions as may
be prescribed.
Any person may sell or draw foreign exchange to or from an authorised person
for a capital account transaction. The Reserve Bank may, in consultation with
the Central Government, specify :
However, the Reserve Bank cannot impose any restrictions on the drawal of
foreign exchange for payments due on account of amortisation of loans or for
depreciation of direct investments in the ordinary course of business.
The Reserve Bank can, by regulations, prohibit, restrict or regulate the
following :-
9
9
9
9
9
9
9
9
9
9
A person resident in India may hold, own, transfer or invest in foreign currency,
foreign security or any immovable property situated outside India if such
currency, security or property was acquired, held or owned by such person
when he was resident outside India or inherited from a person who was
resident outside India.
A person resident outside India may hold, own, transfer or invest in Indian
currency, security or any immovable property situated in India if such currency,
security or property was acquired, held or owned by such person when he
was resident in India or inherited from a person who was resident in India.
The Reserve Bank may, by regulation, prohibit, restrict, or regulate
establishment in India of a branch, office or other place of business by a person
resident outside India, for carrying on any activity relating to such branch,
office or other place of business.
Every exporter of goods must :a.
b.
The Reserve Bank may, for the purpose of ensuring that the full export value
of the goods or such reduced value of the goods as the Reserve Bank
determines, having regard to the prevailing market-conditions, is received
without any delay, direct any exporter to comply with such requirements as it
deems fit.
Every exporter of services shall furnish to the Reserve Bank or to such other
authorities a declaration in such form and in such manner as may be specified,
containing the true and correct material particulars in relation to payment
for such services.
Where any amount of foreign exchange is due or has accrued to any person
resident in India, such person shall take all reasonable steps to realise and
repatriate to India such foreign exchange within such period and in such
manner as may be specified by the Reserve Bank.
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International Linkages
The Reserve Bank of India under the FEMA issues notifications on separate
issues concerning foreign exchange from time to time. Till date it has issued
25 notifications related to the following areas:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22
23.
24.
25.
These indexes are calculated on the basis of both hard data and Survey
data. The responses to the Executive Opinion Survey are what is referred to
as Survey data, with responses ranging from 1 to 7.
The sample of countries is divided into two groups: the core innovators and
the non-core innovators.
Core innovators are countries with more than 15 US utility patents registered
per million population in 2003; non-core innovators are all other countries.
For the core innovators, extra emphasis is placed on the role of innovation
and technology.
The weightings for the core innovators are as follows:
Growth Competitive Index for Core Innovators
=
Technology Index
+
+
Macroeconomic
Environment Index
For the non-core innovators, it calculates the Growth Competitiveness Index
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International Linkages
Property rights, including over financial assets, are clearly defined and
well protected by law?
How commonly are bribes paid in connection with import and export
permits?
How commonly are bribes paid when being connected with public
utilities?
How commonly are bribes paid in connection with annual tax payments?
Has obtaining credit for a company become easier or more difficult over
the past year?
Government surplus/deficit
Inflation
bottom was Chad with rank 104 and a score of 2.50. Bangladesh ranked 102
with a score of 2.84. Pakistan was ranked 91 with a score of 3.17.
6.16
The CPI gathers data from sources that span the last three years (for
the CPI 2004, this includes surveys from 2002, 2003 and 2004).
2.
All sources provide a ranking of countries, i.e., include an assessment
of multiple countries.
3.
All sources measure the overall extent of corruption (frequency and/or
amount of corruption) in the public and political sectors.
4.
Evaluation of the extent of corruption in countries is done by nonresident experts (in the CPI 2004, this includes the following sources:
CU (the State Capacity Survey by the Centre for International Earth
Science Information Network (CIESIN) at Columbia University), EIU
(The Economist Intelligence Unit) , MIG (Grey Area Dynamics
Ratings by the Merchant International Group)and WMRC (The World
Markets Research Centre); non-resident business leaders from
developing countries (in the CPI 2004, this includes the following
sources: TI/GI (Gallup International on behalf of Transparency
Inter national, Bribe Payers Index Survey), II(Infor mation
International, Beirut, Lebanon and MDB (a multilateral development
bank) ; and resident business leaders evaluating their own country
(in the CPI 2004, this includes the following sources: BEEPS The
Business Environment and Enterprise Performance Survey), IMD
(The International Institute for Management Development, Lausanne,
PERC (The Political and Economic Risk Consultancy, Hong Kong)
and WEF (World Economic Forum.
Cor r uption Per
ception Index 2001
Perception
Finland ranks first with a score of 10. Singapore is ranked 5th, Hongkong is
16th while USA is 19th. India stands at 71 out of the 90 countries while Nigeria
is at the bottom with the last ranking of 90.
6.17 Index of Economic Freedom
Since 1995, the Index of Economic Freedom has offered the international
community an annual in-depth examination of the factors that contribute most
directly to economic freedom and prosperity. As the first comprehensive study
of economic freedom ever published, the 1995 Index defined the method by
which economic freedom can be measured in such vastly different places as
Hong Kong and North Korea. Since then, other studies have joined the effort,
analysing such issues as trade or government intervention in the economy.
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There is overlapping coverage among these indices, but the Index of Economic
Freedom includes the broadest array of institutional factors determining
economic freedom:
Non-tarif f bar
riers to trade, such as import bans and quotas as well
barriers
as strict labelling and licensing requirements;
Regulatory bur
dens on business, including health, safety, and
burdens
environmental regulation;
Infor
mal market activities, including corruption, smuggling, piracy
Informal
of intellectual property rights, and the underground provision of labour
and other services.
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Self -assessment
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1.
2.
3.
Taking averages for 1986-90 as the base level, developed countries agreed
to cut the value of export subsidies by ______ percent over six years
starting in 1995.
4.
5.
6.
7.
8.
9.
10.
The 1995 Index defined the method by which ___________ freedom can
be measured in such vastly different places as Hong Kong and North
Korea.
Corporate Responsibility
Chapter VII
Corporate Responsibility
Lear
ning Objectives
Learning
Reading this chapter would enable you to understand:
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company's management, directors and its financial reporting system has never
been more crucial. As the boards provide stewardship of companies, they
play a significant role in their efficient functioning.
Studies of firms in India and abroad have shown that markets and investors
take notice of well-managed companies, respond positively to them, and reward
such companies, with higher valuations. A common feature of such companies
is that they have systems in place, which allow sufficient freedom to the
boards and management to take decisions towards the progress of their
companies and to innovate, while remaining within a framework of effective
accountability. In other words they have a system of good corporate
governance.
7.2 T
Trr end in Corporate Gover nance
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1.
2.
3.
4.
5.
6.
There are also many companies, which are not paying adequate attention
Corporate Responsibility
8.
9.
SEBI took many steps before the constitution of the Committee on corporate
governance to raise the standards of corporate probity. Some of these steps
were:
company;
the Shareholders,
the Management
7.3.2 Key Aspects of Corporate Gover nance
It has attempted to identify in respect of each of these constituents, their
roles and responsibilities as also their rights in the context of good corporate
governance. Fundamental to this examination and permeating throughout
this exercise is the recognition of the three key aspects of corporate
governance, namely;
accountability,
transparency and
The Committee felt that some of the recommendations are absolutely essential
for the framework of corporate governance and virtually form its core, while
others could be considered desirable. Besides, some recommendations may
also need change of statute, such as the Companies Act, for their enforcement.
In the case of others, enforcement would be possible by amending the
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Corporate Responsibility
By all entities seeking listing for the first time, at the time of listing.
Within the financial year 2000-2001,but not later than March 31, 2001 by
all entities, which are included either in Group A'of the BSE or in S&P
CNX Nifty index as on January 1, 2000. However to comply with the
recommendations, these companies may have to begin the process of
implementation as early as possible. These companies would cover more
than 80 percent of the market capitalisation.
Within the financial year 2001-2002,but not later than March 31, 2002 by
all the entities which are presently listed, with paid up share capital of
Rs. 10 crore and above, or net worth of Rs 25 crore or more any time in
the history of the company.
Within the financial year 2002-2003,but not later than March 31, 2003 by
all the entities which are presently listed, with paid up share capital of
Rs 3 crore and above.
Till recently, it has been the practice of most of the companies in India to fill
the board with representatives of the promoters of the company, and
independent directors if chosen were also handpicked thereby ceasing to be
independent.
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Corporate Responsibility
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Corporate Responsibility
7.4
This term indicates the doings of corporates over and above the statutory
requirements for the benefit of the society.
According to N R Narayanmoorthy, Chief Mentor of Infosys Technology, a
corporate's foremost social responsibility is to create maximum share holder
value working under the circumstances where it is fair to all its stake holders
workers, consumers, the community, government and the environment. He
points out that by living in harmony with the community and environment
around us and not cheating our customers and workers, we might not gain
anything in the short run, but in the long run it means greater profits and
shareholder value.
7.4.1
Evolution
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Corporate Responsibility
Summing Up
In an age where capital flows worldwide, just as quickly as information, a
company that does not promote a culture of strong, independent outlook,
risks its very stability and future health. As a result, the link between a
company's management, directors and its financial reporting system has never
been more crucial. As the boards provide stewardship of companies, they
play a significant role in their efficient functioning. The Kumarmangalam Birla
committee on corporate gover nance was appointed because of the
aforementioned concern. It has given a comprehensive list of recommendations
to improve the fabric of corporate governance in India.
At the same time, corporates are also working towards their social
responsibility. They are becoming increasingly aware of their role in this regard
to sustain business on a long term basis.
Self-assessment
1.
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2.
3.
4.
5.
6.
7.
8.
9.
10.
Business ethics
Chapter VIII
Business ethics
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8.3
Issues regarding the moral rights and duties between a company and
its shareholders: fiduciary responsibility, stakeholder concept v.
shareholder concept.
3.
4.
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Business ethics
2.
3.
4.
5.
6.
Issues relating to the fairness of the employment contract and the balance
of power between employer and employee: slavery, indentured servitude,
employment law.
7.
The entire above are also related to the hiring and firing of employees. An
employee or future employee can not be hired or fired based on race, age,
gender, religion, or any other discriminatory act.
8 . 1 . 3 Ethics of sales and marketing
Marketing, which goes beyond the mere provision of information about (and
access to) a product, may seek to manipulate our values and behavior. To
some extent society regards this as acceptable, but where is the ethical line
to be drawn? Marketing ethics overlaps strongly with media ethics, because
marketing makes heavy use of media. However, media ethics is a much larger
topic and extends outside business ethics.
Specific marketing strategies: green wash, bait and switch, shill, viral
marketing, spam (electronic), pyramid scheme, planned obsolescence.
8 . 1 . 4 Ethics of production
This area of business ethics usually deals with the duties of a company to
ensure that products and production processes do not cause harm. Some of
the more acute dilemmas in this area arise out of the fact that there is usually
a degree of danger in any product or production process and it is difficult to
define a degree of permissibility, or the degree of permissibility may depend
on the changing state of preventative technologies or changing social
perceptions of acceptable risk.
8 . 1 . 5 Ethics of intellectual pr
operty
property
operty,, knowledge and skills
Knowledge and skills are valuable but not easily "ownable" as objects. Nor is
it obvious that has the greater rights to an idea: the company who trained the
employee or the employee themselves? The country in which the plant grew
or the company which discovered and developed the plant's medicinal
potential? As a result, attempts to assert ownership and ethical disputes over
ownership arise.
The practice of employing all the most talented people in a specific field,
regardless of need, in order to prevent any competitors employing them.
Ethics and Technology The computer and the World Wide Web are two of the
most significant inventions of the twentieth century. There are many ethical
issues that arise from this technology. It is easy to gain access to information.
This leads to data mining, workplace monitoring, and privacy invasion.[5]
Medical technology has improved as well. Pharmaceutical companies have
the technology to produce life saving drugs. These drugs are protected by
patents and there are no generic drugs available. This raises many ethical
questions.
8.2 Inter national business ethics and ethics of economic systems
The issues here are grouped together because they involve a much wider,
global view on business ethical matters.
8 . 2 . 1 Inter national business ethics
While business ethics emerged as a field in the 1970s, international business
ethics did not emerge until the late 1990s, looking back on the international
developments of that decade.[6] Many new practical issues arose out of the
international context of business. Theoretical issues such as cultural relativity
of ethical values receive more emphasis in this field. Other, older issues can
be grouped here as well. Issues and subfields include:
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Business ethics
interest would still require a business to obey the law and adhere to basic
moral rules, because the consequences of failing to do so could be very costly
in fines, loss of licensure, or company reputation.
Some take the position that organizations are not capable of moral agency.
Under this, ethical behavior is required of individual human beings, but not
of the business or corporation.
Other theorists contend that a business has moral duties that extend well
beyond serving the interests of its owners or stockholders, and that these
duties consist of more than simply obeying the law. They believe a business
has moral responsibilities to so-called stakeholders, people who have an
interest in the conduct of the business, which might include employees,
customers, vendors, the local community, or even society as a whole.
Stakeholders can also be broken down into primary and secondary
stakeholders. Primary stakeholders are people that are affected directly such
as stockholders, where secondary stakeholders are people who are not
affected directly such as the government. They would say that stakeholders
have certain rights with regard to how the business operates, and some would
suggest that this includes even rights of governance.
Ethical issues can arise when companies must comply with multiple and
sometimes conflicting legal or cultural standards, as in the case of multinational
companies that operate in countries with varying practices. The question
arises, for example, ought a company to obey the laws of its home country, or
should it follow the less stringent laws of the developing country in which it
does business? It is claimed that in a competitive business environment, those
companies that survive are the ones that recognize that their only role is to
maximize profits.
8.3 Business ethics in the field
8.
3.1 Corporate Ethics Policy
8.3.1
As part of more comprehensive compliance and ethics programs, many
companies have formulated internal policies pertaining to the ethical conduct
of employees. These policies can be simple exhortations in broad, highlygeneralized language (typically called a corporate ethics statement), or they
can be more detailed policies, containing specific behavioral requirements
(typically called corporate ethics codes). They are generally meant to identify
the company's expectations of workers and to offer guidance on handling
some of the more common ethical problems that might arise in the course of
doing business. It is hoped that having such a policy will lead to greater ethical
awareness, consistency in application, and the avoidance of ethical disasters.
An increasing number of companies also require employees to attend seminars
regarding business conduct, which often include discussion of the company's
policies, specific case studies, and legal requirements. Some companies even
require their employees to sign agreements stating that they will abide by the
company's rules of conduct.
Many companies are assessing the environmental factors that can lead employees
to engage in unethical conduct. A competitive business environment may call
for unethical behavior. Lying has become expected in fields such as trading.
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Business ethics
Not everyone supports corporate policies that govern ethical conduct. Some
claim that ethical problems are better dealt with by depending upon employees
to use their own judgment.
Others believe that corporate ethics policies are primarily rooted in utilitarian
concerns, and that they are mainly to limit the company's legal liability, or to
curry public favor by giving the appearance of being a good corporate citizen.
Ideally, the company will avoid a lawsuit because its employees will follow
the rules. Should a lawsuit occur, the company can claim that the problem
would not have arisen if the employee had only followed the code properly?
Sometimes there is disconnection between the company's code of ethics and
the company's actual practices. Thus, whether or not such conduct is explicitly
sanctioned by management, at worst, this makes the policy duplicitous, and,
at best, it is merely a marketing tool.
To be successful, most ethicists would suggest that an ethics policy should be:
Ethics is important not only in business but in all aspects of life because
it is the vital part and the foundation on which the society is build. A
business/society that lacks ethical principles is bound to fail sooner or
later. According to International Ethical Business Registry, "there has
been a dramatic increase in the ethical expectation of businesses and
professionals over the past 10 years. Increasingly, customers, clients
and employees are deliberately seeking out those who define the basic
ground, rules of their operations on a day today...."
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The situation may demand your immediate decision and the easy and
simple way out may be to make such compromises. But if you are
steadfast in observing ethics in your business, you may be equipped
with the far-sightedness to foresee such eventualities and may have
taken the appropriate steps that may free you from such tricky
situations.
Some people may argue that business and ethics cannot go together.
This is not true. If you respect values in life, you will definitely understand
that ethical business will definitely give you the leverage of peace of
mind in doing your business. To understand the situations in the right
perspective and consider ethical decisions for implementation, you may
have to know the approaches that are available to you.
1. You take a stand that would be beneficial to all, keeping in mind
your success in the business, your goals in the business, and your
responsibilities to your customers, your responsibilities to the
Business ethics
2.
You may opt to stick to ethics, come what may. You do not worry
about the consequences of your decisions and you possess the
courage of conviction and conventions to assert that ethical
decisions are supreme in business. Even if it may entail closing
down of your business, you stick to that stand. This approach may
not appeal to all entrepreneurs and very rarely, we come across
entrepreneurs of this kind.
3.
The third approach is based on the golden rule. You clearly and
unambiguously opt for decisions you know to be right. If you do
not feel good taking a decision, then it is wrong. But, if you have a
good feeling, then you believe it is the right decision.
4.
There's a view that soaring profits and ethics are mutually exclusive
concepts, however, the two can co-exist. The world of business is
generally perceived as jungle where the bottom line takes precedence
over all other matters. While it is certainly true that profits are the true
measure of success, commercial ruthlessness doesn't necessarily lead
to unethical practices. There sometimes arises an inevitable conflict in
the company between their moral obligations and improving the bottom
lines. But ultimately companies following the path of ethical value system
succeed in long run as sooner or later consumers learn to separate fact
from fiction.
Profits and ethics are in reality part of the same equation. A corporation
that wishes to grow and increase its financial return to its owners must
balance ethics and operations. This is a complex journey especially
during tremendous economic pressures. The drive for success in the
marketplace and to maximize return of capital can lead a company astray
with disastrous results. Successful businesses fail, profitably running
businesses suf fer from a downfall and some seemingly ef fective
corporate receive a great fall in their profits and popularity all due to the
lack of business ethics. There are companies that have crossed ethical
lines in the pursuit of profit, and momentarily gained fame and fortune
but what was the end result??
"If you have integrity, nothing else matters. If you don't have integrity,
nothing else matters." -- Alan K. Simpson
Why Ethics Ar
e Important in Business
Are
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Business ethics
that everything is balanced and in the right place. This may become
time consuming; however, it is essential that the financials are accurate
and completed with ethical precision. Most companies would want to
make sure that the financials are correct and save the hassle of having
ruined financials.
Summing up
Business ethics are standards that govern business behavior. Many have
found that they believed that a code of ethics was the most effective
way to encourage ethical business behavior. Sometimes these codes
are written down or a code of ethics is communicated orally or even
through the overall climate or cultural values of the organization
Self Assessment
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1.
2.
3.
4.
Ethics of production
5.
6.
7.
8.
9.
10.
11.
Globalization
Chapter IX
Globalization
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Globalization
economic
social
And political.
In addition to three indices measuring these dimensions, we calculate an overall
index of globalization and sub-indices referring to
economic restrictions
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Globalization
As of 2005-2007, the Port of Shanghai holds the title as the World's busiest port.
Economic - realization of a global common market, based on the freedom of
exchange of goods and capital. The interconnectedness of these markets,
however meant that an economic collapse in any one given country could not
be contained.
Political - some use "globalization" to mean the creation of a world
government which regulates the relationships among governments and
guarantees the rights arising from social and economic globalization.
Politically, the United States has enjoyed a position of power among the world
powers, in part because of its strong and wealthy economy. With the influence
of globalization and with the help of The United States' own economy, the
People's Republic of China has experienced some tremendous growth within
the past decade. If China continues to grow at the rate projected by the trends,
then it is very likely that in the next twenty years, there will be a major
reallocation of power among the world leaders. China will have enough
wealth, industry, and technology to rival the United States for the position of
leading world power.
Infor
mational - increase in information flows between geographically remote
Informational
locations. Arguably this is a technological change with the advent of fiber optic
communications, satellites, and increased availability of telephone and Internet.
Language - the most popular language is Mandarin (845 million speakers)
followed by Spanish (329 million speakers) and English (328 million speakers).
About 35% of the world's mail, telexes, and cables are in English.
Approximately 40% of the world's radio programs are in English. About 50%
of all Internet traffic uses English.
Competition - Survival in the new global business market calls for improved
productivity and increased competition. Due to the market becoming
worldwide, companies in various industries have to upgrade their products
and use technology skillfully in order to face increased competition.
Ecological - the advent of global environmental challenges that might be
solved with international cooperation, such as climate change, cross-boundary
water and air pollution, over-fishing of the ocean, and the spread of invasive
species. Since many factories are built in developing countries with less
environmental regulation, globalism and free trade may increase pollution.
On the other hand, economic development historically required a "dirty"
industrial stage, and it is argued that developing countries should not, via
regulation, be prohibited from increasing their standard of living.
The construction of continental hotels is a major consequence of globalization
process in affiliation with tourism and travel industry, Dariush Grand Hotel,
Kish, Iran
Cultural - growth of cross-cultural contacts; advent of new categories of
consciousness and identities which embodies cultural diffusion, the desire to
increase one's standard of living and enjoy foreign products and ideas, adopt
new technology and practices, and participate in a "world culture". Some
bemoan the resulting consumerism and loss of languages.
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Globalization
Culture is defined as patterns of human activity and the symbols that give
these activities significance. Culture is what people eat, how they dress, beliefs
they hold, and activities they practice. Globalization has joined different
cultures and made it into something different. As Erla Zwingle, from the
National Geographic article titled Globalization states, When cultures
receive outside influences, they ignore some and adopt others, and then almost
immediately start to transform them.
One classic culture aspect is food. Someone in America can be eating
Japanese noodles for lunch while someone in Sydney, Australia is eating
classic Italian meatballs. India is known for its curry and exotic spices.
France is known for its cheeses. America is known for its burgers and
fries. McDonalds is an American company which is now a global enterprise
with 31,000 locations worldwide. Those locations include Kuwait, Egypt,
and Malta. This company is just one example of food causing cultural
influence on the global scale.
Meditation has been a sacred practice for centuries in Indian culture. It calms
the body and helps one connect to their inner being while shying away from
their conditioned self. There are more Americans meditating and practicing
yoga now. Some people are even traveling to India to get the full experience
themselves.
Another common practice brought about by globalization is Chinese symbol
tattoos. These tattoos are popular with today's younger generation despite
the fact that, in China, tattoos are not thought of as cool. Also, the Westerners
who get these tattoos often don't know what they mean, making this an example
of cultural appropriation.
The internet breaks down cultural boundaries across the world by enabling
easy, near-instantaneous communication between people anywhere in a variety
of digital forms and media. The Internet is associated with the process of
cultural globalization because it allows interaction and communication between
people with very different lifestyles and from very different cultures. Photo
sharing websites allow interaction even where language would otherwise be
a barrier.
Negative ef fects
Globalization has been one of the most hotly debated topics in international
economics over the past few years. Globalization has also generated significant
international opposition over concerns that it has increased inequality and
environmental degradation. In the Midwestern United States, globalization
has eaten away at its competitive edge in industry and agriculture, lowering
the quality of life in locations that have not adapted to the change.
Globalization, the flow of information, goods, capital and people across political
and geographic boundaries, has also helped to spread some of the deadliest
infectious diseases known to humans. Modern modes of transportation allow
more people and products to travel around the world at a faster pace; they
also open the airways to the transcontinental movement of infectious disease
vectors. One example of this occurring is AIDS/HIV.
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Globalization
Summing up
The Impact of Globalization on Business:
Expanding the geographic footprint of any business in the era of globalization
is not at all a perilous and costly job as it has been in the past. To remain
competitive in today's scenario aggressive measures should be implemented
to expand business. Starting business internationally is as defensive as an
offensive play. Going by the global demands and considering the total size of
international economies would reveal that in comparison with the size of
national market the potential buyers generally reside in international markets.
In comparison, if a business does not aim international market and the
international customers then the company will not only be lagging behind
taking the first mover's benefit of preserving customer dependability, but would
also lose on collaborations with key partners and distribution pacts. With
increase in consumers' demands and flattening of global market the
international business is expected to assist several markets in a faultless
manner. Changing slowly to economic alterations in today's world could
ultimately harm the business.
Examining the alleviating factor that globalization had on the world business
would reveal that trade shortage, petroleum costing, dip in equity markets,
housing calamity, restricted influx of funds, and total cost of living is defying
us than ever before. With so many negative traits in world economy,
conservative economic theory recommends that the interest rate today hold
similarity with that of 1980 than the low interest rates we are witnessing today.
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Growing economies Over the last few years China and India has
witnessed 9% and 7% of annual growth respectively. Demographics
Economies now characterize younger populations, increasing number
of well-qualified population, growing middle class populations, elevating
incomes and urbanization.
Self Assessment
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Definition of Globalization?
Chapter X
Industrial Growth and Environmental degradation
Students learn the causes of pollution like water, air, noise pollution,
solid waste etc. with special reference to industries.
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Type of industries
Type of pollution
Manufacture of chemicals,
pesticides, medicines
Manufacture of gases
Air pollution
Transport vehicle
manufacturing
Food industries
Paper industries
Sugar industry
Brick industry
Aircraft industry
IT based industries
Air pollution
Telecom industries
Paper industries
Sugar industries
Food industries
All industries other than above cause relatively lesser pollution and are less
dangerous than above industries. Most of these industries are established as
core industries for progress of human society. Hence, it is undisputable that
they have to exist for human existence and development. The only disputable
point is how they have to be managed to make them free of pollution. The
cause of pollution - in many situations - is not the industry itself, but the
technology adopted by such industry. As the scientific research progresses,
new technologies for industries are added. New technologies to minimize the
pollution are also generated in every industry. How far these technologies are
adopted will decide the nature and extent of pollution.
10.2.1 Causes of industrial pollution waste
Pollution from thermal power plants due to chemical fertilizers, food, pesticide
and pharmaceutical industries due to cement, steel, paper, sugar industries
due to textile and textile related industries due to petroleum and other..
Radioactive Waste -Waste products from nuclear power stations etc. are
becoming a serious problem. They should be put where the radiation can do
no harm. Unfortunately, there is no way of stopping a radioactive nucleus
from emitting radiation. Nuclear energy has some advantages over fossil fuel
such as coal...
Accumulation of wastes due to its improper disposal is a major problem in
our country. The recent Surat plague epidemic is an indication. Population in
India has been growing at the rate of 1.7%. With this increase, there has also
been an increase in the amount of wastes.
Waste Management - The garbage should be segregated at the source - home,
office, shops, etc. This should be followed by door to door collection. The
recyclable material can automatically be sent to recycling plants. Many nonbiodegradable materials are recyclable. For example, plastic, polythene, glass,
metallic.
Classification of Wastes - The wastes include kitchen waste, papers,
construction materials, old tyres, medical wastes, etc. In order to understand
the severity of the problem and to work towards a solution, one must
understand the types of wastes being generated.
Toxic Elements Commonly Present in Municipal and Industrial Waste Waters
Industrial wastes. Causes bone damage, mottled teeth. Lead Plumbing, mining
coal, gasoline. Causes anemia, kidney malfunction and nervous disorder.
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10.2.1.1 W
ater Pollution
Water
Sewage that includes organic matter, animal and human excreta-one of the
major pollutants of water in the urban and rural areas is the sewage. The
sewage most often contains the organic matter that encourages the growth
of microorganisms. These organisms besides spreading diseases also
consume the oxygen present in water. This is called oxygen depletion. The
aquatic organisms like the fish cannot then survive in such waters. This
creates an imbalance in the aquatic ecosystems.
Industries
The industries are mostly situated along the riverbanks for easy availability of
water and also disposal of the wastes. But these wastes include various acids,
alkalis, dyes and other chemicals. They change the pH of water. There are
also detergents that create a mass of white foam in the river waters. All these
chemicals are quite harmful or even fatally toxic to fish and other aquatic
populations.
The industrial wastes include toxic metals like lead, mercury, cadmium, etc,
and other chemicals like the fluorides, ammonia, etc.
Certain industries such as power plants, refineries, nuclear reactors release a
lot of hot water from their cooling plants. This hot water is let into the water
bodies without the temperature being reduced. This results in heating up of
the water and thereby killing the aquatic life. The oxygen content of water also
becomes less due to increase in the temperature. This is called thermal pollution.
10.2.1.2
Oil
Oil spill is a major problem in the oceans and seas. The oil tankers and offshore
petroleum refineries cause oil leakage into the waters. This pollutes the waters.
Oil floats on the water surface and prevents the atmospheric oxygen from
mixing in the water. The oil enters the body of the organisms. It also coats
the body of the aquatic animals and birds which may also kill them.
Pollutant
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Source/Cause
Ef
fect
Effect
Metals-Mercury
Industrial wastes
Lead
Industrial wastes
Cadmium
Cadmium
Fertilizers
Arsenic
Fertilizers
Agrochemicals
like DDT
Pesticides
Industrial
Ecological imbalance
Increased salinity
Reduced vegetation
10.2.2 Causes of Air Pollution
10.2.2.1 Industries
Industries are responsible for large scale air pollution as compared to other
causes because: the extent of gaseous pollution from industries is very high
as compared to any other cause number of industries being established are
regarded as yard stick of progress.
Not all industries can lead to air pollution. Following type of industries are
responsible for air pollution.
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b)
c)
D)
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e)
h)
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While the basic functions of the CPCB remain prevention, control, and
abatement of air and water pollution, with the various SPCBs assuming these
functions, the role of the CPCB is restricted to providing technical or scientific
assistance. The CPCB has maintained the major role of prescribing the
standard limits for various pollutants. While the SPCBs may prescribe stricter
limits if they choose, they may not dilute the standards stipulated by the
CPCB.
The SPCBs employ three instruments, namely, consent to establish producing
units, consent to operate, and standards for air and water pollution. Under
the Water Act, consent is necessary for an industry to 'discharge effluent into
a stream'. Under the Air Act, consent is necessary to 'Establish or operate an
industrial plant in an air pollution control area'. The other functions of the
SPCBs are advising the state governments, formulation of preventive methods,
technology development, and regulation of location of industries, disposal of
hazardous wastes, and collection and dissemination of information on the
prevention and control of pollution.
The PCBs also have the power to move court for 'restraining apprehended
pollution' as a preventive measure (Section 33 of the Water Act and Section
22A of the Air Act). In an extreme case, a PCB can give 'directions to any
person, officer or authority' in the interest of pollution control, which 'includes
the power to direct closure, prohibition or regulation of any industry or process,
or stoppage or regulation of supply of electricity, water or any other service'
(Section 33A of the Water Act and Section 31A of the Air Act).
Failure to obtain consent and violation of consent conditions makes the
occupier of an industrial unit liable for punishment under both Acts. The
punishment prescribed is imprisonment with unlimited fine. For minor
violations of the Acts, such as failure to provide information, obstructing
personnel of the Board from discharging their duties, and so forth, the penalty
prescribed is imprisonment up to three months or fine of Rs 10,000 or both.
More severe punishments are provided under both Acts for continued violation
after the first conviction (Section 41 to 45A of the Water Act and Section 37 to
39 of the Air Act).
Thus, the role of the Boards is mostly that of an enforcer, and the primary
functional tool employed by them for controlling industrial pollution is
inspection of polluting units. The Water Act prohibits the discharge of
pollutants into water bodies beyond established standards (Section 24), and
requires that generators of all new and existing sources of discharge into
water bodies get the prior consent of the PCBs (Section 25 and 26 respectively).
It also lays down penalties, such as fines and imprisonment, for not complying
with these (and other) regulations of the Act. Prior to 1988, enforcement was
through criminal prosecution initiated by State Boards and by seeking
injunctions to restrain polluters. After amendments to the Act in 1988, the
Boards were given more teeththey can now close errant factories or cut off
their water or electricity by an administrative order. The 'command' therefore
is the stipulation of certain upper limits of parameters, while the 'control' is
the power to withdraw the power supply, water supply, and the imposition of
the penalty (fines, imprisonment).
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Pollution control laws have neither kept pace with constitutional directives,
nor have they operationalized the space that exists for popular participation
if these directives are truly understood. Environmental legislations, such as
the Air and Water Acts, on the contrary, have a strong centralizing tendency,
with the state and Central government as the exclusive decision makers.
Further, none of these laws provide for co-ordinated functioning of the various
enforcement agencies with the third tier of governance panchayats and
municipalities. There is nothing at all to involve local communities.
Enforcement
The primary functional tool employed by the PCBs for controlling industrial
pollution is inspection of polluting units. Given the penalties in force for noncompliance in India and keeping in mind the extent of the SPCBs' powers, the
impact of inspections on compliance is only as strong as the threat of
enforcement and punishment faced by the industrial units. Studies conducted
reveal that there appears to be no impact of inspections on emissions. The
reality is that environmental management often degenerates into crisis
management. Inspections are undertaken at the time that operating consent
is granted and thereafter usually only in response to complaints, accidents, or
other emergencies. Enforcement by the PCBs, as a result, is woefully inadequate.
Further, a study conducted by the Planning Commission found that they do
not have a complete inventory of polluting and potentially polluting industries.
Small industries (capable of high levels of pollution) have been left out of the
purview, further undermining efforts at pollution control. Small industries
are known to contribute as much as 40 per cent of air and water pollution.
Monitoring
Monitoring conducted by the PCBs is also far from effective. Polluting
industries may make a one-time investment and set up Effluent Treatment
Plants (ETPs). Around 25 per cent of its capital investment may be so spent
on pollution control. The costs of operating these facilities are anywhere
between 1530 per cent of the investment made, annually.13 As operating costs
are high, industries are often reluctant to run these plants. Poor monitoring
almost always allows units to get away without operating these plants properly.
The PCBs claim that inadequate manpower limits their monitoring.
Poorly Staf fed
The Planning Commission study revealed that the PCBs are very poorly staffed.
The study highlighted the predominance of non-technical members in most
of the Boards, the lack of professionals in the composition of the Boards, and
also the tendency to not fill vacancies of members representing local bodies.
Thus, both motivationally and in ability, the PCBs are ill-structured.
Lack Technical Skills
One of the reasons for ineffective monitoring is the lack of technical skills of
the PCBs. For instance, the Biomedical Waste (Management and Handling)
Rules, 1998 specify the working of incinerators so as to reduce emissions of
toxins like furans and dioxins. However, neither the CPCB nor the SPCBs
have the capacity to even collect samples, let alone analyze these toxins.
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Inadequate Funding
The principal sources of funding for PCBs are government grants and revenue
collected under the Water Cess Act. In actual fact, PCBs are starved for funds.
The result is inadequate infrastructure in terms of laboratories, monitoring
equipment, and regional of fices, inadequate staf f, both technical and
administrative, and an inability to discharge their primary functions. For
example, the Bihar Pollution Control Board (BPCB), which administers
pollution laws in the second most populous state of the country, has
continuously been deprived of funds. For several years, the state government
withheld funding, restricting BPCB expenditure to less than a third of its
modest requisition.
Even ten years after the enactment of the Water Act, the BPCB did not have a
single laboratory or analyst to test effluent samples.14
A subset of the issue of inadequate funding is the manner in which the SPCBs
have made expenses. An analysis of the expenditure incurred by the SPCBs
during the Eighth Five Year Plan shows that the primary expenditure was on
administration amounting to 57 per cent. The ratio of capital expenditure to
total expenditure was about 14 per cent. Maintenance, depreciation, and other
expenses constituted the major chunk of the remaining part. It follows that
expenditure on pollution prevention activities, training, and research and
development was for all practical purposes negligible.
Political Inter fer
ence
ference
However, the argument is made that PCBs are, sometimes, not able to exercise
powers to force compliance because of interference from powerful interest
and pressure groups. Such interference is sometimes based on the argument
that strict compliance with standards will lead to closure of industrial units,
which in turn may result in unemployment and protests. This interference is
hardly surprising given that often the Boards are represented by vested
interests responsible for pollution. With the position of the Chairman of the
Boards invariably being a political appointee, political interference is rampant,
and internal sabotage of most cases is then almost inevitable.
Variations in Enfor
cement
Enforcement
The high degree of political interference may be one of the factors responsible
for wide variations in enforcement across states. It has been argued that
although states cannot compete by lowering environmental standards in order
to attract new investment, they can get around this by lax enforcement.16
This could be the outcome of a so-called 'race to the bottom' for environmental
quality in which states invariably sacrifice the environment in the competition
for jobs and economic growth. For example, there exists no uniform procedure
for the grant of consents under the Air and Water Acts. Some SPCBs grant
consents for a fixed period, usually between 1 and 3 years while the others
may issue open-ended consents.
The consent fee structure and industry classifications also differ widely across
States, suggesting inequitable horizontal treatment of industrial units. For
instance, if an industrial unit falling in the investment limit between Rs 50
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lakhs and Rs 100 lakhs applies for consent from the Madhya Pradesh Pollution
Control Board, it is bound to pay Rs 7500 as fees whereas if the same unit
applied for consent from the Kerala Pollution Control Board, the fee would be
Rs 2000. Nonfilling of the sanctioned strength is one of the factors behind
widely varying per unit staff ratios across SPCBs. In Andhra Pradesh, one
technical person has to monitor 100 units whereas Kerala and Himachal
Pradesh have 14 and 12 persons respectively for the same task. The norms
for determining the staffing pattern of the boards have not been prescribed,
leading to wide differences in the per polluting unit availability of staff for
monitoring.
Summing up
No industry is out of pollution. Most of these industries are established as
core industries for progress of human society. Hence, it is undisputable that
they have to exist for human existence and development. The only disputable
point is how they have to be managed to make them free of pollution. The
cause of pollution - in many situations - is not the industry itself, but the
technology adopted by such industry. New technologies to minimize the
pollution are also generated in every industry. How far these technologies are
adopted will decide the nature and extent of pollution. It is also extremely
important for developing countries to achieve a high level of economic growth
to mitigate their socio-economic problems. Major challenge is: how to ensure
development in a sustainable manner by a proper trade-of f between
environment and development.
Self assessment
1.
2.
The oxygen content of water also becomes less due to increase in the
temperature. This is called ______________________thermal pollution.
3.
4.
Areas
of
concer n
in
environmental
law
include
_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_____________air quality, water quality, global climate change,
agriculture, biodiversity, species protection, pesticides and hazardous
chemicals, waste management, remediation of contaminated land and
brown fields, smart growth, impact review, and conservation,
stewardship and management of public lands and natural resources.
5.
"It shall be the duty of every citizen of India to protect and improve the
natural environment including
forests, lakes, rivers and wildlife and to have compassion for living
creatures."
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Answers
Chapter I: Nature and Structure of the Economy
1. Supply, demand
2. Legislature, executive, judiciary
3. Mercantilists
4. Regulatory, entrepreurial, planning, promotional
5. Bhabha
6. Monopolies & Restrictive Trade Practices
7. 1986
8. quasi
9. second
10. 2045
Chapter II: The Social Environment and its influences on business
1. James Q Wilson
2. Morris Davis Morris
3. basic literacy, infant mortality, life expectancy
4. longevity, knowledge, decent standard of living
5. unlimited
6. 1964, 1971
7. 1990
8. sellers'
9. twenty
10. free
Chapter III: Industry
1. ownership, organisational, operational
2. 49
3. macroeconomic, executive
4. 20, budget
5. privatisation
6. strategic
7. Trade Related Competition Commission of India (TRCCI)
8. Structure
9. 42.4
10. budget
Athens
parliamentary
recall, plebiscite
parliament
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XII
2. The KOF Index of Globalization measures the three main dimensions of globalization:
economic
social
political
human activity
Thermal pollution.
Oil spill
air quality, water quality, global climate change, agriculture, biodiversity, species
protection, pesticides and hazardous chemicals, waste management, remediation of
contaminated land and brown fields, smart growth, sustainable development, impact
review, and conservation, stewardship and management of public lands and natural
resources.
5. Forests, lakes, rivers and wildlife and to have compassion for living creatures."