MBA 102 - Business Environment

Yashwantrao MBA 102
Chavan
Maharashtra
kmZJ§Jm KamoKar Open University
Business Environment
Unit 1 Business Environment 1

Unit 2 Plan Formulation and Implementation 13
Unit 3 Industrial Policy Resolutions, 1956 32
Unit 4 Labour Laws 56
Unit 5 Government Influence on Income, Planning, Prices and Production 61
Unit 6 Taxation and Business 66
Unit 7 Financial System 69
Unit 8 Societal Environment and the Social Responsibility of Business 87
Unit 9 Globalization 97
Unit 10 National Income, Business Cycle, Human Development, Poverty 110
Unit 11 Rural Developments, Agriculture and Business, Infrastructure and Business,
Problem of growth 122
Unit 12 Forms of Business Organisation, Emerging Trends of Business,
Environmental Pollution 131
Yashawantrao Chavan Maharashtra Open University
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Director (I/C), School of Commerce & Management : Dr. Prakash Deshmukh
NATIONAL ADVISORY BOARD
Dr. Pandit Palande Prof. Devanath Tirupati, Dr. Surendra Patole

Hon. Vice Chancellor Dean Academics, Assistant Professor,
Dr. B. R. Ambedkar University Indian Institute of Management School of Commerce &
Muaaffarpur, Bihar (IIM-Bangalore) Bangalore. Management,
Yashwantrao Chavan Maharashtra
Prof. Sudhir .K.Jain Prof. Karuna Jain, Open University, Nashik
Vice Chancellor , Director,
Shri Mata Vaishno Devi University N I T I E, Vihar Lake, Dr. Latika Ajitkumar Ajbani
(SMVDU) Katra Mumbai - 400087 Assistant Professor,
Jammu and Kashmir. School of Commerce &
Management,
Prof. Vinay .K.Nangia, D. Prakash Deshmukh Yashwantrao Chavan Maharashtra
Ex- Head, Director (I/C), School of Commerce Open University, Nashik
Department of Business Studies, & ManagementYashwantrao
Indian Institute of Technology, (IIT- Chavan Maharashtra Open
Roorkee) Roorkee. University, Nashik
Author & Editor

Dr. Vinay Sharma
Associate Professor
Department of Management Studies,
Indian Institute of Technology, (IIT- Roorkee) Roorkee.
Instructional Technology Editing & Programme Co-ordinator

Dr. Latika Ajitkumar Ajbani
Assistant Professor,
School of Commerce & Management, Yashwantrao Chavan
Maharashtra Open University, Nashik
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MBA 102
UNIT 1 BUSINESS ENVIRONMENT
Structure NOTES
1.0 Introduction
1.1 Unit Objectives
1.2 Business Environment Factors and their Implications
1.2.1 Social Factors
1.2.2 Economic Factors
1.2.3 Cultural Environment
1.2.4 Technological Factors
1.2.5 Political Factors
1.2.6 Legal Factors
1.2.7 Ecological Factors
1.2.8 Government Policies, Labour and Legal Factors
1.2.9 Market Conditions, Locational and other related Factors
1.3 Macroeconomic Concepts
1.3.1 Output and Income
1.3.2 Unemployment
1.3.3 Inflation and Deflation
1.4 Summary
1.5 Question & Exercises
1.6 Key Terms
1.7 Books for Further Reading
1.0 Introduction
The combination of internal and external factors that influence a company's

working operating situation. The business environment can include factors such as
clients and suppliers; its competition and owners; improvements in technology; laws
and government activities; and market, social and economic trends.
1.1 Unit Objectives

What is business environment and why is it important to foresee the same is the
objective that would be achieved through this unit.
Business Enviornment : 1
1.2 Business Environment Factors and their Implications
Participants of a focused group discussion where people from Industry, academia
NOTES and government were participating were requested to prioritize and enlist the factors of
business environment according to their relative importance.
- Participants from government especially from the side of law and order gave
few pertinent points:
a) Peace and harmony
b) Conducive and secured physical environment
c) Proper enforcement of law and honest law enforcement agencies
Check Your Progress
d) Strong judicial system
What do you understand
by Busniess Environment - A participant suggested the importance with an extreme example that “what if,
people are unable to come out of the homes” what if: there is vandalism and insecurity
on the streets”. What if “enforcement agencies are not true to their services”, therefore
justifying that peace, harmony and law enforcement are the most important aspects.
- Another participant was suggestive of strong judicial system, good corporate
laws etc.
- Another participant from the side of the Government’s part of machinery taking
care of industry was suggestive of:
a) Efficient land allocation
b) Single window and efficient industrial clearance system
c) Conducive and logical taxation laws and system
d) Logical import and export procedure and processes
e) Availability of skilled manpower
f) Effective labour laws
Similar views were endorsed by the participants from the industries who included
some points like
a) Strong and oriented work culture
b) Stable and conducive political environment
c) Continuous flow of technological development in the country
d) Economic and financial planning and administration in synchronization with
the external world
e) Effective monetary policy structure
f) Efficient industrial policy structure
g) Good and integrated banking infrastructure
h) Efficient patent laws and protection
Further participants from academia contributed by adding
a) Research (especially application oriented research)
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b) Academia, industry, government interface Business Environment
c) Industry-academia collaboration
d) More and better institutions
e) Large faculty training facilities NOTES
f) Better Human resource development structure

g) Better performance appraisal and human resource development for faculty
h) Strong academic leadership
Look at the lists provided by the participants and try and analyze the relevance
and importance of the factors which constitute the environment of business anywhere
and one may appreciate theses components along with others becoming the parameters
of success or even conduct of business.
The factors enlisted above have reasons to be considered for example stable and
conducive political environment brings in consistency of policy formulation and
implementation which is vital for business growth.
Another example is associated with development of academia which is associated
with not only the allocation of funds and development of schemes for faculty upgradation
and support but also to formulate flexible performance appraisal system so as to motivate
teachers to choose their research and teaching priorities and methodologies.
Another example is TATAs moving from west Bengal to Gujarat because of land
and policy considerations.
The classification of the factors discussed along with other broad factors gives us
the following categories:
a) Social factors
Check Your Progress
b) Economic factors
What do you classify
c) Cultural factors factors of Busniess
d) Geographical factors Environment?
e) Technological factors
f) Political factors
g) Legal factors
h) Ecological factors
i) Government and administrative factors
j) Market condition and related factors
k) Locational factors
1.2.1 Social factors
Society is where the business exists and members of a society constitute the
business as entrepreneurs, managers, workers, customers, prospective customers, NGOs
and others. Therefore a business must have a integrated view of society where
responsibility and accountability towards the society has to be decided and fixed. Business Enviornment : 3
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Business Environment Importance and Implications
a) Responsibility and accountability towards society will lead to better human
resource policy and development enhancing the level of productivity and
prosperity first for the employees, then for the market.
NOTES
b) Environmental sustainability if not catered to well will be deteriorating for
one and all.
c) If people who are not the part of a business directly are not happy, they some
day would refute to the existence of the business itself.
d) Recently, KFC and Mc Donald’s declared completely vegetarian outlets in
Gujarat. This is suggestive of adoptions a business should make culturally as
part of a society.
e) Value and value system plays a vital role. If a business does not inclines itself
with the value system of the society it exists in, its offerings would also not
have synchronization with the customers values. For example, advertising of
deodorants in India recently saw a customer refutation and the sales did not
reach the desired levels, not developing the markets. Realizing this all the
marketers and manufacturers have started positioning themselves and their
products with the value for money perspective hence aligning them with the
value system of masses and majority of Indians.
1.2.2 Economic factors
Growth rate, Gross domestic product, Gross national product, national income,
per capita income, per capita energy consumption. Employment generation, resource
mobilization and utilization, capital formation and deployment, natural resource utilization,
infrastructure development, industrial development, consumption and savings patterns
along with the other aspects are extremely vital for the businesses to perform and
grow.
Importance and Implications
a) Looking at the economic factors listed above especially with the perspective
of business willing to enter into the Indian market. Businesses which are
thinking in terms of expanding their distribution network to larger parts of the
country, one realizes the importance of infrastructure development. For
example, you must have heard of special economic zones, software
development parks, Integrated ports, train network etc.
b) GDP, GNP and other indicators are significant in suggesting the willingness
of the people of a country to work, produce and excel.
1.2.3 Cultural Environment
When one thinks of a country like India, with lot of diversity in cultures, languages,
ways of life and even social structures one has to plan methodically.
a) For example, any organization which is planning a Pan Indian presence has
to develop an approach for positioning itself uniformally which requires
different messages/communication but similar perspective.
b) Product form has also to be seen.
c) Business terms have to be addressed.
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d) Willingness of people to work is a reflection of culture most of the times. Business Environment
e) Gender freedom and gender biasness are important aspects to be understood.
1.2.4 Technological Factors
If a nation/market/society has its own technological development in place it always NOTES
has an edge in relation to business development. But in today’s globalized world, rationality
prompts to develop technologies in key areas of requirement, available competencies or
interest.
a) For example, countries like Israil have an edge in agriculture technology and
a very large part of the world imports their technology.
b) Finland has done good in surgical equipment technology.
c) India is doing good in sugar production technology.
1.2.5 Political Factors
Political philosophy, ideology and stability is important for business and policy to
be steered in a structured and long lasting frame. At the time when economic restructuring
is required, monetary and fiscal policy alignment is required. Political factors play a vital
and an important role. Singapore though a very small country in size and population has
done well on almost all the parts because of political stability factor.
1.2.6 Legal Factors
Presence of laws, timely and due amendments and proper execution and
enforcement is very important. For example, cyber laws, banking laws, taxation laws,
labor laws and so on may deter or motivate organizations to work freely and effectively.
DHL as an international organization and that too in logistics business has to abide by
and work according to various rules, regulations and laws of several countries which on
many accounts are not similar and are deterrent to do business.
1.2.7 Ecological Factors
Humans at the time of industrial revolution did not ever think of the ecological
imbalances those would come along and would tend to create disturbances beyond the
control of individuals and standalone organizations. Water, air, rising temperature, river
pollution and so on are the aspects which now have to be catered to legally and forcefully.
There are enactments/Acts in place to prevent the deteriorating situation. For example,
more than 50% population of India stays besides the river Ganga in India which is
directly or indirectly connected/dependent upon Ganges. The deteriorating water quality
is a major question that has become a concern for the survival of many people, hence
has to be catered to urgently and forcefully which would require important business
decisions as well for example, many leather tanneries of Kanpur near Ganges had to
shift their business.
1.2.8 Government Policies, Labour and Legal Factors
Forign direct Investment, patent policy and laws, Foreign investment in retail,
higher education, telecom and so many other aspects have brought in pivotal changes in
Indian business scenario.
As and when such policy and framework related changes are brought in legal and
regulatory framework and labour laws and structure is changed and ammended Business Enviornment : 5
Business Environment accordingly as well. If one looks at the evolution of foreign exchange, banking and
other regulations in progression during past two decades one would notice the evolutionary
adjustment process in accordance with the requirements of globalization and liberalization.
NOTES 1.2.9 Market conditions, Locational and other related Factors

Free market economy or closed market economy- such kind of a terminology has
a bipolar effect. Free market economy where government allows market forces to
compete in an equated legalized framework is almost an irreversible process and has
been found to be advantageous for world at large. Which businesses, market focuses
would choose and how and where they would work to invest their resources is at free
Check Your Progress will, though definitely under a framework. Many countries have locational advantages,
for example Philippines is located at a place where it is a junction between Asia and the
Broadly Explained the
Pacific, hence holds a great trading and locational advantage. It’s the Government
responsibility to convert its location into an advantage for its business and enterprise.
Factors, their Importance
For example, Thailand became a tourist hub, Frankfurt a travel hub in Europe and so
and Implications
on.
1.3 Macroeconomic Concepts

Macroeconomics encompasses a variety of concepts and variables, but there are
three central topics for macroeconomic research. Macroeconomic theories usually relate
the phenomena of output, unemployment, and inflation. Outside of macroeconomic theory,
these topics are also extremely important to all economic agents including workers,
consumers, and producers.
1.3.1 Output and Income
National output is the total value of everything a country produces in a given time
period. Everything that is produced and sold generates income. Therefore, output and
income are usually considered equivalent and the two terms are often used
interchangeably. Output can be measured as total income, or, it can be viewed from the
production side and measured as the total value of final goods and services or the sum
of all value added in the economy.
Macroeconomic output is usually measured by Gross Domestic Product (GDP)
or one of the other national accounts. Economists interested in long-run increases in
output study economic growth. Advances in technology, accumulation of machinery
and other capital, and better education and human capital all lead to increased economic
output over time. However, output does not always increase consistently. Business
cycles can cause short-term drops in output called recessions. Economists look
for macroeconomic policies that prevent economies from slipping into recessions and
that lead to faster long-term growth.
1.3.2 Unemployment
The amount of unemployment in an economy is measured by the unemployment
rate, the percentage of workers without jobs in the labor force. The labor force only
includes workers actively looking for jobs. People who are retired, pursuing education,
or discouraged from seeking work by a lack of job prospects are excluded from the
labor force.
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Unemployment can be generally broken down into several types that are related to Business Environment
different causes. Classical unemployment occurs when wages are too high for employers
to be willing to hire more workers. Wages may be too high because of minimum wage
laws or union activity. Consistent with classical unemployment, frictional unemployment
NOTES
occurs when appropriate job vacancies exist for a worker, but the length of time needed
to search for and find the job leads to a period of unemployment. Structural unemployment
covers a variety of possible causes of unemployment including a mismatch between
workers’ skills and the skills required for open jobs. Large amounts of structural
unemployment can occur when an economy is transitioning industries and workers find
their previous set of skills is no longer in demand. Structural unemployment is similar to
frictional unemployment since both reflect the problem of matching workers with job
vacancies, but structural unemployment covers the time needed to acquire new skills not
just the short term search process. While some types of unemployment may occur
regardless of the condition of the economy, cyclical unemployment occurs when growth
stagnates. Okun’s law represents the empirical relationship between unemployment and
economic growth. The original version of Okun’s law states that a 3% increase in output
would lead to a 1% decrease in unemployment.
1.3.3 Inflation and Deflation
A general price increase across the entire economy is called inflation. When prices
decrease, there is deflation. Economists measure these changes in prices with price
indexes. Inflation can occur when an economy becomes overheated and grows too
quickly. Similarly, a declining economy can lead to deflation. Central bankers, who control
a country’s money supply, try to avoid changes in price level by using monetary policy.
Raising interest rates or reducing the supply of money in an economy will reduce inflation.
Inflation can lead to increased uncertainty and other negative consequences. Deflation
can lower economic output. Central bankers try to stabilize prices to protect economies
from the negative consequences of price changes. Check Your Progress
Changes in price level may be result of several factors. The quantity theory of Explain Macroeconomics
money holds that changes in price level are directly related to changes in the money concepts like output and
supply. Most economists believe that this relationship explains long-run changes in the Income, Unemployment,
price level. Short-run fluctuations may also be related to monetary factors, but changes inflation and Deflation.
in aggregate demand and aggregate supply can also influence price level. For example,
a decrease in demand because of a recession can lead to lower price levels and deflation.
A negative supply shock, like an oil crisis, lowers aggregate supply and can cause inflation.
Source: Blanchard, Olivier (2011). Macroeconomics Updated (5th ed.). Englewood
Cliffs: Prentice Hall.
1.4 Summary
This unit discusses about various internal and external environmnetal factors like
social, cultural, political etc. which has major influence on the working of an any business
entity. All these factors and their implications are discussed. Further it discusses about
various macro economic phenomea of output unemployment and inflation.
1.5 Key Terms
Business environment : The combination of internal and external factors that

NOTES
influence a company's operating situation. The business environment can include factors
such as: clients and suppliers; its competition and owners; improvements in technology;
laws and government activities; and market, social and economic trends.
Source: http://www.businessdictionary.com/definition/business-environment.html
Macroeconomic concepts : Macroeconomics (from the Greek prefix makro-
meaning "large" and economics) is a branch of economics dealing with the performance,
structure, behavior, and decision-making of an economy as a whole, rather than individual
markets. This includes national, regional, and global economies. With microeconomics,
macroeconomics is one of the most general field in economics.
Macroeconomists study aggregated indicators such as GDP, unemployment rates,
and price indices to understand how the whole economy functions. Macroeconomists
develop models that explain the relationship between such factors as national income,
output, consumption, unemployment, inflation, savings, investment, international trade
and international finance. In contrast, microeconomics is primarily focused on the actions
of individual agents, such as firms and consumers, and how their behavior determines
prices and quantities in specific markets.
While macroeconomics is a broad field of study, there are two areas of research
that are emblematic of the discipline: the attempt to understand the causes and
consequences of short-run fluctuations in national income (the business cycle), and the
attempt to understand the determinants of long-run economic growth (increases in
national income). Macroeconomic models and their forecasts are used by both
governments and large corporations to assist in the development and evaluation of
economic policy and business strategy.
Macroeconomics encompasses a variety of concepts and variables, but there are
three central topics for macroeconomic research. Macroeconomic theories usually relate
the phenomena of output, unemployment, and inflation. Outside of macroeconomic theory,
these topics are also extremely important to all economic agents including workers,
consumers, and producers.
Source: http://en.wikipedia.org/wiki/Macroeconomics
Consumption : Consumption is a major concept in economics and is also studied
in many other social sciences. Economists are particularly interested in the relationship
between consumption and income, and therefore in economics the consumption function
plays a major role.
Different schools of economists define production and consumption differently.
According to mainstream economists, only the final purchase of goods and services by
individuals constitutes consumption, while other types of expenditure - in particular,
fixed investment, intermediate consumption, and government spending - are placed in
separate categories (See consumer choice). Other economists define consumption much
more broadly, as the aggregate of all economic activity that does not entail the design,
production and marketing of goods and services (e.g. the selection, adoption, use, disposal
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and recycling of goods and services). Business Environment
Source: http://en.wikipedia.org/wiki/Consumption_(economics)
Savings : Saving is income not spent, or deferred consumption. Methods of saving
include putting money aside in a bank or pension plan.[1] Saving also includes reducing NOTES
expenditures, such as recurring costs. In terms of personal finance, saving specifies
low-risk preservation of money, as in a deposit account, versus investment, wherein
risk is higher.
There is some disagreement about what counts as saving. For example, the part
of a person's income that is spent on mortgage loan repayments is not spent on present
consumption and is therefore saving by the above definition, even though people do not
always think of repaying a loan as saving. However, in the U.S. measurement of the
numbers behind its gross national product (i.e., the National Income and Product
Accounts), personal interest payments are not treated as "saving" unless the institutions
and people who receive them save them.
"Saving" differs from "savings." The former refers to an increase in one's assets,
an increase in net worth, whereas the latter refers to one part of one's assets, usually
deposits in savings accounts, or to all of one's assets. Saving refers to an activity occurring
over time, a flow variable, whereas savings refers to something that exists at any one
time, a stock variable.
Saving is closely related to investment. By not using income to buy consumer
goods and services, it is possible for resources to instead be invested by being used to
produce fixed capital, such as factories and machinery. Saving can therefore be vital to
increase the amount of fixed capital available, which contributes to economic growth.
However, increased saving does not always correspond to increased investment.
If savings are stashed in or under a mattress, or otherwise not deposited into a financial
intermediary such as a bank, there is no chance for those savings to be recycled as
investment by business. This means that saving may increase without increasing
investment, possibly causing a short-fall of demand (a pile-up of inventories, a cut-back
of production, employment, and income, and thus a recession) rather than to economic
growth. In the short term, if saving falls below investment, it can lead to a growth of
aggregate demand and an economic boom. In the long term if saving falls below
investment it eventually reduces investment and detracts from future growth. Future
growth is made possible by foregoing present consumption to increase investment.
However savings kept in a mattress amount to an (interest-free) loan to the government
or central bank, who can recycle this loan.
In a primitive agricultural economy savings might take the form of holding back
the best of the corn harvest as seed corn for the next planting season. If the whole crop
were consumed the economy would deteriorate to hunting and gathering the next season.
Source: http://en.wikipedia.org/wiki/Saving
Investment : Investment has different meanings in finance and economics.
In economics, investment is related to saving and deferring consumption. Investment
is involved in many areas of the economy, such as business management and finance
whether for households, firms, or governments.
Business Environment In finance, investment is putting money into an asset with the expectation of capital
appreciation, usually over the long-term future. This may or may not be backed by
research and analysis. Most or all forms of investment involve some form of risk, such
as investment in equities, property, and even fixed interest securities which are subject,
NOTES
inter alia, to inflation risk.
In contrast putting money into something with a hope of short-term gain, with or
without thorough analysis, is gambling or speculation. This category would include most
forms of derivatives, which incorporate a risk element without being long-term homes
for money, and betting on horses. It would also include purchase of e.g. a company
share in the hope of a short-term gain without any intention of holding it for the long
term. Under the efficient market hypothesis, all investments with equal risk should have
the same expected rate of return: that is to say there is a trade-off between risk and
expected return. But that does not prevent one from investing in risky assets over the
long term in the hope of benefiting from this trade-off. The common usage of investment
to describe speculation has had an effect in real life as well: it reduced investor capacity
to discern investment from speculation, reduced investor awareness of risk associated
with speculation, increased capital available to speculation, and decreased capital available
to investment.
Source: https://en.wikipedia.org/wiki/Investment
Social environment : The social environment, social context, sociocultural context,
or milieu, refers to the immediate physical and social setting in which people live or in
which something happens or develops. It includes the culture that the individual was
educated or lives in, and the people and institutionswith whom they interact.
The interaction may be in person or through communication media, even anonymous
or one-way, and may not imply equality of social status. Therefore the social environment
is a broader concept than that of social class or social circle.
Source: http://en.wikipedia.org/wiki/Social_environment
Cultural environment : Culture (Latin: cultura, lit. "cultivation") is a modern
concept based on a term first used in classical antiquity by the Roman orator Cicero:
"cultura animi". The term "culture" appeared first in Europe in the 18th and 19th centuries,
to connote a process of cultivation or improvement, as in agriculture or horticulture. In
the 19th century, the term developed to refer first to the betterment or refinement of the
individual, especially through education, and then to the fulfillment of national aspirations
or ideals. In the mid-19th century, some scientists used the term "culture" to refer to a
universal human capacity. For the German nonpositivist sociologist Georg Simmel, culture
referred to "the cultivation of individuals through the agency of external forms which
have been objectified in the course of history".
In the 20th century, "culture" emerged as a central concept in anthropology,
encompassing the range of human phenomena that cannot be attributed to genetic
inheritance. Specifically, the term "culture" in American anthropology had two meanings:
1. the evolved human capacity to classify and represent experiences with
symbols, and to act imaginatively and creatively; and
2. the distinct ways that people living differently classified and represented their
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experiences, and acted creatively. Business Environment
Hoebel describes culture as an integrated system of learned behavior patterns

which are characteristic of the members of a society and which are not a result of
biological inheritance. Distinctions are currently made between the physical artifacts NOTES
created by a society, its so-called material culture, and everything else,[5] the intangibles
such as language, customs, etc. that are the main referent of the term "culture".
Source: http://en.wikipedia.org/wiki/Culture
Political Environment : Government actions which affects the operations of a
company or business. These actions may be on local, regional, national or international
level. Business owners and managers pay close attention to the political environment to
gauge how government actions will affect their company.
Source:http://www.businessdictionary.com/definition/political-environmental.html
Technological Environment : External factors in technology that impact business
operations. Changes in technology affect how a company will do business. A business
may have to dramatically change their operating strategy as a result of changes in the
technological environment.
Source: http://www.businessdictionary.com/ definition/ technological-
environment.html
1.6 Questions and Excercices

1. Define the term business? What are the objectives of a business?
2. What is social responsibility of business? How is being carried out by busi-
ness houses in India?
3. Explain the characteristics of modern business.
4. Explain the meaning, definition, features, need and importance of business
ethics.
5. What is social audit? What are its benefits?
6. What is Business Environment? How does it affect a business? What are its
components?
7. Write a note on the interface between business and environment.
8. What are the characteristics of Business Environment? What are the prob-
lems in understanding its influence on business?
9. How are organizations related to their environment?
10. Write note on issues and trends in corporate management.
11. Write short note on environmental analysis or scanning.
12. Explain the three types of strategic responses of an organization to its envi-
ronment.
13. Briefly discuss various elements of micro-environment.
14. Briefly discuss various elements of macro-environment.
15. Briefly explain the role of government in Business Environment.
Business Environment 16. Write a note on e-governance.
17. What are the features of current Indian business environment?
NOTES 1.7 Books for Further Reading

1. Aswathappa, K., "Essentials of Business Environment", 10th Edition, Himalaya
Publishing House, 2009
2. Cherunilam, F., "Business Environment-Text and Cases", 19th Edition.
Himalaya Publishing House, 2009
3. Dutt, R. and Sundaram, K.P.M., "Indian Economy", 59th Edition, S. Chand
and Co., 2009
4. Gopal, N., "Business Environment", 2nd Edition, Tata McGraw-Hill, 2009
5. Paul, J., "Business Environment-Text and Cases", 2nd Edition, Tata McGraw-
Hill, 2007
6. Saleem, S., "Business Environment", 2nd Edition, Dorling Kindersley (India),
2010
7. Worthington, I. and Britton, C., "The Business Environment", 6th Edition,
Pearson Education, 2009
Plan Formulation and
UNIT 2 PLAN FORMULATION AND Implementation
IMPLEMENTATION
NOTES
Structure
2.0 Introduction
2.1 Unit Objectives
2.2 Planning and the Need for Planning
2.3 Planning in Independent India
2.4 Planning Commission Social Factors
2.5 Objectives of Economic Policy
2.5.1 Economic Growth
2.5.2 Reduction of Economic Inequalities,
2.5.3 Employment for All
2.5.4 Economic Self Reliance
2.5.5 Modernization
2.5.6 Addressing of Imbalance in the Country
2.6 Implementation (Financial Administration)
2.7 Monetory and Fiscal Policies
2.7.1 Monetory Policy
2.7.2 Instruments of Monetory Policy
2.7.3 Fiscal Policy
2.7.4 Properties of Budget
2.8 Five Year Plans
2.8.1 First Five Year Plan (1951-56)
2.8.2 Second Five Year Plan (1956-61)
2.8.3 Third Five Year Plan (1961-66)
2.8.4 Fourth Five Year Plan (1969-74)
2.8.5 Fifth Five Year Plan (1974-79)
2.8.6 Sixth Five Year Plan (1980-85)
2.8.7 Seventh Five Year Plan (1985-90)
2.8.8 Eigth Five Year Plan (1992-97)
2.8.9 Ninth Five Year Plan (1997-2002)
2.8.10 Tenth Five Year Plan (2002-2007)
2.8.11 Eleventh Five Year Plan (2007-2012)
2.8.12 Twelth Five Year Plan (2012-2017)
2.9 Summary
2.10 Key Terms
Implementation 2.0 Introduction
This chapter is about Government policies and its framework, which moved In-
NOTES
dian Economy for decades after post Independence. These policies addressed Eco-
nomic inequalities, and making India Self reliant and reducing unemployment. The gov-
ernment made monetary policy, Fiscal Policy and other regulatory bodies for making it
possible. Post Independence Policymakers had taken example from various other coun-
tries and moved towards the mixed kind of Economy.
2.1 Unit Objectives
Developing an understanding for Planning, its relevance, development and

Check Your Progress implementation is the prime objective of this unit. This unit will enable the readers to
Explain fundamental Basis understand about what it takes to run a nation and how it is associated with the business
of planning in India environment.
2.2 Planning and the Need for Planning

Planning is the fundamental basis for a nation’s development. The basis for planning
is natural and inevitable. One may look at the reasons for the need of planning with
a) Economic perspective
b) Social perspective
c) Political perspective
d) Socio-Economic perspective and
e) Socio-Economic political perspective
The logic is associated with where and how should a nation head to?
What kinds of resources to be allocated for achieving the decided objectives?
What kind of policy and activity framework is required?
What kind of institutional, organizational and responsibility structure is
required?
How to allocate human resource for the decided structure?
How to develop and train such a human resource? And so on.
The larger goal or vision at large is prosperity for all.
Retrospective View: Planning in India exists since ever or times immemorial wherein
systematic analysis of regimes and rulers suggest a planning structure with specific
orientation and background to be always present.
2.3 Planning in Independent India Implementation
Foundations of planning for India got laid much before independence, when
NOTES
visionaries like Mahatma Gandhi, Pandit JawaharLal Nehru, Subhash Chandra Bose,
Pheroze Shah Mehta, and Dadabhai Naoroji on the one hand and on the other hand
visionaries like Jamsetji Tata, and many others were foreseeing prosperity and growth
of India. Jamsetji proposed for power, steel and a university of science to the british
government in 1900 when India did not have are specific mining laws of its won.
(Source: Sharma, V. (2011). Think people’s development - focus on means - build
trust - do business for ever, European Case Clearing house(reference no. 311-097-8)
As India became more concerned about its independence and the struggle
intensified, the visionaries leading and directing India knew that a structured pathway
and plan would strongly be required and an initial most step which was taken was the
formation of National planning committee under the chairmanship of Pandit Jawaharlal
Nehru by the then president of congress Shri Subhash Chandra Bose in 1938. Further,
known industrialists of India came forward to structure Bombay plan in 1944 which
projected economic development through an active role of state machinery. Subsequently,
in 1950 planning commission was formed.
Planning commission proposed development through a strategic framework of
five year plans. This strategic framework which is followed since then had flexibility
and scope for directional changes and focus reorientation. For example, Industrial policy
orientation since 1956 was associated with state controlling major production and
industrial development till 1990 when liberalization of Indian economy was done to
coherently coordinate with the world.
Structure: 1950 was the inception year of Planning Commission, a structured
organization under the chairmanship of the first prime minister of India Pandit Jawaharlal
Nehru. Since then the commission is comprised of eight members.
1. Prime Minister (As the chairman)
2. Four full time members (including Deputy chairman)
3. Minister of Planning
4. Minister of Finance and
5. Minister of Defence
Major roles and functions of the Planning Commission are:
a) Resources analysis: actual analysis of all the resources with the perspective
of assessment of capacity and potential.
b) Analysis of resource argumentation possibilities with the backdrop of need
for the same
c) Formulation of plans
d) Enumerating and structuring the priorities of the plan through need and
resource assessment.
e) Defining of the plan implementation stages and process.
Plan Formulation and f) Identifying the enablers and barriers to the plan implementation
Implementation
g) Strengthening of the enablers through appropriate process and resource
augmentation.
NOTES h) Addressing the barriers so as to remove them timely.

i) Allocating human resource and determining organizational structure
for planning implementation at each stage of the planning process.
j) Reanalysing policies at each implementation stage and making periodic
provisions/measures so as to achieve the objectives and the targets of the
plan.
k) Adding recommendations and steps as and when required on the basis of
feedback and monitoring analysis of plan implementation.
National Development Council: 6th August 1952, a body called NDC was formed.
This forum is represented by both the central government and the state government.
The NDC is composed of the following members:
1. The prime minister of India
2. Chief ministers of all the states and
3. Members of the Planning Commission
This forum works in an advisory role and approves all the decisions taken to
planning.
Major functions of NDC are as follows:
1. Periodical Review of the National plan
2. Analysis of the problems and questions to provide developmental solutions
through socio-economic policy consideration.
3. Suggesting means for people participation for developing and using resources
for achieving aims and targets of National Plan for Development.
4. NDC is responsible for allocating central assistance for plan implementation
to states.
5. Approval of draft plan prepared by planning commission is also a major
function.
2.4 Planning Commission Social Factors
The growth of social services is necessarily a slow process. Its principal limita-
tions relate to the financial resources available and resources, which can be spared for
social services, lack of trained personnel and organizations, devoted to social welfare
and lack of reliable data pertaining to social problems. These factors tend to limit the
immediate objects of social welfare services to groups, which are in a vulnerable posi-
tion or need special assistance. The aims of social welfare are, however, wider in
scope. Social Welfare is concerned with the well-being of the entire community, not
only of particular sections of the population, which may be handicapped in one way or
another. Problems, which have already come to the fore must no doubt claim, attend;
equally, it is necessary to take steps to prevent the occurrence of new problems.
2.5 Objectives of Economic Policy Implementation
Social justice and economic growth are the two main aspects of planning in India
hence ‘economic growth with social justice’ can be seen as the major objective. NOTES
Subsequent objectives are as follows:

1. Higher rate of economic growth
2. Reduction of economic inequalities
3. Achievement of employment for all Check Your Progress
4. Economic self reliance Explain objectives of
5. Modernisation planning in India
6. Addressing of the imbalances in the country.
2.5.1 Economic Growth
Since 2009 to 2012 India has witnessed an appreciable rise in economic growth
which ranged between 6.7% and 6.9%. Translated in absolute terms this can be seen a
substantial figure. In the year 2013 the growth again has plummeted and has dipped
down to the levels of 5.7%, which has several reasons and implications.
(Source: http://www.icra.in /Files /ticker /ICRA% 20Macro% 20and% 20Policy.pdf
http://www.jagranjosh.com /current-affairs/imf-slashed-economic-growth-rate-of-india-
to-57-percent-from-59-percent-for-2013-1366196988-1)
2.5.2 Reduction of Economic Inequalities
Economic inequalities are imbibed in an economy’s system. How to remove
inequalities remain a major concern of any planning system and poverty alleviation with
employment generation are the primary actions for which a plan creates a scope for
example through introduction of various schemes like Mahatma Gandhi National Rural
Employment Guarantee Act (MNREGA).
2.5.3 Employment for All
Achieving employment for all has major aspects which have to be incorporated in
a plan.
a) Generating employment opportunities and for this plan creates provision for
developing and diverting resources in the sectors and areas where large
employment opportunities may be brought in along with matching or aligning
the economy the economy with the global focus areas.
b) Development of skills in accordance with the foreseen and generated
employment opportunities by allocating resources towards human resource
training and development.
c) Development of willingness towards achieving employment and employment
provision. A plan has to focus on developing environment through provision of
adequate literacy and health for people to develop willingness to work on the
one hand and on the other hand entrepreneurial environment for investors to
generate employment. Business Enviornment : 17
Plan Formulation and d) Sustenance of growth of employment which may be brought by keeping up
Implementation
above 3 aspects along with assuring market development to rationalize
production.
NOTES 2.5.4 Economic Self Reliance

A developing nation may cross its transition to be a developed nation if and only if
it becomes self dependent at first in terms of basic amenities and then in all the major
terms.
2.5.5 Modernization
Adaptation of technology, development of technology and application of technology
also requires plan allocations in terms of financial and human resources for example
development of new IITs and other institutions.
2.5.6 Addressing of Imbalance in the Country
Identifying regional qualities and resources and channelizing those with the
perspective of that region’s development in accordance with national and global
development has also to be a plan’s major focus.
2.6 Implementation
Five year plans: Govt. Websites
Financial Administration- Evolution, meaning, Scope and Significance:
Financial administration is associated with development, adaptation, implementation
and augmentation of a relevant financial system. Promotional and regulatory measures
are utilized for strengthening and development of a financial system.
A financial system by and large is comprised of a set of interdependent factors
responsible for the facilitation and regulation of financial flows in an economy.
Such factors include
1) Central banks (RBI in India) and organizations like Securities and Exchange
Board of India
2) Intermediaries like Banking and Non-Banking organizations and other financial
services providers
3) Financial instruments like securities
4) Facilitators like exchanges of stocks or commodities
5) Regulations, laws and Acts.
Fundamental and radical segregation of a financial system generates two
components at large i.e. financial markets and their financial mechanisms along with
their regulatory framework and factors. Further, segregation of a financial market yields
of money market and capital market.
2.7 Monetary and Fiscal Policies
Monetary and fiscal policies pertaining to money (currency) and public accounts
Business Enviornment : 18 are on the one hand
a) Instruments and on the other hand Plan Formulation and
Implementation
b) The determinants.
Meaning thereby that they are tools as well as the benchmarks or measurement
criterion. NOTES
As an instruments they are employed to
a) Influence the performance and behaviour of the fiscal sector and economy
at large
b) Influence sectors of economy or particular industries.As measurement
criterion and determinants these policies and their structures help analyzing
and shaping up
a) Business prospects and
b) Investment decisions in an economy
By influencing (through restructuring or specifically addressing few vital factors)
factors like money supply and budget monetary and fiscal policies may not only can
brighten the business prospects in an economy but also control sudden demand
enhancement because of increased wage rates etc. Another part of their influencing
character is that by influencing for example interest rates and taxes they may encourage
investment and production in certain sectors. This has relation with motivation of such
sectors to adopt certain technologies and production patterns.
2.7.1 Monetary Policy
Monetary policy has an association with instruments and tools used and controlled
by monetary authorities for example Central Bank of a country and Reserve Bank of
India in the case of our country. Reserve Bank of India in association with other financial
institutions and in consultation with the ministry of finance operates by bringing variation
in the cost and availability of credit which has a triggering effect on the demand and
supply of credit in the economy which further effects the nature and the level of economic
activities such as production of goods and services on the one hand and aggregate
demand for those goods and services on the other hand.
2.7.2 Instruments of Monetary Policy
Qualitative as well as quantitative approaches are used as the instruments of
monetary policy.
Quantitative approach focuses on affecting and controlling the quantity of credit
through Bank rates Reserve requirements and Market operations. Bank rate or the
discount rate is the minimum rate at which Reserve Bank of India provides financial
accommodation to commercial banks, positively or negatively which subsequently effects
the demand for credit further influencing the money supply.
A Central Bank, RBI in case of India, also tends or seeks to influence the economy
of the country by increasing or decreasing the money supply through purchase and
sales of gold, foreign exchange, Government securities and company shares.
Maintaining a certain percentage of their deposits in the form of balances with
RBI is a mandatory requirement for commercial banks which may vary as per the
discretion of RBI (such decisions taken within certain framework with the help of Business Enviornment : 19
Plan Formulation and market analysis) hence effecting credit capacity of commercial banks subsequently
Implementation
effecting money supply. Qualitative approach is utilized to influence the direction of the
credit in the economy rather than to control the credit. But it is imperative to suggest
and understand that all the methods and approaches are highly interrelated and sometimes
NOTES
interdependent. It is only a matter of choice (depending upon the indicators of economy)
to effectively start the process through/from one of the points and to steer it through all
others.
2.7.3 Fiscal Policy
Fiscal policy is related to revenue generation (through taxation and other ways)
and expenditure planning by a Government. The tool/instrument for operating the fiscal
policy in Budget which is a plan specific to the levels of as much as it can be in terms of
expressing Government Expenditure and Revenue along with the modes and intentions
suggesting the direction of the economy. Union Budget is presented before the start of
every financial year by the Finance Minister in Parliament.
2.7.4 Properties of Budget
Revenue Receipts and Capital Receipts and Revenue Expenditure and Capital
Check Your Progress Expenditure.
Explain the aspects of The revenue expenditure is related to the current expenditure of the Government
Monetory and Fiscal on administration where as the capital expenditure includes the capital transactions of a
Policy Government. The revenue receipts are comprised of taxes whereas, external aid, income
from public undertakings, income from repayments and other receipts and market loans
constitute the capital receipts.
The fundamental objectives of the budget are growth, stability and social justice.
2.8 Five Year Plans
2.8.1 First Five-Year Plan (1951-1956)

The 1st five year plan was presented by Jawaharlal Nehru, who was the Prime
Minister during that period. It was formulated for the execution of various plans
between1951 to 1956. The Planning Commission was responsible for working out the
plan.
Objectives of the 1st five year plan(1951 to 1956)
The primary aim of the 1st five year plan was to improve living standards of the
people of India. This could be done by making judicious use of India’s natural resources.
The total outlay of the 1st five year plan was worth Rs.2,069crore. This amount was
assigned to different sectors which included: • Industrial sector • Energy, Irrigation •
Transport, Communications • Land rehabilitation • Social services • Development of
agriculture and community • Miscellaneous issues
The target set for the growth in the gross domestic product was 2.1percent every
year. In reality, the actual achieved with regard to gross domestic product was 3.6
percent per annum. This is a clear indication of the success of the 1st five year plan.
Business Enviornment : 20 Some important events that took place during the tenure of the 1st five year plan:
The following Irrigation projects were started during that period: • Mettur Dam • Hirakud Plan Formulation and
Implementation
Dam • Bhakra Dam.
The government had taken steps to rehabilitate the landless workers, whose main
occupation was agriculture. These workers were also granted fund for experimenting NOTES
and undergoing training in agricultural know how in various cooperative institutions. Soil
conservation, was also given considerable importance. The Indian government also Check Your Progress
made considerable effort in improving posts and telegraphs, railway services, road tracks, Explain fundamentals of
civil aviation. Sufficient fund was also allocated for the industrial sector. In addition First Five Year Plan
measures were taken for the growth of the small scale industries. (1951-56)
2.8.2 Second Five-Year Plan (1956–1961)
The second five-year plan focused on industry, especially heavy industry. Unlike
the First plan, which focused mainly on agriculture, domestic production of industrial
products was encouraged in the Second plan, particularly in the development of the
public sector. The plan followed the Mahalanobis model, an economic development
model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. The
plan attempted to determine the optimal allocation of investment between productive
sectors in order to maximise long-run economic growth. It used the prevalent state of
art techniques of operations research and optimization as well as the novel applications
of statistical models developed at the Indian Statistical Institute. The plan assumed a
closed economy in which the main trading activity would be centered on importing
capital goods.
Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela
were established. Coal production was increased. More railway lines were added in
the north east.
The Atomic Energy Commission was formed in 1958 with Homi J. Bhabha as the
first chairman. The Tata Institute of Fundamental Research was established as a research
institute. In 1957 a talent search and scholarship program was begun to find talented
young students to train for work in nuclear power.
The total amount allocated under the second five-year plan in India was Rs. 4,800
crore. This amount was allocated among various sectors: Check Your Progress
i. Power and irrigation Explain fundamentals of
ii. Social services Second Five Year Plan
(1956-61)
iii. Communications and transport
iv. Miscellaneous
v. Target Growth:4.5% Growth achieved:4.0%
2.8.3 Third Five-Year Plan (1961–1966)
The third plan stressed on agriculture and improvement in the production of wheat,
but the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted
the focus towards the Defence industry or Indian army. In 1965–1966, India fought a
[Indo-Pak] War with Pakistan. Due to this there was a severe drought in 1965. The
war led to inflation and the priority was shifted to price stabilisation. The construction of
dams continued. Many cement and fertilizer plants were also built. Punjab began
producing an abundance of wheat. Business Enviornment : 21
Plan Formulation and Many primary schools have been started in rural areas. In an effort to bring
Implementation
democracy to the grassroot level, Panchayat elections have been started and the
states have been given more development responsibilities.
NOTES State electricity boards and state secondary education boards were formed.
States were made responsible for secondary and higher education. State road
Check Your Progress transportation corporations were formed and local road building became a state
Explain fundamentals of responsibility.
Third Five Year Plan Target Growth: 5.6% Actual Growth: 2.4%
(1961-66)
2.8.4 Fourth Five-Year Plan (1969–1974)
At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government
nationalised 14 major Indian banks and the Green Revolution in India advanced
agriculture. In addition, the situation in East Pakistan (now Bangladesh) was becoming
dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took funds
earmarked for the industrial development had to be diverted for the war effort. India
also performed the Smiling Buddha underground nuclear test in 1974, partially in response
Check Your Progress
to the United States deployment of the Seventh Fleet in the Bay of Bengal. The fleet
Explain fundamentals of had been deployed to warn India against attacking West Pakistan and extending the
Fourth Five Year Plan
war.
(1969-74)
Target Growth: 5.7% Actual Growth: 3.3%
2.8.5 Fifth Five-Year Plan (1974–1979)
Stress was by laid on employment, poverty alleviation, and justice. The plan also
focused on self-reliance in agricultural production and defence. In 1978 the newly
elected Morarji Desai government rejected the plan. Electricity Supply Act was enacted
in 1975, which enabled the Central Government to enter into power generation and
Check Your Progress transmission.[citation needed]
Explain fundamentals of The Indian national highway system was introduced and many roads were widened
Fifth Five Year Plan to accommodate the increasing traffic. Tourism also expanded.
(1974-79) Target Growth: 4.4% Actual Growth: 5.0
2.8.6 Sixth Five-Year Plan (1980–1985)
The sixth plan also marked the beginning of economic liberalisation. Price controls
were eliminated and ration shops were closed. This led to an increase in food prices
and an increase in the cost of living. This was the end of Nehruvian socialism and
Rajeev Gandhi was prime minister during this period.
Family planning was also expanded in order to prevent overpopulation. In contrast
Check Your Progress to China’s strict and binding one-child policy, Indian policy did not rely on the threat of
force[citation needed]. More prosperous areas of India adopted family planning more
Explain fundamentals of
rapidly than less prosperous areas, which continued to have a high birth rate. The sixth
Sixth Five Year Plan
five year plan was a great success...
(1980-85)
2.8.7 Seventh Five-Year Plan (1985–1990)
The Seventh Plan marked the comeback of the Congress Party to power. The
plan laid stress on improving the productivity level of industries by upgrading of
technology. Plan Formulation and
Implementation
The main objectives of the 7th five-year plans were to establish growth in areas of
increasing economic productivity, production of food grains, and generating employment.
As an outcome of the sixth five-year plan, there had been steady growth in NOTES
agriculture, control on rate of Inflation, and favourable balance of payments which had
provided a strong base for the seventh five Year plan to build on the need for further
economic growth. The 7th Plan had strived towards socialism and energy production at
large. The thrust areas of the 7th Five year plan have been enlisted below:
i. Social Justice
ii. Removal of oppression of the weak
iii. Using modern technology
iv. Agricultural development
v. Anti-poverty programs
vi. Full supply of food, clothing, and shelter
vii. Increasing productivity of small- and large-scale farmers
viii. Making India an Independent Economy
Based on a 15-year period of striving towards steady growth, the 7th Plan was
focused on achieving the pre-requisites of self-sustaining growth by the year 2000. The
Plan expected a growth in labour force of 39 million people and employment was expected
to grow at the rate of 4 percent per year.
Some of the expected outcomes of the Seventh Five Year Plan India are given
below:
Balance of Payments (estimates): Export – 33,000 crore (US$6 billion), Imports –
(-)54,000crore (US$9.8 billion), Trade Balance – (-)21,000 crore (US$3.8 billion)
Merchandise exports (estimates): 60,653 crore (US$11 billion)
Merchandise imports (estimates): 95,437 crore (US$17.4 billion)
Projections for Balance of Payments: Export – 60,700 crore (US$11 billion), Imports
– (-) 95,400 crore (US$17.4 billion), Trade Balance- (-) 34,700 crore (US$6.3 billion)
Check Your Progress
Explain fundamentals of
Under the Seventh Five Year Plan, India strove to bring about a self-sustained
Seventh Five Year Plan
economy in the country with valuable contributions from voluntary agencies and the
(1985-90)
general populace.
2.8.8 Eighth Five-Year Plan (1992–1997)
1989–91 was a period of economic instability in India and hence no five-year plan
was implemented. Between 1990 and 1992, there were only Annual Plans. In 1991,
India faced a crisis in Foreign Exchange (Forex) reserves, left with reserves of only
about US$1 billion. Thus, under pressure, the country took the risk of reforming the
socialist economy. P.V. NarasimhaRao was the twelfth Prime Minister of the Republic
of India and head of Congress Party, and led one of the most important administrations
in India’s modern history overseeing a major economic transformation and several
incidents affecting national security. At that time Dr.Manmohan Singh launched India’s
Plan Formulation and free market reforms that brought the nearly bankrupt nation back from the edge. It was
Implementation
the beginning of privatisation and liberalisation in India.
Modernization of industries was a major highlight of the Eighth Plan. Under this
NOTES plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning
deficit and foreign debt. Meanwhile India became a member of the World Trade
Organization on 1 January 1995.This plan can be termed as Rao and Manmohan model
of Economic development. The major objectives included, controlling population growth,
poverty reduction, employment generation, strengthening the infrastructure, Institutional
building, tourism management, Human Resource development, Involvement of Panchayat
raj, Nagar Palikas, N.G.O’S and Decentralisation and people’s participation. Energy
was given priority with 26.6% of the outlay. An average annual growth rate of 6.78%
against the target 5.6% was achieved.
To achieve the target of an average of 5.6% per annum, investment of 23.2% of
Check Your Progress the gross domestic product was required. The incremental capital ratio is 4.1.The saving
Explain fundamentals of for invetsment was to come from domestic sources and foreign sources, with the rate of
Eight Five Year Plan domestic saving at 21.6% of gross domestic production and of foreign saving at 1.6% of
(1992-97) gross domestic production.
2.8.9 Ninth Five-Year Plan (1997–2002)
Ninth Five Year Plan India runs through the period from 1997 to 2002 with the
main aim of attaining objectives like speedy industrialization, human development, full-
scale employment, poverty reduction, and self-reliance on domestic resources.
Background of Ninth Five Year Plan India: Ninth Five Year Plan was formulated
amidst the backdrop of India’s Golden jubilee of Independence.
The main objectives of the Ninth Five Year Plan of India are:
i. To prioritize agricultural sector and emphasize on the rural development
ii. To generate adequate employment opportunities and promote poverty reduction
iii. To stabilize the prices in order to accelerate the growth rate of the economy
iv. To ensure food and nutritional security.
v. To provide for the basic infrastructural facilities like education for all, safe
drinking water, primary health care, transport, energy
Check Your Progress vi. To check the growing population increase
Explain fundamentals of vii. To encourage social issues like women empowerment, conservation of certain
Ninth Five Year Plan benefits for the special groups of the society
(1997-2002) viii. To create a liberal market for increase in private investments
During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage
point lower than the target GDP growth of 6.5 per cent.
Check Your Progress 2.8.10 Tenth Five-Year Plan (2002–2007)

Explain fundamentals of i. Attain 8% GDP growth per year.
Tenth Five Year Plan ii. Reduction of poverty rate by 5 percentage points by 2007.
(2002-2007) iii. Providing gainful and high-quality employment at least to the addition to the
labour force.
iv. Reduction in gender gaps in literacy and wage rates by at least 50% by 2007.
v. 20 point program was introduced. Plan Formulation and
Implementation
vi. Target growth:8.1% Growth achieved:7.7%
2.8.11 Eleventh Five-Year Plan (2007–2012)
The eleventh plan has the following objectives: NOTES
i. Income & Poverty
ii. Accelerate GDP growth from 8% to 10% and then maintain at 10% in the
12th Plan in order to double per capita income by 2016–17
iii. Increase agricultural GDP growth rate to 4% per year to ensure a broader
spread of benefits
iv. Create 70 million new work opportunities.
v. Reduce educated unemployment to below 5%.
vi. Raise real wage rate of unskilled workers by 20 percent.
vii. Reduce the headcount ratio of consumption poverty by 10 percentage
points.
viii. Education
ix. Reduce dropout rates of children from elementary school from 52.2% in
2003–04 to 20% by 2011–12
x. Develop minimum standards of educational attainment in elementary
school, and by regular testing monitor effectiveness of education to ensure
quality
xi. Increase literacy rate for persons of age 7 years or above to 85%
xii. Lower gender gap in literacy to 10 percentage point
xiii. Increase the percentage of each cohort going to higher education from
the present 10% to 15% by the end of the plan.
xiv. Health
xv. Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per
1000 live births
xvi. Reduce Total Fertility Rate to 2.1
xvii. Provide clean drinking water for all by 2009 and ensure that there are no
slip-backs
xviii. Reduce malnutrition among children of age group 0–3 to half its present
level
xix. Reduce anaemia among women and girls by 50% by the end of the plan
xx. Women and Children
xxi. Raise the sex ratio for age group 0–6 to 935 by 2011–12 and to 950 by
2016–17
xxii. Ensure that at least 33 percent of the direct and indirect beneficiaries of
all government schemes are women and girl children
xxiii. Ensure that all children enjoy a safe childhood, without any compulsion
to work
xxiv. Infrastructure
xxv. Ensure electricity connection to all villages and BPL households by 2009 Business Enviornment : 25
Plan Formulation and and round-the-clock power.
Implementation
xxvi. Ensure all-weather road connection to all habitation with population 1000
and above (500 in hilly and tribal areas) by 2009, and ensure coverage of
all significant habitation by 2015
NOTES
xxvii. Connect every village by telephone by November 2007 and provide
broadband connectivity to all villages by 2012
xxviii. Provide homestead sites to all by 2012 and step up the pace of house
construction for rural poor to cover all the poor by 2016–17
xxix. Environment
xxx. Increase forest and tree cover by 5 percentage points.
Check Your Progress xxxi. Attain WHO standards of air quality in all major cities by 2011–12.
Explain fundamentals of xxxii. Treat all urban waste water by 2011–12 to clean river waters.
Eleventh Five Year Plan xxxiii. Increase energy efficiency by 20%
(2007-2012) xxxiv. Target growth:8.33% Growth achieved:7.9%
2.8.12 Twelth Five-Year Plan (2012–2017)
This article about government in India is a stub. You can help Wikipedia by
expanding it.
12th Five Year Plan of the Government of India (2012-17) is under drafting which
aims at the growth rate at 9.56%.
With the deteriorating global situation, the Deputy Chairman of the Planning
Commission Mr Montek Singh Ahluwalia has said that achieving an average growth
rate of 9 per cent in the next five years is not possible. The Final growth target has been
set at 8% by the endorsement of plan at the National Development Council meeting
held in New Delhi.
“It is not possible to think of an average of 9 per cent (in 12th Plan). I think
somewhere between 8 and 8.5 per cent is feasible,” Mr Ahluwalia said on the sidelines
of a conference of State Planning Boards and departments. The approached paper for
the 12th Plan, approved, talked about an annual average growth rate of 9 per cent.
“When I say feasible...that will require major effort. If you don’t do that, there is
no God given right to grow at 8 per cent. I think given that the world economy deteriorated
very sharply over the last year...the growth rate in the first year of the 12th Plan (2012-
13) is 6.5 to 7 per cent.”
He also indicated that soon he would share his views with other members of the
Commission to choose a final number (economic growth target) to put before the country’s
NDC for its approval.
Poverty The government intends to reduce poverty by 10 per cent during the 12th
Check Your Progress Five-Year Plan. Mr Ahluwalia said, “We aim to reduce poverty estimates by 2 per cent
Explain fundamentals of annually on a sustainable basis during the Plan period.”
Twelth Five Year Plan According to the Tendulkar methodology, the percentage of population below the
(2012-2017)
poverty line was 29.8 per cent at the end of 2009-10. This number includes 33.8 per
cent in the rural areas and 20.9 per cent in the urban areas.
Earlier, addressing a conference of State Planning Boards and Planning Plan Formulation and
Implementation
departments, he said the rate of decline in poverty doubled during the 11th Plan. The
commission had said, while using the Tendulkar poverty line, the rate of reduction in the
five years between 2004-05 and 2009-10, was about 1.5 percentage points each year,
NOTES
which was twice that when compared to the period between 1993-95 to 2004-05.
Sources: L. N. Dash (2000). World bank and economic development of India.
APH Publishing.p. 375.ISBN 81-7648-121-1.
2.9 Summary
This chapter is about Government policies and its framework, which moved In-
dian Economy for decades after post Independence. These policies addressed Eco-
nomic inequalities, and making India Self reliant and reducing unemployment. The gov-
ernment made monetary policy, Fiscal Policy and other regulatory bodies for making it
possible. Post Independence Policymakers had taken example from various other coun-
tries and moved towards the mixed kind of Economy. This Mixed Economy Model has
included Planning Commission for the fulfillment of the goals and removing economic
problems of the nation. This chapter discussed about various planning commissions and
their goals and objective, the way they change focus from time to time as per the
requirement.
2.10 Key Terms
Plan : A plan is typically any diagram or list of steps with timing and resources,
used to achieve an objective. See also strategy. It is commonly understood as a temporal
set of intended actions through which one expects to achieve a goal. For spatial or
planar topologic or topographic sets seemap.
Plans can be formal or informal:
Structured and formal plans, used by multiple people, are more likely to occur
in projects, diplomacy, careers, economic development, military campaigns,
combat, sports, games, or in the conduct of other business. In most cases,
the absence of a well-laid plan can have adverse effects: for example, a non-
robust project plan can cost the organization time and money.
Informal or ad-hoc plans are created by individuals in all of their pursuits.
The most popular ways to describe plans are by their breadth, time frame, and
specificity; however, these planning classifications are not independent of one another.
For instance, there is a close relationship between the short- and long-term categories
and the strategic and operational categories.
It is common for less formal plans to be created as abstract ideas, and remain in
that form as they are maintained and put to use. More formal plans as used for business
and military purposes, while initially created with and as an abstract thought, are likely
to be written down, drawn up or otherwise stored in a form that is accessible to multiple Business Enviornment : 27
Plan Formulation and people across time and space. This allows more reliable collaboration in the execution
Implementation
of the plan.
Planning
NOTES The term planning implies the working out of sub-components in some degree of
elaborate detail. Broader-brush enunciations of objectives may qualify as metaphorical
roadmaps. Planning literally just means the creation of a plan; it can be as simple as
making a list. It has acquired a technical meaning, however, to cover the area of
government legislation and regulations related to the use of resources.
Planning can refer to the planned use of any and all resources, as in the succession
of Five-Year Plans through which the government of the Soviet Union sought to develop
the country. However, the term is most frequently used in relation to planning for the use
of land and related resources, for example in urban planning, transportation planning,
etc.
Thus, in a governmental context, "planning" without any qualification is most likely
to mean the regulation of land use. See also zoning.
Source: http://en.wikipedia.org/wiki/Plan
Economic Policy : Economic policy refers to the actions that governments take
in the economic field. It covers the systems for setting interest rates and government
budget as well as the labor market, national ownership, and many other areas of
government interventions into the economy.
Such policies are often influenced by international institutions like the International
Monetary Fund or World Bank as well as political beliefs and the consequent policies of
parties.
Source: http://en.wikipedia.org/wiki/Economic_policy
Economic growth : Economic growth is the increase in the amount of the goods
and services produced by an economy over time. It is conventionally measured as the
percent rate of increase in real gross domestic product, or real GDP. Growth is usually
calculated in real terms, i.e., inflation-adjusted terms, in order to obviate the distorting
effect of inflation on the price of the goods produced. In economics, "economic growth"
or "economic growth theory" typically refers to growth of potential output, i.e., production
at "full employment".
As an area of study, economic growth is generally distinguished from development
economics. The former is primarily the study of how countries can advance their
economies. The latter is the study of the economic aspects of the development process
in low-income countries. See also Economic development.
Since economic growth is measured as the annual percent change of gross domestic
product (GDP), it has all the advantages and drawbacks of that measure.
Source: http://en.wikipedia.org/wiki/Economic_growth
Economic Inequalities : Economic inequality (also described as the gap between
rich and poor, income inequality, wealth disparity, or wealth and income differences) is
the difference between individuals or populations in the distribution of their assets, wealth,
or income. The term typically refers to inequality among individuals and groups within a
society, but can also refer to inequality among countries. The issue of economic inequality Plan Formulation and
Implementation
involves equity, equality of outcome,equality of opportunity, and life expectancy. Opinions
differ on the utility of inequality and its effects. Some studies consider it beneficial, while
others consider it a growing social problem. While some inequality promotes investment,
NOTES
some scholars say too much inequality is destructive.[4] Income equality can be an
important ingredient in promoting and sustaining long term growth. Statistical studies
comparing inequality to year-over-year economic growth were inconclusive until 2011
when income equality was found to be more determinate of the duration of countries'
growth spells than free trade, low government corruption, foreign investment, or low
foreign debt. Economic inequality varies between societies, historical periods, economic
structures and systems (for example, capitalism or socialism), and between individuals'
abilities to create wealth. The term can refer to cross sectional descriptions of the income
or wealth at any particular period, and to the lifetime income and wealth over longer
periods of time.[9] There are various numerical indices for measuring economic inequality.
A prominent one is the Gini coefficient, but there are also many other methods.
Source: https://en.wikipedia.org/wiki/Economic_inequality
Modernization : Modernization or modernisation refers to a model of an
evolutionary transition from a 'pre-modern' or 'traditional' to a 'modern' society. The
teleology of modernization is described in social evolutionism theories, existing as a
template that has been generally followed by societies that have achieved modernity.
Historians link modernization to the processes of urbanization and industrialisation,
as well as to the spread of education. As Kendall (2007) notes, "Urbanization accompanied
modernization and the rapid process of industrialization." In sociological critical theory,
modernization is linked to an overarching process of rationalisation. When modernization
increases within a society, the individual becomes that much more important, eventually
replacing the family or community as the fundamental unit of society. Modernization
theory and history have been explicitly used as guides for countries eager to develop
rapidly, such as China. Indeed, modernization has been proposed as the most useful
framework for World history in China, because as one of the developing countries that
started late, "China's modernization has to be based on the experiences and lessons of
other countries.". Instead of being dominated by tradition, societies undergoing the process
of modernization typically arrive at governance dictated by abstract principles. Traditional
religious beliefs and cultural traits usually becomes less important as modernization takes
hold.
Source: https://en.wikipedia.org/wiki/Modernization
Five Year Plans : The economy of India is based in part on planning through its
five-year plans, which are developed, executed and monitored by the Planning
Commission of India. The eleventh plan completed its term in March 2012 and the
twelfth plan is currently underway. Prior to the fourth plan, the allocation of state resources
was based on schematic patterns rather than a transparent and objective mechanism,
which led to the adoption of the Gadgil formula in 1969. Revised versions of the formula
have been used since then to determine the allocation of central assistance for state
plans.
The first Indian Prime Minister, Jawaharlal Nehru presented the kushagra nijhara. Business Enviornment : 29
Plan Formulation and first five-year plan to the Parliament of India and needed urgent attention. The total
Implementation
planned budget of Rs. 2069 crore was allocated to seven broad areas: irrigation and
energy (27.2 percent), agriculture andcommunity development (17.4 percent), transport
and communications (24 percent), industry (8.4 percent), social services (16.64 percent),
NOTES
land rehabilitation (4.1 percent), and for other sectors and services (2.5 percent). The
most important feature of this phase was active role of state in all economic sectors.
Such a role was justified at that time because immediately after independence, India
was facing basic problems-deficiency of capital and low capacity to save.
The target growth rate was 2.1% annual gross domestic product (GDP) growth;
the achieved growth rate was 3.6%. The net domestic product went up by 15%. The
monsoon was good and there were relatively high crop yields, boosting exchange
reserves and the per capita income, which increased by 8%. National income increased
more than the per capita income due to rapid population growth. Many irrigation projects
were initiated during this period, including the Bhakra Dam and Hirakud Dam. The
World Health Organization, with the Indian government, addressed children's health
and reduced infant mortality, indirectly contributing to population growth.
At the end of the plan period in 1956, five Indian Institutes of Technology (IITs)
were started as major technical institutions. The University Grant Commission was set
up to take care of funding and take measures to strengthen the higher education in the
country. Contracts were signed to start five steel plants, which came into existence in
the middle of the second five-year plan. The plan was successful.
Source: http://en.wikipedia.org/wiki/Five-Year_plans_of_India
Monetary and Fiscal Policies : Fiscal policy and monetary policy are the two
tools used by the State to achieve its macroeconomic objectives. While the main objective
of fiscal policy is to increase the aggregate output of the economy, the main objective of
the monetary policies is to control the interest and inflation rates. The celebrated IS/
LM model is one of the models used to depict the effect of interaction on aggregate
output and interest rates. The fiscal policies have an impact on the goods market and
the monetary policies have an impact on the asset markets and since the two markets
are connected to each other via the two macrovariables - output and interest rates, the
policies interact while influencing the output or the interest rates.
Traditionally, both the policy instruments were under the control of the national
governments. Thus traditional analyses made with respect to the two policy instruments
to obtain the optimum policy mix of the two to achieve macroeconomic goals as the two
were perceived to aim at mutually inconsistent targets. But in recent years, owing to
the transfer of control with respect to monetary policy formulation to Central Banks,
formation of monetary unions (like European Monetary Union formed via the Stability
and Growth Pact) and attempts being made to form fiscal unions,there has been a
significant structural change in the way in which fiscal-monetary policies interact.
There is a dilemma as to whether these two policies are complementary, or act as
substitutes to each other for achieving macroeconomic goals. Policy makers are viewed
to interact as strategic substitutes when one policy maker's expansionary (contractionary)
Business Enviornment : 30 policies are countered by another policy maker's contractionary (expansionary) policies.
For example: if the fiscal authority raises taxes or cuts spending, then the monetary Plan Formulation and
authority reacts to it by lowering the policy rates and vice versa. If they behave as Implementation
strategic complements,then an expansionary (contractionary) policy of one authority is
met by expansionary (contractionary) policies of other.
NOTES
The issue of interaction and the policies being complement or substitute to each
other arises only when the authorities are independent of each other. But when, the
goals of one authority is made subservient to that of others, then the dominant authority
solely dominates the policy making and no interaction worthy of analysis would arise.Also,
it is worthy to note that fiscal and monetary

1. Explain the nature and significance of Indian Economy.
2. What is mixed economy?
3. Write a note on the present and prospective growth strategy of Indian economy.
4. Explain the structure of Indian industry.
5. Elaborate the challenges faced by small scale industry in India.
6. What is ‘liberalization, privatization and globalization’?
7. Explain the impact of LPG on Indian economy.
8. What are the objectives of economic planning in India? Explain its nature.
9. Explain the five year plans in India from 1951 to the recent plan.

and Co., 2009
Hill, 2007
2010
Industrial Policy Resolutions,
1956
UNIT 3 INDUSTRIAL POLICY
RESOLUTIONS, 1956
NOTES
Structure
3.0 Introduction
3.1 Unit Objectives
3.2 Industrial Policy Resolutions, 1956
3.3 The Industries (Development and Regulation) Act, 1951 (IDRA)
3.4 Public Private Partnership
3.4.1 Umbrella definition of PPPs in India
3.4.2 Essential Conditions in the Definition
3.4.3 Other Good Practices
3.4.4 Exclusionary List
3.5 The PPP Process and Examples
3.5.1 Project Preparation
3.5.2 Procurement
3.5.3 Development
3.5.4 Operations
3.5.5 Privatization and Disinvestment
3.6 MSME
3.7 Sick Industrial Companies Act, 1985
3.8 Company Law
3.9 MRTP-ACT
3.10 Competition Act, 2002
3.11 Summary
3.12 Key Terms
3.13 Questions & Exercises
1.0 Introduction
This chapter has discussed various Laws and regulatory acts, which a firm must
follow. These laws make the business environment just and level playing field for all
players. The government policies for Industries, Public-Private Partnership and its
definition and chapter also include acts like sick firms, MRTP and competition.
Industrial Policy Resolutions,
3.1 Unit Objectives 1956
The major objective of this Unit is to familiarize the readers with few important
NOTES
acts, their definitions and provisions so as to enable them to visualize that how these are
important for the business organizations to understand these things so as to steer the
businesses well.
3.2 Industrial Policy Resolutions, 1956

The Government of India set out in their Resolution dated 6 April, 1948 the policy
which they proposed to pursue in the industrial field. The Resolution emphasized the
importance to the economy of securing a continuous increase in production and its
equitable distribution, and pointed out that the State must play of progressively active
role in the development of Industries. It laid down that besides arms and ammunition,
atomic energy and railway transport, which would be the monopoly of the Central
Government, the State would be exclusively responsible for the establishment of new
undertakings in six basic industries-except where, in the national interest, the State
itself found it necessary to secure the cooperation of private enterprise. The rest of the
industrial field was left open to private enterprise though it was made clear that the
State would also progressively participate in this field.
Eight years have passed since this declaration on industrial policy. These eight
years have witnessed many important changes and developments in India. The
constitution of India has been enacted, guaranteeing certain Fundamental Rights and
enunciating Directive Principles of State Policy. Planning has proceeded on an organized
basis, and the First Five Year Plan has recently been completed. Parliament has accepted
the socialist pattern of society as the objective of social and economic policy. These
important developments necessitate a fresh statement of industrial policy, more
particularly as the Second Five Year Plan will soon be placed before the country. This
policy must be governed by the principles laid down in the Constitution, the objective of
socialism, and the experience gained during these years.
The Constitution of India, in its preamble, has declared that it aims at securing for
all its citizens:
JUSTICE, Social, economic and political;
LIBERTY of thought, expression, belief, faith and worship;
EQUALITY of status and opportunity; and to promote among them all;
FRATERNITY assuring the dignity of the individual and the unity of the Nation”.
In its Directive Principles of State Policy, it is stated that-
“The State shall strive to promote the welfare of the people by securing and
protecting as effectively as it may a social order in which justice, social economic and
political, shall inform all the institutions of the national life.” Business Enviornment : 33
Industrial Policy Resolutions, Further that- “The State shall, in particular, direct its policy towards securing-
1956
(a) that the citizens, men and women equally, have the right to an adequate
means of livelihood;
NOTES (b) that the ownership and control of the material resources of the community
are so distributed as best to sub serve the common good;
(c) that the operation of economic system does not result in the concentration of
wealth and means of production to the common detriment;
(d) that there is equal pay for equal work for both men and women;
(e) that the health and strength of workers, men and women, the tender age of
children are not abused and that citizens are not forced by economic necessity
to enter vocations unsuited to their age or strength;
(f) that childhood and youth are protected against exploitation and against moral
and material abandonment.”
These basic and general principles were given a more precise direction when
Parliament accepted in December, 1954, the socialistic pattern of society as the objective
of social and economic policy. Industrial policy, as other policies, must therefore, be
governed by these principles and directions. In order to realize this objective, it is essential
to accelerate the rate of economic growth and to speed up industrialization and, in
particular, to develop heavy industries and machine making industries, to expand the
public sector, and to build up a large and growing cooperative sector.
These provide the economic foundations for increasing opportunities for gainful
employment and improving living standards and working conditions for the mass of the
people. Equally, it is urgent; to reduce disparities in income and wealth exist, today, to
prevent private monopolies and concentration of economic power in different fields in
the hands of small numbers of individuals. Accordingly, the State will progressively
Check Your Progress
assume a predominant and direct responsibility for setting up new industrial undertakings
Explain the basic points of
and for developing transport facilities. It will also undertake State trading on an increasing
preamble of constitution of
scale. At the same time, as an agency for planned national development, in the context
India
of country’s expanding economy, the private sector will have the opportunity to develop
Explain the fundamental and expand. The principle of cooperation should be applied whenever possible and a
frame of Industrial Policy steadily increasing proportion of the activities of the private sector developed along
Resolutions of 1956 cooperative lines.
(Source: http://eaindustry.nic.in/handbk/chap001.pdf)
3.3 The Industries (Development and Regulation) Act,

1951 (IDRA)
Growth of the industrial sector at a higher rate and on a sustained basis is a major
determinant of a country’s overall economic development. In this regard, the Government
of India has issued industrial policies, from time to time, to facilitate and foster the
growth of Indian industry and maintain its productivity and competitiveness in the world
market.
In order to provide the Central Government with the means to implement its
industrial policies, several legislations have been enacted and amended in response to Industrial Policy Resolutions,
1956
the changing environment. The most important being the Industries (Development and
Regulation) Act, 1951 (IDRA) which was enacted in pursuance of the Industrial Policy
Resolution, 1948. The Act was formulated for the purpose of development and regulation
NOTES
of industries in India by the Central Government.
The main objectives of the Act is to empower the Government:- (i) to take necessary
steps for the development of industries; (ii) to regulate the pattern and direction of
industrial development; (iii) to control the activities, performance and results of industrial
undertakings in the public interest. The Act applies to the ‘Scheduled Industries’ listed
in the First Schedule of the Act. However, small scale industrial undertakings and ancillary
units are exempted from the provisions of this Act.
The Act is administered by the Ministry of Industries & Commerce through its
Department of Industrial Policy & Promotion (DIPP). The DIPP is responsible for
formulation and implementation of promotional and developmental measures for growth
of the industrial sector. It monitors the industrial growth and production, in general, and
selected industrial sectors, such as cement, paper and pulp, leather, tyre and rubber,
light electrical industries, consumer goods, consumer durables, light machine tools, light
industrial machinery, light engineering industries etc., in particular. It is also responsible
for facilitating and increasing the foreign direct investment (FDI) inflow into the country
as well as for encouraging acquisition of technological capability in various sectors of
the industry.
The various provisions of the Act are :
Establishment of a ‘Central Advisory Council’ for the purpose of advising the
Central Government on matters concerning the development of the industries,
making of any rules and any other matter connected with the administration of the
Act. Its members shall consist of representatives of the owners of industrial
undertaking, employees, consumers, primary suppliers, etc.
Establishment of a ‘Development Council’ for the purpose of development of any
scheduled industry or group of scheduled industries. This council shall consist of
the members representing the interests of the owners, employees, consumers,
etc. and persons having special knowledge of matters relating to the technical or
other aspects of the industries.
The development council shall perform the following functions assigned to it by
the Central Government:- (i) recommending targets for production, co-ordinating
production programmes and reviewing progress from time to time. (ii) suggesting
norms of efficiency with a view to eliminating waste, obtaining maximum production,
improving quality and reducing costs. (iii) recommending measures for securing
the fuller utilisation of the installed capacity and for improving the working of the
industry, particularly of the less efficient units. (iv) promoting arrangements for
better marketing and helping in the devising of a system of distribution and sale of
the produce of the industry which would be satisfactory to the consumer. (v)
promoting the training of persons engaged or proposing engagement in the industry
and their education in technical or artistic subjects relevant thereto, etc.
The development council shall prepare and transmit to the Central Government
and the advisory council a report (annually) setting out what has been done in the
Industrial Policy Resolutions, discharge of its functions during the financial year last completed. The report shall
1956
include a statement of the accounts of the development council for that year,
together with a copy of any report made by the auditors on the accounts.
The IDRA empowers the Central Government to regulate the development of
NOTES
industries by means of licensing with suitable exemptions as decided by the
Government. Accordingly, the entry into a business or the expansion of an existing
business may be regulated by licensing. A licence is a written permission from the
Government to an industrial undertaking to manufacture specified articles included
in the Schedule to the Act. It contains particulars of the industrial undertaking, its
location, the articles to be manufactured, its capacity on the basis of the maximum
utilisation of plant and machinery, and other appropriate conditions which are
enforceable under the Act.
If an application for licence is approved and further clearance ( such as that of
foreign collaboration and capital goods import) are not involved and no other prior
conditions have to be fulfilled, an industrial licence is issued to the applicant. In
other cases, a letter of intent is issued, which conveys the intention of the
Government to grant a licence subject to the fulfilment of certain conditions such
as approval of foreign investment proposal, import of capital goods, etc.
The Government may order for investigation before the grant of licence to an
industrial undertaking. It can make a full and complete investigation if it is of the
opinion that in the respect of any schedule industry or undertaking, there has been
or is likely to be:- (i) a substantial fall in the volume of output; or (ii) a marked
deterioration in the quality of output or an unjustifiable rise in the price of the
output. Also, if it is of the opinion that any industrial undertaking is being managed
in a manner highly detrimental to the scheduled industry concerned or to the public
interest, it orders investigation.
As a result of such investigations, the Government is empowered to issue directions
to the industrial undertaking for all or any of the following purposes:-
Regulating the production of output by the industrial undertaking and fixing
the standards of production;
Requiring the industrial undertaking to take such steps as the Central
Government may consider necessary to stimulate the development of the
industry to which the undertaking relate.
Prohibiting the industrial undertaking from resorting to any act or practice
which might reduce its production, capacity or economic value;
Controlling the prices, or regulating the distribution, of an output for securing
its equitable distribution and availability at fair prices.
The Act also provides that any such directions may be issued by the Central
Check Your Progress
Government at any time when a case relating to any industrial undertaking is
Explain the salient features
under investigation. These directions shall have effect until they are varied
of IDRA 1951
or revoked by the Central Government.
The power of control entrusted to the Central Government under the Act extends
to that of the take over of the management of the whole or any part of an industrial
undertaking which fails to comply with any of the directions mentioned above.
The Government can also take over the management of an undertaking which is
being managed in a manner highly detrimental to the scheduled industry concerned Industrial Policy Resolutions,
1956
or to the public interest. Further, the Central government can take over the
management of industrial undertaking owned by a company under liquidation, with
the permission of the High Court, if the Government is of the opinion that the
NOTES
running or restarting the operations of such an undertaking is necessary for the
maintaining or increasing the production, supply or distribution in the public interest.
Until liberalisation, the industrial licence was required for the establishment of a
new industrial undertaking, manufacturing of a new item by an existing undertaking,
change of location of an industry, substantial expansion of existing capacity and for all
other purposes. But the new industrial policy liberalised this and exempted many industries
from obtaining industrial licence. In today’s scenario, only 6 categories of industries
require industrial licensing under the Industries (Development and Regulation) Act,
1951 (IDRA). Such industries file an Industrial Entrepreneur Memoranda (IEM) with
the Secretariat of Industrial Assistance (SIA),Department of Industrial Policy and
Promotion to obtain an acknowledgement.
(Source: http://business.gov.in/legal_aspects/industries_act.php dipp.nic.in/English/
Policies/Industries_act1951.pdf)
3.4 Public Private Partnership
3.4.1 Umbrella Definition of PPPs in India

PPP means an arrangement between a government or statutory entity or
government owned entity on one side and a private sector entity on the other, for the
provision of public assets and/ or related services for public benefit, through investments
being made by and/or management undertaken by the private sector entity for a specified
time period, where there is a substantial risk sharing with the private sector and the
private sector receives performance linked payments that conform (or are benchmarked)
to specified, pre-determined and measurable performance standards.
3.4.2 Essential Conditions in the Definition
1. Arrangement with Private Sector Entity: The asset and/or service under an
arrangement will be provided by the Private Sector Entity to the public.
2. Public asset or service for public benefit: Has the element of facilities/ services being
provided by the Government as a sovereign to its people. To better reflect this
intent, two key concepts are elaborated below:
(a) ‘Public Services’ are those services that the State is obligated to provide to
its citizens (towards meeting the socio-economic objectives) or where the
State has traditionally provided the services to its citizens. For example, Check Your Progress
provision of security, law and order, electricity, water, etc. to the citizens. Explain Public Private
(b) ‘Public Asset’ is that asset the use of which is inextricably linked to the Partnership alongwith the
delivery of a Public Service. For example, public road which is linked to essential conditions in its
public transportation or those assets that utilize or integrate sovereign assets definitions
to deliver Public Services. For example, right of way on highways, shore-
land of about 0.5 km abutting the ocean, or use of river / water bodies, etc.
Note : Ownership by Government need not necessarily imply that it is a
Industrial Policy Resolutions, PPP. For example, a captive jetty is not a PPP even though it uses a sovereign
1956
asset, while a common user port is a PPP as in the latter case the service is
provided for use by public.
NOTES 3. Investments being made by and/or management undertaken by the private sector
entity: It provides for both investment and non-investment PPPs, which is also the
international practice. By broad basing the definition, India will gain access to a
plethora of PPPs that focus on efficiency to deliver quality services to the public.
4. Operations or management for a specified period: Provides an element of time
period after which the arrangement with the private sector entity comes to a
closure. Hence, the arrangement is not in perpetuity.
5. Substantial risk sharing with the private sector: It is typically specified to differentiate
PPPs from mere outsourcing contracts. For example, a facility service contract is
also an outcome based reward contract but not a PPP.
6. Performance linked payments: It is to provide central focus on performance and
not merely provision of facility or service. A mere deferred payment contract
should not get qualified as a PPP.
7. Conformance to performance standards: It is to provide a strong element of service
delivery aspect and the concepts of quality and compliance to pre-determined and
measurable standards to be specified by the sponsoring authority.
3.4.3 Other Good Practices
The above definition puts the essential conditions for an arrangement to be
designated as PPP. There are several desirable conditions or ‘good practices’ which
can be prescribed for PPPs.
a. Allocation of risks in an optimal manner to the party best suited to manage
the risks;
b. Private sector entity receives cash flows for their investments in and/or
management of the PPP either through a performance linked fee payment
structure from the government entity and/or through user charges from the
consumers of the service provided;
c. Generally a long term arrangement (20-25 years) between the parties but
can be shorter term dependent for instance on the sector or focus of PPP,
for example, a management contract focusing on select operations and
maintenance functions of a water distribution network; Government of India
Discussion Note
d. Incentive and penalty based structures in the arrangement so as to ensure
that the private sector is benchmarked against service delivery;
e. Outcomes of the PPP are normally pre-defined as output parameters rather
than technical specifications for assets to be built, though some minimum
technical specifications might be identified; for example, an outcome parameter
might be “the project must provide 24*7 water supply of a certain water
quality standard to the consumer base”, rather than identifying the size and
capacity of treatment plants etc. This would leave room for innovation and
technology transfer in project execution / implementation by the private sector
entity, being one of the drivers.
3.4.4 Exclusionary list Industrial Policy Resolutions,
1956
For sake of clarity and common understanding, the following types of arrangements
shall not be construed as PPPs:
Any Engineering Procurement Construction (EPC) contract, whether NOTES
payments are deferred or on percentage completion of work or other terms,
and where the management or operations and maintenance of the asset is
not retained by the private sector after three years from completion of
construction;
Any arrangement for supply of goods or services for a period of up to three
years;
Any arrangement or contract that only provides for a hire or rent or lease of
an asset without any performance obligations and other essential features of
a PPP.
Source: http://pppinindia.com/pdf/ppp_definition_approach_paper.pdf
3.5 The PPP Process and Examples
3.5.1 Project Preparation

Realistic and robust traffic / market assessment studies are an important step in
the project preparation stage for a PPP project. Such assessments ensure bids submitted
by interested private entities are well informed and realistic and the overall capacity
proposed for a project is optimum. They also ease the pressure during the operations
phase since the operator is not exposed to very divergent demand and corresponding
revenue risks.
Examples of PPPs where problems were encountered:
In the Delhi Gurgaon Expressway project, NHAI relied on an outdated traffic
study. Thus, the actual traffic volume grossly outnumbered the projections from the
very beginning of commercial operations. In fact as soon as the expressway was opened
to traffic, the unexpected high number of vehicles led to heavy queuing at the toll booths
and delays in traversing the stretch. However, timely action and necessary measures
by authorities and the Concessionaire improved conditions.
Key Risks Triggered: Operation Risk
Similarly, in the Gangavaram Port project, realistic traffic projections were not
prepared thus leading to speculative bids. The government of Andhra Pradesh had to
reject the bids and the process was launched again. This could have been avoided if
robust traffic projections had been prepared and shared with the bidders. The launch of
the bid process delayed the commencement of the port development.
Key Risks Triggered: Time and Cost Overrun Risks
The environment in which a project will be developed and will have to operate has
an important bearing on the progress of PPPs. Due diligence studies – technical and
legal are essential to ensure the smooth progress of a project through the project life-
cycle. Business Enviornment : 39
Industrial Policy Resolutions, 3.5.2 Procurement
1956
Bid evaluation criteria need to be simple and robust so that capable entities are
identified for the project and at the same time bids are not speculative. Speculative bids
have the potential to derail a project during the operations stage if the private entity is
NOTES
unable to sustain its overstated commitments. Ambiguities in the bid criteria, on the
other hand, can lead to disputes between the private and public entity during the operations
stage.
Examples of PPPs where problems were encountered
In the Gangavaram port project, the first round of tendering had several evaluation
parameters that were working at cross purposes and encouraged speculative bidding.
The bid criteria gave separate weights for the Minimum Guaranteed Amount, revenue
share and investment commitments. Thus larger commitments, even though unrealistic,
could have lead to higher scores. While the government eventually decided to terminate
the process, this could have resulted in an unsustainable project.
Key Risks Triggered: Default Risk, Termination Risk
In the Nhave Sheva Integrated Container Terminal, the bid evaluation criterion of
the highest NPV of royalty payment was simple but insufficient. The lack of a
methodology to assess the royalty payout to the licensor and the problems arising from
the interaction of the royalty with the tariff level created a number of issues in the
subsequent operations phase.
3.5.3 Development
The land acquisition process for PPP projects is no doubt the most challenging
predevelopment activity in India. In most cases, the government commits provision of
land free from encumbrances for the project before actually completing the necessary
formalities.
Examples of PPPs where problems were encountered
In the Delhi Gurgaon expressway project, the government committed to the
promoters for providing a substantial area of land, prior to actually acquiring the land.
Due to the thickly populated surrounding areas of the expressway, there were certain
pockets of land that were difficult to acquire. This exposed the government to the risk
of not providing the land within reasonable time impacting the overall schedule of the
project. It would have been better if uncontrollable risks such as these were addressed
before the project procurement stage itself to ensure smooth functioning of the project.
This could have been achieved by completing the land acquisition process prior to the
project procurement process itself.
Key Risks Triggered: Land acquisition risk, Time and Cost Overruns Risks
Similarly for the Mumbai Metro, the government committed that the land for the
project would be procured as per the land procurement schedule provided in the
agreement. However, this land was under private ownership and at times under dispute.
This exposed the government to the risk of land not being available thereby resulting in
inordinate delays in commencement of construction of the project. While this issue was
eventually resolved, it would have been a better option for the government to have dealt
Business Enviornment : 40 with it prior to signing of the concession agreement.
3.5.4 Operations Industrial Policy Resolutions,
1956
PPP projects require the private sector to operate in a space where traditionally
the public sector is dominant and in some cases solely responsible. In this context, it is
important for an enabling operating environment to be created for the private sector to
NOTES
function optimally.
Examples of PPPs to be emulated
In the Amritsar Inter-state Bus Terminal project, the government took the necessary
steps to create a favorable environment so that the concessionaire’s revenue streams
are not at risk. The government issued notifications to the effect that all intercity buses
would be required to pickup and drop off passengers at the new Inter City Bus Terminal.
Key Risks Managed Better: Revenue Risk
Similarly, in the Latur water supply project, a clearly defined tariff and metering
policy was established, prior to the bidding process, to allow the bidders to quantify the
tangible benefits from undertaking the project.
Key Risks Managed Better: Policy risk, Revenue Risk
Source: http://www.pppinindia.com /NPBCP_images /PDFs /PPP%
20Compendium% 20of%20Case% 20studies% 20(3).pdf
3.5.5 Privatization and Disinvestment
Privatisation has different nomenclature in different countries like ‘disinvestment’,
‘peopalisation’, ‘popular capitalism’, ‘denationalisation’, ‘prioritisation’, ‘industrial
transition’, ‘economic democratisation’, ‘partners in development,’ ‘dis-incorporation’,
‘transformation and restructuring’. The words privatisation and disinvestment are often
used interchangeably. Disinvestment leads to privatisation when the Government held
equity is reduced to a level when the company no longer remains a Government company.
Policymakers, be it in the Administrative Ministries or in the State Governments,
occasionally face a dilemma. They are often convinced about the merits of Privatisation,
but do not know how to implement it. The enormous outpouring of literature on
Privatisation, the dramatic success of privatisation in a large number of diverse countries,
and the economic realities of excessive burden of overstretched public sector in their
States, have convinced them to try privatisation.
Yet to most of them, the process of implementing privatisation is often shrouded in
mystery. This fear of the unknown often discourages them from taking the first step.
They are often confronted with a number of questions like which Public Sector
Enterprises should be taken up for disinvestment, which method of disinvestment should
be followed, how to disinvest to get the best realization and optimise on the objectives,
how to prepare documents etc. This seems difficult, particularly because of the diverse
nature of PSEs. Though a group of international practitioners and advisors in the art
and science of privatization have developed in the West i.e. lawyers, bankers, accountants,
business consultants, communicators and the like, with their large body of accumulated
experience and expertise, which is largely related to the Western economies, not much
is available to guide the policy makers and practitioners, in the developing economies.
Thus, while one would do well to learn from the successful experience, one would have
to be careful of the pitfalls as well. In the final analysis, while experience of other Business Enviornment : 41
Industrial Policy Resolutions, countries is available by way of guidance, one would have to evolve one’s own
1956
techniques, best suited to the level of development of the country. It makes a difference
whether or not there already exist in fully functioning markets, which could integrate or
assimilate the former PSEs. The historic, cultural and institutional context influences
NOTES
the way in which and the pace at which privatisation is implemented. Where market
economy is not fully developed, ways would have to be found to safeguard the interests
of consumers and investors, which would ensure a fuller play to the wealth-creating
Check Your Progress role of the entrepreneurs. The government of India has prepared a manual (see appendix)
Explain Public Private to demystify this process and to share with policymakers and practitioners the national
Partnership Process experience on implementation of privatisation.
3.6 MSME
The MSMEs have been defined on the basis of various parameters in different
counties. These parameters are the number of employees, total net assets, sales and
investment level. In India, the MSMEs were historically defined on the basis of number
of employees which was later on changed to the investment involved in the enterprise.
Over the years, the investment limits for the various units have been periodically revised.
. They contribute around 8% to the GDP (Source: Economic Survey 2010-11).
At present, the MSMEs are defined under the MSME Act, 2006. According to
this Act, enterprises can be divided into two categories:
i) Those engaged in manufacturing
ii) Those engaged in providing/ rendering services
Both of these are then divided into micro, medium and small enterprises. The
present investment limits for these are:
Table: Investment Ceiling for Plant, Machinery or Equipments

Manufacturing Enterprises Service Enterprises
Micro Upto Rs. 25 Lakh Upto Rs. 10 Lakh
Small >Rs. 25 Lakh upto Rs. 5 crores >Rs. 10 Lakh upto Rs. 2 crores
Medium >Rs. 5 crores upto Rs. 10 crores > Rs. 2 crores upto Rs. 5 crores
The Ministry of MSME has two Divisions- Agro & Rural Industry (ARI) Division
and Small & Medium Enterprises (SME) Division. The ARI Division is responsible for
the administration of Khadi and Village Industries Commission (KVIC), Mahatma Gandhi
Institute for Rural Industrialisation (MGIRI) and Coir Board. The KVIC, set up in
1956, promotes and develops the Khadi and Village industries in our country creating an
alternative non-farm source of employment for sustainability. To strengthen the R& D
activities of these industries, MGIRI was set up. The Coir Board was established in
1963 to promote the coir industry and to protect the workers engaged in this industry.
The SME Division looks after the three autonomous national level entrepreneurship
development/training organisations namely the National Institute for Entrepreneurship
and Small Business Development (NIESBUD) (1983) at NOIDA (Uttar Pradesh),
National Institute for Micro, Small and Medium Enterprises (NIMSME) (1960) at
Hyderabad and Indian Institute of Entrepreneurship (IIE) (1993) at Guwahati and Industrial Policy Resolutions,
1956
supervises and administers the National Small Industries Corporation (NSIC) Ltd., a
public sector company established in 1955.
The contribution of MSME sector to the GDP at present is about 8%. The hopes NOTES
from the sector are high. The Finance Ministry expects the contribution to rise to 10%
soon. The sector forms the backbone of the Indian economy by constituting 45% and
40% of the total production and exports respectively.
Source: Annual Report 2010-11, Ministry of MSME Check Your Progress
Elaborate on your
understanding of MSMEs
3.7 Sick Industrial Companies Act, 1985
Preamble
An Act to make in public interest, special provisions with a view to securing the
timely detection of sick and potentially sick companies owning industrial undertakings,
the speedy determination by a Board of experts of the preventive, ameliorative, remedial
and other measures which need to be taken with respect to such companies and the
expeditious enforcement of the measures so determined and for matters connected
therewith or incidental thereto. It extends to the whole of India.
Definitions
In this Act, unless the context otherwise requires, -
“Appellate Authority” means the Appellate Authority for Industrial and Financial
Reconstruction constituted under section 5;
“Board” means the Board for Industrial and Financial Reconstruction established
under section 4;
“industrial company” means a company which owns one or more industrial
undertakings;
“industrial undertaking” means any undertaking pertaining to a scheduled industry
carried on in one or more factories by any company but does not include -
(i) an ancillary industrial undertaking as defined in clause (aa) of section 3 of
the Industries (Development and Regulation) Act,1951; and
(ii) a small scale industrial undertaking as defined in clause (j) of the aforesaid
section 3;
“sick industrial company” means an industrial company (being a company registered
for not less than five years) which has at the end of any financial year accumulated
losses equal to or exceeding its entire net worth.
Main Provisions
It provided for the constitution of two quasi-judicial bodies, that is, Board for
Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial
and Financial Reconstruction (AAIFR). BIFR was set up as an apex board to tackle
industrial sickness and was entrusted with the work of taking appropriate measures for
revival and rehabilitation of potentially sick undertakings and for liquidation of non-
viable companies while, AAIFR was constituted for hearing the appeals against the
Industrial Policy Resolutions, orders of the BIFR.
1956
BIFR would make an inquiry as it may deem fit for determining whether any
industrial company had become sick, under the following conditions:-
NOTES If the Board of Directors of a sick industrial company made a reference to the
BIFR for determination of the remedial measures with respect to their company, such
reference was to be made within sixty days from the date of finalisation of the duly
audited accounts of the company for the financial year at the end of which the company
had become sick. For filing the reference, the Board of Directors must have sufficient
reasons to form the opinion that the company had become sick; or
On receiving such information (reference) with respect to a sick company or
upon its own knowledge as to the financial condition of a company, such a reference to
the board may be made by:- (i) The Central Government; (ii) The Reserve Bank of
India; (iii) State Governments; (iv) Public financial institutions; (v) State level institutions;
or (vi) Scheduled banks.
However, such a reference shall not be made in respect of any industrial company
by:- (i) the Government of any State, unless all or any of the industrial undertakings
(belonging to such a company) were situated in that State; (ii) a public financial institution
or a State level institution or a scheduled bank, unless it had, by reason of any financial
assistance or obligation rendered by it or undertaken by it, interest in such a company.
The Board may order any operating agency to enquire into the matter and complete
the inquiry as expeditiously as possible.
If the Board deems it fit to make an inquiry or to cause an inquiry to be made into
any industrial company, it may appoint one or more persons as special director(s) of the
company for safeguarding the financial and other interests of the company. The
appointment of a special director shall be valid and effective notwithstanding anything
to the contrary contained in the Companies Act, 1956 or in any other law for the time
being in force or in the memorandum and articles of association or any other instrument
relating to the industrial company.
Any special director so appointed shall :- (i) hold office during the pleasure of the
Board and may be removed or substituted by any person by order in writing by the
Board; (ii) not incur any obligation or liability by reason only of his being a director or for
anything done or omitted to be done in good faith in the discharge of his duties as a
director or anything in relation thereto; (iii) not be liable to retirement by rotation and
shall not be taken into account for computing the number of directors liable to such
retirement; (iv) not be liable to be prosecuted under any law for anything, done or
omitted to be done in good faith in the discharge of his duties in relation to the sick
industrial company.
If after making an inquiry, the Board is satisfied that the company has become
sick, it shall, after considering all the relevant facts and circumstances of the case, may
take either of the following decisions:-
If the Board decides that it is practicable, it shall, by order in writing and subject to
such restrictions or conditions as may be specified in the order, give such time to the
company as it may deem fit to make its net worth exceed the accumulated losses.
If the Board decides that it is not practicable for the sick company to make its net Industrial Policy Resolutions,
1956
worth exceed the accumulated losses within a reasonable time and that it is necessary
or expedient in the public interest to adopt all or any of the measures in relation to the
said company, it may, as soon as may be, by order in writing, direct any operating
NOTES
agency specified in the order to prepare a scheme providing for such measures in
relation to that company. The measures may include:-
The financial reconstruction of the sick industrial company;
The proper management of the sick industrial company by change in or
takeover of the management of the company;
The amalgamation of the sick industrial company with any other company
(transferee company), or any other company with the sick industrial company
(transferee company);
The sale or lease of a part or whole of the sick industrial company;
Such other preventive, ameliorative and remedial measures as may be
appropriate;
Such incidental, consequential or supplemental measures as may be necessary
or expedient in connection with or for the purposes of the measures specified
above.
If the Board is of the opinion that the sick industrial company is not likely to make
its net worth exceed the accumulated losses within a reasonable time while meeting all
its financial obligations and that the company as a result thereof is not likely to become
viable in future and that it is just and equitable that the company should be wound up, it
may record and forward its opinion to the concerned High Court. The High Court shall,
on the basis of the opinion of the Board, order winding-up of the sick industrial company
in accordance with the provisions of the Companies Act, 1956.
Where in respect of an industrial company, an inquiry is pending, or any scheme
referred is under preparation or consideration or a sanctioned scheme is under
implementation, then no proceedings for the winding-up of the industrial company or for
execution, distress or the like against any of the properties of the industrial company
shall be made. Also, no suit for the recovery of money or for the enforcement of any
security against the industrial company or of any guarantee in respect of any loans, or
advance granted to the industrial company shall lie or be proceeded with further, except
with the consent of the Board or, as the case may be, the Appellate Authority.
Also with respect to the above conditions, the Board may by order declare with
respect to the sick industrial company concerned that the operation of all or any of the
contracts, assurances of property, agreements, settlements, awards, standing orders or
other instruments in force, to which such sick industrial company is a party or which
may be applicable to such sick industrial company immediately before the date of such
order, shall remain suspended or that all or any of the rights, privileges, obligations and
liabilities accruing or arising there under before the said date, shall remain suspended or
shall be enforceable with such adaptations and in such manner as may be specified by
the Board.
However, such declaration shall not be made for a period exceeding two years,
which may be extended by one year at a time so that the total period shall not exceed Business Enviornment : 45
Industrial Policy Resolutions, seven years in the aggregate.
1956
Under the Act, whosoever violates its provisions or any scheme or any order of
the Board or of the Appellate Authority, shall be punishable with imprisonment for a
NOTES term which may extend to three years and shall also be liable to a fine. No court shall
take cognizance of any offence mentioned except on a complaint in writing of the
secretary or any such other officer of the Board or the Appellate Authority or any such
officer of an operating agency as may be authorised in this behalf by the Board or the
Appellate Authority.
Sick Industrial Companies (Special Provisions) Act,1985 (SICA) was repealed
and replaced by Sick Industrial Companies (Special Provisions) Repeal Act,2003. The
new Act diluted some of the provisions of SICA and plugged certain loopholes. It aimed
not only to combat industrial sickness but also to reduce the same by ensuring that
companies do not view declaration of sickness as an escapist route from legal provisions
after the failure of the project or similar other reasons and thereby gain access to
various benefits or concessions from financial institutions. Under it, the Board for
Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial
and Financial Reconstruction (AAIFR) were dissolved and replaced by National Company
Law Tribunal (NCLT) and National Law Appellate Tribunal (NCLAT) respectively.
For details, see appendix.
Source: http://legalpundits.com/Content_folder/SICKA24092008.pdf
3.8 Company Law

Important concepts
Sec.2 (1) “Abridged Prospectus” means a Memorandum containing such salient
features of a prospectus as may be prescribed.
Sec. 2 (7) Body Corporate or corporation includes a company incorporated outside
India but does not include –
a. A Corporation Sole
b. A Co-operative Society registered under any law relating to co-operative
societies and
c. Any other body corporate (not being a Company as defined in this Act),
which the Central Government may by notification in the Official Gazette,
specify in this behalf.
Sec. 2(8) “book and paper” and “book or paper” includes accounts, deeds,
vouchers, writings and documents.
Sec. 2(15) “document” includes summons, notice, requisition, order, other legal
process, and registers, whether issued, sent or kept in pursuance of this or any other
Act or otherwise.
Sec. 2(15A) “employees stock option” means the option given to the whole-time
directors, officers or employees of a company, which gives such directors, officers or
employees the benefit or right to purchase or subscribe at a future date, the securities
offered by the company at a pre-determined price.
Sec. 2(17) “financial year” means, in relation to anybody corporate, the period in Industrial Policy Resolutions,
1956
respect of which any profit and loss account of the body corporate laid before it in
annual general meeting is made up, whether that period is a year or not:
Provided that, in relation to an insurance company, “financial year” shall mean the NOTES
calendar year referred to in sub-section (1) of section 11 of the Insurance Act, 1938 (4
of 1938).
Sec 2(19AB) ”industrial undertaking” means any undertaking pertaining to any
industry carried on in one or more factories or units by any company as defined in
Clause (aa) of Section 3 of Industries (Development and Regulation) Act, 1951 but
does not include a small scale industrial undertaking as defined in clause (j)).
Sec. 2(19B) ”information memorandum” means a process undertaken prior to
the filing of prospectus by which the demand for securtities proposed to be issued by a
company is elicited, and the price and the terms of issue for such securities is assessed,
by means of a notice, circular, advertisement or document.
Sec. 2(26) “managing director” means a director who, by virtue of an agreement
with the company or of a resolution passed by the company in general meeting or by its
Board of directors or, by virtue of its memorandum or articles of association, is entrusted
with [substantial powers of management] which would not otherwise be exercisable by
him, and includes a director occupying the position of a managing director, by whatever
name called:
Provided that the power to do administrative acts of a routine nature when so
authorized by the Board such as the power to affix the common seal of the company to
any document or to draw and endorse any cheque on account of the company in any
bank or to draw and endorse any negotiable instrument or to sign any certificate of
share or to direct registration of transfer of any share, shall not be deemed to be included
within substantial powers of management:
Provided further that a managing director of a company shall exercise his powers
subject to the superintendence, control and direction of its Board of directors.]
Sec. 2(27) “member”, in relation to a company, does not include a bearer of a
share-warrant of the company issued in pursuance of section 114.
Sec. 2(29A) “net worth” means the sum total of the paid-up capital and free
reserves after deducting the provisions or expenses as may be prescribed.
Sec. 2(30) “officer” includes any director, manager or secretary, or any person in
accordance with whose directions or instructions the Board of directors or any one or
more of the directors is or are accustomed to act.
Sec. 2(31) “officer who is in default”, in relation to any provision referred to in
section 5, has the meaning specified in that section.
Sec 2(31AA) “operating agency” means any group of experts consisting of persons
having special knowledge of business or industry in which the sick industrial undertaking
is engaged and includes public financial institution, State level institution, scheduled bank
or any other person as may be specified as the operating agency by the Tribunal.
Sec. 5. Meaning of “officer who is in default” — For the purpose of any provision
in this Act which enacts that an officer of the company who is in default shall be liable
Industrial Policy Resolutions, to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the
1956
expression “officer who is in default” means all the following officers of the company,
namely –
a. the managing director or managing directors;
NOTES
b. the whole-time director or whole-time directors;
c. the manager;
d. the secretary;
e. any person in accordance with whose directions or instructions the Board of
directors of the company is accustomed to act;
f. any person charged by the Board with the responsibility of complying with
that provision: Provided that the person so charged has given his consent in
this behalf to the Board;
g. where any company does not have any of the officers specified in clauses
(a) to (c), any director or directors who may be specified by the Board in this
behalf or where no director is so specified, all the directors:
Provided that where the Board exercises any power under clause (f) or clause
(g), it shall, within thirty days of the exercise of such powers, file with the Registrar a
return in the prescribed form.
Sec. 2(36) ”prospectus” means [any document described or issued as a prospectus
and includes any] notice, circular, advertisement or other document [inviting deposits
from the public or] inviting offers from the public for the subscription or purchase of
any shares in, or debentures of, a body corporate;
Sec. 2(38) ”public holiday” means a public holiday within the meaning of the
Negotiable Instruments Act, 1881 (26 of 1881):
Provided that no day declared by the Central Government to be a public holiday
shall be deemed to be such a holiday, in relation to any meeting, unless the declaration
was notified before the issue of the notice convening such meeting;
Sec. 2(41) “relative” means, with reference to any person, any one who is related
to such person in any of the ways specified in section 6, and no others.
Sec.6. Meaning of “relative” — A person shall be deemed to be a relative of
another if, and only if,
a. they are members of a Hindu Undivided Family; or
b. they are husband and wife; or
c. The one is related to the other in the manner indicated in Schedule IA.
Sec. 2(45AA) “securities” means securities as defined in clause (h) of section 2
of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and includes hybrids;
Sec. 2(h) of Securities Contracts (Regulation) Act defines “securities” as follows:
“Securities” include —
i. shares, scrips, stocks, bonds, debentures, debenture stock or other marketable
securities of a like nature in or of any incorporated company or other body
corporate.
(ia) derivative Industrial Policy Resolutions,
1956
(ib) units or any other instrument issued by any collective investment scheme
to the investors in such schemes.
(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation NOTES
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002.
(id) units or any other such instrument issued to the investors under any
mutual fund scheme.
ii. Government securities.
(iia) such other instruments as may be declared by Central Government to
be securities; and
iii. rights or interest in securities.
Sec. 2(46A) “shares with differential rights” means a share that is issued with
differential rights in accordance with the provisions of Section 86).
Sec. 2(46AA) “sick industrial company” means an industrial company which has
i. the accumulated losses in any financial year equal to fifty per cent or more of
its average net worth during four years immediately preceding such financial
year; or
ii. failed to repay its debts within any three consecutive quarters on demand
made in writing for its repayment by a creditor or creditors of such company.
Sec. 2(48) “total voting power”, in regard to any matter relating to a body corporate,
means the total number of votes which may be cast in regard to that matter on a poll at
a meeting of such body, if all the members thereof and all other persons, if any, having
a right to vote on that matter are present at the meeting, and cast their votes.
Sec. 4A Public Financial Institutions
1. Each of the financial institutions specified in this sub-section shall be regarded, for
the purposes of this Act, as a public financial institution, namely
i. the Industrial Credit and Investment Corporation of India Limited, a company
formed and registered under the Indian Companies Act, 1913 (7 of 1913);
ii. the Industrial Finance Corporation of India, established under section 3 of the
Industrial Finance Corporation Act, 1948 (15 of 1948);
iii. the Industrial Development Bank of India, established under section 3 of the
Industrial Development Bank of India Act, 1964 (18 of 1964);
iv. the Life Insurance Corporation of India, established under section 3 of the
Life Insurance Corporation Act, 1956 (31 of 1956);
v. the Unit Trust of India, established under section 3 of the Unit Trust of India
Act, 1963 (52 of 1963);
vi. the Infrastructure Development Finance Company Limited, a company formed
and registered under this Act.
2. Subject to the provisions of sub-section (1), the Central Government may, by
notification in the Official Gazette, specify such other institution as it may think fit Business Enviornment : 49
Industrial Policy Resolutions, to be a public financial institution:
1956
Provided that no institution shall be so specified unless —
i. it has been established or constituted by or under any Central Act, or
NOTES
ii. not less than fifty-one per cent of the paid-up share capital of such institution
is held or controlled by the Central Government.
Sweat Equity Shares as referred to in section 79A, is defined in Explanation II of
that section as follows:
For the purposes of this Act, the expression “sweat equity shares” means equity
shares issued by the company to employees or directors at a discount or for consideration
other than cash for providing know-how or making available rights in the nature of
intellectual property rights or value additions, by whatever name called.
Small shareholders: as referred to in Sec. 252 is defined in explanation to that
section as follows:
For the purpose of this sub-section “small shareholders” means a shareholder
holding shares of nominal value of twenty thousand rupees or less in a public company
to which this section applies.
Office or place of profit: as referred to in Sec. 314(3) is defined as follows:
Any office or place shall be deemed to be an office or place of profit under the
company [within the meaning of this section]
Check Your Progress a. in case the office or place is held by a director, if the director holding it
[obtains from the company anything] by way of remuneration over and above
Elaborate on your
the remuneration to which he is entitled as such director, whether as salary,
understanding of Company
fees, commission, perquisites, the right to occupy free of rent any premises
Law
as a place of residence, or otherwise;
b. in case the office or place is held by an individual other than a director or by
any firm, private company or other body corporate, if the individual, firm,
private company or body corporate holding it [obtains from the company
anything] by way of remuneration whether as salary, fees, commission,
perquisites, the right to occupy free of rent any premises as a place of
residence, or otherwise.
3.9 MRTP Act

The MRTP Act, 1969 has its genesis in the Directive Principles of State Policy
embodied in the Constitution of India. Clauses (b) and (c) of Article 39 of the Constitution
lay down that the State shall direct its policy towards ensuring:
(i) that the ownership and control of material resources of the community are
so distributed as to best serve the common good; and
(ii) that the operation of the economic system does not result in the concentration
of wealth and means of production to the common detriment.
Main Provisions
Section 10 of the MRTP Act, 1969 empowers the MRTP Commission to enquire
into monopolistic or restrictive trade practices upon a reference from the Central Industrial Policy Resolutions,
1956
Government or upon its own knowledge or on information. The MRTP Act, 1969 also
provides for appointment of a
Director General of Investigation and Registration for making investigations for NOTES
the purpose of enquiries by the MRTP Commission and for maintenance of register of
agreements relating to restrictive trade practices.
The MRTP Commission receives complaints both from registered consumer and
trade associations and also from individuals either directly or through various Government
Departments. Complaints regarding Restrictive Trade Practices or Unfair Trade
Practices from an association are required to be referred to the Director General of
Investigation and Registration for conducting preliminary investigation in terms of Sections
11 and 36C of the MRTP Act, 1969 and Regulation 119 of the MRTP Commission Check Your Progress
Regulations, 1974. The Commission can also order a preliminary investigation by the
Elaborate on your
Director General of Investigation and Registration when a reference on a restrictive
understanding of MRTP
trade practice is received from the Central/ State Government, or when Commission’s
Act
own knowledge warrants a preliminary investigation. Enquiries are instituted bythe
Commission under relevant Sections of the MRTP Act, 1969 after the Director General
of Investigation and Registration has completed the preliminary investigation and as a
result of the findings, submits an application to the Commission for an enquiry.
For details of the Act, see appendix.
Source: http://www.mca.gov.in/Ministry/annual_reports/annualreport2006/
CHAPTER4.pdf
3.10 Competition Act, 2002

Preamble
In, 1969 Govt. has passed an act Monopolies Restrictive Trade Practices (MRTP)
This act has many provisions to control monopoly and to promote the competition. But
its scope was very narrow and it was replaced by a new act called Competition Act
2002.
It is “an Act to provide, keeping in view of the economic development of the
country, for the establishment of a Commission to prevent practices having adverse
effect on competition, to promote and sustain competition in markets, to protect the
interests of consumers and to ensure freedom of trade carried on by other participants
in markets, in India, and for matters connected therewith or incidental thereto.” It
extends to the whole of India except the State of Jammu and Kashmir. It shall come
into force on such date as the Central Government may, by notification in the Official
Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Act
and any reference in any such provision to the commencement of this Act shall be
construed as a reference to the coming into force of that provision.
Definitions
In this Act, Business Enviornment : 51
Industrial Policy Resolutions, “Commission” means the Competition Commission of India established under
1956 sub-section (1) of section 7;
“consumer” means any person who—
NOTES (i) buys any goods for a consideration which has been paid or promised or
partly paid and partly promised, or under any system of deferred payment
and includes any user of such goods other than the person who buys such
goods for consideration paid or promised or partly paid or partly promised, or
under any system of deferred payment when such use is made with the
approval of such person, whether such purchase of goods is for resale or for
any commercial purpose or for personal use;
(ii) hires or avails of any services for a consideration which has been paid or
promised or partly paid and partly promised, or under any system of deferred
payment and includes any beneficiary of such services other than the person
who hires or avails of the services for consideration paid or promised, or
partly paid and partly promised, or under any system of deferred payment,
when such services are availed of with the approval of the first-mentioned
person whether such hiring or availing of services is for any commercial
purpose or for personal use.
“goods” means goods as defined in the Sale of Goods Act, 1930 (3 of 1930) and
Check Your Progress includes-
Elaborate on your (A) products manufactured, processed or mined;
understanding of (B) debentures, stocks and shares after allotment;
Competition Act 2002
(C) in relation to goods supplied, distributed or controlled in India, goods imported
into India;
Main Features
This Act:
Prohibits Anti-Competitive Agreements (Sec 3)
Prohibits abuse of dominant position (Sec 4)
Provides for regulation of combinations (Sec 5,6)
For details of the provisions of the Act, see appendix.
Source: http://www.cci.gov.in/images/media/competition_act/act2002.pdf
3.11 Summary
This chapter has discussed various Laws and regulatory acts, which a firm must
follow. These laws make the business environment just and level playing field for all
players. The government policies for Industries, Public-Private Partnership and its
definition and chapter also include acts like sick firms, MRTP and competition.
3.12 Key Terms

Privatisation : Privatization, also spelled privatisation, may have several mean-
ings. Primarily, it is the process of transferring ownership of a business, enterprise,
agency, public service or public property from the public sector (a government) to
the private sector, either to a business that operate for a profit or to a non-profit organi- Industrial Policy Resolutions,
1956
zation. It may also mean government outsourcing of services or functions to private
firms, e.g. revenue collection, law enforcement, and prison management. Privatization has
also been used to describe two unrelated transactions. The first is the buying of
NOTES
all outstanding shares of a publicly traded company by a single entity, taking the com-
pany private. This is often described as private equity. The second is a demutualization of
a mutual organization or cooperative to form a joint stock company.
Source:http://en.wikipedia.org/wiki/Privatization
Justice : Justice is a concept of moral rightness based on ethics, rationality,
law, natural law, religion, equity or fairness, as well as the administration of the law,
taking into account the inalienable and inborn rights of all human beings and citizens, the
right of all people and individuals to equal protection before the law of their civil rights,
without discrimination on the basis of race, gender, sexual orientation, gender
identity, national origin, color, ethnicity, religion, disability, age, or other characteristics,
and is further regarded as being inclusive of social justice.
Source:http://en.wikipedia.org/wiki/Justice
Liberty : Liberty is the value of individuals to have agency (control over their
own actions). Different conceptions of liberty articulate the relationship of individuals to
society in different ways— these conceptions relate to life under a social contract,
existence in an imagined state of nature, and related to the active exercise of freedom
and rights as essential to liberty. Understanding liberty involves how we imagine the
individual’s roles and responsibilities in society in relation to concepts of free
will and determinism, which involves the larger domain of metaphysics.
Individualist and classical liberal conceptions of liberty typically consist of the free-
dom of individuals from outside compulsion or coercion, also known as negative liberty.
This conception of liberty, which coincides with the libertarian point-of-view, suggests
that people should, must, and ought to behave according to their own free will, and
take responsibility for their actions, while in contrast, Social liberal conceptions of (positive
liberty) liberty place an emphasis upon social structure and agency and is therefore
directed toward ensuring egalitarianism. In feudal societies, a “liberty” was an area
of allodial land where the rights of the ruler or monarch were waived.
Source:https://en.wikipedia.org/wiki/Liberty
Equality : Social equality is a state of affairs in which all people within a specific
society or isolated group have the same status in certain respects. At the very least,
social equality includes equal rights under the law, such as security, voting rights,freedom
of speech and assembly, property rights, and equal access to social goods and services.
However, it also includes concepts of economic equity, i.e. access to education, health
care and other social securities. It also includes equal opportunities and obligations, and
so involves the whole of society.
Social equality requires the absence of legally enforced social
class or caste boundaries and the absence of discrimination motivated by an inalien-
able part of a person’s identity. For example, sex, gender, race, age, sexual orientation,
origin, caste or class, income or property, language, religion, convictions, opinions, health
or disability must not result in unequal treatment under the law and should not reduce
opportunities unjustifiably.
Social equality refers to social, rather than economic, or income equality. “Equal Business Enviornment : 53
Industrial Policy Resolutions, opportunities” is interpreted as being judged by ability, which is compatible with a free-
1956 market economy. A problem is horizontal inequality, the inequality of two persons
of same origin and ability.
Perfect social equality is an ideal situation that does not occur in actuality. In complexity
NOTES
economics, it has been found that horizontal inequality arises in complex systems.
Source:http://en.wikipedia.org/wiki/Social_equality
Fraternity : A fraternity (Latin frater : “brother”) is a brotherhood, although the
term sometimes connotes a distinct or formal organization and sometimes a secret soci-
ety. A fraternity (or fraternal organization) is an organized society of men associated
together in an environment of companionship and brotherhood; dedicated to the intellec-
tual, physical, and social development of its members.
Source:http://en.wikipedia.org/wiki/Fraternity
Industry : Industry is the production of an economic good or service within
an economy. Manufacturing industry became a key sector of production and labour
in European and North American countries during the Industrial Revolution, upsetting
previous mercantile and feudal economies. This occurred through many successive rapid
advances in technology, such as the production of steel and coal. Following the Industrial
Revolution, perhaps a third of the world’s economic output is derived from manufactur-
ing industries. Many developed countries and many developing/semi-developed coun-
tries (People’s Republic of China, India etc.) depend significantly on industry. Industries,
the countries they reside in, and the economies of those countries are interlinked in a
complex web of interdependence.
Source:http://en.wikipedia.org/wiki/Industry
Public Private Partnership : A public–private partnership (PPP) is a govern-
ment service or private business venture which is funded and operated through a part-
nership of government and one or more private sector companies. These schemes are
sometimes referred to as PPP, P3 or P3.
PPP involves a contract between a public sector authority and a private party, in
which the private party provides a public service or project and assumes substantial
financial, technical and operational risk in the project. In some types of PPP, the cost of
using the service is borne exclusively by the users of the service and not by the taxpayer. In
other types (notably the private finance initiative), capital investment is made by the
private sector on the basis of a contract with government to provide agreed services and
the cost of providing the service is borne wholly or in part by the government. Govern-
ment contributions to a PPP may also be in kind (notably the transfer of existing assets).
In projects that are aimed at creating public goods like in the infrastructure sector, the
government may provide a capital subsidy in the form of a one-time grant, so as to make
it more attractive to the private investors. In some other cases, the government may
support the project by providing revenue subsidies, including tax breaks or by
removing guaranteed annual revenues for a fixed time period.
Typically, a public sector consortium forms a special company called a “special
purpose vehicle” (SPV) to develop, build, maintain and operate the assets for the con-
tracted period. In cases where the government has invested in the project, it is typically
(but not always) allotted an equityshare in the SPV. The consortium is usually made up
of a building contractor, a maintenance company and bank lender(s). It is the SPV that
signs the contract with the government and with subcontractors to build the facility and Industrial Policy Resolutions,
then maintain it. In the infrastructure sector, complex arrangements and contracts that 1956
guarantee and secure the cash flows make PPP projects prime candidates for project
financing. A typical PPP example would be a hospital building financed and constructed
by a private developer and then leased to the hospital authority. The private developer NOTES
then acts as landlord, providing housekeeping and other non-medical services while the
hospital itself provides medical services.
Source: http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership

1. Explain industrial policies in India from 1948-2012.
2. What is IDRA?
3. Describe economic systems and explain the features and merits of economic
systems.
4. Explain the structure of Indian Industry.
5. Describe the economic reforms in various sectors in India.
6. Economic reforms are missing out the focus on social justice. Explain in In-
dian context.
7. Write a short note on industrial sickness.
8. Explain the causes of sickness in Indian industry.
9. Define SICA and explain special features of the SICA (special provisions)
1985.
10. Analyze the condition of Industry in India under the conditions for reference
to BIFR.
11. Explain the disinvestment mechanism in detail.
12. Describe the problems and procedures of disinvestment mechanism in India.
13. Write a note on public private partnership in India.
14. Write a note on MRTP Act, 1969.
15. Explain the main provisions of Competition Act, 2002

and Co., 2009
Hill, 2007
2010
7. Worthington, I. and Britton, C., "The Business Environment", 6th Edition, Business Enviornment : 55
Labour Lasw
UNIT 4 LABOUR LAWS
NOTES Structure
4.0 Introduction
4.1 Unit Objectives
4.2 Factories Act, 1948
4.3 Minimum Wages Act 1948
4.4 Industrial Employment (Standing orders) Act 1946
4.5 Payment of Wages Act 1936
4.6 Industrial Disputes Act 1947
4.7 Payment of Bonus Act 1965
4.8 Maternity Benefit Act 1961
4.9 The Trade Unions Act, 1926
4.10 Summary
4.11 Key Terms
4.12 Questions and Exercises
1.0 Introduction
This chapter deals with Human related aspects and acts related with it. The various
aspects of industrial relations i.e. minimum wages, disputes, bonuses ,maternity benefits
and formation of trade unions and collective bargaining aspects.
4.1 Unit Objectives
acts, their definitions and provisions so as to enable them to visualize that how these are
businesses well. These acts have a special reference to the human resource manage-
ment.
The labour enactments in India are all based upon Constitution of India and the
resolutions taken in ILO conventions from time to time. An overview of these is given
below:
4.2 Factories Act, 1948

Factories are regulated by the provisions of the Factories Act, 1948 (the said
Act). All Industrial establishments employing 10 or more persons and carrying Labour Lasw
manufacturing activities with the aid of power come within the definition of Factory.
The said Act makes provisions for the health, safety, welfare, working hours and leave
of workers in factories. The said Act is enforced by the State Government through their
NOTES
‘Factory’ inspectorates. The said Act empowers the State Governments to frame rules,
so that the local conditions prevailing in the State are appropriately reflected in the
enforcement. The said Act puts special emphasis on welfare, health and safety of
workers. The said Act is instrumental in strengthening the provisions relating to safety
and health at work, providing for statutory health surveys, requiring appointment of
safety officers, establishment of canteen, crèches, and welfare committees etc. in large
factories. The said Act also provides specific safe guards against use and handling of
hazardous substance by occupiers of factories and emergency standards and measures.
4.3 Minimum Wages Act 1948

The Minimum Wages Act prescribes minimum wages for all employees in all
establishments or working at home in certain employments specified in the schedule of
the Act. Central and State Governments revise minimum wages specified in the schedule.
The Minimum Wages Act 1948 has classified workers as unskilled, semi-skilled, skilled;
and highly skilled.
4.4 Industrial Employment (Standing orders) Act 1946

The Industrial Employment Act requires employers in industrial establishments to
clearly define the conditions of employment by issuing standing orders duly certified.
Model standing orders issued under the Act deal with classification of workmen, holidays,
shifts, payment of wages, leaves, termination etc. Generally, the workers are classified
as
apprentice/trainee;
casual;
temporary;
substitute;
probationer;
permanent; and
fixed period employees
4.5 Payment of Wages Act 1936

Under the Payment of Wages Act 1936 the following are the common obligations
of the employer:
Every employer is primarily responsible for payment of wages to employees. Business Enviornment : 57
Labour Lasw The employer should fix the wage period (which may be per day, per week or
per month) but in no case it should exceed one month;
Every employer should make timely payment of wages. If the employment of
NOTES any person is being terminated, those wages should be paid within two days
of the date of termination; and
The employer should pay the wages in cash, i.e. in current coins or currency
notes. However wages may also be paid either by cheque or by crediting in
employee’s bank account after obtaining written consent.
4.6 Industrial Disputes Act 1947

The Industrial Disputes act 1947 provides for the investigation and settlement of
industrial disputes in an industrial establishment relating to lockouts, layoffs, retrenchment
etc. It provides the machinery for the reconciliation and adjudication of disputes or
differences between the employees and the employers. Industrial undertaking includes
an undertaking carrying any business, trade, manufacture etc.
4.7 Payment of Bonus Act 1965

The payment of Bonus Act provides for the payment of bonus to persons employed
in certain establishments on the basis of profits or on the basis of production or productivity.
The Act is applicable to establishments employing 20 or more persons. The minimum
bonus, which an employer is required to pay even if he suffers losses during the accounting
year is 8.33% of the salary.
4.8 Maternity Benefit Act 1961

The Maternity Benefit Act regulates the employment of the women in certain
establishments for a prescribed period before and after child birth and provides certain
other benefits. The Act does not apply to any factory or other establishment to which
the Employees State Insurance Act 1948 is applicable. Every women employee who
has actually worked in an establishment for a period of at least 80 days during the 12
months immediately preceding the date of her expected delivery, is entitled to receive
maternity benefits under the Act. The employer is thus required to pay maternity benefits
and/or medical bonus and allow maternity leave and nursing breaks.
Source: http://labour.nic.in/content/innerpage/acts.php
4.9 The Trade Unions Act, 1926

Business Enviornment : 58 The legislation regulating the trade unions is the Indian Trade Unions Act, 1926.
The Act deals with the registration of trade unions, their rights, their liabilities and Labour Lasw
responsibilities as well as ensures that their funds are utilised properly. It gives legal and
corporate status to the registered trade unions. It also seeks to protect them from civil or
criminal prosecution so that they could carry on their legitimate activities for the benefit
NOTES
of the working class. The Act is applicable not only to the union of workers but also to
the association of employers. It extends to whole of India. Check Your Progress
(For details, see appendix) Try and bring in/ fetch
cases which are
associated with these acts
4.10 Summary so as to enable your self
about the business
This chapter has discussed the various aspects of industrial relations and acts implications of these acts
related with i.e. minimum wages act, industrial disputes acts, payment of bonuses act,
maternity benefits and formation of trade unions and other collective bargaining related
aspects.
4. 11 Key Terms
LABOUR LAWS: Indian labour law refers to laws regulating employment in India.
There are over fifty national laws and many more state-level laws.
Traditionally Indian governments at federal and state level have sought to ensure a
high degree of protection for workers. So for instance, a permanent worker can be
terminated only for proven misconduct or for habitual absence. In Uttam Nakate case,
the Bombay High Court held that dismissing an employee for repeated sleeping on the
factory floor was illegal - a decision which was overturned by the Supreme Court of
India. Moreover, it took two decades to complete the legal process. In 2008, the World
Bank has criticised the complexity, lack of modernisation and flexibility in Indian regula-
tions.
Source:http://en.wikipedia.org/wiki/Indian_labour_law
The Trade Unions: A trade union (British English—amalgamation is also
used), labour union (Canadian English) or labor union (American English) is an organi-
zation of workers who have banded together to achieve common goals such as protect-
ing the integrity of its trade, achieving higher pay, increasing the number of employees
an employer hires, and better working conditions. The trade union, through its leader-
ship, bargains with the employer on behalf of union members (rank and file members)
and negotiates labour contracts (collective bargaining) with employers. The most com-
mon purpose of these associations or unions is “maintaining or improving the conditions
of their employment”. This may include the negotiation of wages, work rules, complaint
procedures, rules governing hiring, firing and promotion of workers, benefits, workplace
safety and policies.
Unions may organize a particular section of skilled workers (craft unionism), a
cross-section of workers from various trades (general unionism), or attempt to organize Business Enviornment : 59
Labour Lasw all workers within a particular industry (industrial unionism). The agreements negoti-
ated by a union are binding on the rank and file members and the employer and in some
cases on other non-member workers. Trade unions traditionally have a constitution
which details the governance of their bargaining unit and also have governance at vari-
NOTES
ous levels of government depending on the industry that binds them legally to their
negotiations and functioning.
Originating in Europe, trade unions became popular in many countries during
the Industrial Revolution, when the lack of skill necessary to perform most jobs shifted
employment bargaining power almost completely to the employers’ side, causing many
workers to be mistreated and underpaid. Trade unions may be composed of
individual workers, professionals, past workers, students, apprentices and/or
the unemployed.
Source:http://en.wikipedia.org/wiki/Trade_union

1. Elaborate on labor legislation in India.
2. Which are the important laws related to weaker sections in India? Explain
their main objectives.
3. What are trade unions? Briefly explain the main provisions of Trade Unions
Act, 1926.
4. What do you mean by industrial relations? Explain the main provisions of law
governing industrial relations in India.
5. Briefly explain the components of Fiscal Policy.
6. Explain the nature and significance of Fiscal Policy.
7. Explain the concept development activities in India leading to the Fiscal policy.
8. Critically analyze the recent Fiscal Policy of Government of India.
9. Subsidies are the biggest public expenditure for Indian Government. Explain.

and Co., 2009
Hill, 2007
2010
Business Enviornment : 60 7. Worthington, I. and Britton, C., "The Business Environment", 6th Edition,
Government Influence on Income,
UNIT 5 GOVERNMENT INFLUENCE Planning, Prices and Production
ON INCOME, PLANNING,
NOTES
PRICES AND PRODUCTION
Structure
5.0 Introduction
5.1 Unit Objectives
5.2 Government Influence on Income, Planning, Prices and Production
5.3 Price Policy and Effect
5.3.1 Parameters and Factors Associated with Pricing Policy
5.3.2 Pricing Policy Relationship with International Prices
5.4 Summary
5.5 Key Terms
5.0 Introduction
This chapter deals with price policy and its effects. The factors and parameters
associated with the pricing policy, it has also dealt with International prices.The important
commodities like power, coal, and other such commodities are taken into account and
dealt in detail.
5.1 Unit Objectives
aspects of Government influence on income, planning, prices and production. It is very
businesses well.
5.2 Government Influence on Income, Planning, Prices and

Production
As observed in the earlier units while observing different policy structures and
systems we may appreciate that the policies have to be correlatively steered most of the
times as motivators and sometimes as barriers also.
Government Influence on Income, Now let’s have a view of governments influence on planning, prices, production
Planning, Prices and Production
and income as well so as to understand business and government relations.
Monetary policy, economic planning and growth have tripartite intense relationship
NOTES which has a specific influence of fiscal policy in countries like India. In India, economic
policy requirements lead to an expansionary fiscal policy because of the reasons of
expanding the demand on the one hand and complimentarily to expand the plan and the
non-plan expenditure. Therefore, monetary policy measures are guided by the fiscal
policy decisions which interpret in the terms of monetary policy focussing on availability
of credit along with others and not just regulating the money supply.
With the advent of liberalization in 90’s and the execution of economic reforms
CRR, SLR and bank rates were lowered down so as to assure the availability and the
flow of credit to assist the industrial growth. Fiscal policy’s impact as associated with
the monetary policy execution also has direct association with direction of business
development through taxation structure, public debt and public expenditure. On the one
hand government spends on developing industrial infrastructure to support industrial
growth, it also support the industry by lowering down the taxes and adjusting the taxes
and duties as per the requirement. But these adjustments prompts the taxes on the
goods which are barred as to the consumer hence reducing his savings or spending
triggering the requirement for the other means of money supply or employment generation
which create further fiscal pressure and lowers down the worth of money in comparison
to international currencies lowering down the investment attraction for MNC’s and
foreign investors.
5.3 Price Policy and Effect

According to the tenth plan period analysis few objectives of price policy which
have played a specific role can be enumerated as follows:
a) Price policy’s role in maintaining price stability with respect to food items
specifically and all other items in general.
b) Aggregate demand should be met with the aggregate supply.
c) Price policy should have a scope of incentivizing the production of essential

consumer goods was to stimulate and motivate such production.
d) Protection of poor and vulnerable section of the society through checking the
levels of the prices of food grain and items on the one hand while not reducing
the incentive of the grower to keep up the production.
e) Price policy must have a scope of integrating the agricultural prices, prices
of goods /manufacturing prices and the price of services through some
relational logic.
5.3.1 Parameters and factors associated with pricing policy Government Influence on Income,
Imagine the following relationship
Prices of coal which are fixed on the basis of actual cost have an influence
on the cost of power generation NOTES
Price of power has as influence on many things most of all say fertilizer
production cost where in the prices of fertilizers had a specific producer
based criterion which influences.
Agriculture production along with other factors which influences the food Check Your Progress
commodity prices. As observed in the earlier
units while observing
The above sequential demonstration of sequential relationship of prices of various
different policy structures
commodities is suggestive of and systems, how one may
a) Importance of pricing policy and appreciate that the policies
have to be correlatively
b) The directional balance which pricing policy and structure may create. steered most of the times
Pricing policy also includes measures for controlling public and private expenditures. as motivatiors and
Hence, more emphasis is on the reduction of the non-plan expenditure. Another important sometimes as barriers
also?
thing to understand is that government’s expenditure is associated with inflation as also
discussed in the preceding paragraphs.
Non-plan expenditure is associated with subsidies, profit earning/loss making

government enterprises, Governments own expenditures and bureaucratic expenses.
Come whatever the effectiveness of a pricing policy is largely associated with

control expressed in terms of control of inflation especially sudden inflation. This is an
all encompassing and a regular effort which requires lot of intermediary analysis.
5.3.2 Pricing policy relationship with international prices
As discussed in preceding paragraphs that policy and planning of a nation is
associated with the international organization and the policy structure of other nations
as well, therefore it has to be understood that the domestic prices of commodities
depends on the behaviour of their world prices as well. Demand for a commodity in a Check Your Progress
country may affect the prices of that commodity in another country. Technology and Explain the Pricing Policy
alternative usage of a commodity may also affect the prices for example enhancing Relationship with
International Prices
role of sugar prices further.
Fuel prices effect transportation; hence export prices and further the prices of the
commodities. Even the prices of metals due to minimizing policy, problems or advantages
may affect the prices of several commodities around the world.
5.4 Summary
This chapter deals the prices of commodities that are effects due to factors like Business Enviornment : 63
Government Influence on Income, SLR, non-planned expenditures, transportation cost, supply factors and various others
like Fuel prices effect transportation; hence export prices and further the prices of the
commodities. Even the prices of metals due to minimizing policy, problems or advantages
NOTES may affect the prices of several commodities around the world.
5.5 Key Terms
Government : A government is the system by which a state or community is

governed. In British English (and that of the Commonwealth of Nations),
a government more narrowly refers to the particular executive in control of a state at a
given time—known inAmerican English as an administration. In American
English, government refers to the larger system by which any state is
organized. Furthermore, government is occasionally used in English as
a synonym for governance.
In the case of its broad associative definition, government normally consists

of legislators, administrators, and arbitrators. Government is the means by which state
policy is enforced, as well as the mechanism for determining the policy of the state. A
form of government, or form of state governance, refers to the set of political systems
and institutions that make up the organisation of a specific government.
Government of any kind currently affects every human activity in many important
ways. For this reason, political scientists generally argue that government should not be
studied by itself; but should be studied along with anthropology, economics, history,
philosophy, science, and sociology.
Source: http://en.wikipedia.org/wiki/Government
Income : Income is the consumption and savings opportunity gained by an entity

within a specified timeframe, which is generally expressed in monetary terms. However,
for households and individuals, “income is the sum of all the wages, salaries, profits,
interests payments, rents and other forms of earnings received... in a given period of
time.”
Source: https://en.wikipedia.org/wiki/Income

1. Discuss Government Influence on Income, Planning, Prices and
Production.
2 Explain Parameters and factors associated with pricing policy.
3. As observed in the earlier units while observing different policy structures
and systems, how one may appreciate that the policies have to be correlatively
steered most of the times as motivatiors and sometimes as barriers also?
4. Explain the Pricing Policy Relationship with International Prices
Government Influence on Income,
5.7 Books for Further Reading Planning, Prices and Production

Publishing House, 2009 NOTES
2. Cherunilam, F., "Business Environment-Text and Cases", 19th Edition. Himalaya

and Co., 2009
Hill, 2007
2010
Taxation and Business
UNIT 6 TAXATION AND BUSINESS
NOTES Structure
6.0 Introduction
6.1 Unit Objectives
6.2 Taxation and Business
6.3 Summary
6.4 Key Terms
6.0 Introduction
The business prime motive is wealth creation and profit, actual profit comes after
all expenditure and taxes. This chapter is for having a glimpse of Taxation system and
how it affects the business environment.
6.1 Unit Objectives
aspects of taxation and business so as to enable them to visualize that how these are
businesses well.
6.2 Taxation and Business

Taxes are levied by the central as well as the state government. Direct taxes
such as:
a) Personal income tax
b) Corporate tax
And Indirect taxes like:
a) Custom duties
b) Excise duties
c) Central sales tax are levied by the central government whereas state
government levy taxes like:
i. State sales tax
Business Enviornment : 66 ii. Local taxes like entry tax
iii. Octroi tax etc. Taxation and Business
Government of India set up the Raja Chelliah Committee on tax reform in 1991.
The objective and the mandate of the committee were to make the tax system of the
country more elastic and broad based along with simplifying the existing laws and NOTES
regulations. Major recommendations of the committee were:

a) Reduction in customs and excise duty
b) Removal of the demarcation between widely and closely held companies
c) Extension of MODVAT to more countries
d) Lowering of corporate tax
e) Simplification of existing income tax return filling procedure
f) Levy of taxes on services like insurance, stock broking, telecommunication
and other services.
g) VAT, value added tax
h) Streamlining of tax administration and appellate procedures.
One of the most important recommendations in the form of VAT which took a
long effortful journey for implementation brought in several advantages like
a) Setting off an input tax as well as tax on previous purchases
b) Abolished the burden of several other taxes like turnover tax, surcharges on
sales tax, additional surcharges, SAT etc.
The cumulative result is the rationalization of tax burden and reduction of prices.
Transparency and ease of monitoring is increasing. Tax compliances have increased
which is increasing the revenue growth.
Above description on the types of taxes and especially about VAT and its effects
in self explanatory in suggesting that:
a) Rationalization of taxes is a motivation to producer and the service provider
b) Taxes and tax procedures have an integrative effect on business to be done
Check Your Progress
across the nation
Enumerate different forms
c) Price rationalization has important association with tax rationalization and as
of Taxes to understand the
we have an equating effect along with having a power to increase demand Correlation of the same
hence production, hence employment. with the Businesses and
d) Taxes collected give government to plan well for fiscal structure which has a their Environment
direct impact on monetary structure. In fact tax policy is the most important
aspect of governance affecting the Business Environment.
6.3 Summary
The various taxes like personal tax, corporate tax, direct and indirect tax is Business Enviornment : 67
Taxation and Business discussed. The practical details of taxes are well taken by the author and its effects and
different aspects are discussed in detail.
NOTES 6.4 Key Terms
TAXATION: Taxes in India are levied by the Central Government and

the state governments. Some minor taxes are also levied by the local authorities such
the Municipality.
The authority to levy a tax is derived from the Constitution of India which allocates
the power to levy various taxes between the Centre and the State. An important restriction
on this power is Article 265 of the Constitution which states that “No tax shall be levied
or collected except by the authority of law.” Therefore each tax levied or collected has
to be backed by an accompanying law, passed either by the Parliament or the State
Legislature. In 2010-11, the gross tax collection amounted to 7.92 trillion, with direct
tax and indirect tax contributing 56% and 44% respectively.)
Source: https://en.wikipedia.org/wiki/Taxation_in_India

1. What is the impact of tax and inflation on corporate policy planning?
2. Explain the concept of public revenue in India.
3. Explain the concept of public expenditure in India.
4. Explain the concept of public debt in India.

and Co., 2009
Hill, 2007
2010
Financial System
UNIT 7 FINANCIAL SYSTEM
Structure NOTES
7.0 Introduction
7.1 Unit Objectives
7.2 Financial system
7.3 Financial Institutions
7.3.1 Ministry of Finance
7.3.2 Life Insurance Corporation of India
7.3.3 Unit Trust of India
7.3.4 General Insurance Corporation of India
7.3.5 Export Import Bank of India
7.3.6 Tourism Finance Corporation of India
7.3.7 NABARD
7.3.8 National Housing Bank
7.3.9 Reserve Bank of India
7.3.10 Commercial Banks
7.3.11 Co-operative Bank
7.3.12 Non-Banking Financial Companies
7.3.13 Securities and Exchange Board of India
7.3.14 Insurance Regulatory and Development Authority
7.4 Financial Instruments
7.5 Industrial finance and industrial financial institutions
7.6 The Financial Markets
7.7 Summary
7.8 Key Terms
7.0 Introduction
This chapter is about the financial system and institutions which constitute it are
discussed. Banking systems and the large organizations which is forming the
banking system is elaborated. Insurance related organizations and other financial
instruments are also discussed which makes the financial markets and change Business Enviornment : 69
Financial System business environment.
7.1 Unit Objectives

NOTES
financial institutions and their role in the economy, their definitions and provisions so as
to enable them to visualize that how these are important for the business organizations
to understand these things so as to steer the businesses well.
7.2 Financial system

The American Heritage® Dictionary of the English Language, Fourth Edition
defines the term finance as “the management of money, banking, investments, and
Check Your Progress credit.” The term “finance” in our simple understanding is perceived as equivalent to
Elaborate the following ‘‘Money.” It is not exactly money but the source of providing funds for a particular
statement as a concept, activity.
``The term ‘finance’ in our Van Horne defined the financial system as, “the system to allocate savings
simple understanding is efficiently in an economy to ultimate users either for investment in real assets or for
perceived as equivalent to consumption.” It is a complex, integrated set of subsystems. These subsystems are
‘money.’ It is not exactly financial institutions, markets and instruments. These are discussed ahead.
money but the source of
providing funds for
particular activity. 7.3 Financial institutions
Financial institutions give a physical presence to the system. They provide financial
infrastructure. They encourage savings and make for its optimal allocation. They make
one type of contract with the borrowers and of another type with the lenders. In other
words, they perform the function of financial intermediation. Financial intermediation is
a productive activity in which an institutional unit incurs liabilities on its own account for
the purpose of acquiring financial assets by engaging in financial transactions on the
market. A brief account of the main financial intermediaries in India is given below:
7.3.1 Ministry of Finance

The Ministry of Finance is at the top of the hierarchy of financial institutions in
India. It is an important ministry within the Government of India. It concerns itself with
taxation, financial legislation, financial institutions, capital markets, center and state
finances, and the Union Budget. As of December 2010, Minister of Finance is Pranab
Mukherjee. It comprises five departments namely Department of Economic Affairs,
Department of Expenditure, Department of Revenue, Department of Disinvestments
and Financial Services. It controls various pension funds, provident funds, term lending
institutions (IFCI, ICICI, IDBI), investment institutions (LIC, GIC, UTI), sectoral
(NABARD, NHB, EXIM, TFCI) and state level institutions (SFC, SIDC). Of these,
Business Enviornment : 70 term lending and state level institutions are of no relevance in the present scenario. A
brief overview of some of these institutions is given below: Financial System
7.3.2 Life Insurance Corporation of India

LIC (Life Insurance Corporation) is the largest state-owned life insurance company
in India, and also the country’s largest investor. It is fully owned by the Government of NOTES
India. It was founded in 1956 with the merger of more than 200 insurance companies
and provident societies. Headquartered in Mumbai, financial and commercial capital of
India, the Life Insurance Corporation of India currently has 8 zonal offices and 101
divisional offices located in different parts of India, at least 2048 branches located in
different cities and towns of India along with satellite offices attached to about some 50
Branches, and has a network of around 1.2 million agents for soliciting life insurance
business from the public.
7.3.3 Unit Trust of India
The establishment of the Unit Trust of India in 1964 was the culmination of a long
overdue need of the capital market in India and reflected the efforts of the Government
to popularize mutual funds to encourage indirect holdings of securities by the public.
The objective of setting up UTI was to enable small investors to share in industrial
prosperity. UTI introduced various unit schemes to suit different classes of investors.
7.3.4 General Insurance Corporation of India
The entire general insurance business in India was nationalized by General Insurance
Business (Nationalisation) Act, 1972 (GIBNA). General Insurance Corporation of India
(GIC) was formed in pursuance of Section 9(1) of GIBNA. It was incorporated on 22
November 1972 under the Companies Act, 1956 as a private company limited by shares.
GIC was formed for the purpose of superintending, controlling and carrying on the
business of general insurance. As soon as GIC was formed, GOI transferred all the
shares it held of the general insurance companies to GIC. Simultaneously, the nationalized
undertakings were transferred to Indian insurance companies. After a process of mergers
among Indian insurance companies, four companies were left as fully owned subsidiary
companies of GIC (1) National Insurance Company Limited, (2) The New India
Assurance Company Limited, (3) The Oriental Insurance Company Limited, and (4)
United India Insurance Company.
7.3.5 Export Import Bank of India
Export-Import Bank of India is the premier export finance institution of the country,
set up in 1982 under the Export-Import Bank of India Act 1981. Government of India
launched the institution with a mandate, not just to enhance exports from India, but to
integrate the country’s foreign trade and investment with the overall economic growth.
Since its inception, Exim Bank of India has been both a catalyst and a key player in the
promotion of cross border trade and investment. Commencing operations as a purveyor
of export credit, like other Export Credit Agencies in the world, Exim Bank of India has,
over the period, evolved into an institution that plays a major role in partnering Indian
industries, particularly the Small and Medium Enterprises, in their globalization efforts,
through a wide range of products and services offered at all stages of the business
cycle, starting from import of technology and export product development to export
production, export marketing, pre-shipment and post-shipment and overseas investment. Business Enviornment : 71
Financial System 7.3.6 Tourism Finance Corporation of India
The Government of India had, pursuant to the recommendations of the National
Committee on Tourism viz Yunus Committee set up under the aegis of Planning
NOTES Commission, decided in 1988, to promote a separate All-India Financial Institution for
providing financial assistance to tourism-related activities/projects. In accordance with
the above decision, the IFCI Ltd. along with other All-India Financial/Investment
Institutions and Nationalized Banks promoted a Public Limited Company under the
name of “Tourism Finance Corporation of India Ltd. (TFCI)” to function as a specialized
All-India Development Financial Institution to cater to the financial needs of tourism
industry. TFCI provides financial assistance to enterprises for setting up and/or
development of tourism-related projects, facilities and services, such as: Hotels,
Restaurants, Holiday Resorts, Amusement Parks, Multiplexes and Entertainment
Centers, Education and Sports, Safari Parks, Rope-ways, Cultural Centers, Convention
Halls etc
7.3.7 NABARD
Against the backdrop of the massive credit needs of rural development and the
need to uplift the weaker sections in the rural areas within a given time horizon, the
National Bank for Agriculture and Rural Development was set up. The Reserve Bank
had responsibilities to discharge in respect of its many basic functions of central banking
in monetary and credit regulations and was not therefore in a position to devote undivided
attention to the operational details of the emerging complex credit problems. This paved
the way for the establishment of NABARD. The Parliament through the Act 61 of 81
approved its setting up. It was set up with an initial capital of Rs 100 crore, which was
enhanced to Rs 2,000 crore, fully subscribed by the Government of India and the RBI.
7.3.8 National Housing Bank
NHB was set up on July 9, 1988 under the National Housing Bank Act, 1987. It is
a wholly owned by Reserve Bank of India, which contributed the entire paid-up capital.
The Head Office of NHB is at New Delhi. NHB has been established to promote a
sound, healthy, viable and cost effective housing finance system to cater to all segments
of the population and to integrate the housing finance system with the overall financial
system.
7.3.9 Reserve Bank of India
RBI (Reserve Bank of India) is the central banking system of India. The institution
started functioning on 1 April 1935 during the British Raj in accordance with the
provisions of the Reserve Bank of India Act, 1934 and plays an important part in the
development strategy of the government. It is also called the banker of banks or the
lender of last resort.
7.3.10 Commercial Banks
A commercial bank collects savings primarily in the form of deposits and
traditionally finance working capital requirements. However, in tune with the emerging
Business Enviornment : 72 trends, banks have entered into term lending business.
7.3.11 Co-operative Bank Financial System
A co-operative bank is a financial entity which belongs to its members, who are at
the same time the owners and the customers of their bank. Co-operative banks are
often created by persons belonging to the same local or professional community or NOTES
sharing a common interest. Co-operative banks generally provide their members with a
wide range of banking and financial services. Co-operative banks differ from stockholder
banks by their organization, their goals, their values and their governance. In most
countries, they are supervised and controlled by banking authorities and have to respect
prudential banking regulations, which put them at a level playing field with stockholder
banks. Depending on countries, this control and supervision can be implemented directly
by state entities or delegated to a co-operative federation or central body. Cooperative
banks in India finance rural areas under: Farming, Cattle, Milk and Personal finance.
Cooperative banks in India finance urban areas under: Self-employment, Industries,
Small scale units, Home finance, Consumer finance, Personal finance.
7.3.12 Non-Banking Financial Companies
NBFCs (Non Banking Financial Companies) provide a variety of fund based and
non fund based services. Most of their funds are raised in the form of public deposits
ranging one year to seven years of maturity. Depending on the nature and type of
services, they are asset finance companies, housing finance companies, venture capital
funds, merchant banking organizations etc.
7.3.13 Securities and Exchange Board of India
The basic functions of the Securities and Exchange Board of India are to protect
the interests of investors in securities and to promote the development of, and to regulate
the securities market. It was established on April 12, 1992 in accordance with the
provisions of the Securities and Exchange Board of India Act, 1992. It exercises control
over the stock exchanges, stock brokers, various investors in the stock markets, mutual
funds, ETFs etc. SEBI has enjoyed success as a regulator by pushing systemic reforms
aggressively and successively (e.g. the quick movement towards making the markets
electronic and paperless rolling settlement on T+2 bases). SEBI has been active in
setting up the regulations as required under law. It has increased the extent and quantity
of disclosures to be made by Indian corporate promoters. More recently, in light of the
global meltdown, it liberalized the takeover code to facilitate investments by removing
regulatory strictures. In one such move, SEBI has increased the application limit for
retail investors to Rs 2 lakh, from Rs 1 lakh at present
7.3.14 Insurance Regulatory and Development Authority
IRDA (Insurance Regulatory and Development Authority) is a national agency of
the Government of India, based in Hyderabad. It was formed by an act of Indian Check Your Progress
Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate Explain various types of
some emerging requirements. Mission of IRDA as stated in the act is “to protect the Financial Institutions
interests of the policyholders, to regulate, promote and ensure orderly growth of the
insurance industry and for matters connected therewith or incidental thereto.” It regulates
and develops the insurance organizations. Recently, the Government of India ruled that
the Unit Linked Insurance Plans (ULIPs) will be governed by IRDA, and not the Business Enviornment : 73
Financial System market regulator Securities and Exchange Board of India.
7.4 Financial Instruments

NOTES
Financial instruments are claims against a person or an institution for payment, at
a future date, of a sum of money and/or a periodic payment in the form of interest of
dividend. The maturity and sophistication of the financial system depends on the
prevalence of variety of financial instruments available to meet the needs of
heterogeneous investors. They fall into three broad categories- primary securities, indirect
securities and derivatives.
Primary instruments or direct securities are those which are issued directly by the
borrowers to the lenders while indirect securities are issued via a financial intermediary.
Equity shares, preference shares and the debentures are primary securities. Equity
shares are ownership securities and risk capital. The owners of such securities are
residual claimants on income and assets and participate in the management of the
company. Debentures are creditor ship securities. Their holders are entitled to a specified
interest and first claim on the assets of the security. Preference shares are hybrid
securities. The holders of such securities have preference rights over equity shareholders
both in respect of a fixed dividend and return of capital. Also, a variety of innovative
debt instruments have emerged. The holders of participating debentures participate in
excess profits of the company after payment of equity dividend. Third Party Convertible
Debentures include a warrant which entitles the holder to subscribe to equity of another
firm at a preferential (lower than market price). There are convertible debentures
(redeemable at premium) which are issued at a face value with an option to sell the
debentures at a premium. Zero Interest Fully Convertible Debentures carry no coupon
rate of interest. They are automatically converted into shares after the lock in period.
Indirect securities include mutual fund units, security receipts, securitized debt
instruments. The main consideration in case of underlying securities is that there is
pooling of funds by a financial intermediary. They are more suited to interests of investors,
particularly small investors due to convenience, lower risk and expert management.
Mutual Funds pool the savings of a number of investors who share a common financial
goal. Each scheme of a mutual fund can have different character and objectives. Mutual
funds issue units to the investors, which represent an equitable right in the assets of the
mutual fund. Security Receipts are bonds issued by Asset Reconstruction Companies
to banks when they buy bad loans from them. Normally, when these companies buy
bad assets from banks, they do not pay cash up front. They buy the stressed assets
through security receipts, which are essentially bonds that can be redeemed later. The
bonds (SR) are issued up to a maximum period of seven years. Securitized debt
instruments are the products of securitization, which in turn is the process of passing
debts onto entities that in turn break them into bonds and sell them. As of 2010, the most
common form of securitized debt is mortgage-backed securities, but moves are being
made to securitize other debts, such as credit cards and student loans. Securitized debts
have the benefit of lowering interest rates and freeing up capital to banks, but they have
Business Enviornment : 74 the drawback of encouraging lending for purposes other than long-term profit. Securitized
debt instruments are created when the original holder (like a bank) sells its debt obligation Financial System
to a third party, called a Special Purpose Vehicle (SPV). The SPV pays the original
lender the balance of the debt sold, which gives it greater liquidity. It then goes on to
divide the debt into bonds, which are then sold on the open market.
NOTES
Derivatives are instruments whose value is derived from the value of one/more
basic variables called the underlying asset. They are forwards, futures and options. A
forward contract is an agreement to exchange an asset, for cash, at a pre determined Check Your Progress
future date today. At the end of the contract, one can enter into an offsetting transaction Elaborate upon Financial
by paying difference in price. Future contracts are similar to forward contracts but are Instruments
highly standardized traceable contracts unlike the latter. They are standardized in terms
of size, expiry date and all other features. Options establish a contract between two
parties concerning the buying or selling of an asset at a reference price. The buyer of
the option gains the right, but not the obligation, to engage in some specific transaction
on the asset, while the seller incurs the obligation to fulfill the transaction if so requested
by the buyer. An option which conveys the right to buy something is called a call; an
option which conveys the right to sell is called a put.
Sources:
www.bseindia.com
www.nseindia.com
www.rbi.org.in
www.sebi.gov.in
www.tfci.com
www.utimf.com
www.licindia.com
www.eximbankindia.com
www.nhb.org.in’
www.nabard.org.in
www.irda.gov.in
7.5 Industrial Finance and Industrial Financial Institutions

A business enterprise requires capital for different purposes for long term medium
term as well as short term. Sources of the capital requirement can be categorized as:
a) For Short term
i. Bank credit
ii. Trade credit
iii. Instalment credit
iv. Customer advances
b) For medium term
i. Issue of shares
ii. Debentures
iii. Loans Business Enviornment : 75
Financial System iv. Public deposits
v. Profits in the form of retained earnings
c) For long term
NOTES i. Shares
ii. Debentures
iii. Loans from banks and other fianacial institutions
iv. Profits
Then came in corporate securities in two form largely i.e. ownership securities
and creditorship securities. Corporate securities are the instruments enabling a large
part of capital. Ownership securities as the name suggests are the shares by which the
owned capital classifieds as the sink capital and the venture capital is raised. The types
of shares associated are equity shares and preference shares. Ordinary shares are
called as equity shares in general whereas preference shares are those which have
preferential right to the payment of dividend during the life-time of the company and a
preferential right to the return of capital if and when the company’s operations are
wound off.
Creditorship securities consists of debentures and bonds and are instruments widely
used by organizations to raise funds. The capital raised is known as borrowed capital
and debt capital.
Characteristics of corporate securities:
A) Ownership securities
1. Equity shares
i. It gives voting rights.
ii. It gives differential rights as per the prescription.
2. Preference shares
i. These shares can be cumulative
ii. These can be convertible
iii. Preference shares may also be non cumulative
B) Creditorship securities
1. Debentures
i. Redeemable or Irredeemable
ii. Mortgage and simple debentures
iii. Registered and Bearer
iv. Convertible and non-convertible
Redeemable: To be repaid at the end of specific period or on demand.
Convertible: Having an option of being converted into equity.
Participating: Holder to get fixed rate of dividend and right to participate in the
balance of profit in an agreed proportion.
Cummulative preference share earn dividends whether there is profit or no profit.
In case of insufficient profits the dividends get accumulated with the next year(s).
Industrial Financial Institutions: Financial System
There are various types of institutions for financial assistance such as:
a. Industrial development Bank of India (IDBI)
b. Industrial Financial Corporation of India (IFCI) NOTES
c. Industrial Credit and Investment Corporation of India (ICICI)
d. Industrial Investment Bank of India (IIBI)
Where IDBI as the apex institution coordinates the activities of various other
institutions. Some other investment institutions like UTI (The United trust of India), LIC
(Life Insurance Corporation of India) and GIC (General Insurance Corporation of India)
and its subsidiaries makes investments and financial assistance.
Then there are state level financial corporations as well along with state level
Industrial Investment and Industrial Development Corporations. For small scale sector
there is Small Industries Development Bank of India (SIDBI), a wholly owned subsidiary
of IDBI for promotion, financing and development of industries in small scale sector. It
coordinates the functions of other institutions engaged in similar activities. The small
scale sector is also catered to by the National Small Industries Corporation (NSIC),
State Small Industries and Development corporation (SSIDCs) and Khadi and Village
Industries Commission (KVIC). Further a very large part of industrial finance is catered
to by the Commercial Banks.
Types of Financial assistance
Few importance forms of financial assistances are:
a. Rupee and foreign currency loans
b. Shares and Debentures subscriptions
c. Underwriting of shares and Debentures
d. Guarantee of deferred payments and loans
Check Your Progress
Activities of Development Financial Institutions
Elaborate the concept of
a. Identification of Industrial potential of different areas
Industrial Finance and
b. Development of entrepreneurship through training forms of Industrial
c. Project identification assistance Financial Institutions
d. Feasibility studies and project report preparation
e. Technical and managerial consultancy
f. Seed risk capital assistance etc.
Development Financial Institutions also sponsor a number of technical consultancy
organizations and some industries for entrepreneurial management development and
for imparting education/ research in capital market.
7.6 The Financial Markets

There are 6 major components of the Indian Financial Markets-
a) The Money Market
b) The Credit Market Business Enviornment : 77
Financial System c) The Capital Market
d) Foreign Exchange Market
e) Debt Market and the
NOTES f) Derivatives Market
There are few other components like
Check Your Progress
1) Non Banking Financial Corporations/companies i.e. NBFC market
Describe major
components of the Indian 2) The insurance market and
Financial Market 3) The household finance market
With the beginning of economic reforms and liberalization in India in early 90s the
major constraints present or existing as barriers to the growth of financial markets
were diluted through restructuring.
The barriers were:
a) Pricing of the financial assets was controlled
b) There was a restriction on transactions
c) Lot of barriers were there to the entry of the financial markets
d) Liquidity in the financial markets was low and
e) There was an unsuitably large transaction cost.
The major impact of such barriers was related to:
i. The non-integrated and under developed financial markets and
ii. Inefficient allocation of resources supposed to be channelized through
the financial markets.
Then the barriers were addressed and the changes those were brought in were:
a) Introduction of free pricing of the financial assets
b) Entry barrier removals
c) Removal of other controls and restrictions
d) Improvement in the methods of issuance of securities
e) Enhancement in the number of financial market instruments
f) Trading improvements
g) Improvement in regulatory practices and transparency and disclosure
practices.
Capital markets still in the transitional phase of development credit market in
India, is looked upon as a major source of finance in India. Financial intermediaries
providing credit are divided into two major categories:
a) Institutional categories and
b) Non-institutional categories
Major institutional creditors in India are banks and non-banking financial institutions
which include development financial institutions and other financial institutions and non-
banking financial companies including housing finance companies. There are unorganized
sources of credit also, which include money lenders indigenous bankers and sellers for
Business Enviornment : 78 trade credit. Foreign exchange market in India comprises of Reserve Bank of India,
Authorised Dealers and Customers. The Domestic debt market is comprised of two Financial System
main segments:
a) The Government Securities and
b) Securities comprising corporate debt, Public Sector Undertakings bonds and NOTES
DFIs bonds.
Public Sector undertakings have been issuing long term bonds, which has added a
new dimension to the debt market, where as
DFI bonds have also emerged as an important segment of the debt market.
Money and Capital Markets:
Money market implies short term funds where as capital market is associated
with the long term funds. There are three major components of the money and the
capital markets and those are:
a) The suppliers of the loanable funds,
b) The borrowers and
c) The intermediaries dealing with lenders as well as the borrowers.
Money and capital markets in India are operating in two forms largely:
1) Unorganized
2) Organized
The unorganized operations are characterized by the lack of a formal structure
and largely dependent upon an informal code of conduct followed and set by larger
players. Such players are indigenous bankers, money lenders and individuals who are
operating in money markets as informal intermediaries.
Organized operations are characterized by the presence of a central bank which
controls and propels the policies to be followed and executed by the commercial banks,
co-operative banks, discount houses, acceptance houses and even co-operative credit
institutions who follow in a subsidiary position or are indirectly influenced by the central
bank policies.
Functions of money market
Money market plays a key role in channelizing the monetary resources in an
economy. The major functions of a money market are related to
a) Efficient operation of the monetary policy
b) Channelization of the savings of the society
c) Reduction of seasonal and regional imbalances in supply and demand of
funds and
d) Reduction of gap between borrowing and lending rates.
Instruments of Money Market
Instruments of money market especially in India are comprised of :
a) Call money
b) Certificates of deposit
c) Treasury Bills Business Enviornment : 79
Financial System d) Short term security transactions, for example, repos
e) Commercial Bills or Bankers acceptance
f) Commercial papers and
NOTES g) Inter-corporate papers and funds.
The Capital Market
Capital Markets existence and efficient operations may strongly effect investment
in a country through effective and useful channelization of capital resources so as to
motivate enterprising investors. Capital markets operate on a global scale now days.
The capital markets are comprised of institutions (also government institutions)
and individuals who channelize the long term supply and demand for the capital.
Some important constitutes of the capital market are stock exchanges, commercial
banks, co-operative banks, savings banks, development banks, insurance companies
and investment trusts or companies.
India while aligning itself to whole of the world and attempting to attract larger
foreign investment so as to provide impetus to its economy has specifically addressed
Check Your Progress
the policy structure affecting its capital market.
Describe Money Markets
and the Capital Markets Strong attention has been paid to the development of stock exchanges, development
banks and commercial banks etc. by not only addressing the operational efficiency
enhancement but also addressing the operational policies and transparency aspects.
SEBI in due course has been empowered and has brought in pivotal policy changes.
(few excerpts of recent policy changes of/in capital market structure and operations)
Stock Exchange and its Regulation
Securities Contracts (Regulation) Act 1956 says that ‘Stock exchange means
anybody of individuals, whether incorporated or not constituted for the purpose of
assisting, regulating or controlling the business of buying, selling or dealing in Securities’,
hence suggestive of stock exchange being a market in which securities are bought and
sold.
Securities exchange should be propelled for the development of financial markets.
An efficient and organized securities market can offer
Check Your Progress a) Price continuity and marketability of the stock/shares
Describe the functions of b) Transparency and fairness in stock dealings,
Money Markets and the c) Right evaluation of securities hence
Capital Markets
d) Proper flow and distribution of savings
Apart from the conventional stock exchanges including the National Stock
Exchange (NSE) which has a large turn over and plays a significant role in Indian
Stock Market there is OTCEI i.e. Over The Counter Exchange of India.
The fundamental principal of working and objectives of OTCEI are same as that
of others in accordance with the national market but;
a) There is no physical location
b) No counters/no stock exchange building
The traders i.e. sellers and buyers trade over telephone and through network. Financial System
This system has facilitated the extension of stock market and services for whole of the
country across the urban as well as the rural areas. OTC markets are completely
automated facilitating the transactions through network and telecommunication /ICTs
NOTES
The national stock exchange also has played a pivotal role by offering efficient,
transparent, equal and nationwide access to the investors through a nationwide electronic
screen based “scripeless” and “floorless” trading system.
The most important benefits of NSE since its inception in 1994 to the investors is
the provision of access to the same market and order book, irrespective of location at
the same time and cost. The investors before NSE came into being had to suffer
because of uncertainty and high transaction cost because of the reasons such as the
involvement of correspondent brokers for the securities not being traded in the nearest
exchange.
Securities Act 1956 Check Your Progress
Explain Securities Act
The Central Government in accordance with the Securities Contracts (Regulation)
1956
Act 1956 and the Securities and Exchange Board of India(SEBI) established by the
Central Government directs the stock market and regulates the dealings on the stock
exchanges as well. After the formation of 1956 Act exchanges recognized by Government
can function. The major objective of this Act is to regulate dealings and transactions
through enhancement of transparency in the processes so as to present undesirable
trade and transactions.
1956 Securities Contracts (Regulation) Act provide for the authority to the Central
Government and SEBI as a body constituted by Central Government under its authority
to recognize a stock exchange by
a) Approving the bye laws and the rules of a stock exchange
b) Monitoring the activities and functioning of stock exchanges through calling
for and analyzing the returns and other operational details
c) Amend rules and bye-laws of a stock exchange
d) Supersede governing body of any stock exchange and on the basis of rea-
sons found cognizable.
Management of Stock Exchanges
Government nominates three members to an Executive Committee or Governing
body which manages stock exchange. Rules and Securities and Exchange Board of
India has played a very important and pivotal role in regulating the capital market of
India.
Functions of SEBI
Check Your Progress
How is the Management
Major functions of SEBI include
of Stock Exchanges done?
a) Regulation of the business in stock exchanges and other securities markets
b) Registering and regulation of the working of stock market intermediaries,
c) Promotion and regulating, self-regulatory organizations
d) Prohibition of unfair trade practices in securities market Business Enviornment : 81
Financial System e) Promotion of investor education
f) Promotion of intermediaries training
g) Prohibition of insider’s trading
NOTES h) Regulation of substantial acquisition of shares and takeover of companies
i) Information collection
j) Conducting enquiries, inspections and audits of stock exchanges, intermedi-
aries and self-regulatory organizations in the securities markets.
Check Your Progress
Reform and development measures by SEBI
Explain Functions and
details of Reserve Bank of Some important reform measures and development steps which have been taken
India by in due course of time are:
a) Introduction of free pricing of capital issues
b) Introduction of book building mechanism
c) Introduction of electronic trading
d) Measures to widen and deepen the capital markets.
e) Improvement of trading, clearing and settlement systems,
f) Promotion of dematerialization
g) Measure to reduce counter party risk
h) Introduction of circuit breakers/perice bands
i) Measures to increase information flow and to enhance the transparency
amongst the companies
Such measures have given desired results and have supported in the achievement
of the objectives of a robust, integrated and efficient capital market structure.
RESERVE BANK OF INDIA
The Reserve Bank of India (RBI) is the nation’s central bank. The origin of the
Reserve Bank can be traced to 1926, when the Royal Commission on Indian Currency
and Finance—also known as the Hilton-Young Commission— recommended the creation
of a central bank to separate the control of currency and credit from the government
and to augment banking facilities throughout the country. The Reserve Bank of India
Act of 1934 established the Reserve Bank as the banker to the central government and
set in motion a series of actions culminating in the start of operations in 1935. Since
then, the Reserve Bank’s role and functions have undergone numerous changes—as
the nature of the Indian economy has changed. Today’s RBI bears some resemblance
to the original institution, although our mission has expanded along with our deepened,
broadened and increasingly globalised economy.
About the Central Board
Check Your Progress
The Central Board has primary authority for the oversight of the Reserve Bank.
What are the Functions of
It delegates specific functions through its committees and sub-committees. The Reserve
SEBI
Bank is wholly owned by the Government of India. The Central Board of Directors
oversees the Reserve Bank’s business.
Central Board of Directors by the Numbers
Official Directors Financial System
1 Governor
4 Deputy Governors, at a maximum
Non-Official Directors NOTES
4 directors—nominated by the Central Government to represent each local
board
10 directors nominated by the Central Government with expertise in various Check Your Progress
segments of the economy Explain Functions and
1 representative of the Central Government details of Reserve Bank of
6 meetings—at a minimum—each year India
1 meeting—at a minimum—each quarter
Central Board: Includes the Governor, Deputy Governors and a few Directors (of
relevant local boards)
Comittee of Central Board: Oversees the current business of the central bank
and typically meets every week, on Wednesdays. The agenda focusses on current
operations, including approval of the weekly statement of accounts related to the Issue
and Banking Departments.
Board for Financial Supervision: Regulates and supervises commercial banks,
Non-Banking Finance Companies (NBFCs), development finance institutions, urban
co-operative banks and primary dealers.
Board for Payment and Settlement Systems: Regulates and supervises the payment
and settlement systems.
Sub-committees of the Central Board: Includes those on Inspection and Audit;
Staff; and Building. Focus of each subcommittee is on specific areas of operations.
Local Boards: In Chennai, Kolkata, Mumbai and New Delhi, representing the
country’s four regions. Local board members, appointed by the Central Government
for four-year terms, represent regional and economic interests and the interests of co-
operative and indigenous banks.
7.7 Summary
Organizations like RBI its function and role in the economy is explained. The
other important organization like IRDA,NABARD,EXIM,SEBI its functioning and their
role in the business environment and economy is explained.
7.8 Key Terms
Financial Institutions : All India Financial Institutions (AIFI) is a group composed

of Development Finance Institutions (DFI) and Investment Institutions that play a pivotal
role in the financial markets. Also known as “financial instruments”, the financial
Financial System institutions assist in the proper allocation of resources, sourcing from businesses that
have a surplus and distributing to others who have deficits - this also assists with ensuring
the continued circulation of money in the economy. Possibly of greatest significance,
the financial institutions act as an intermediary between borrowers and final lenders,
NOTES
providing safety and liquidity. This process subsequently ensures earnings on the
investments and savings involved.
In Post-Independence India, people were encouraged to increase savings, a tactic
intended to provide funds for investment by the Indian government. However, there
was a huge gap between the supply of savings and demand for the investment
opportunities in the country.
Source: http://en.wikipedia.org/wiki/All_India_Financial_Institutions
TFCI : Yunus Committee set up in 1988, under the aegis of Planning Commission
recommended the need of an All-India Financial Institution for providing financial
assistance to tourism sector in the country. In accordance with the above recommendation,
IFCI Limited, other All-India Financial Institutions, Investment Institutions and nationalised
Banks promoted a public limited company under the name of “Tourism Finance
Corporation of India Ltd (TFCI)” to function as a specialised All-India Financial Institution
to cater to the financial needs of the tourism industry.
Source: http://www.tfciltd.com/
NABARD : NABARD is set up by the Government of India as a development
bank with the mandate of facilitating credit flow for promotion and development of
agriculture and integrated rural development. The mandate also covers supporting all
other allied economic activities in rural areas, promoting sustainable rural development
and ushering in prosperity in the rural areas.
With a capital base of Rs 2,000 crore provided by the Government of India and
Reserve Bank of India , it operates through its head office at Mumbai, 28 regional
offices situated in state capitals and 391 district offices at districts.
Source: http://www.nabard.org/nabardrolefunct/nabardrole_n_functions.asp
RBI (Reserve Bank of India) : The Reserve Bank of India was established on
April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act,
1934.
The Central Office of the Reserve Bank was initially established in Calcutta but
was permanently moved to Mumbai in 1937. The Central Office is where the Governor
sits and where policies are formulated.
Though originally privately owned, since nationalisation in 1949, the Reserve Bank
is fully owned by the Government of India.
Preamble
The Preamble of the Reserve Bank of India describes the basic functions of the
Reserve Bank as:
Business Enviornment : 84 “...to regulate the issue of Bank Notes and keeping of reserves with a view to
securing monetary stability in India and generally to operate the currency and credit Financial System
system of the country to its advantage.”
Sources: http://www.rbi.org.in/scripts/AboutusDisplay.aspx
SEBI (Securities and Exchange Board of India): ESTABLISHMENT OF SEBI NOTES
The Securities and Exchange Board of India was established on April 12, 1992 in
accordance with the provisions of the Securities and Exchange Board of India Act,
1992.
Preamble
The Preamble of the Securities and Exchange Board of India describes the basic
functions of the Securities and Exchange Board of India as
“...to protect the interests of investors in securities and to promote the development
of, and to regulate the securities market and for matters connected therewith or incidental
thereto”
Source: http://www.sebi.gov.in/sebiweb/stpages/about_sebi.jsp
IRDA (Insurance Regulatory and Development Authority) : Insurance
Regulatory and Development Authority (IRDA) is an autonomous apex statutory body
which regulates and develops the insurance industry in India. It was constituted by
a Parliament of India act called Insurance Regulatory and Development Authority Act,
1999 and duly passed by the Government of India. The agency operates its
headquarters at Hyderabad, Andhra Pradesh where it shifted from Delhi in 2001.
Source: http://en.wikipedia.org/wiki/Insurance_ Regulatory_ and_ Development_
Authority
Financial Instruments : A financial instrument is a tradeable asset of any kind;
either cash, evidence of an ownership interest in an entity, or a contractual right to
receive or deliver cash or another financial instrument.
According to IAS 32 and 39, it is defined as “any contract that gives rise to a
financial asset of one entity and a financial liability or equity instrument of another
entity”.
Source: http://en.wikipedia.org/wiki/Financial_instrument
Financial Instruments : Definition of ‘Financial Instrument’
A real or virtual document representing a legal agreement involving some sort of
monetary value. In today’s financial marketplace, financial instruments can be classified
generally as equity based, representing ownership of the asset, or debt based, representing
a loan made by an investor to the owner of the asset. Foreign exchange instruments
comprise a third, unique type of instrument. Different subcategories of each instrument
type exist, such as preferred share equity and common share equity, for example.
Source: http://www.investopedia.com/terms/f/financialinstrument.asp
Financial Instruments : A document (such as a check, draft, bond, share, bill
of exchange, futures or options contract) that has a monetary value or represents a Business Enviornment : 85
Financial System legally enforceable (binding) agreement between two or more parties regarding a right
to payment of money. See also debt instrument, equity instrument, and financing
instrument.
NOTES
1. Briefly give an overview of Indian financial system.
2. Write notes on Indian financial institutions and markets.
3. Explain the role and functions of RBI.
4. What are the challenges for the Indian Banking sector?
5. Explain corporate governance.
6. What is sustainable development?
7. Explain the nature and role of stock exchanges in India.
8. What are the functions of stock exchanges?
9. Explain the SEBI policies and framework for the protection of stakeholders
in India.

and Co., 2009
Hill, 2007
2010
Source : http://www.businessdictionary.com/definition/financial-instrument.html
Sources : www.bseindia.com, www.nseindia.com, www.rbi.org.in,
www.sebi.gov.in, www.tfci.com, www.utimf.com, www.licindia.com,
www.eximbankindia.com, www.nhb.org.in’, www.nabard.org.in, www.irda.gov.in
Societal Environment and the
UNIT 8 SOCIETAL ENVIRONMENT Social Responsibility of Business
AND THE SOCIAL

NOTES
RESPONSIBILITY OF
BUSINESS
Structure
8.0 Introduction
8.1 Unit Objectives
8.2 Societal Environment and the Social Responsibility of Business
8.3 Corporate Social Responsibility
8.3.1 National voluntary guidelines on social, environmental and economics
responsibilities of business
8.3.2 Mandate and process
8.3.3 Applicability
8.3.4 Content and structure
8.4 Consumerism
8.4.1 Components of consumerism
8.5 Consumer protection act, 1986
8.6 Summary
8.7 Key Terms
8.0 Introduction
This chapter is on societal and social responsibility of Business. Corporate social

responsibility and its relevance in today's world are explained. CSR is helping the society
and as well as business in the long run. Consumerism is also well explained ,its component
and legal aspect are also elaborated through example.
8.1 Unit Objectives
The major objective of this Unit is to familiarize the readers with Societal
environment and the social responsibility of business, Corporate social responsibility,
National voluntary guidelines on social, environmental and economics responsibilities Business Enviornment : 87
Societal Environment and the of business, Mandate and process, Applicability, Content and structure, Consumerism,
Social Responsibility of Business
Components of consumerism, Consumer protection act, 1986 their definitions and
provisions so as to enable them to visualize that how these are important for the business
NOTES organizations to understand these things so as to steer the businesses well.
8.2 Societal Environment and the Social Responsibility of

Business
Whole of the society along with all the stakeholders are the part of a business
environment as we have understood.
Some as employees, customer etc are the direct part and some as people staying
in the vicinity, people developing their skills because of some businesses are the indirect
part. Its imperative for the sustenance of a business as well as because of the moral
responsibility of a business that it must be socially responsible.
The social responsibility of business refers to:
a) The economic consequences of a business which actually should be for the
development of society
b) It should have components of or should address the:
i. Development of human values
ii. Develop prosperity and should contribute in human development index.
iii. Should contribute in environmental sustainability
iv. Should contribute in the development of overall health and social
upliftment of the people of the society.
Looking at the above parameters a business may fall at any level of measurement
for being socially responsible.
A business which is initiated with the perspective of being socially respon-
sible like steel manufacturing by TATAs at the time when India required
infrastructure development. Another example is AMUL which holds its so-
cial responsibility towards all the stake holders in the process by being re-
sponsible to the customers though its product and then all the stake holders.
Then came in the process followed by the business. How socially respon-
sible a business is in context to its production starting from raw material to
end product.
Then, the people around the business.
Then the integration of a business with other businesses and the parts of
society with the perspective of sustainability and prosperity.
You see the idea is that should a business have a merged identity with its corporate
social responsibility?
Business Enviornment : 88 Or
Should a business have integration with corporate Soial Responsibility? Societal Environment and the
Or
Should a business have Corporate Social Responsibility as a part other than the
NOTES
business itself?
The choice amongst these three orientations depends upon the business and may
also change the entire course of business itself Check Your Progress
Explain the concept
The resultant of the choice or change of orientation from one choice to another
associated with the
effect on:
following statement.
a) Acceptance level of the business in the society ``Whole of the society
b) Trust and credibility along with all the
c) Life span stakeholders are the part
of a Business
d) Brand equity and unhindered growth
Environment.’
For example:
Amul, TATA steels and TATA as an organization at large, Narayana
Hrudalaya, Grameen Bank, Arvind eye care, Shankar Netralaya and so many
other businesses can seen with the perspective of ‘By the society and for the
society’.
Many furniture businesses, chemical industries, PET industries are also for
the society but have to integrate CSR and sustainability aspects in the longer
run.
Other businesses like Alcohol and tobacco manufacturers, entertainers of
many kinds and so on have to include CSR as an additional activity to show
that they are socially responsible.
At the end, its matter of judgement, vision, leadership, intrinsic influence,
circumstances and choices at large to dwell upon the intensity in the scale of being
socially responsible.
8.3 Corporate Social Responsibility
8.3.1 National Voluntary Guidelines on Social, Environmental and

Economics Responsibilities of Business
These guidelines are a refinement over the Corporate Social Responsibility
Voluntary Guidelines 2009, released by the Ministry of Corporate Affairs in December
2009. Significant inputs, received from diverse stakeholder groups across the country
have been duly considered, and based on these inputs; appropriate changes have been
made in the original draft Guidelines produced by the Guidelines Drafting Committee.
This document therefore represents the consolidated perspective of vital stake-holders
in India, and accordingly lays down the basic requirements for businesses to function
responsibly, thereby ensuring a wholesome and inclusive process of economic growth.
Societal Environment and the 8.3.2 Mandate and process
These Guidelines have been developed through an extensive consultative process
by a Guidelines Drafting Committee (GDC) comprising competent and experienced
NOTES professionals representing different stakeholder groups. The GDC was appointed by
the Indian Institute of Corporate Affairs (IICA) with a clear brief that the Guidelines
must provide a distinctively ‘Indian’ approach, which will enable businesses to balance
and work through the many unique requirements of our land. The process that was
followed in developing these Guidelines relied heavily upon developing a consensus on
various ideas that emerged from various stakeholder groups. Leading trade and industry
chambers, who were represented in the GDC as well as actively engaged in the
consultative process, have been key partners in the development of this consensus.
8.3.3 Applicability
The Guidelines are designed to be used by all businesses irrespective of size,
sector or location and therefore touch on the fundamental aspects – the ‘spirit’ - of an
enterprise. It is expected that all businesses in India, including multi-national companies
that operate in the country, would consciously work towards following the Guidelines.
The Guidelines also provide a framework for responsible business action for Indian
MNCs planning to invest or already operating in other parts of the world. Businesses
are encouraged to move beyond the recommended minimum provisions articulated in
the document.
For business leaders and managers entrusted with the task of deploying the
principles of Responsible Business, it is worthwhile to understand that business boundaries
today extend well beyond the traditional walls of a factory or an operating plant and all
the way across the value chain. Businesses are therefore encouraged to ensure that
not only do they follow the Guidelines for areas directly within their immediate control
or within their sphere of influence, but that they encourage and support their vendors,
distributors, partners and other collaborators across their value chains to follow the
Guidelines as well.
The Guidelines are applicable to all such entities, and are intended to be adopted
by them comprehensively, as they raise the bar in a manner that makes their value
creating operations sustainable. It needs to be emphasized that all Principles are equally
important and non-divisible – this implies that if a business endeavours to function
responsibly, it would have to adopt each of the nine (9) principles in their entirety rather
than picking and choosing what might suit them.
8.3.4 Content and Structure
The Guidelines are not prescriptive in nature, but are based on practices and
precepts that take into account the realities of Indian business and society as well as
global trends and best practices adapted to the Indian context. It urges businesses to
Check Your Progress embrace the “triple bottom-line” approach whereby its financial performance can be
Explain the concept of harmonized with the expectations of society, the environment and the many stakeholders
Corporate Social it interfaces with in a sustainable manner. The adoption of these National Voluntary
Responsibility Guidelines will improve the ability of businesses to enhance their competitive strengths,
improve their reputations, increase their ability to attract and retain talent and manage
Business Enviornment : 90 their relations with investors and society at large. These Guidelines have been drafted
in a way that makes them easy to comprehend and implement. Societal Environment and the
The Guidelines have been articulated in the form of nine (9) Principles with the
Core Elements to actualize each of the principles. A reading of each Principle, with its
attendant Core Elements, should provide a very clear basis for putting that Principle NOTES
into practice. To assist implementation, a section has also been included on developing
Management Systems and Processes for responsible business, and Indicators that
businesses can adopt to self-steer and regulate their journey towards becoming sustainable
and responsible businesses. The Processes focus on changes in leadership and the
leadership structure in the organization, the integration of the Principle and Core Elements
into the very business purpose of the organization and ensuring that engagement with
stakeholders happens on a consistent, continuous basis.
While a broad list of Indicators has been provided to enable businesses to monitor
their own implementation process, these are not exhaustive, but sufficiently representative
to give a clear idea of the direction that businesses have to take in the implementation of
these Guidelines.
Since these Guidelines are applicable to large and small businesses alike, a special
section has also been included on how micro, small and medium enterprises (MSMEs)
can be encouraged to adopt the Guidelines. Typically, the argument that MSMEs do not
have the capacity or resources to implement the changes, has been juxtaposed with the
idea that without a conscious effort to adopt the Guidelines, MSMEs would lose out on
future business opportunities and their ability to remain viable and socially relevant.
Finally, a separate chapter on reporting has been included so that the business
entities are not only able to adopt the Guidelines but also to demonstrate the adoption to
their stakeholders through credible reporting and disclosures. The reporting framework
is designed on the ‘Apply-or-Explain’ principle which is also the fundamental basis of
these Guidelines. The suggested framework takes into account the requirements of the
business entities that are already reporting in other recognized frameworks
Source: http://www.mca.gov.in /Ministry /latestnews /National_ Voluntary_
Guidelines_ 2011_12jul2011.pdf
8.4 Consumerism
By “consumerism” we mean the process of realising the rights of the consumer
as envisaged in the Consumer Protection Act (1986) and ensuring right standards for
the goods and services for which one makes a payment. This objective can be achieved
in a reasonable time frame only when all concerned act together and play their role.
The players are the consumers represented by different voluntary non-government
consumer organisations, the government, the regulatory authorities for goods and services
in a competitive economy, the consumer courts, organisations representing trade, industry
and service providers, the law-makers and those in charge of implementation of the
laws and rules.
In the good olden days the principle of ‘Caveat emptor’, which meant buyer
beware governed the relationship between seller and the buyer. In the era of open
markets buyer and seller came face to face, seller exhibited his goods, buyer thoroughly
Societal Environment and the examined them and then purchased them. It was assumed that he would use all care
and skill while entering into transaction. The maxim relieved the seller of the obligation
to make disclosure about the quality of the product. In addition, the personal relation
between the buyer and the seller was one of the major factors in their relations. But
NOTES
with the growth of trade and its globalization the rule no more holds true. It is now
impossible for the buyer to examine the goods before hand and most of the transactions
are concluded by correspondence. Further on account of complex structure of the
modern goods, it is only the producer / seller who can assure the quality of goods. With
manufacturing activity becoming more organized, the producers / sellers are becoming
stronger and organized whereas the buyers are still weak and unorganized. In the age
of revolutionized information technology and with the emergence of e-commerce related
innovations the consumers are further deprived to a great extent. As a result buyer is
being misled, duped and deceived day in and day out. Mahatma Gandhi, the father of
nation, attached great importance to what he described as the “poor consumer”, who
according to him should be the principal beneficiary of the consumer movement. He
said “A Consumer is the most important visitor on our premises. He is not dependent on
us we are on him. He is not an interruption to our work; he is the purpose of it. We are
not doing a favour to a consumer by giving him an opportunity. He is doing us a favour
Check Your Progress
by giving an opportunity to serve him.”
How do you explain
Consumerism? In present situation, consumer protection, though as old as consumer exploitation,
has assumed greater importance and relevance. Consumerism is a recent and universal
phenomenon. It is a social movement. Consumerism is all about protection of the interests
of the consumers. According to McMillan Dictionary (1985) “Consumerism is concerned
with protecting consumers from all organisations with which there is exchanged
relationship. It encompasses the set of activities of government, business, independent
organisations and concerned consumers that are designed to protect the rights of
consumers”. The Chamber’s Dictionary (1993) defines Consumerism as the protection
of the interests of the buyers of goods and services against defective or dangerous
goods etc. “Consumerism is a movement or policies aimed at regulating the products or
services, methods or standards of manufacturers, sellers and advertisers in the interest
of buyers, such regulation maybe institutional, statutory or embodied in a voluntary
code occupied by a particular industry or it may result more indirectly from the influence
of consumer organizations”. As commonly understood consumerism refers to wide
range of activities of government business and independent organizations designed to
protect rights of the consumers. Consumerism is a process through which the consumers
seek redress, restitution and remedy for their dissatisfaction and frustration with the
help of their all organised or unorganised efforts and activities. It is, in-fact a social
movement seeking to protect the rights of consumers in relation to the producers of
goods and providers of services. In-fact consumerism today is an all-pervasive term
meaning nothing more than people’s search for getting better value for their money.
Consumer is the focal point of any business. Consumers’ satisfaction will benefit not
only business but government and society as well. So consumerism should not be
considered as consumers’ war against business. It is a collective consciousness on the
part of consumers, business, government and civil society to enhance consumers’
satisfaction and social welfare which will in turn benefit all of them and finally make the
Business Enviornment : 92 society a better place to live in.
8.4.1 Components of Consumerism Societal Environment and the
There are various components of consumerism. First and foremost is self-protection
by consumers. Consumer must be aware of his rights, raise voice against exploitation
and seek redressal of his grievances. Consumers’ consciousness determines the
NOTES
effectiveness of consumerism. It is the duty of the consumer to identify his rights and to
protect them. Voluntary Consumer Organisations engaged in organising consumers
and encouraging them to safeguard their interests is another important element of
consumer movement The success of consumerism lies in the realisation of the business
that there is no substitute for voluntary self-regulations. Little attention from the business
will not only serve consumers interest but will also benefit them. Some businesses in
India have come together to adopt a code of conduct for regulating their own activities.
Regulation of business through legislation is one of the important means of protecting
the consumers. Consumerism has over the time developed into a sound force designed
to aid and protect the consumer by exerting, legal, moral and economic pressure on
producers and providers in some of the developed countries.
Check Your Progress
The U.N. guidelines for consumer protection are meant to achieve the following
What are the major
objectives:
Components of
a) To assist countries in achieving or maintaining adequate protection for their Consumerism?
population as consumers;
b) To facilitate production and distribution patterns responsive to the needs and
desires of consumers;
c) To encourage high levels of ethical conduct for those engaged in the produc-
tion and distribution of goods and services to consumers;
d) To assist countries in curbing abusive business practices by all enterprises at
the national and international levels which adversely affect consumers;
e) To facilitate the development of independent consumer groups;
f) To further international cooperation in the field of consumer protection;
g) To encourage the development of market conditions which provide consum-
ers with greater choice at lower prices.
8.5 Consumer Protection Act, 1986

Preamble
An Act to provide for better protection of the interests of consumers and for that
Check Your Progress
purpose to make provision for the establishment of consumer councils and other
authorities for the settlement of consumers’ disputes and for matters connected therewith. What is the Preamble and
Definition of Consumer
Definitions Protection act 1986?
Complainant means -
(i) a consumer ; or
(ii) any voluntary consumer association registered under the Companies Act,
1956 or under any other law for the time being in force; or
(iii) the Central Government or any State Government ;
Societal Environment and the (iv) one or more consumers, where there are numerous consumers having the
same interests ; who or which makes a complaint.
Complaint means - Any allegation, in writing made by a complainant that the
NOTES services hired or availed of or agreed to be hired or availed of by him suffer from
deficiency in any respect.
Consumer means - Any “person” who hires or avails of any services for a
consideration which has been paid or promised or partly paid and partly promised and
includes any beneficiary of such services other than the person who hires or avails of
the services for consideration paid or promised,or partly paid and partly promised, or
under any system of deferred payment, when such services are availed of with the
approval of the first mentioned person.
Deficiency means - Any fault, imperfection, shortcoming or inadequacy in the
quality, nature, and manner of the performance which is required to be maintained by or
under any law for the time being in force or has been undertaken to be performed by a
person in pursuance of a contract or otherwise in relation to any service.
Service means - Service of any description which is made available to potential
users and includes the provision of facilities in connection with banking, financing,
insurance, transport, processing, supply of electrical or other energy, board of lodging
or both, housing construction, entertainment, amusement or the purveying of news or
other information but does not include the rendering of any service free of charge or
under a contract of personal service.
Charge means - Fee / payments with element of profit making motive involved.
As Government hospitals/certain charitable hospitals do not charge fees, hence such
services rendered are exempted from this Act. In certain situations where hospitals are
charging nominal stamp fees, contributions are made by government employees to the
CGHS, payments are made for cottage wards, diagnostic tests are done under auto-
finance scheme such services do not have any element of profit motive. Hence the
persons availing of these services are not consumers and the services rendered do not
fall under the Act, as there is no consideration paid for hiring of such services. The
second category of services exempt under this Act is those which are rendered under
a contract of personal service.
Main Provisions
Under this act, consumers have right to get information of quality, quantity and
price of products. Under this act, consumer has power to sue in district forum and
report or complaint against the cheating of businessmen to the authorities and get
remedies for this. This act also awakes consumers regarding their rights and powers.
In other words, it helps to educate consumers about his rights.
Main authorities under Consumer protect act 1986
District forum
State commission
National Commission
For details, see appendix. Societal Environment and the
Source: http://dc-siwan.bih.nic.in/ConsumerAct.pdf
8.6 Summary NOTES
Societal aspect and social responsibility of Business and its impact is explained.
Corporate social responsibility how it is serving the society and as well as business in
the long run. Consumerism is also well explained ,its component and legal side, i.e.
acts related with it are also elaborated through example.
8.7 Key Terms
Societal Environment: The social environment, social context, sociocultural context,

or milieu, refers to the immediate physical and social setting in which people live or in
which something happens or develops. It includes the culture that the individual was
educated or lives in, and the people and institutions with whom they interact.
The interaction may be in person or through communication media, even anonymous
or one-way, and may not imply equality of social status. Therefore the social environment
is a broader concept than that of social class or social circle.
Source: http://en.wikipedia.org/wiki/Social_environment
Corporate Social Responsibility: The evolution of corporate social responsibility in
India refers to changes over time in India of the cultural norms
of corporations’ engagement of corporate social responsibility (CSR), with CSR referring
to way that businesses are managed to bring about an overall positive impact on the
communities, cultures, societies and environments in which they operate. The
fundamentals of CSR rest on the fact that not only public policy but even corporates
should be responsible enough to address social issues. Thus companies should deal
with the challenges and issues looked after to a certain extent by the states.
Among other countries India has one of the most richest traditions of CSR. Much
has been done in recent years to make Indian Entrepreneurs aware of social responsibility
as an important segment of their business activity but CSR in India has yet to receive
widespread recognition. If this goal has to be realised then the CSR approach of
corporates has to be in line with their attitudes towards mainstream business- companies
setting clear objectives, undertaking potential investments, measuring and reporting
performance publicly.
Source: http://en.wikipedia.org/wiki/Evolution_ of_ corporate_ social_
responsibility_in_India
Consumerism
Consumerism is a social and economic order that encourages the purchase of
goods and services in ever-greater amounts. Criticisms of consumption are already Business Enviornment : 95
Societal Environment and the present in the works of Thorstein Veblen (1899). Veblen’s subject of examination, the
newly emergent middle class arising at the turn of the twentieth century, comes to
full fruition by the end of the twentieth century through the process of globalization. In
this sense, consumerism is usually considered a part of media culture.
NOTES
The term “consumerism” has also been used to refer to something quite different
called the consumerists movement, consumer protection or consumer activism, which
seeks to protect and inform consumers by requiring such practices as honest packaging
and advertising, product guarantees, and improved safety standards. In this sense it is a
movement or a set of policies aimed at regulating the products, services, methods, and
standards of manufacturers, sellers, and advertisers in the interests of the buyer.
In economics, consumerism refers to economic policies placing emphasis on
consumption. In an abstract sense, it is the consideration that the free choice of
consumers should strongly orient the choice what is produced and how, therefore the
economic organization of a society (compare producerism, especially in the British sense
of the term).[3] Also this vote is not “one man, one voice”, but “one dollar, one voice”,
which may or may not reflect the contribution of people to society.
Source: https://en.wikipedia.org/wiki/Consumerism
1. What do you understand by Consumerism?

2. What legal laws are related to it?
3. What do you understand by CSR?
4. How CSR activities can affect businesses?

and Co., 2009
Hill, 2007
2010
Globalization
UNIT 9 GLOBALIZATION
Structure NOTES
9.0 Introduction
9.1 Unit Objectives
9.2 Globalization
9.3 WTO
9.4 GATT
9.5 FDI and FII
9.5.1 Types of Instruments
9.5.2 Issue of Shares by Indian Companies under FCCB/ADR/GDR
9.5.3 FDI in an Indian Company
9.6 MNCs
9.7 Foreign Exchange Management Act, 1999 (FEMA)
9.7.1 Objectives and Extent
9.8 Summary
9.9 Key Terms
9.0 Introduction
This chapter is about globalization,its definition and its impact. The practices and
organizations formed due to globalization.WTO and GATT and how they changed the
overall world economy and business practices. The impact of FDI and FII on Indian
businesses and economy. The MNCs is shaping the economies and how it has helped
the Indian economy.
9.1 Unit Objectives
The major objective of this Unit is to familiarize the readers with globalization,
wto, gatt, fdi and fii, mncs, foreign exchange management act, 1999 (fema), their
definitions and provisions so as to enable them to visualize that how these are important
for the business organizations to understand these things so as to steer the businesses
well.
Globalization
9.2 Globalization
Globalization is the name for the process of increasing the connectivity and
NOTES interdependence of the world’s markets and businesses. This process has speeded up
dramatically in the last two decades as technological advances make it easier for people
to travel, communicate, and do business internationally. Two major recent driving forces
are advances in telecommunications infrastructure and the rise of the internet. In general,
as economies become more connected to other economies, they have increased
opportunity but also increased competition. Thus, as globalization becomes a more and
more common feature of world economics, powerful pro-globalization and anti-
globalization lobbies have arisen. The pro-globalization lobby argues that globalization
brings about much increased opportunities for almost everyone, and increased
competition is a good thing since it makes agents of production more efficient. The two
most prominent pro-globalization organizations are the World Trade Organization and
the World Economic Forum. The World Trade Organization is a pan-governmental
entity (which currently has 144 members) that was set up to formulate a set of rules to
govern global trade and capital flows through the process of member consensus, and to
supervise their member countries to ensure that the rules are being followed. The World
Economic Forum, a private foundation, does not have decision-making power but enjoys
a great deal of importance since it has been effective as a powerful networking forum
for many of the world’s business, government and not-profit leaders. The anti-globalization
group argues that certain groups of people who are deprived in terms of resources are
not currently capable of functioning within the increased competitive pressure that will
be brought about by allowing their economies to be more connected to the rest of the
world. Important anti-globalization organizations include environmental groups like Friends
of the Earth and Greenpeace; international aid organizations like Oxfam; third world
government organizations like the G77; business organizations and trade unions whose
competitiveness is threatened by globalization like the U.S. textiles and European farm
lobby, as well as the Australian and U.S. trade union movements.
Measuring Globalization mainly center around the four main economic factors :
Goods and services, e.g. exports plus imports as a proportion of national

income or per capita of population
Labor/people, e.g. net migration rates; inward or outward migration flows,

weighted by population
Check Your Progress Capital, e.g. inward or outward direct investment as a proportion of national
Explain Globalization with income or per head of population
reference to the context of
Technology, e.g. international research & development flows; proportion of
Business Enviroment
populations (and rates of change thereof) using particular inventions
(especially ‘factor-neutral’ technological advances such as the telephone,
Business Enviornment : 98 motorcar, broadband)
Globalization
9.3 WTO
Simply put: the World Trade Organization (WTO) deals with the rules of trade
between nations at a global or near-global level. But there is more to it than that. NOTES
There are a number of ways of looking at the WTO. It’s an organization for
liberalizing trade. It’s a forum for governments to negotiate trade agreements. It’s a
place for them to settle trade disputes. It operates a system of trade rules. (But it’s not
Superman, just in case anyone thought it could solve or cause all the world’s problems!
Above all, it’s a negotiating forum. Essentially, the WTO is a place where member
governments go, to try to sort out the trade problems they face with each other. The
first step is to talk. The WTO was born out of negotiations, and everything the WTO
does is the result of negotiations. The bulk of the WTO’s current work comes from the
1986–94 negotiations called the Uruguay Round and earlier negotiations under the
General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to
new negotiations, under the “Doha Development Agenda” launched in 2001. Where
countries have faced trade barriers and wanted them lowered, the negotiations have
helped to liberalize trade. But the WTO is not just about liberalizing trade, and in some
circumstances its rules support maintaining trade barriers, for example to protect
consumers or prevent the spread of disease. It’s a set of rules. At its heart are the
WTO agreements, negotiated and signed by the bulk of the world’s trading nations.
These documents provide the legal ground-rules for international commerce. They are
essentially contracts, binding governments to keep their trade policies within agreed
limits. Although negotiated and signed by governments, the goal is to help producers of
goods and services, exporters, and importers conduct their business, while allowing
governments to meet social and environmental objectives. The system’s overriding
purpose is to help trade flow as freely as possible so long as there are no undesirable
side-effects because this is important for economic development and well-being. That
partly means removing obstacles. It also means ensuring that individuals, companies
and governments know what the trade rules are around the world, and giving them the
confidence that there will be no sudden changes of policy. In other words, the rules
have to be “transparent” and predictable.
And it helps to settle disputes. This is a third important side to the WTO’s work.
Trade relations often involve conflicting interests. Agreements, including those
painstakingly negotiated in the WTO system, often need interpreting. The most
harmonious way to settle these differences is through some neutral procedure based on
an agreed legal foundation. That is the purpose behind the dispute settlement process
written into the WTO agreements.
Born in 1995, but not so young The WTO began life on 1 January 1995, but its
trading system is half a century older. Since 1948, the General Agreement on Tariffs
and Trade (GATT) had provided the rules for the system. The second WTO ministerial
Check Your Progress
meeting, held in Geneva in May 1998, included a celebration of the 50th anniversary of
Describe WTO
the system. It did not take long for the General Agreement to give birth to an unofficial,
de facto international organization, also known informally as GATT. Over the years
GATT evolved through several rounds of negotiations. Business Enviornment : 99
Globalization The last and largest GATT round, was the Uruguay Round which lasted from
1986 to 1994 and led to the WTO’s creation. Whereas GATT had mainly dealt with
trade in goods, the WTO and its agreements now cover trade in services, and in traded
inventions, creations and designs (intellectual property).
NOTES
Source: http://www.wto.org /english /thewto_e /whatis_e /tif_e /
understanding_e.pdf
9.4 GATT
The General Agreement on Tariffs and Trade came into force on 1 January 1948.
The General Agreement is applied “provisionally” by all contracting parties including
the original contracting parties, and also those former territories of Belgium, France, the
Netherlands and the United Kingdom which, after attaining independence, acceded to
the General Agreement under article xxvi: 5(c). Chile applies the general agreement
under a Special Protocol of September 1948.
The governments of the commonwealth of Australia, the kingdom of Belgium, the
United States of Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia,
France, India, Lebanon, Luxemburg, Netherlands, New Zealand, Norway, Pakistan,
southern Rhodesia, Syria, South Africa, the Great Britain and Northern Ireland and the
United States of America:
Recognizing that their relations in the field of trade and economic endeavor should
be conducted with a view to raising standards of living, ensuring full employment and a
large and steadily growing volume of real income and effective demand, developing the
full use of the resources of the world and expanding the production and exchange of
goods, being desirous of contributing to these objectives by entering into reciprocal and
mutually advantageous arrangements directed to the substantial reduction of tariffs and
other barriers to trade and to the elimination of discriminatory treatment in international
commerce, have through their representatives agreed to a set of articles which form
Check Your Progress
the GATT (see appendix).
Describe GATT
Source: http://www.wto.org/english/docs_e/legal_e/gatt47_e.pdf
9.5 FDI and FII

A non-resident entity (other than a citizen of Pakistan or an entity incorporated in
Pakistan) can invest in India, subject to the FDI Policy. A citizen of Bangladesh or an
entity incorporated in Bangladesh can invest in India under the FDI Policy, only under
the Government route.
NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are
permitted to invest in the capital of Indian companies on repatriation basis, subject to
the condition that the amount of consideration for such investment shall be paid only by
way of inward remittance in free foreign exchange through normal banking channels.
OCBs have been derecognized as a class of Investors in India with effect from
Business Enviornment : 100 September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not
under the adverse notice of RBI can make fresh investments under FDI Policy as Globalization
incorporated non-resident entities, with the prior approval of Government of India if the
investment is through Government route; and with the prior approval of RBI if the
investment is through Automatic route.
NOTES
(i) An FII may invest in the capital of an Indian Company under the Portfolio
Investment Scheme which limits the individual holding of an FII to 10% of
the capital of the company and the aggregate limit for FII investment to 24%
of the capital of the company. This aggregate limit of 24% can be increased
to the sectoral cap/statutory ceiling, as applicable, by the Indian Company
concerned by passing a resolution by its Board of Directors followed by
passing of a special resolution to that effect by its General Body. The
aggregate FII investment, in the FDI and Portfolio Investment Scheme, should
be within the above caps.
(ii) The Indian company which has issued shares to FIIs under the FDI Policy
for which the payment has been received directly into company’s account
should report these figures separately under item no. 5 of Form FC-GPR
(Annex-1-A) (Post-issue pattern of shareholding) so that the details could be
suitably reconciled for statistical/monitoring purposes.
(iii) A daily statement in respect of all transactions (except derivative trade) have
to be submitted by the custodian bank in floppy / soft copy in the prescribed
format directly to RBI to monitor the overall ceiling/sectoral cap/statutory
ceiling.
No person other than registered FII/NRI as per Schedules II and III of Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident Outside
India) Regulations of FEMA 1999, can invest/trade in capital of Indian Companies in
the Indian Stock Exchanges directly i.e. through brokers like a Person Resident in
India.
A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to
100% of the capital of an Indian Venture Capital Undertaking (IVCU) and may also set
up a domestic asset management company to manage the fund. All such investments
can be made under the automatic route in terms of Schedule 6 to Notification No.
FEMA 20. A SEBI registered FVCI can also invest in a domestic venture capital fund
registered under the SEBI (Venture Capital Fund) Regulations, 1996. Such investments
would also be subject to the extant FEMA regulations and extant FDI policy including
sectoral caps, etc. SEBI registered FVCIs are also allowed to invest under the FDI
Scheme, as non-resident entities, in other companies, subject to FDI Policy and FEMA
regulations.
9.5.1 Types of Instrument
Indian companies can issue equity shares, fully, compulsorily and mandatorily
convertible debentures and fully, compulsorily and mandatorily convertible preference
shares subject to pricing guidelines/valuation norms prescribed under FEMA Regulations.
The price/ conversion formula of convertible capital instruments should be determined Check Your Progress
upfront at the time of issue of the instruments. The price at the time of conversion Describe FDI and FII
should not in any case be lower than the fair value worked out, at the time of issuance
of such instruments, in accordance with the extant FEMA regulations [the DCF method
Globalization of valuation for the unlisted companies and valuation in terms of SEBI (ICDR)
Regulations, for the listed companies].
Other types of Preference shares/Debentures i.e. non-convertible, optionally
NOTES convertible or partially convertible for issue of which funds have been received on or
after May 1, 2007 are considered as debt. Accordingly all norms applicable for ECBs
relating to eligible borrowers, recognized lenders, amount and maturity, end-use
stipulations, etc. shall apply. Since these instruments would be denominated in rupees,
the rupee interest rate will be based on the swap equivalent of London Interbank Offered
Rate (LIBOR) plus the spread as permissible for ECBs of corresponding maturity.
The inward remittances received by the Indian company vide issuance of DRs
and FCCBs are treated as FDI and counted towards FDI.
9.5.2 Issue of shares by Indian Companies under FCCB/ADR/GDR
(i) Indian companies can raise foreign currency resources abroad through the
issue of FCCB/DR (ADRs/GDRs), in accordance with the Scheme for issue
of Foreign Currency Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the
Government of India there under from time to time.
(ii) A company can issue ADRs / GDRs if it is eligible to issue shares to persons
resident outside India under the FDI Policy. However, an Indian listed company,
which is not eligible to raise funds from the Indian Capital Market including a
company which has been restrained from accessing the securities market by
the Securities and Exchange Board of India (SEBI) will not be eligible to
issue ADRs/GDRs.
(iii) Unlisted companies, which have not yet accessed the ADR/GDR route for
raising capital in the international market, would require prior or simultaneous
listing in the domestic market, while seeking to issue such overseas instruments.
Unlisted companies, which have already issued ADRs/GDRs in the
international market, have to list in the domestic market on making profit or
within three years of such issue of ADRs/GDRs, whichever is earlier. ADRs
/ GDRs are issued on the basis of the ratio worked out by the Indian company
in consultation with the Lead Manager to the issue. The proceeds so raised
have to be kept abroad till actually required in India. Pending repatriation or
utilization of the proceeds, the Indian company can invest the funds in:-
(a) Deposits, Certificate of Deposits or other instruments offered by banks
rated by Standard and Poor, Fitch, IBCA ,Moody’s, etc. with rating not
below the rating stipulated by Reserve Bank from time to time for the purpose;
(b) Deposits with branch/es of Indian Authorized Dealers outside India; and
(c) Treasury bills and other monetary instruments with a maturity or unexpired
maturity of one year or less.
(iv) There are no end-use restrictions except for a ban on deployment / investment
of such funds in real estate or the stock market. There is no monetary limit
up to which an Indian company can raise ADRs / GDRs.
(v) The ADR / GDR proceeds can be utilized for first stage acquisition of shares
Business Enviornment : 102 in the disinvestment process of Public Sector Undertakings / Enterprises and
also in the mandatory second stage offer to the public in view of their strategic Globalization
importance.
(vi) Voting rights on shares issued under the Scheme shall be as per the provisions
of Companies Act, 1956 and in a manner in which restrictions on voting
NOTES
rights imposed on ADR/GDR issues shall be consistent with the Company
Law provisions. Voting rights in the case of banking companies will continue
to be in terms of the provisions of the Banking Regulation Act, 1949 and the
instructions issued by the Reserve Bank from time to time, as applicable to
all shareholders exercising voting rights.
(vii) Erstwhile OCBs who are not eligible to invest in India and entities prohibited
from buying, selling or dealing in securities by SEBI will not be eligible to
subscribe to ADRs/ GDRs issued by Indian companies.
(viii) The pricing of ADR / GDR issues should be made at a price determined
under the provisions of the Scheme of issue of Foreign Currency Convertible
Bonds and Ordinary Shares (through Depository Receipt Mechanism)
Scheme, 1993 and guidelines issued by the Government of India and
directions issued by the Reserve Bank, from time to time.
(ix) The pricing of sponsored ADRs/GDRs would be determined under the
provisions of the Scheme of issue of Foreign Currency Convertible Bonds
and Ordinary Shares (Through Depository Receipt Mechanism) Scheme,
1993 and guidelines issued by the Government of India and directions issued
by the Reserve Bank, from time to time.
(i) Two-way Fungibility Scheme: A limited two-way Fungibility scheme has
been put in place by the Government of India for ADRs / GDRs. Under this
Scheme, a stock broker in India, registered with SEBI, can purchase shares
of an Indian company from the market for conversion into ADRs/GDRs
based on instructions received from overseas investors. Re-issuance of ADRs
/ GDRs would be permitted to the extent of ADRs / GDRs which have been
redeemed into underlying shares and sold in the Indian market.
(ii) Sponsored ADR/GDR issue: An Indian Company can also sponsor an issue
of ADR / GDR. Under this mechanism, the company offers its resident
shareholders a choice to submit their shares back to the company so that on
the basis of such shares, ADRs / GDRs can be issued abroad. The proceeds
of the ADR / GDR issue are remitted back to India and distributed among
the resident investors who had offered their Rupee denominated shares for
conversion. These proceeds can be kept in Resident Foreign Currency
(Domestic) accounts in India by the resident shareholders who have tendered
such shares for conversion into ADRs / GDRs.
Entities into which FDI can be made
9.5.3 FDI in an Indian Company
(i) Indian companies including those which are micro and small enterprises
(MSEs) can issue capital against FDI.
FDI in Partnership Firm / Proprietary Concern
(i) A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident Business Enviornment : 103
Globalization outside India can invest by way of contribution to the capital of a firm or a
proprietary concern in India on non-repatriation basis provided;
(a) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO
account maintained with Authorized Dealers / Authorized Banks.
NOTES
(b) The firm or proprietary concern is not engaged in any agricultural/plantation
or real estate business or print media sector.
(c) Amount invested shall not be eligible for repatriation outside India.
(ii) Investments with repatriation benefits: NRIs/PIO may seek prior permission
of Reserve Bank for investment in sole proprietorship concerns/partnership
firms with repatriation benefits. The application will be decided in consultation
with the Government of India.
(iii) Investment by non-residents other than NRIs/PIO: A person resident outside
India other than NRIs/PIO may make an application and seek prior approval
of Reserve Bank for making investment by way of contribution to the capital
of a firm or a proprietorship concern or any association of persons in India.
The application will be decided in consultation with the Government of India.
(iv) Restrictions: An NRI or PIO is not allowed to invest in a firm or proprietorship
concern engaged in any agricultural/plantation activity or real estate business
(i.e. dealing in land and immovable property with a view to earning profit or
earning income there from) or engaged in Print Media.
FDI in Venture Capital Fund (VCF): FVCIs are allowed to invest in Indian Venture
Capital Undertakings (IVCUs) /Venture Capital Funds (VCFs) /other companies, as
stated in paragraph of this Circular. If a domestic VCF is set up as a trust, a person
resident outside India (non-resident entity/individual including an NRI) cannot invest in
such domestic VCF under the automatic route of the FDI scheme and would be allowed
subject to approval of the FIPB. However, if a domestic VCF is set-up as an incorporated
company under the Companies Act, 1956, then a person resident outside India (non-
resident entity/individual including an NRI) can invest in such domestic VCF under the
automatic route of FDI Scheme, subject to the pricing guidelines, reporting requirements,
mode of payment, minimum capitalization norms, etc.
FDI in Trusts: FDI in Trusts other than VCF is not permitted.
FDI in resident entities other than those mentioned above is not permitted.
Sources:
www.rbi.org.in
www.finmin.nic.in
www.commerce.nic.in
www.dipp.nic.in
www.fipbindia.com
9.6 MNCs
A multinational corporation can be defined as one having a subsidiary or a branch
or a place of business in two or more countries or operates in two or more countries or
territories. Therefore, a multinational can be called so by virtue of its physical presence
in two or more countries or by virtue of geographical scope of its operations in two or Globalization
more countries. Multinationals are sometimes also referred to as ‘transnational
corporations’. The term ‘multinational’ is more of an American term whereas the term
‘transnational’ is European. Conservatively counted there are about 63,000 multinational
corporations in the World. Among the Fortune 500, all major multinational corporations NOTES
are American, Japanese or European, such as Nike, Coca-Cola, Wal-Mart, AOL, Toshiba,
Honda and BMW. On one side, they create jobs and wealth and improve technology in
countries that are in need of such development and on the other hand, they may have
undue political influence over governments, exploit developing nations and create a loss
of jobs in their own home countries. Very large multinationals have budgets that exceed
those of many countries. They can be seen as a power in global politics. Multinationals
often make use of outsourcing as a strategy to produce certain goods for them.
Source: www.economywatch.com
9.7 Foreign Exchange Management Act, 1999 (FEMA)

The Foreign Exchange Regulation Act of 1973 (FERA) in India was repealed on
1st June, 2000. It was replaced by the Foreign Exchange Management Act (FEMA),
which was passed in the winter session of Parliament in 1999. Enacted in 1973, in the
backdrop of acute shortage of Foreign Exchange in the country, FERA had a
controversial 27 year stint during which many bosses of the Indian Corporate world
found themselves at the mercy of the Enforcement Directorate (E.D.). Any offense
under FERA was a criminal offense liable to imprisonment, whereas FEMA seeks to
make offenses relating to foreign exchange civil offenses.
FEMA, which has replaced FERA, had become the need of the hour since FERA
had become incompatible with the pro-liberalization policies of the Government of India.
FEMA has brought a new management regime of Foreign Exchange consistent with
the emerging frame work of the World Trade Organization (WTO). It is another matter
that enactment of FEMA also brought with it Prevention of Money Laundering Act,
2002 which came into effect recently from 1st July, 2005 and the heat of which is yet to
be felt as “Enforcement Directorate” would be investigating the cases under PMLA
too.
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.
9.7.1 Objectives and extent
The objective of the Act is to consolidate and amend the law relating to foreign
exchange with the objective of facilitating external trade and payments and for promoting
the orderly development and maintenance of foreign exchange market in India. FEMA
extends to the whole of India. It applies to all branches, offices and agencies outside
India owned or controlled by a person who is a resident of India and also to any
contravention there under committed outside India by any person to whom this Act
applies.
Except with the general or special permission of the Reserve Bank of India, no
Globalization person can:-
deal in or transfer any foreign exchange or foreign security to any person not
being an authorized person;
NOTES make any payment to or for the credit of any person resident outside India in
any manner;
Check Your Progress receive otherwise through an authorized person, any payment by order or on
Explain the aspects of behalf of any person resident outside India in any manner;
Foreign Direct Investment
Reasonable restrictions for current account transactions as may be prescribed.
in an Indian Company
Any person may sell or draw foreign exchange to or from an authorized person
for a capital account transaction. The Reserve Bank may, in consultation with the
Central Government, specify:-
any class or classes of capital account transactions which are permissible;
the limit up to which foreign exchange shall be admissible for such transactions
However, the Reserve Bank cannot impose any restriction on the drawing of
foreign exchange for payments due on account of amortization 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:-
Transfer or issue of any foreign security by a person resident in India;
Transfer or issue of any security by a person resident outside India;
Transfer or issue of any security or foreign security by any branch, office or
agency in India of a person resident outside India;
Any borrowing or lending in foreign exchange in whatever form or by
whatever name called;
Any borrowing or tending in rupees in whatever form or by whatever name
called between a person resident in India and a person resident outside India;
Deposits between persons resident in India and persons resident outside India;
Export, import or holding of currency or currency notes;
Transfer of immovable property outside India, other than a lease not exceeding
five years, by a person resident in India;
Acquisition or transfer of immovable property in India, other than a lease not
exceeding five years, by a person resident outside India;
Giving of a guarantee or surety in respect of any debt, obligation or other
liability incurred
(i) By a person resident in India and owed to a person resident outside India or
(ii) By a person resident outside India.
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,
Business Enviornment : 106 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. Globalization
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 NOTES
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 and services must:-

Furnish to the Reserve Bank or to such other authority a declaration in such form
and in such manner as may be specified, containing true and correct material particulars,
including the amount representing the full export value or, if the full export value of the
goods is not ascertainable at the time of export, the value which the exporter, having
regard to the prevailing market conditions, expects to receive on the sale of the goods
in a market outside India;
Furnish to the Reserve Bank such other information as may be required by the
Reserve Bank for the purpose of ensuring the realization of the export proceeds by
Check Your Progress
such exporter. Expalin FEMA with its
Objectives and Extent
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. 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 realize and repatriate to India such foreign exchange within such
period and in such manner as may be specified by the Reserve Bank.
Source: http://www.dor.gov.in /sites /upload_files /revenue /files /Foreign%
20Exchange% 20Management% 20Act%201999.pdf
9.8 Summary
This chapter is about globalization, its definition,impact and practices and

organizations formed.WTO and GATT and how they changed the overall world economy
and practices.The impact of FDI and FII on Indian businesses and economy. The
MNCs is shaping the economies and how it has helped the Indian economy.
9.9 Key Terms

Globalization : Globalization is the name for the process of increasing the
connectivity and interdependence of the world’s markets and businesses. This process Business Enviornment : 107
Globalization has speeded up dramatically in the last two decades as technological advances make it
easier for people to travel, communicate, and do business internationally.
WTO : The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between nations. At its heart are the WTO
NOTES agreements, negotiated and signed by the bulk of the world’s trading nations and ratified
in their parliaments. The goal is to help producers of goods and services, exporters, and
importers conduct their business.
Source: http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm
GATT : The General Agreement on Tariffs and Trade (GATT) was a multilateral
agreement regulating international trade. According to its preamble, its purpose was
the “substantial reduction of tariffs and other trade barriers and the elimination of
preferences, on a reciprocal and mutually advantageous basis.” It was negotiated during
the United Nations Conference on Trade and Employment and was the outcome of the
failure of negotiating governments to create the International Trade Organization (ITO).
GATT was signed in 1947 and lasted until 1994, when it was replaced by the World
Trade Organization in 1995.
The original GATT text (GATT 1948) is still in effect under the WTO framework,
subject to the modifications of GATT 1994.
Source: http://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade
FDI and FII : Foreign direct investment (FDI) is a direct investment into production
or business in a country by a company in another country, either by buying a company
in the target country or by expanding operations of an existing business in that country.
Foreign indirect investment is in contrast to portfolio investment which is a passive
investment in the securities of another country such as stocks and bonds.
Foreign direct investment has many forms. Broadly, foreign direct investment
includes “mergers and acquisitions, building new facilities, reinvesting profits earned
from overseas operations and intracompany loans”. In a narrow sense, foreign direct
investment refers just to building new facilities. The numerical FDI figures based on
varied definitions are not easily comparable.
As a part of the national accounts of a country, and in regard to the national
income equation Y=C+I+G+(X-M), I is investment plus foreign investment, FDI is
defined as the net inflows of investment (inflow minus outflow) to acquire a lasting
management interest (10 percent or more of voting stock) in an enterprise operating in
an economy other than that of the investor. FDI is the sum of equity capital, other long-
term capital, and short-term capital as shown the balance of payments. FDI usually
involves participation in management, joint-venture, transfer of technology and expertise.
There are two types of FDI: inward and outward, resulting in a net FDI inflow (positive
or negative) and “stock of foreign direct investment”, which is the cumulative number
for a given period. Direct investment excludes investment through purchase of
shares.[3] FDI is one example of international factor movements
Source: http://en.wikipedia.org/wiki/Foreign_direct_investment

1. Define Balance of Payments (BOP).
2. Explain the major components of BOP.
3. Explain the major causes for disequilibrium in BOP.
Business Enviornment : 108 4. Explain the correction measures for disequilibrium in BOP.
5. Explain economic policy and balance of payment in the light of Indian economy. Globalization
6. Explain the recent trends of balance of payments in India.
7. Explain India’s Trade Policy.
8. Explain the nature, magnitude and direction of Indian international trade.
NOTES
9. Explain the problems of Indian international trade.
10. Explain bilateral trade agreements.
11. Explain multilateral trade agreements.
12. India is having bitter foreign relations with its immediate neighbors. In this
light, explain the trade relationship of India and its neighbors.
13. Explain EXIM policy of India.
14. Explain the role of EXIM bank in boosting Indian international trade.
15. Distinguish between FERA and FEMA.
16. Explain the concepts of FDI and FII.
17. Explain the concept of FDI in retail, its merits and demerits for Indians.
18. Explain the nature, significance and scope of International business environ-
ment.
19. Explain the recent trends in international business.
20. Elaborate the theories of international trade in detail.
21. Bretton-Woods agreement is the landmark agreement in international trade.
Explain.
22. Explain the challenges and mechanisms of international trade.
23. Explain the WTO and its agreements in the Uruguay round.
24. Explain TRIPS and TRIMS.
25. Explain the concept of GATT.
26. Explain the dispute settlement mechanism in international trade.
27. Explain the dumping and antidumping measures taken by Government of
India.
28. Explain environmental challenges for Indian

and Co., 2009
Hill, 2007
2010
Globalization
UNIT 10 NATIONAL INCOME,
BUSINESS CYCLE, HUMAN
NOTES
DEVELOPMENT, POVERTY
Structure
10.1 Introduction
10.2 Unit Objectives
10.3 National Income
10.3.1 Concepts of National Income
10.3.2 Methods of calculating National Income
10.3.3 Importance of National Income Analysis
10.4 Business Cycle
10.4.1 Cycle with Trend
10.4.2 Four Phase of Business Cycle
10.4.3 Causes of Business Cycles
10.5 Human Development
10.5.1 HDI Dimensions and Indicators
10.5.2 Pillars of Human development
10.5.3 Human Development Index
10.6 Poverty
10.6.1 Absolute Poverty
10.6.2 Relative Poverty
10.6.3 Magnitude of Poverty in India
10.6.4 Causes of Poverty in India
10.6.5 Reduction in Poverty
10.7 Summary
10.8 Key Terms
10.10 Further Reading and References
10.1 Introduction
National Income, Business Cycles, Human Development and Poverty are intensely
related subject areas. All of these work simultaneously and affect each other. The most
important aspect is to identify the key aspects, decision on goals and integrated effort.
There is an effect of policy, entrepreneurial culture, societal structure and addressing
the utmost requirements with short term as well as the long term perspective. This unit
gives details of these elements of development in coherence with each other.
Globalization
The major objective of this Unit is to familiarize the readers with national income,
NOTES
business cycle, human development and poverty their meaning definitions and provisions
so as to enable them to visualize that how these are important for the business
organizations to understand these things so as to steer the businesses well.
10.3 National Income

National income is an uncertain term which is used interchangeably with national
dividend, national output and national expenditure. On this basis, national income has
been defined in a number of ways. In common parlance, national income means the
total value of goods and services produced annually in a country.
http://www.yourarticlelibrary.com/notes/national-income-definition-concepts-and-
methods-of-measuring-national-income/30801/
The total net value of all goods and services produced within a nation over a
specified period of time, representing the sum of wages,profits, rents, interest, and
pension payments to residents of the nation.http://www.thefreedictionary.com/
national+income
According to Marshall: "The labour and capital of a country acting on its natural
resources produce annually a certain net aggregate of commodities, material and
immaterial including services of all kinds. This is the true net annual income or revenue
of the country or national dividend."
http://www.yourarticlelibrary.com/notes/national-income-definition-concepts-and-
10.3.1 Concepts of National Income
a) Gross Domestic Product (GDP) : The most important concept of national
income is Gross Domestic Product. Gross domestic product is the money
value of all final goods and services produced within the domestic territory of
a country during a year.
b) Gross National Product (GNP) : Gross National Product. GNP is the total
value of all final goods and services produced within a nation in a particular
year, plus income earned by its citizens (including income of those located
abroad), minus income of non-residents located in that country. Basically,
GNP measures the value of goods and services that the country's citizens
produced regardless of their location. GNP is one measure of the economic
condition of a country, under the assumption that a higher GNP leads to a
higher quality of living, all other things being equal. http://
www.investorwords.com/2186/GNP.html
c) Net National Product (NNP) at Market Prices : NNP is the market
value of all final goods and services after providing for depreciation. That is,
when charges for depreciation are deducted from the GNP we get NNP at
market price. Therefore'NNP = GNP - Depreciation, Depreciation is the
Globalization consumption of fixed capital or fall in the value of fixed capital due to wear
and tear.
http://www.trcollege.net/study-material/24-economics/36-concepts-of-
national-income
NOTES
d) Net National Product (NNP) at Factor Cost or National Income : NNP
at factor cost or National Income is the sum of wages, rent, interest and
profits paid to factors for their contribution to the production of goods and
services in a year. It may be noted that:NNP at Factor Cost = NNP at Market
Price - Indirect Taxes + Subsidies.
http://www.trcollege.net/study-material/24-economics/36-concepts-of-
national-income
e) Personal Income : Refers to an individual's total earnings from wages,
investment enterprises, and other ventures. It is the sum of all the incomes
actually received by all the individuals or household during a given period.
Personal income is that income which is actually received by the individuals
or households in a country during the year from all sources.
https://en.wikipedia.org/wiki/Personal_income
f) Disposable Income : The amount of money that households have available
for spending and saving after income taxes have been accounted for.
Disposable personal income is often monitored as one of the many key
economic indicators used to gauge the overall state of the economy.
http://www.investopedia.com/terms/d/disposableincome.asp
10.3.2 Methods of calculating National Income
a) Value Added Method : This is also called output method or production
method. In this method the value added by each enterprise in the production
goods and services is measured. Value added by an enterprise is obtained by
deducting expenditure incurred on intermediate goods such as raw materials,
unfinished goods (purchased from other firms from the value of output
produced by an enterprise.www.economicsdiscussion.net/national-income/
3-alternative-methods-used-for-measuring-national-income/799)
b) Income Method : According to income method, the net income payments
received by all citizens of a country in a particular year are added up. The
net incomes earned by the factors of production in the form of rent, wage,
interest and profit aggregated but incomes in the form of transfer payments
are not included in the national income.
http://www.preservearticles.com/201106178079/what-are-the-three-
methods-of-measuring-national-income.html
c) Expenditure method : This adds up all spending in the economy by households
and firms on new and final goods and services by households and firms.
http://www.economicsonline.co.uk/Managing_the_economy/
National_income.html

10.3.3 Importance of National Income Analysis Globalization
National Income is generally believed to be the most important single index of the
overall economic situation of a country and as such commands a great deal of public
interest. An individual as well as the government, have to maintain the accounts of their NOTES
incomes and expenditures in one form or another. They must have a clear idea as to the
sources of income and the heads of expenditure. Reference : http://
www.yourarticlelibrary.com /economics/ national-income/ reasons-for-growing-
importance-of-national-income-studies /39146/ Raising national income is the
important goal of all economic activity. Economic welfare of a country depends upon
what goods and services are available for the consumption of its individuals. The changes
in national income statistics show how the economy is developing and enables the Check Your Progress
government to lay down the appropriate economic policy necessary under the Explain the importance of
circumstances. With the help of national income statistics it is possible to chart cyclical National income in
movements, find out the inflationary gap, measure economic growth and development, National development.
and evaluate the country's material standard of living in comparison with other countries.
http://oscareducation.blogspot.in/2013/01/importance-of-national-income-
analysis.html
10.4 Business Cycle
The business cycle or economic cycle is the downward and upward movement of
gross domestic product (GDP) around its long-term growth trend. These fluctuations
typically involve shifts over time between periods of relatively rapid economic growth
(expansions or booms), and periods of relative stagnation or decline (contractions or
recessions).
Business cycles are usually measured by considering the growth rate of real
gross domestic product. Despite being termed cycles, these fluctuations in economic
activity can prove unpredictable. Reference : https://en.wikipedia.org/wiki/
Business_cycle
"Periods during which a business, an industry or the entire economy expands and
contracts".Many business cycles are anything but regular. They vary in intensity and
length. Expansions and contractions of the economy, also sometimes referred to as
booms and busts, are broad economic events that affect many industries and companies.
Reference : http://www.entrepreneur.com/encyclopedia/business-cycle. The duration
of business cycles can be anywhere from about two to twelve years, with most cycles
averaging six years in length. Some business analysts use the business cycle model and
terminology to study and explain fluctuations in business inventory and other individual
elements of corporate operations. But the term "business cycle" is still primarily associated
with larger (industry-wide, regional, national, or even international) business trends.
http://www.inc.com/encyclopedia/business-cycles.html

Globalization 10.4.1 Cycle with Trend
NOTES
Fig. : Cycles with Trend (i.e. Growth)
10.4.2 Four Phase of Business Cycle

a) Contraction - When the economy starts slowing down. It's usually
accompanied by a bear market.
b) Trough - When the economy hits bottom, usually in a recession.
c) Expansion - When the economy starts growing again. It's usually signaled by
a bull market.
d) Peak - When the economy is overheated, and is in a state of "irrational
exuberance." This is when inflation rears its ugly head.
http://useconomy.about.com/od/glossary/g/business_cycle.html
10.4.3 Causes of Business Cycles
Similar to an amusement park roller coaster, economic trends have ups and downs.
When the economy is flourishing, productivity is up and unemployment is down. But
Check Your Progress when the economy takes a dip, unemployment numbers rise as demand for products
Explain some of the most and services decreases. These ups and downs are known as economic booms and
important causes of recessions, and the ebb and flow is referred to as a business cycle. http://
business cycles. www.econlib.org/library/Enc/BusinessCycles.html. A wave of optimism that causes
consumers to spend more than usual and firms to build new factories may cause the
economy to expand more rapidly than normal. Recessions or depressions can be caused
by these same forces working in reverse. A substantial cut in government spending or
a wave of pessimism among consumers and firms may cause the output of all types of
goods to fall. http://smallbusiness.chron.com/causes-business-cycle-20087.html
10.5 Human Development
United Nations Development Programme has been defining human development

as "the process of enlarging people's choices", said choices being allowing them to
"lead a long and healthy life, to be educated, to enjoy a decent standard of living", as
well as "political freedom, other guaranteed human rights and various ingredients of
self-respect.
https://en.wikipedia.org/wiki/Human_development_(humanity)
10.5.1 Human Development Index Dimensions and Indicators Globalization
The 2010 Human Development Report revised the HDI formula using data and
methodologies that were not available in most countries when the first HDI was published
in the 1990 Human Development Report. The HDI was calculated in 2010 using the NOTES
following indicators:
a) Health - Life expectancy at birth
b) Education - expected years schooling for school-age children and average
years of schooling in the adult population
c) Income - measured by Gross National Income (GNI) per capita (PPP US$)
http://www.wikiprogress.org/index.php/Human_Development_Index
10.5.2 Pillars of human development

The idea of human development is supported by the concepts of equity, sustainability,
productivity and empowerment.
a) Equity refers to making equal access to opportunities available to everybody.
The opportunities available to people must be equal irrespective of their gender,
race, income and caste.
b) Sustainability means continuity in the availability of opportunities. Each
generation must have the same opportunities. All resources must be used
keeping in mind the future. Misuse of any of these resources will lead to
fewer opportunities for future generations.
Reference : https://exploringgeography.wikispaces.com/file/view/
Chapter-4+Human+Development.pdf.
c) Productivity People must be enabled to increase their productivity and
participate fully in the process of income generation and remunerative
employment. Economic growth is, therefore, a subset of human development
models.
http://www.researchgate.net/post/Four_essential_ components_
of_ the_ human_development_ paradigm_First_ Productivity_People_ Business Enviornment : 115
Globalization must_ be_enabled _ to_increase_their_ productivity_and_
participate_fully_ in_ the_ process _of_income _generation_and _remu
d) Empowerment Freedom of the people to influence, as the subjects of
development, decisions that affect their lives. Everyone has the power to
NOTES
take any decision about his/her life.
http://www.ijsret.org/pdf/rahul_bhardwaj.pdf.
Check Your Progress
What do you think about 10.5.3 Human Development Index
human development and The Human Development Index (HDI) is a statistical tool used to measure a
how it may be steered? country's overall achievement in its social and economic dimensions. The social and
economic dimensions of a country are based on the health of people, their level of
education attainment and their standard of living.
http://economictimes.indiatimes.com/definition/human-development-index
10.6 Poverty
Poverty is general scarcity or dearth, or the state of one who lacks a certain
amount of material possessions or money. It is a multifaceted concept, which includes
social, economic, and political elements. Poverty seems to be chronic or temporary, and
most of the time it is closely related to inequality. As a dynamic concept, poverty is
changing and adapting according to consumption patterns, social dynamics and
technological change.
https://en.wikipedia.org/wiki/Poverty
10.6.1 Absolute Poverty
Extreme poverty, or absolute poverty, was originally defined by the United Nations
in 1995 as "a condition characterized by severe deprivation of basic human needs,
including food, safe drinking water, sanitation facilities, health, shelter, education and
information. It depends not only on income but also on access to services.
https://en.wikipedia.org/wiki/Extreme_poverty
10.6.2 Relative Poverty
Relative poverty is the condition in which people lack the minimum amount of
income needed in order to maintain the average standard of living in the society in
which they live. Relative poverty is considered the easiest way to measure the level of
poverty in an individual country. Relative poverty is defined relative to the members of
a society and, therefore, differs across countries. People are said to be impoverished if
they cannot keep up with standard of living as determined by society.
study.com/academy/lesson/what-is-relative-poverty-definition-causes-
examples.html
10.6.3 Magnitude of Poverty in India.
The Uniform Recall Period (URP) consumption distribution data of NSS 61st
round places the poverty ratio at 28.3 per cent in rural areas, 25.7 per cent in urban
areas and 27.5 per cent in the country as a whole. The corresponding poverty ratios
from the Mixed Recall Period (MRP) consumption distribution data are 21.8 percent Globalization
for rural areas, 21.7 per cent for urban areas and 21.8 per cent for the country as a
whole.
http://www.yourarticlelibrary.com/economics/what-are-the-different-concept-
NOTES
and-measurement-of-poverty/3031/
10.6.4 Causes of Poverty in India
a) Rapidly Rising Population : The population during the last 45 years has
increased at the rate of 2.2% per annum. http://www.preservearticles.com/
201107189264/what-are-the-main-causes-of-poverty-in-india.html
b) Low Productivity in Agriculture:Increase in real income leads to reduction of
the magnitude of poverty. So far as agricultural sector is concerned, the
farmers even today are following the traditional method of cultivation. Hence
there is low agricultural productivity resulting in rural poverty. http://
www.yourarticlelibrary.com/poverty/4-main-causes-of-poverty-in-india-
explained/4819/
c) Under Utilized Resources: The existence of under employment and disguised
unemployment of human resources and under utilization of resources has
resulted in low production in agricultural sector. http://
www.preservearticles.com/201107189264/what-are-the-main-causes-of-
poverty-in-india.html
d) Price Rise: The continuous and steep price rise has added to the miseries of
poor. http://www.preservearticles.com/201107189264/what-are-the-main-
causes-of-poverty-in-india.html
e) Unemployment:Because of lack of employment opportunities, people remain
either unemployed or underemployed. Most of these unemployed and
underemployed workers are the small and marginal farmers and the landless
agricultural labourers. http://www.yourarticlelibrary.com/poverty/4-main-
causes-of-poverty-in-india-explained/4819/
f) Social Factors: In a way, the causes of poverty in India partly rely on social
structures and relations. This creates a discrimination that generates an
"artificial" poverty between castes and genders, between religions and tribes.
Some are even more artificial considering for instance the knives-out hostility
with Indian Muslims, whereas a century ago there were prejudices but certainly
not as fierce as they are since the independence of Pakistan.
http://www.poverties.org/causes-of-poverty-in-india.html
10.6.5 Reduction in Poverty
The World Bank's Global Monitoring Report for 2014-15 on the Millennium Check Your Progress
Development Goals says India has been the biggest contributor to poverty reduction What is the role of World
between 2008 and 2011, with around 140 million or so lifted out of absolute poverty. Bank in Poverty
Since the early 1950s, Indian government initiated various schemes to help the poor reduction?
attain self-sufficiency in food production. These have included ration cards and price
controls over the supply of basic commodities, particularly food at controlled prices,
available throughout the country.
https://en.wikipedia.org/wiki/Poverty_in_India
Globalization
10.7 Summary
The Rural Development and its effect on Agro-based Industries and Infrastructure
NOTES
development initiative effect on Indian economy.
10.8 Key Terms
National Income: A variety of measures of national income and output are used in
economics to estimate total economic activity in a country or region, including gross
domestic product (GDP), gross national product (GNP), net national income (NNI),
and adjusted national income (NNI* adjusted for natural resource depletion). All are
specially concerned with counting the total amount of goods and services produced
within some "boundary". The boundary is usually defined by geography or citizenship,
and may also restrict the goods and services that are counted. For instance, some
measures count only goods and services that are exchanged for money, excluding bartered
goods, while other measures may attempt to include bartered goods by imputing monetary
values to them.
https://en.wikipedia.org/wiki/Measures_of_national_income_and_output
Business Cycle: A business cycle occurs due to the fluctuations that an economy
experiences over time resulting from changes in economic growth. Understanding
business cycles is the essence of a course in macroeconomics. Economists try to discern
where the economy is located and more importantly where it is heading in order to deal
with possibly adverse future economic events. When the economy is at or is heading in
an undesirable direction, economists may apply fiscal or monetary policy tools to change
the course of the economy.
http://www.colorado.edu/economics/courses/econ2020/section7/section7-
main.html
Human Development: Human development - or the human development approach
- is about expanding the richness of human life, rather than simply the richness of the
economy in which human beings live. It is an approach that is focused on people and
their opportunities and choices.
http://hdr.undp.org/en/humandev
Poverty: United Nations: Fundamentally, poverty is the inability of getting choices
and opportunities, a violation of human dignity. It means lack of basic capacity to
participate effectively in society. It means not having enough to feed and clothe a
family, not having a school or clinic to go to, not having the land on which to grow one's
food or a job to earn one's living, not having access to credit. It means insecurity,
powerlessness and exclusion of individuals, households and communities. It means
susceptibility to violence, and it often implies living in marginal or fragile environments,
without access to clean water or sanitation.
https://en.wikipedia.org/wiki/Poverty
Globalization
Q. What is national income? Describe the methods of national income.
NOTES
Q. What is the difference between GDP & GNP? Which one is the better measure
of income?
Q. What are the national income and personal income?
Q. What is GDP?
Q. What is a final goods and services?
Q. Outline the main features of India's national income.
Q. Define business cycle.
Q. What are the causes of business cycles? How do business cycles impact the
economy?
Q. Write an essay briefly analysing the composition and features of business cycles.
Q. Why understands the business cycle so important for economic policy makers?
Q. How is development defined? What are the main goals of the study of human
development?
Q. What do you understand by human development index? Describe the main pillars
of human development.
Q. What values, frames and narratives are associated with greater support for tackling
poverty, and why?
Q. Who benefits from poverty, and how?
Q. What are the most cost-effective interventions to prevent poverty over the life
course?
Q. Do you think present methodology of poverty estimation is appropriate?
Q. Discuss major reasons for poverty in India.
Q. Identify the social and economic groups which are most vulnerable to India.

and Co., 2009
Hill, 2007
6. Saleem, S., "Business Environment", 2nd Edition, Dorling Kindersley (India), Business Enviornment : 119
2010
Globalization 7. Worthington, I. and Britton, C., "The Business Environment", 6th Edition,
NOTES 1) http://economictimes.indiatimes.com/definition/human-development-index
2) http://hdr.undp.org/en/humandev
3) http://oscareducation.blogspot.in/2013/01/importance-of-national- income-
analysis.html
4) http://smallbusiness.chron.com/causes-business-cycle-20087.html
5) http://useconomy.about.com/od/glossary/g/business_cycle.html
6) http://www.colorado.edu/economics/courses/econ2020/section7/ section7-
main.html
7) http://www.econlib.org/library/Enc/BusinessCycles.html
8) h t t p : / / w w w. e c o n o m i c s o n l i n e . c o . u k / M a n a g i n g _ t h e _ e c o n o m y /
National_income.html
9) http://www.entrepreneur.com/encyclopedia/business-cycle
10) http://www.ijsret.org/pdf/rahul_bhardwaj.pdf.
11) http://www.inc.com/encyclopedia/business-cycles.html
12) http://www.investopedia.com/terms/d/disposableincome.asp
13) http://www.investorwords.com/2186/GNP.html
14) http://www.poverties.org/causes-of-poverty-in-india.html
15) http://www.preservearticles.com/201106178079/what-are-the-three-methods- of-
measuring-national-income.html
16) http://www.preservearticles.com/201107189264/what-are-the-main-causes-of-
19) http://www.researchgate.net/post/Four_essential_ components_of_ the_human_
development_ paradigm_ First_ Productivity_ People_ must_be_ enabled_to_
increase_their_ productivity_ and_ participate_ fully_in _the_ process_
of_income_ generation_ and_remu
20) http://www.thefreedictionary.com/national+income
21) http://www.trcollege.net/study-material/24-economics/36-concepts-of-national -
income
22) http://www.wikiprogress.org/index.php/Human_Development_Index
23) http://www.yourarticlelibrary.com/economics/national-income/reasons-for-
growing-importance-of-national-income-studies/39146/

24) http://www.yourarticlelibrary.com/economics/what-are-the-different-concept- and-
measurement-of-poverty/3031/ Globalization
25) http://www.yourarticlelibrary.com/notes/national-income-definition-concepts- and-

26) http://www.yourarticlelibrary.com/notes/national-income-definition-concepts- and- NOTES
27) http://www.yourarticlelibrary.com/poverty/4-main-causes-of-poverty-in-india-
explained/4819/
28) http://www.yourarticlelibrary.com/poverty/4-main-causes-of-poverty-in-india-
explained/4819/
29) https://en.wikipedia.org/wiki/Business_cycle
30) https://en.wikipedia.org/wiki/Extreme_poverty
31) https://en.wikipedia.org/wiki/Human_development_(humanity)
32) https://en.wikipedia.org/wiki/Measures_of_national_income_and_output
33) https://en.wikipedia.org/wiki/Personal_income
34) https://en.wikipedia.org/wiki/Poverty
35) https://en.wikipedia.org/wiki/Poverty
36) https://en.wikipedia.org/wiki/Poverty_in_India
37) https://exploringgeography.wikispaces.com/file/view/Chapter-4+Human+
Development.pdf.
38) study.com/academy/lesson/what-is-relative-poverty-definition-causes-
examples.html
39) www.economicsdiscussion.net/national-income/3-alternative-methods-used-for-
measuring-national-income/799

Globalization
UNIT 11 RURAL DEVELOPMENTS,
AGRICULTURE AND
NOTES
BUSINESS, INFRASTRUCTURE
AND BUSINESS, PROBLEM OF
GROWTH
Structure
11.1 Introduction
11.3 Rural Development
11.3.1 Importance of Rural development
11.3.2 Problems of rural development
11.3.3 Greening rural development
11.4 Agriculture and Business
11.4.1 Role of Agriculture in Economic Development
11.4.2 Agriculture Productivity
11.4.3 The Agro Based Industry
11.5 Infrastructure and Business
11.5.1 Characteristics of Infrastructure
11.5.2 Core Infrastructure Industries
11.5.3 Human Development Index
11.6 Problem in Growth
11.6.1 The Promoters have study these factor carefully
11.7 Summary
11.8 Key Terms
11.1 Introduction
India lives in rural areas is not an exaggerated expression. Rural development is

the key to the National development. Infrastructure development has a specific role to
play in the rural development as well. It also supports agriculture and agri-business. For
example Patanjali Food Park in Padartha, Uttarakhand is not only playing a pivotal role
in developing agricultural infrastructure but is positively affecting the complete value
chain so as to support Rural development as well. This unit describes rural development
in association with infrastructure development.
Globalization
The major objective of this Unit is to familiarize the readers with rural development,
NOTES
agriculture and business, infrastructure and problem in growth their meaning definitions
and provisions so as to enable them to visualize that how these are important for the
business organizations to understand these things so as to steer the businesseswell.
11.3 Rural Development
11.3.1 Rural Development

Rural development is the process of improving the quality of life and economic
well-being of people living in relatively isolated and sparsely populated areas. Rural
development has traditionally centered on the exploitation of land-intensive natural
resources such as agriculture and forestry. However, changes in global production
networks and increased urbanization have changed the character of rural areas.
Increasingly tourism, niche manufacturers, and recreation have replaced resource
extraction and agriculture as dominant economic drivers.
https://en.wikipedia.org/wiki/Rural_development
11.3.2 Importance of Rural development
a) About three-fourth of India's population live in rural areas, thus rural
development is needed to develop nation as whole.
b) Nearly half of the country's national income is derived from agriculture, which
is major occupation of rural India.
c) Around seventy per cent of Indian population gets employment through
agriculture.
d) Bulks of raw materials for industries come from agriculture and rural sector.
e) Increase in industrial population can be justified only in rural populations
motivation and increasing the purchasing power to buy industrial goods.
h t t p : / / w w w. a a u . i n / s i t e s / d e f a u l t / f i l e s / U n i t % 2 0 4 % 2 0 R U R A L %
20DEVELOPMENT.pdf
11.3.3 Problems of rural development
a) In 21st Century, there is no electricity supply in many villages.
b) Now also many rural peoples using primitive methods of cooking, living and
farming and they have trust on these methods.
c) By using primitive cook stoves, around 300,000 death / year takes place due
to pollution.
d) 54% of India's population is below 25 years and most of them live in rural
areas with very little employment opportunities.
e) Literacy is the major problem in rural development programme.
http://agriinfo.in/default.aspx?page=topic&superid=7&topicid=1447
Globalization 11.3.4 Greening rural development
a) Improving agricultural productivity through increased yield response to
fertilizers and water availability for irrigation
NOTES b) Increasing private investment in clean technology and green resources
c) Increasing incomes for the rural poor through green value-chains and markets
Check Your Progress d) Increasing returns on investment through improved ecosystem services in
How rural development is aquaculture, fisheries and infrastructure in flood prone regions
related to National e) Reducing the economic costs from natural disasters by strengthening local
development? resilience
http://rural.nic.in/sites/downloads/NewReleases/
Greening_Presentation.ppt.
11.4 Agriculture and Business
Agribusiness is the business of agricultural production. The term was coined in

1957 by Goldberg and Davis. It includes agrichemicals, breeding, crop production
(farming and contract farming), distribution, farm machinery, processing,and seed supply,
as well as marketing and retail sales. All agents of the food and fiber value chain and
those institutions that influence it are part of the agribusiness system.https://
en.wikipedia.org/wiki/Agribusiness
The written history of agriculture in India dates back to the Rig-Veda, written
about 1100 BC. Today, India ranks second worldwide in farm output. Agriculture and
allied sectors like forestry and fisheries accounted for 13.7% of the GDP(Gross
Domestic Product) in 2013,about 50% of the total workforce. The economic contribution
of agriculture to India's GDP is steadily declining with the country's broad-based
economic growth. Still, agriculture is demographically the broadest economic sector
and plays a significant role in the overall socio-economic fabric of India. https://
en.wikipedia.org/wiki/Agriculture_in_India
The services enhanced by the Green Revolution in the agriculture sector of Indian
economy are as follows:
a) Acquiring more area for cultivation purposes
b) Expanding irrigation facilities
c) Use of improved and advanced high-yielding variety of seeds
d) Implementing better techniques that emerged from agriculture research
e) Water management
f) Plan protection activities through prudent use of fertilizers, pesticides, and
cropping applications
http://business.mapsofindia.com/sectors/agriculture.html
11.4.1 Role of Agriculture in Economic Development
a) Share in National Income: The contribution from agriculture has been
continuously falling from 55.1% in 1950-51 to 37.6% in 1981-82 & further to
Business Enviornment : 124 18.5% in 2006-07.
b) Provision of Food Surplus to the Expanding Population: Because of the heavy Globalization
pressure of population in labor-surplus economies like India & its rapid
increase the demand for food increases at a fast rate.
c) Contribution to Capital formation: Agriculture can play a big role in pushing
NOTES
the Capital Formation in India.
d) Providing Raw Material to industries:
e) Largest Employment Providing Sector:
http://www.gdcbemina.com/Study-Material/BA-FINAL-YEAR-STUDY-
MATERIAL(ECONOMICS)/3rd-year-Economic(Role-of-agriculture-in-
Indian-Economy).doc
11.4.2 Agriculture Productivity
An increase in a region's agricultural productivity implies a more efficient distribution
of scarce resources. As farmers adopt new techniques and differences, the more
productive farmers benefit from an increase in their welfare while farmers who are not
productive enough will exit the market to seek success elsewhere. Increases in
agricultural productivity lead also to agricultural growth and can help to alleviate poverty
in poor and developing countries, where agriculture often employs the greatest portion
of the population.
https://en.wikipedia.org/wiki/Agricultural_productivity
11.4.3 The Agro Based Industry
Indian Agriculture in itself produces more than 18.5 percent of the Gross Domestic
product of the country and more than 60 percent people out of Indian population are
involved in this sector. The Indian Agriculture also provides more than 8.5 percent of
the total exportation of the Indian Economy. Indian Economy is becoming more and
more dependent upon service sector and industrial sector, the Indian Agriculture still Check Your Progress
plays a vital role in the development of the Indian Economy. What is Agri-industry?
http://www.economywatch.com/agriculture/country-wide/indian.html
The agro Industry is broadly categorised in the following types
a) Village Industries owned and run by rural households with very little capital
investment and a high level of manual labour; products include pickles, papad,
etc.
b) Small scale industry characterized by medium investment and semi-
automation; products include edible oil, rice mills, etc.
c) Large scale industry involving large investment and a high level of automation;
products include sugar, jute, cotton mills, etc.
http://www.agriculturalproductsindia.com/agro/agro-scenario.html
11.5 Infrastructure and Business
Infrastructure refers to the fundamental facilities and systems serving a country,

city, or area, including the services and facilities necessary for its economy to function.
It typically characterises technical structures such as roads, bridges, tunnels, water
Globalization supply, sewers, electrical grids, telecommunications, and so forth, and can be defined
as "the physical components of interrelated systems providing commodities and services
essential to enable, sustain, or enhance societal living conditions.
NOTES https://en.wikipedia.org/wiki/Infrastructure
11.5.1 Characteristics of Infrastructure
a) Infrastructure is a source of external economies.
b) Infrastructure falls in the category of public goods.
c) Infrastructural development involves heavy costs.
d) The role of infrastructure in inducing innovation is of great importance for
the development of under developing countries.
e) Infrastructure stimulates directly productive activities.Misra&Puri, (2007)
The Empowered Sub-Committee of the Committee on Infrastructure, headed by
Deputy Chairman, Planning Commission identified a list of sectors to be included under
infrastructure. These are:
a) Electricity
b) Non-conventional energy
c) Water supply and sanitation
d) Telecommunications
e) Road and bridges
f) Ports
g) Inland waterways
h) Airports
i) Railways
j) Irrigation
k) Storage
l) Oil and gas pipeline networks
http://mospi.nic.in/Mospi_New/upload/infra_stat_2013/
introduction_2.pdf.
11.5.2 Core Infrastructure Industries
The Index of Six core industries having a combined weight of 26.7 per cent in the
Index of Industrial Production (IIP) with base 1993-94 stood at 250.6 (provisional) in
January 2009 and registered a growth of 1.4% (provisional) compared to a growth of
3.6% in January 2008.
Check Your Progress a) Coal production (weight of 3.2% in the IIP)
What is core
b) Electricity generation (weight of 10.17% in the IIP)
infrastructure?
c) Crude Oil production (weight of 4.17% in the IIP)
d) Finished (carbon) Steel production (weight of 5.13% in the IIP)
e) Cement production (weight of 1.99% in the IIP)
f) Petroleum refinery production (weight of 2.00% in the IIP)
Business Enviornment : 126 h t t p : / / w w w. a rc h i v e . i n d i a . g o v. i n / b u s i n e s s / i n d i a n _ e c o n o m y /
core_infrastructure.php Globalization
11.6 Problem in Growth

NOTES
As companies develop their growth plans, environmental issues are playing a
bigger role in determining their options, capital allocation decisions and the ability to
carve-out or sell an entire business or its assets. Meanwhile, senior management and
corporate boards are being challenged to better identify, understand, assess, price and
manage the risks associated with their companies' operations.
http://deloitte.wsj.com/riskandcompliance/2013/11/15/incorporating-
environmental-issues-impact-into-growth-strategies/
11.6.1 The Promoters have study these factor carefully
a) Availability of Raw Materials: The Company purchases raw materials, from
numerous unaffiliated domestic and international suppliers, some of which are
sole suppliers. Interruptions in the delivery and availability of these materials or
services could adversely impact the Company.
w w w. w i k i n v e s t . c o m / s t o c k / C l o ro x _ C o m p a n y _ ( C L X ) / S o u rc e s _
Availability_ Raw_ Materials
b) Supply of Labour: Every plant requires an adequate supply of labour with
appropriate skills. Supply of labour depends upon:
a) The number of qualified people: For example, the number of qualified
accountants is low, therefore supply is quite inelastic.
b) Difficulty of getting qualifications: If it is difficult to get some qualifications
therefore supply will be inelastic
c) The non-wage benefits of a job: Unpleasant jobs will have less people willing
to do them therefore supply will be relatively lower. Although many unpleasant
jobs may also be low skilled so will still be low paid.
d) The wages and conditions of other jobs
http://www.economicshelp.org/labour-markets/supply-labour/
c) Globalization: Understanding foreign cultures is essential to everything from the
ability to penetrate new markets with existing products and services, to designing
new products and services for new customers, to recognizing emergent, disruptive
competitors that only months earlier weren't even known.
https://www.bmgi.com/resources/articles/top-ten-problems-faced-business
d) Diversity: According to Lawrence Herzog of Hcareers, managers face challenges
when new employees from diverse backgrounds interact with long-standing
employees. Many companies offer training programs to managers to help them
effectively manage their newly diverse departments.
http://smallbusiness.chron.com/examples-diversity-problems-workplace-
19389.html
e) Complexity: weeping political, economic, social, and technological transformations
are creating a fundamentally new era of business characterize by unprecedented
complexity and rapid change. Countless firms are struggling to stay afloat in this
Globalization dynamic and intensely competitive environment, but the accepted ways of doing
business are proving inadequate.
http://ccs.mit.edu/21c/about.html
NOTES f) Information Overload: This is resulting in stress and, in some cases, burn out. A
world wide survey conducted by Reuters in 1996 found that two-thirds of managers
Check Your Progress suffer from increased tension and one-third from ill health because of information
How growth may be overload. Stress causes increased levels of anxiety, deteriorating decision-making
steered? What do we capabilities, problems with short term memory, and a reduced ability to concentrate
have to understand about - not a good recipe for management excellence.
growth? http://www.sfedi.co.uk/small-business-section/know-how-guides/managing-
business-informaiton-overload
g) Strategic Thinking & Problem Solving: The lack of sophisticated approaches to
information acquisition, analysis and the development of unique insight leaves many
companies at a disadvantage; they lack a long-term strategic imperative and instead
jump from one strategy to the next on a year-to-year basis.
https://www.bmgi.com/resources/articles/top-ten-problems-faced-business
11.7 Summary
In this unit we have discussed about rural development its importance problems
and greening rural development. Agriculture plays important role in Economic
Development. This unit also discusses about characteristics of infrastructure, core
infrastucture industires, human development index and problems in growth.
11.8 Key Terms
Rural Development: Rural development implies both the economic betterment of

people as well as greater social transformation. In order to provide the rural people
with better prospects for economic development, increased participation of people in
the rural development programmes, decentralization of planning, better enforcement of
land reforms and greater access to credit are needed.
http://india.gov.in/topics/rural
Agriculture and Business: A business that earns most or all of its revenues from
agriculture. An agribusiness tends to be a large-scale business operation and may dabble
in farming, processing and manufacturing and/or the packaging and distribution of
products
http://www.businessdictionary.com/definition/agribusiness.html
Infrastructure: The fundamental facilities and systems serving a country, city, or
area, as transportation and communication systems, power plants, and schools.
http://dictionary.reference.com/browse/infrastructure
Business Enviornment : 128 Problem in Growth: All companies love growth. Growth is a primary goal of a
business, just as growth is essential to kids and young plants. Not all growth is desired, Globalization
however, and it certainly comes with its own disruptions.
http://www.businessknowhow.com/homeoffice/growth.htm
NOTES
Q. State few factors which are a challenge for the rural development.
Q. What is the role of Science and Technology in the process of Rural Development?
Q. Describe the trends of agricultural growth in India since Independence.
Q. What do you mean by rural development? Bring out the key issues in rural
development.
Q. Discuss the importance of credit in rural development.
Q. Explain the steps taken by the government in developing rural markets.
Q. Why is agricultural diversification essential for sustainable livelihoods?
Q. What do you mean by agricultural marketing?
Q 'Information technology plays a very significant role in achieving sustainable
development and food security'- comment.
Q. What are Agribusinesses?
Q. What role has agribusiness played in international trade?
Q. What has been the role of agribusiness in developing countries, and how do they
fit in their agricultural production processes and development?
Q. What are the risks of investing in agribusiness investments?
Q. What do you understand by infrastructure development?
Q. What are the basic core infrastructure industries?
Q. Discuss the problem that business might encounter when growing and how it
might overcome them.

and Co., 2009
Hill, 2007
2010
Pearson Education, 2009 Business Enviornment : 129
Globalization 1) http://agriinfo.in/default.aspx?page=topic&superid=7&topicid=1447
2) http://business.mapsofindia.com/sectors/agriculture.html
3) http://ccs.mit.edu/21c/about.html
NOTES 4) http://deloitte.wsj.com/riskandcompliance/2013/11/15/incorporating-environmental-
issues-impact-into-growth-strategies/
5) http://dictionary.reference.com/browse/infrastructure
6) http://india.gov.in/topics/rural
7) http://mospi.nic.in/Mospi_New/upload/infra_stat_2013/introduction_2.pdf.
8) http://rural.nic.in/sites/downloads/NewReleases/Greening_Presentation.ppt.
9) http://smallbusiness.chron.com/examples-diversity-problems-workplace-19389.html
10) h t t p : / / w w w. a a u . i n / s i t e s / d e f a u l t / f i l e s / U n i t % 2 0 4 % 2 0 R U R A L %
20DEVELOPMENT.pdf
11) http://www.agriculturalproductsindia.com/agro/agro-scenario.html
12) http://www.archive.india.gov.in/business/indian_economy/core_infrastructure.php
13) http://www.businessdictionary.com/definition/agribusiness.html
14) http://www.businessknowhow.com/homeoffice/growth.htm
15) http://www.economicshelp.org/labour-markets/supply-labour/
16) http://www.economywatch.com/agriculture/country-wide/indian.html
17) http://www.gdcbemina.com/Study-Material/BA-FINAL-YEAR-STUDY-
MATERIAL(ECONOMICS)/3rd-year-Economic(Role-of-agriculture-in-Indian-
Economy).doc
18) http://www.sfedi.co.uk/small-business-section/know-how-guides/managing-
business-informaiton-overload
19) https://en.wikipedia.org/wiki/Agribusiness
20) https://en.wikipedia.org/wiki/Agricultural_productivity
21) https://en.wikipedia.org/wiki/Agriculture_in_India
22) https://en.wikipedia.org/wiki/Infrastructure
23) https://en.wikipedia.org/wiki/Rural_development
24) https://www.bmgi.com/resources/articles/top-ten-problems-faced-business
25) https://www.bmgi.com/resources/articles/top-ten-problems-faced-business
26) www.wikinvest.com/stock/Clorox_Company_(CLX)/Sources_ Availability_ Raw_
Materials

Globalization
UNIT 12 FORMS OF BUSINESS
ORGANISATION, EMERGING
NOTES
TRENDS OF BUSINESS,
ENVIRONMENTAL POLLUTION
Structure
12.1 Introduction
12.3 Forms of Business Organisation
12.3.1 Sole Proprietorship
12.3.2 Partnership
12.3.3 Joint Hindu Family
12.3.4 Cooperative Society
12.4 Emerging Trends in Business
12.4.1 Franchising
12.4.2 Network Marketing
12.4.3 Business Processing Outsourcing
12.4.4 E-Commerce
12.4.5 M-Commerce
12.5 Environmental Pollution
12.5.1 Air Pollution
12.5.2 Noise Pollution
12.5.3 Water Pollution
12.6 Summary
12.7 Key Terms
12.9 Books for Further Readings
12.10 References
12.1 Introduction
Business is reshaping itself because of factors discussed earlier in this subject.

What are the new emerging trends? How business organizations may take the advantage
and what are the disadvantages of these changes is the focus area of discussion of this
unit. Further, environmental pollution is a major concern realted to the sustainability of
business as well as the societies. How businesses, business growth and environmental
consideration would live together and can be meaningfully steered for the benefit of all
is the major question to be answered?
Globalization
The major objective of this Unit is to familiarize the readers with forms of business
NOTES
organization, emerging trends in business and environmental pollution their meaning
definitions and provisions so as to enable them to visualize that how these are important
for the business organizations to understand these things so as to steer the businesses
well.
12.3 Forms of Business Organisation
One of the first decisions that you will have to make as a business owner is how
the business should be structured. All businesses must adopt some legal configuration
that defines the rights and liabilities of participants in the business's ownership, control,
personal liability, life span, and financial structure. This decision will have long-term
implications, so you may want to consult with an accountant and attorney to help you
select the form of ownership that is right for you. http://www.kcsourcelink.com/
learning-center/starting-a-business/register-and-license-your-business/forms-of-
business-organization
12.3.1 Sole Proprietorship
The default option is to be a soleproprietor. With this option there are fewer forms
to file than with other business organizations. The business is structured in such a
manner that legal documents are not required to determine how profit-sharing from
business operations will be allocated. This structure is acceptable if you are the business's
sole owner and you do not need to distinguish the business from yourself.
http://www.investopedia.com/walkthrough/corporate-finance/1/forms-
business-organizations.aspx
Advantage
a) There are so few legal formalities are required to operate the business.
b) The owner is his own boss, and has total control over the business.
c) The owner gets 100% of profits.
d) Motivation because he gets all the profits.
e) The owner has freedom to change working hours or whom to employ, etc.
f) He has personal contact with customers.
g) He does not have to share information with anyone but the tax office, thus he
enjoys complete secrecy.
http://igbusinesss.blogspot.in/2011/03/chapter-three-forms-of-
business.html
Disadvantage
a) You have unlimited liability for debts as there's no legal distinction between
private and business assets
Business Enviornment : 132 b) Your capacity to raise capital is limited
c) All the responsibility for making day-to-day business decisions is yours Globalization
d) Retaining high-caliber employees can be difficult
e) It can be hard to take holidays
f) You're taxed as a single person NOTES
g) The life of the business is limited.
https://www.business.tas.gov.au/starting-a-business/starting-a-business-
from-scratch/choosing-a-business-structure-intro/sole-proprietorship-
advantages-and-disadvantages
12.3.2 Partnership
The Indian Partnership Act defines partnership as "Partnership" is the relation
between persons who have agreed to share the profits of a business carried on by all or
any one of them acting for all. The persons who have agreed to join in partnership are
individually called "Partners" and collectively a 'firm'. A partnership firm can be formed
with a minimum of two partners and it can have a maximum of twenty partners.
http://www.nios.ac.in/media/documents/vocinsservices/m1-3f.pdf.
Advantages
a) Easy to form: Like sole proprietorships, partnership businesses can be formed
easily without any compulsary legal formalities.
b) Availability of large resources: Since two or more partners join hands to start
a partnership business, it may be possible to pool together more resources as
compared to a sole proprietorship.
c) Better decisions: The partners are the owners of the business.
d) Flexibility in operations: A partnership firm is a flexible organization.
e) Sharing risks: In a partnership firm all the partners "share" the business risks.
http://www.indiahowto.com/advantages-partnerships.html
Disadvantages
a) Instability: A partnership firm does not exist for an indefinite period of time.
b) Lack of Harmony: According partnership agreement every partner has equal
rights.
c) Limited Capital: Due to the restriction on the maximum number of members,
a limited amount of capital can be raised.
d) No legal status: A partnership firm does not have a legal status like a Joint
Stock Company.
e) In a partnership firm it is not easy to transfer ownership. Consent of every
partner is required in order to transfer ownership.
http://www.career ride.com/fa-partnership-firms-advantages-
disadvantages.aspx
12.3.3 Joint Hindu Family
The Joint Hindu Family firm is a form of business organization in which the family
possesses some inherited property and the 'Karta', the head of the family, manages its
affairs. It comes into existence by the operation of Hindu Law and not out of contract
Globalization between the members or coparceners. If the personal who have co-parcenary interest
in the ancestral property carry on business it is a case of Joint Hindu family firm.
https://www.classle.net/book/forms-business-organisation-sole-proprietorship-
joint-hindu-family-firm
NOTES
Advantages
a) Stability: The existence of the Joint Hindu Family firm does not come to an
end by the death, insanity, or bankruptcy of any coparcener.
b) Management: The organisation, management, and control of the business is
vested in the karta of the family.
c) Liability: Except the karta, all other members' liabilities are limited to the
extent of their share in the ancestral property.
d) Membership: Unlike partnership, there is no such limit to the membership of
the Joint Hindu Family Firm.
http://www.yourarticlelibrary.com/firm/joint-hindu-family-firm-merits-
limitation-and-suitability/5192/
Disadvantages
a) Limited Capital: This type of business does suffer from the limitation of capital.
b) Unlimited liability of Karta:The liability of the karta is unlimited but the liability
of co-parceners is limited.
c) Less motivation: All the members of the family are entitled to equal share
whether they put in work or not.
d) No Legal Status: -Like Sole trading concern, the Joint Hindu family business
lacks legal status.
e) Limited Growth and Expansion: -The investment of the joint Hindu family
business is limited.
http://www.yourarticlelibrary.com/firm/joint-hindu-family-firm-merits-
limitation-and-suitability/5192/
12.3.4 Cooperative Society
A cooperative ("coop") or co-operative ("co-op") is an autonomous association of
people who voluntarily cooperate for their mutual social, economic, and cultural benefit.In
short, a co-op is defined as "a jointly owned enterprise engaging in the production or
distribution of goods or the supplying of services, operated by its members for their
mutual benefit, typically organized by consumers or farmers." Co-operaives frequently
have social goals which they aim to accomplish by investing a proportion of trading
profits back into their communties.
https://en.wikipedia.org/wiki/Cooperative#cite_note-ica-principles-1
Advantages
a) Easy to form: No legal formalities are required for the formation of cooperative
society.
b) No obstruction for membership: Unless and otherwise specifically debarred,
the membership of cooperative society is open to everybody.
c) Limited liability: The liabilities of the members of the society is limited to the
extent of capital contributed by them. Globalization
d) Service motive: Provided with better good and services at reasonable prices.
e) Democratic management: The cooperative society is managed by the elected
members from and among themselves. NOTES
http://www.preservearticles.com/201101193579/advantages-and-
disadvantages- of-cooperative-society.html
Disadvantages
a) Lack of Secrecy: To submit its annual reports and accounts with the Registrar
of Cooperative Societies.
b) Lack of Business Acumen: The member of cooperative societies generally
lack business acumen.
c) Lack of Interest: The paid office-bearers of cooperative societies do not
take interest in the functioning of societies due to the absence of profit motive.
d) Corruption: In a way, lack of profit motive breeds fraud and corruption in
management.
http://www.yourarticlelibrary.com/business/cooperative/advantages-
and-disadvantages-of-cooperative-society-discussed/40799/
e) Lack of Unity:In the absence of proper education and training, it is useless to
Check Your Progress
think about unity. The lack of unity leads towards the destruction of the
What are various types of
business.
business structures?
f) Lack of Discipline:Every member of the cooperative society considers himself
as the owner of the business. Due to lack of discipline, business suffers a
loss.
http://www.zeepedia.com/ read.php? cooperative_ society_ advantages_
of_cooperative _society_ introduction_ to_ business&b =46&c =12
12.4 Emerging Trends in Business
12.4.1 Franchising
Franchising is the practice of the right to use a firm's business model and brand
for a prescribed period of time. The franchise is an alternative to building "chain stores"
to distribute goods that avoids the investments and liability of a chain. The franchisor's
success depends on the success of the franchisees. The franchisee is said to have a
greater incentive than a direct employee because he or she has a direct stake in the
business. https://en.wikipedia.org/wiki/Franchising
Advantages
a) Your business is based on a proven idea. You can check how successful
other franchises are before committing yourself.
b) You can use a recognised brand name and trade marks. You benefit from
any advertising or promotion by the owner of the franchise - the 'franchisor'.
h t t p s : / / w w w. n i b u s i n e s s i n f o . c o . u k / c o n t e n t / a d v a n t a g e s - a n d -
disadvantages-franchising
Globalization Disadvantages
a) The franchisee will have to pay the franchisor for the services provided and
for the use of the system, i.e. the initial franchise fee and continuing franchise
fees.
NOTES
b) The franchise contract will contain some restrictions against the sale or transfer
of the franchised business.
c) The franchisor's policies may affect the franchisee's profitability.
d) The good name of the franchised business and its brand image may become
less reputable for reasons beyond their control.
http://www.aust-immig-book.com.au/business/Advantages% 20and%
20Disadvantages% 20of%20Franchising
12.4.2 Network Marketing
The simplest explanation of network marketing is that it is a method of marketing
that utilizes independent representatives to reach potential customers that a company
otherwise would not reach with traditional online or offline marketing methods.
http://www.network-marketing-works.com/whatisit.htm
Direct selling method in which independent-agents serve as distributors of goods
and services, and are encouraged to build and manage their own sales force by recruiting
and training other independent agents. In this method, commission is earned on the
agent's own sales revenue, as well as on the sales revenue of the sales-force recruited
by the agent and his or her recruits (called down line). Also called multilevel marketing
(MLM), cellular marketing. http://www.businessdictionary.com/definition/network-
marketing.html
Network marketing programs feature a low upfront investment--usually only a
few hundred dollars for the purchase of a product sample kit--and the opportunity to
sell a product line directly to friend, family and other personal contacts. Most network
marketing programs also ask participants to recruit other sales representatives. The
recruits constitute a representative "downline," and their sales generate income for
those above them in the program. http://www.entrepreneur.com/encyclopedia/
network-marketing
Advantages
a) With network marketing you can work according to your comfort level and
convenience.
b) Through network marketing you can reach innumerable peoples irrespective
of the region, nationality and geography.
c) It can provide you a passive salary which is of a great importance.
d) If you are smart at your work and possess some great online marketing
techniques, you can see an exponential business growth rapidly.
e) There is completely no investment in this type of marketing
http://carlosalverto.empowernetwork.com/blog/network-marketing-
advantages-and-disadvantages

Disadvantages
a) The core of multi-level marketing is creating a long down chain. Close to
90% of the people fail to go beyond the first level and wound up their business Globalization
in first three months.
b) Multi-level marketing requires great inter personal and communication skills
and not everyone is blessed with one which leads to business failure.
NOTES
c) This form of marketing has a saturation point beyond which the rate of
business growth is marginal. It is impossible for everyone to get a lion's share
of profit.
http://imglobal.me/blog/advantages-disadvantages-of-multi-level-
marketing.html
d) Your family and friends will lose money - if they join the organization and/or
when they have to bail you out with loans, housing, etc.
http://www.quora.com/What-are-the-advantages-and-disadvantages-of-
working-for-a-Multi-Level-Marketing- -Marketing-company
12.4.3 Business Processing Outsourcing
Business process outsourcing (BPO) is a subset of outsourcing that involves the
contracting of the operations and responsibilities of a specific business process to a
third-party service provider. Originally, this was associated with manufacturing firms,
such as Coca Cola that outsourced large segments of its supply chain. https://
en.wikipedia.org/wiki/Business_process_outsourcingUsually, BPO is implemented as
a cost-saving measure for tasks that a company requires but does not depend upon to
maintain their position in the marketplace. BPO is often divided into two categories:
back office outsourcing which includes internal business functions such as billing or
purchasing, and front office outsourcing which includes customer-related services such
as marketing or tech support. http://searchcio.techtarget.com/definition/business-
process-outsourcing
Advantages
a) Swiftness and Expertise: Most of the times tasks are outsourced to vendors
who specialize in their field.
b) Concentrating on core process rather than the supporting ones: Outsourcing
the supporting processes gives the organization more time to strengthen their
core business process
c) Risk-sharing: one of the most crucial factors determining the outcome of a
campaign is risk-analysis.
d) Reduced Operational and Recruitment costs: Outsourcing eludes the need to
hire individuals in-house; hence recruitment and operational costs can be
minimized to a great extent.
https://www.flatworldsolutions.com/articles/advantages-disadvantages-
outsourcing.php
Disadvantages
a) Although outsourcing is considered cost-effective, there are some hidden
costs.
b) Even if BPO companies guarantee data security, there are high risks of
exposing confidential data mainly associated with human resources,
Globalization recruitment, payroll, and account services.
c) A single BPO company may associate with multiple organizations at a time.
Consequently, providers cannot concentrate comprehensively on assigned
tasks.
NOTES
d) If the right BPO provider is not chosen, it is difficult to get the expected final
outcome.
http://www.selfgrowth.com/articles/advantages-and-disadvantages-of-
business-process-outsourcing
12.4.4 E-Commerce
E-commerce, short for electronic commerce, is trading in products or services
using computer networks, such as the Internet. Electronic commerce draws on
technologies such as mobile commerce, electronic funds transfer, supply chain
management, Internet marketing, online transaction processing, electronic data
interchange (EDI), inventory management systems, and automated data collection
systems. Modern electronic commerce typically uses the World Wide Web for at least
one part of the transaction's life cycle, although it may also use other technologies such
as e-mail. https://en.wikipedia.org/wiki/E-commerce
Advantages
a) Cost Effective: The entire financial transactions will eventually become
electronic, so sooner conversion is going to be lower on cost.
b) Higher Margin: E-commerce also enables us to move better with higher
margin for more business safety.
c) Better Productivity: Productivity here means productivity for both companies
and customers.
d) Quick Comparison: E-commerce also enables you to compare price among
several providers.
e) Economy Benefit: E-commerce allows us to make transaction without any
needs on stores, infrastructure investment, and other common things we find.
http://www.triua.com/100/5-advantages-and-disadvantages-of-e-
commerce.html
Disadvantages
a) Privacy and security: Before making instant transactions online, be sure to
check the sites certificates of security.
b) Quality: While e-commerce makes everything easily accessible, a consumer
cannot actually touch products until they are delivered to the door.
c) Hidden costs: When making purchases, the consumer is aware of the product
cost,
d) Delay in receiving goods: Although delivery of products is often quicker than
expected, be prepared for delays.
e) Lack of personal interaction
h t t p : / / w w w. e n k i v i l l a g e . c o m / e - c o m m e rc e - a d v a n t a g e s - a n d -
disadvantages.html
12.4.5 M-Commerce Globalization
The use of wireless handheld devices such as cellular phones and laptops to
conduct commercial transactions online. Mobile commerce transactions continues to
grow, and the term includes the purchase and sale of a wide range of goods and services, NOTES
online banking, bill payment, information delivery and so on. Also known as m-commerce.
http://www.investopedia.com/terms/m/mobile-commerce.asp
Mobile commerce services were first delivered in 1997, when the first two mobile-
phone enabled Coca Cola vending machines were installed in the Helsinki area in Finland.
The machines accepted payment via SMS text messages. This work evolved to several
new mobile applications such as the first mobile phone-based banking service was
launched in 1997 by Merita Bank of Finland, also using SMS. Finnair mobile check-in
was also a major milestone, first introduced in 2001. https://en.wikipedia.org/wiki/
Mobile_commerce
Advantages
a) Providing wider reach.
b) Reducing transaction cost
c) Streamline business processes.
d) Competitive pricing.
e) Reducing time to order.
f) Purely personal
g) Secure
h) Location and time independent
Disadvantages
a) Technology constraints of mobile devices (memory, Processing power, display
capabilities, input methods)
b) User interface is often difficult to learn how to use.
c) Use of graphics limited Check Your Progress
What are the emerging
d) WAP and SMS limited to small number of characters and text.
trends in business?
e) Limited bandwidth
http://lecture-notes-forstudents.blogspot.in/2012/02/advantages-
disadvantages-of-m-commerce.html
12.5 Environmental Pollution
Environmental Pollution can, therefore, be defined as any undesirable change in

the physical, chemical or biological characteristics of any component of the environment
(air, water, soil), which can cause harmful effects on various forms of life or property.
http://www.ddegjust.ac.in/studymaterial/mcom/mc-103.pdf
12.5.1 Air Pollution
Air pollution is the introduction of particulates, biological molecules, or other harmful
gases into Earth's atmosphere, causing disease, death to humans, damage to other
Globalization living organisms such as food crops, or the natural or built environment. Air pollution
may come from anthropogenic or natural sources.
https://en.wikipedia.org/?title=Air_pollution
NOTES Causes of Air pollution
a) Burning of Fossil Fuels: Sulfur dioxide emitted from the combustion of fossil
fuels like coal, petroleum and other factory combustibles is one the major
cause of air pollution.
b) Agricultural activities: Ammonia is a very common by product from
agriculture related activities and is one of the most hazardous gases in the
atmosphere.
c) Exhaust from factories and industries: Manufacturing industries release large
amount of carbon monoxide, hydrocarbons, organic compounds, and chemicals
into the air thereby depleting the quality of air. http://www.conserve-energy-
future.com/causes-effects-solutions-of-air-pollution.php
d) Volcanoes, dust storms, and forest fires are causes of natural air pollution.
e) The largest source air of pollution in cities is from vehicle exhaust fumes.
f) Carbon monoxide is the largest air pollutant in the United States, and it's
number one source is from vehicle exhausts.
g) Filters that are not changed regularly in your air conditioning units will
accumulate dirt and cause the spread of pollutants in the air you breathe
inside your home.
http://www.gogreenacademy.com/causes-and-effects-of-air-pollution/
A) Business can cause some form of air pollution if they are not run properly. They
are
a) Manufacturers
b) Vehicle repairers
c) Welders
d) Mines and quarries
e) Transport businesses
f) Waste management businesses
B) Sources of air pollution from business premises include:
a) Emissions from burning fuels in furnaces and boilers
b) Dust and fumes from poor waste storage and ventilation systems
c) Ozone (an air pollutant which can be harmful to human health) from office
equipment such as copiers and laser printers
h t t p : / / w w w. n e t re g s . o rg . u k / l i b r a r y _ o f _ t o p i c s / a i r _ p o l l u t i o n /
preventing_air_pollution/air_pollutions_causeseffects.aspx
Effects of Air Pollution
a) Greenhouse effect,
b) Particulate contamination,
c) Increased UV radiation,
d) Acid rain, Globalization
e) Increased ground level ozone concentration,
f) Increased levels of nitrogen oxides.
https://en.wikipedia.org/wiki/Air_pollution NOTES
http://www.conserve-energy-future.com/causes-effects-of-industrial-
pollution.php
Air pollution can be minimized by the following methods:
a) Using low sulphur coal in industries.
b) Removing sulphur from coal (by washing or with the help of bacteria).
c) Removing NOx during the combustion process.
d) Removing particulate from stack exhaust gases by employing electrostatic
precipitators, bag-house filters, cyclone separators, scrubbers etc.
e) Vehicular pollution can be checked by regular tune-up of engines; replacement
Check Your Progress
What is environmental
of more polluting old vehicles; installing catalytic converters; by engine
pollution?
modification to have fuel efficient (lean) mixtures to reduce CO and
hydrocarbon emissions.
http://www.ddegjust.ac.in/studymaterial/mcom/mc-103.pdf
12.5.2 Noise Pollution
Noise pollution or noise disturbance is the disturbing or excessive noise that may
harm the activity or balance of human or animal life. The source of most outdoor noise
worldwide is mainly caused by machines and transportation systems, motor vehicles,
aircraft, and trains. Outdoor noise is summarized by the word environmental noise.
Poor urban planning may give rise to noise pollution, since side-by-side industrial and
residential buildings can result in noise pollution in the residential areas. https://
en.wikipedia.org/wiki/Noise_pollution
Causes of Noise Pollution
a) Public/Private Transportation Vehicle - these are one of the daily causes of
noise pollution in our streets, public hi-way, etc.
b) Industrial Machinery: That creates severe disturbing and hazardous sounds
to the industrial workers. The multiple kinds of industrial machinery are huge
generators, large compressors, cranes, furnaces, exhaust fans and many more.
c) Construction Sites: construction items are expected to perform vibrations
and loud noise that can affect illnesses to all construction workers.
d) Loud Speaker
e) Big Events
http://www.noisecontrol.com/the-common-causes-of-noise-pollution/
Effects of Noise Pollution
a) Interferes with man's communication: In a noisy area communication is
severely affected.
b) Hearing damage: Noise can cause temporary or permanent hearing loss.
c) Physiological and Psychological changes: Continuous exposure to noise affects Business Enviornment : 141
Globalization the functioning of various systems of the body. It may result in hypertension,
insomnia (sleeplessness), gastro-intestinal and digestive disorders, peptic ulcers,
blood pressure changes, behavioral changes, emotional changes etc.
NOTES http://www.ddegjust.ac.in/studymaterial/mcom/mc-103.pdf
Control of Noise Pollution
a) Measure the decibel level of the noise.
b) Check equipment to make sure it is operating properly.
c) Provide hearing protection and limit noise exposure.
d) Provide education to employees on noise pollution.
e) Offer employee hearing tests.
http://smallbusiness.chron.com/control-noise-pollution-workplace-
11331.html
12.5.3 Water Pollution
Water pollution is the contamination of water bodies (e.g. lakes, rivers, oceans,
aquifers and groundwater). This form of environmental degradation occurs when
pollutants are directly or indirectly discharged into water bodies without adequate
treatment to remove harmful compounds. Water pollution affects the entire biosphere -
plants and organisms living in these bodies of water. In almost all cases the effect is
damaging not only to individual species and population, but also to the natural biological
communities. https://en.wikipedia.org/wiki/Water_pollution
Causes of water Pollution
a) Sewage leakages
b) High population density
c) Oil spillage
d) Industrial waste dumped into our waters
e) Pollution of ground water through drilling activities
Effects of Water Pollution
Check Your Progress
What are the major types Water pollution leads to damage to human health. Disease carrying agents such
of environmental as bacteria and viruses are carried into the surface and ground water. Drinking water
pollutions? is affected and health hazards result. Direct damage to plants and animals nutrition also
affects human health. This makes water to have odour, taste and sometimes colour.
http://www.mcser.org/journal/index.php/mjss/article/viewFile/1760/1764
12.6 Summary
This unit has presented the types of businesses, environmental pollution and its
elements along with various types of pollutions. The importance today is of thinking in
terms of developing sustainable models of business along with businesses for
sustainability. Industries with pollution control measures and industrial measures reducing
the pollution must be developed. The role of societies and the business structures has to
be visualized for achieving such goals. The larger the spread of business and its benefits,
the larger would be the share of sustainability concerns therefore greater involvement Globalization
of societies in business growth must be achieved.
12.7 Key Terms NOTES
Forms of Business Organisation: It is important that the business owner seriously

considers the different forms of business organization-types such as sole proprietor-
ship, partnership, and corporation. Which organizational form is most appropriate can
be influenced by tax issues, legal issues, financial concerns, and personal concerns. For
the purpose of this overview, basic information is presented to establish a general im-
pression of business organization.
http://www.studyfinance.com/lessons/busorg/
Franchising : A continuing relationship in which a franchisor provides a licensed
privilege to the franchisee to do business and offers assistance in organizing, training,
merchandising, marketing and managing in return for a monetary consideration. Fran-
chising is a form of business by which the owner (franchisor) of a product, service or
method obtains distribution through affiliated dealers (franchisees). http://
www.entrepreneur.com/encyclopedia/franchising
Network Marketing : Network Marketing involves the direct sale of products to
consumers. While network marketers don't need a specified amount of education, indi-
viduals interested innetwork marketing can take advantage of degree programs that
focus on business administration, marketing and sales management. http://study.com/
what_is_network_marketing.html
Business process outsourcing (BPO): Is the contracting of non-primary business
activities and functions to a third-party provider. BPO services include payroll, human
resources (HR), accounting and customer/call center relations.
http://www.techopedia.com/definition/13776/business-process-outsourcing-
bpo
E-Commerce: A type of business model, or segment of a larger business model,
that enables a firm or individual to conduct business over an electronic network, typically
the internet. Electronic commerce operates in all four of the major market segments:
business to business, business to consumer, consumer to consumer and consumer to
business. It can be thought of as a more advanced form of mail-order purchasing
through a catalog. Almost any product or service can be offered via e-commerce, from
books and music to financial services and plane tickets.
http://www.investopedia.com/terms/e/ecommerce.asp
M-Commerce: M-commerce (mobile commerce) is the buying and selling of goods
and services through wireless handheld devices such as cellular telephone and personal
digital assistants (PDAs). Known as next-generation e-commerce, m-commerce en-
ables users to access the Internet without needing to find a place to plug in. The emerg-
ing technology behind m-commerce, which is based on the Wireless Application Proto-
col (WAP), has made far greater strides in Europe, where mobile devices equipped
with Web-ready micro-browsers are much more common than in the United States. Business Enviornment : 143
Globalization http://searchmobilecomputing.techtarget.com/definition/m-commerce
Environmental Pollution : Pollution occurs when pollutants contaminate the natu-
ral surroundings; which brings about changes that affect our normal lifestyles adversely.
NOTES Pollutants are the key elements or components of pollution which are generally waste
materials of different forms. Pollution disturbs our ecosystem and the balance in the
environment. With modernization and development in our lives pollution has reached its
peak; giving rise to global warming and human illness.
http://www.conserve-energy-future.com/PollutionTypes.php
12.8 Question and Exercises

Q. Define sole proprietorship.
Q. State the suitability of sole proprietorship form of business organisation.
Q. Explain any two limitations of partnership form of business organisation.
Q. What is a Joint Hindu Family business? Describe its main characteristics.
Q. Explain the various merits of a Joint Hindu Family form of business organisation.
Q. State the different types of cooperative societies that exist in India.
Q. Explain the concept of franchise.
Q. Briefly describe the functions of network marketing.
Q. Discuss the threats face by business processing outsourcing industry in India.
Q. What is electronic commerce, and how is an e-commerce site different from a
"regular" one?
Q. Identify and describe the unique features of e-commerce technology and discuss
their business significance.
Q. What is m-commerce? Explain its merits and demerits.
Q. What are the main environmental effects of air pollution?
Q. How does air pollution spread and how can we handle this?
Q. What are the major water pollutants?
Q. Where does water pollution come from?
Q. How can we reduce the noise pollution?
Q. What are the precautions we can take to avoid noise pollution?

and Co., 2009
Business Enviornment : 144 Hill, 2007
6. Saleem, S., "Business Environment", 2nd Edition, Dorling Kindersley (India), Globalization
2010
NOTES
1) http://carlosalverto.empowernetwork.com/blog/network-marketing-advantages-
and-disadvantages
2) http://igbusinesss.blogspot.in/2011/03/chapter-three-forms-of-business.html
3) http://imglobal.me/blog/advantages-disadvantages-of-multi-level-marketing.html
4) http://lecture-notes-forstudents.blogspot.in/2012/02/advantages-disadvantages-of-
m-commerce.html
5) http://searchcio.techtarget.com/definition/business-process-outsourcing
6) http://searchmobilecomputing.techtarget.com/definition/m-commerce
7) http://smallbusiness.chron.com/control-noise-pollution-workplace-11331.html
8) http://study.com/what_is_network_marketing.html
9) http://www.aust-immig-book.com.au/business/
Advantages%20and%20Disadvantages%20of%20Franchising
10) http://www.businessdictionary.com/definition/network-marketing.html
11) http://www.careerride.com/fa-partnership-firms-advantages-disadvantages.aspx
12) http://www.conserve-energy-future.com/causes-effects-of-industrial-pollution.php
13) http://www.conserve-energy-future.com/PollutionTypes.php
14) http://www.ddegjust.ac.in/studymaterial/mcom/mc-103.pdf
17) http://www.enkivillage.com/e-commerce-advantages-and-disadvantages.html
18) http://www.entrepreneur.com/encyclopedia/franchising
19) http://www.entrepreneur.com/encyclopedia/network-marketing
20) http://www.gogreenacademy.com/causes-and-effects-of-air-pollution/
21) http://www.indiahowto.com/advantages-partnerships.html
22) http://www.investopedia.com/terms/e/ecommerce.asp
23) http://www.investopedia.com/terms/m/mobile-commerce.asp
https://en.wikipedia.org/wiki/Mobile_commerce
24) http://www.investopedia.com/walkthrough/corporate-finance/1/forms-business-
organizations.aspx
25) http://www.kcsourcelink.com/learning-center/starting-a-business/register-and-li-
cense-your-business/forms-of-business-organization
26) http://www.mcser.org/journal/index.php/mjss/article/viewFile/1760/1764
27) http://www.netregs.org.uk/library_of_topics/air_pollution/preventing_air_pollution/
air_pollutions_causeseffects.aspx
28) http://www.network-marketing-works.com/whatisit.htm
29) http://www.nios.ac.in/media/documents/vocinsservices/m1-3f.pdf.
30) http://www.noisecontrol.com/the-common-causes-of-noise-pollution/
Globalization 31) http://www.preservearticles.com/201101193579/advantages-and-disadvantages-of-
cooperative-society.html
32) http://www.quora.com/What-are-the-advantages-and-disadvantages-of-working-
for-a-Multi-Level-Marketing- -Marketing-company
NOTES
33) http://www.selfgrowth.com/articles/advantages-and-disadvantages-of-business-
process-outsourcing
34) http://www.studyfinance.com/lessons/busorg/
35) http://www.techopedia.com/definition/13776/business-process-outsourcing-bpo
36) http://www.triua.com/100/5-advantages-and-disadvantages-of-e-commerce.html
37) http://www.yourarticlelibrary.com/business/cooperative/advantages-and-disadvan-
tages-of-cooperative-society-discussed/40799/
38) http://www.yourarticlelibrary.com/firm/joint-hindu-family-firm-merits-limitation-
and-suitability/5192/
39) http://www.yourarticlelibrary.com/firm/joint-hindu-family-firm-merits-limitation -
and-suitability/5192/
40) http://www.zeepedia.com/read.php?cooperative_society_advantages_of_ coop-
erative_ society_ introduction_to_ business&b=46&c=12
41) https://en.wikipedia.org/?title=Air_pollution
42) https://en.wikipedia.org/wiki/Business_process_outsourcing
43) https://en.wikipedia.org/wiki/Cooperative#cite_note-ica-principles-1
44) https://en.wikipedia.org/wiki/E-commerce
45) https://en.wikipedia.org/wiki/Franchising
46) https://en.wikipedia.org/wiki/Noise_pollution
47) https://en.wikipedia.org/wiki/Water_pollution
48) https://www.business.tas.gov.au/starting-a-business/starting-a-business-from-
scratch/choosing- a-business -structure-intro /sole-proprietorship -advantages- and-
disadvantages
49) https://www.classle.net/book/forms-business-organisation-sole-proprietorship-joint-
hindu-family-firm
50) https://www.flatworldsolutions.com/articles/advantages-disadvantages-
outsourcing.php
51) https://www.nibusinessinfo.co.uk/content/advantages-and-disadvantages-franchis-
ing

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MBA 102 - Business Environment

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Yashwantrao MBA 102

Unit 1 Business Environment 1

Director (I/C), School of Commerce & Management : Dr. Prakash Deshmukh

NATIONAL ADVISORY BOARD

Dr. Pandit Palande Prof. Devanath Tirupati, Dr. Surendra Patole

Author & Editor

Instructional Technology Editing & Programme Co-ordinator

Copyright © Yashwantrao Chavan Maharashtra Open University, Nashik.

The combination of internal and external factors that influence a company's

1.1 Unit Objectives

b) Academia, industry, government interface Business Environment

f) Better Human resource development structure

NOTES 1.2.9 Market conditions, Locational and other related Factors

1.3 Macroeconomic Concepts

Business environment : The combination of internal and external factors that

and recycling of goods and services). Business Environment

experiences, and acted creatively. Business Environment

Hoebel describes culture as an integrated system of learned behavior patterns

1.6 Questions and Excercices

NOTES 1.7 Books for Further Reading

2.1 Unit Objectives

Developing an understanding for Planning, its relevance, development and

2.2 Planning and the Need for Planning

NOTES h) Addressing the barriers so as to remove them timely.

2.4 Planning Commission Social Factors

Subsequent objectives are as follows:

NOTES 2.5.4 Economic Self Reliance

2.8 Five Year Plans

2.8.1 First Five-Year Plan (1951-1956)

Check Your Progress 2.8.10 Tenth Five-Year Plan (2002–2007)

2.10 Key Terms

2.11 Questions and Excercices

2.12 Books for Further Reading

3.2 Industrial Policy Resolutions, 1956

3.3 The Industries (Development and Regulation) Act,

3.4 Public Private Partnership

3.4.1 Umbrella Definition of PPPs in India

3.5 The PPP Process and Examples

3.5.1 Project Preparation

Table: Investment Ceiling for Plant, Machinery or Equipments

3.8 Company Law

3.9 MRTP Act

3.10 Competition Act, 2002

3.12 Key Terms

3.13 Questions and Excercices

3.14 Books for Further Reading

4.1 Unit Objectives

4.2 Factories Act, 1948

4.3 Minimum Wages Act 1948

4.4 Industrial Employment (Standing orders) Act 1946

4.5 Payment of Wages Act 1936

4.6 Industrial Disputes Act 1947

4.7 Payment of Bonus Act 1965

4.8 Maternity Benefit Act 1961

4.9 The Trade Unions Act, 1926

4.12 Questions and Excercices

4.13 Books for Further Reading

5.1 Unit Objectives

5.2 Government Influence on Income, Planning, Prices and

5.3 Price Policy and Effect

b) Aggregate demand should be met with the aggregate supply.

c) Price policy should have a scope of incentivizing the production of essential

Non-plan expenditure is associated with subsidies, profit earning/loss making

Come whatever the effectiveness of a pricing policy is largely associated with