Professional Documents
Culture Documents
MBA 102 - Business Environment
MBA 102 - Business Environment
Chavan
Maharashtra
kmZJ§Jm KamoKar Open University
Business Environment
Production
Shri. Anand Yadav
Manager, Print Production Centre Y. C. M. Open University, Nashik- 422 222
The information contained in this book has been obtained by authors from sources believed to be reliable and are correct to
the best of their knowledge. However, the publisher and its authors shall in no event be liable for any errors, omissions or
damage arising out of use of this information and specially disclaim any implied warranties or merchantability or fitness for
any particular use.
MBA 102
Business Environment
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
Business Enviornment : 1
Business Environment
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)
Business Enviornment : 2
MBA 102
c) Industry-academia collaboration
d) More and better institutions
e) Large faculty training facilities NOTES
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
MBA102
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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MBA 102
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.
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.
Business Enviornment : 7
Business Environment
1.5 Key Terms
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 Enviornment : 9
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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MBA 102
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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
2.11 Questions and Excercices
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2.12 Books for Further Reading
Plan Formulation and
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.
Business Enviornment : 14
Plan Formulation and
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.
Business Enviornment : 15
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.
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;
Business Enviornment : 16
equally, it is necessary to take steps to prevent the occurrence of new problems.
Plan Formulation and
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
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.
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)
Target Growth: 5.2% Actual Growth: 5.4%
2.8.7 Seventh Five-Year Plan (1985–1990)
The Seventh Plan marked the comeback of the Congress Party to power. The
Business Enviornment : 22
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.
Target Growth: 5.0% Actual Growth: 5.7%
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
Business Enviornment : 23
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.
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.
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,
Business Enviornment : 28
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.
Target Growth: 2.1% Actual Growth: 3.6%
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
Business Enviornment : 31
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
4.14 Books for Further Reading
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
Business Enviornment : 32
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.
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
Business Enviornment : 38
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
3.6 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:
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),
Business Enviornment : 42
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-
Business Enviornment : 43
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
Business Enviornment : 44
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
3.11 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.
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.
The major objective of this Unit is to familiarize the readers with few important
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. 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. 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
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
5.6 Questions and Exercises
5.7 Books for Further Reading
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.
The major objective of this Unit is to familiarize the readers with few important
aspects of Government influence on income, planning, prices and production. It is very
important for the business organizations to understand these things so as to steer the
businesses well.
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.
a) Price policy’s role in maintaining price stability with respect to food items
specifically and all other items in general.
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.
Business Enviornment : 62
5.3.1 Parameters and factors associated with pricing policy Government Influence on Income,
Planning, Prices and Production
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.
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
Planning, Prices and Production
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.
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
Source: https://en.wikipedia.org/wiki/Income
Business Enviornment : 65
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
6.5 Question & Exercises
6.6 Books for Further Reading
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.
The major objective of this Unit is to familiarize the readers with few important
aspects of taxation and business 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.
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
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.
Business Enviornment : 68
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
7.9 Question & Exercises
7.10 Books for Further Reading
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.
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.
7.7 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.
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
7.9 Questions and Excercices
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.
Business Enviornment : 86
Societal Environment and the
UNIT 8 SOCIETAL ENVIRONMENT Social Responsibility of Business
8.0 Introduction
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.
Business Enviornment : 88 Or
Should a business have integration with corporate Soial Responsibility? Societal Environment and the
Social Responsibility of Business
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.
8.4 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
Business Enviornment : 91
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
Social Responsibility of Business
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
Social Responsibility of Business
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.
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.
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.
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.
Business Enviornment : 97
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 :
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
9.6 MNCs
A multinational corporation can be defined as one having a subsidiary or a branch
Business Enviornment : 104
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
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.
9.8 Summary
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.
Business Enviornment : 110
Globalization
10.2 Unit Objectives
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.
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
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
NOTES
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
10.6 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
Business Enviornment : 116
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.
Business Enviornment : 117
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.
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.
Business Enviornment : 118
https://en.wikipedia.org/wiki/Poverty
Globalization
10.9 Questions and Exercises
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.
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-
poverty-in-india.html
17) http://www.preservearticles.com/201107189264/what-are-the-main-causes-of-
poverty-in-india.html
18) http://www.preservearticles.com/201107189264/what-are-the-main-causes-of-
poverty-in-india.html
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/
11.1 Introduction
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.
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
11.7 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.
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
11.9 Questions and Exercises
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.
12.1 Introduction
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.
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
Business Enviornment : 133
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.
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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
12.4.1 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 -
Business Enviornment : 135
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
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
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
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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.