Indian Business Environment Syllabus MBA 2nd Semester

SYLLABUS
INDIAN BUSINESS ENIRONMENT

MBA–2nd SEMESTER, M.D.U., ROHTAK
External Marks : 70 Internal Marks : 30
Time : 3 hrs.
UNIT-I
Nature, components and determinatnts of business environment; basic
nature of Indian economic system; relation size and growth of public and
private corporate sector, social responsibility of business; broad features of
India's now economic policy.
UNIT-II
Trend and pattern of industrial growth; review of industrial policy
developments; industrial licensing policy; liberalisation of the private sector;
trends and issues in corporate management; growth and problems of the
small scale sector; public sector reforms and privatisation the problem of
industrial sickness; MRTP Act, SICA and Industrial Disputes Act.
UNIT-III
Development banks for corporate Sector (IDBI, IFCI, ICICI) - trends pattern
and policy; regulation of stock exchanges and the role of SEBI; banking
sector reforms, challenges facing public sector banks; growth and changing
structure of non bank financial institutions; problem of non performing
assets in Indian Banks.
UNIT-IV
Trend and pattern of India's foreign trade and balance of payments; latest
EXIM policy-main features; policy towards foreign direct investment;
globalisation trends in Indian economy; role of MNC's; India's policy
commitments to multilateral insitiutions - IMF, World Bank and WTO.
NOTE : The question paper will be set by the external examiners. The external
examiner will set 8 questions in all, selecting not more than two questions
form each unit. If a case study in included in the question paper then it will
carry marks equivalent to two questions. The candidates will be requited to
attempt five questions in all, selecting atleast one question from each unit.
However, in question paper (s) where any deviation is required, special
instructions will be issued by the Chairman, PG Board of Studies in
Mangement.
107
footer
INDIAN BUSINESS ENVIRONMENT
MBA 2nd Semester (DDE)
UNIT – I
Q. What is business environment? What are its various components ?
Ans. Meaning of Business Environment :– Business environment refers to

those aspects of the surroundings of business enterprise which have influence
on the funtioning of business. An organisation can survive and grow only when
it continuously and quickly adopts to changing environment.
Acc. to Wheeler, “Business Environment is the total of all things external to

business firms and industries which affect their organisation and operations.”
Acc. to Keith Davis, “Business Environment is the aggregate of all conditions,

events and influence that surround and affect the business.”
Components of Business Environment :– Business Environment has two

components :-
a) Internal Environment b) External Environment
Components of Business Environment
External Environment Internal Environment
108
footer
a) Internal Environment :– Internal Environment refers to environment

within the organisation. It includes internal factors of the business which
can be controlled by business. It includes objectives of business,
managerial policies, management and employees of the organistion,
labour management relationship, brand image and corporate image,
working conditions in the organistion, technological and research and
development capabilities etc. Internal environment includes 5 M's i.e.
men, material, money, machinery, management available with business.
These components are usually within the control of business.
Research
Development
Financial Technological
Resources Capabilities
Internal
Human Environment Work
Resources Environment
Objectives Managerial
of Business Policies
b) External Environment :– External Environment refers to external

aspects of the surroundings of business enterprise which have influence
on the functioning of business. These factors beyond the control of
business. External environment includes factors outside the firm which
can provide opportunities or pose threats to the firm.
External environment has two types :-
i) Micro Environment ii) Macro Environment
External Environment
Micro Environment Macro Environment
109
footer
Micro Environment :– The micro environment of a company consists of
elements that directly affect the company.It includes suppliers, customers,
market intermediaries, competitors and public etc., which is explained as
below :-
i) Suppliers :– Suppliers are those who supply raw materials and
components of the company. Every business requires the suppliers. If
our supplier is reliable, our business will run smoothly. If our supplier is
not reliable, we have to maintain high inventories.
ii) Customer :– Customer is the central point of the business. The success of
a business organisation depends upon the customers, their needs, tastes
etc. Now a days the competition is growing so it is very essential to satisfy
the customer. For attracting new customers companies conduct
consumer research, provide after sale services etc.
iii) Market Intermediaries :– Market Intermediaries which include agents
and brokers who help the company to find customers. It is a link between
company and consumer. Market intermediaries help the company to
promote sell and distribute its goods to final buyers. Market
intermediaries include middlemen, marketing agencies, financial
intermediaries, physical intermediaries etc.
iv) Competitors :– Competitors means other business units which are
producing similar products or a very close substitute of our product. Now
a days competition has increased. No business units enjoys monopoly in
the market. So the business has to satisfy the customer for the success in
the market.
v) Public :– Public is group that has actual or potential interest in the
business. So public also affect the business.
vi) Media :– Media also affect the business. It includes al newspaper,
megazines, journals etc. Media also affects the reputation of the company.
Macro Environment :– Macro Environment means general environment of
business. These factor are uncontrollable. These factors create opportunities
and pose threats to the business. It includes economic, demographic, natural,
technological, political and cultural environments.
Economic
Financial Environment Political
Resources Environment
Macro
Human Environment Natural
Environment Environment
Socio Cultural Technological

Environment Environment
110
footer
i) Economic Environment :– Economic Environment refers to those

economic factors which have impact on the working of business.
Economic environment is very complex in nature. It is very dynamic. It has
three elements :-
a) Economic Conditions :– Economic conditions of the economy the
business. Economic conditions includes income level, distribution of
income, demand and supply trends etc. If the economy is in boom
conditions, it positively affect demand and market share. On the
other hand if the economy is in depression, it will have negative effect
on the business.
b) Economic Policies :– Economic policies are framed by government.
These policies establish relationship between business and
government. The effect of these policies may be favourable or
unfavourable.
c) Economic System :– Different economic system prevail in different
countries. These system affect the business. The economic system
includes capitalism, socialism and mixed economy.
ii) Political Environment :– Political Environment affect the different
business units. A stable and dynamic political environment is very
necessary for business growth. Political environment includes political
stability in the country, relation of the govrnment with other countries,
welfare activities of government, centre state relationship, thinking of
opposition parties towards business. If the political system is stable and
efficient then the business grows. In the lack of political stability long
terms plans cannot be formulated. Thus business is adversely affected if
the government is not stable. Similarly relations of government with other
countries also affect business. If a country enjoys friendly relations with
other nations, then it has favourbal effect on foreign trade.
iii) Socio Cultural Environment :– Socio- Cultural Environment refers to
social and cultural factors which are beyond the control of business unit.
Such factors includes attitute of people ot work, family system, caste
system, education, habits, language, religion etc. Socio-cultural
environment is one of the important non-economic external components
of business environment. Religion has considerable effect on business.
Some religions restrict their followers from doing a particular type of
business, e.g. Jain religion does not allow its followers to engage in leather
industry, wine making etc. Similarly difference in language is another
problem area in national level and international level business. The
businessman must be familiar with the local language of the place where
business is to be operated.
iv) Technological Environment :– Technological environment is most
important factor which affect the business enterprise. The faster changes
111
footer
in technology create problems for business enterprise. Product have
shorter life span than the past because of rapid technological
development. Technology provides a various advantage. Success in
many industries depends on a innovation and research. For promote
innovation and research some companies establish research and
development department in their enterprise. For example Japanese
industries have achieved a great success because of innovation and rapid
technological upgradation.
v) Natural Environment :– Natural Environment refers to geographical and
ecological factors which are beyond the control of the enterprise. It
includes natural resources, weather and climatic conditions, landforms
rainfall, environmental pollution etc. Climate and weather conditions
affect the location certain industries like textile industry. Similarly
environment pollution in the form of air pollution, water pollution and
noise pollution have caused disturbances in ecological balance.
Government has framed various Acts for the control of environmental
pollution. The business enterprise must keep in mind these factors.
vi) Demographical Environment :– Demographical environment affect the
business externally. Demographic environment differs from country to
country and from place to place within the same country. Demographic
factors includes size of population and population growth, family size, age
composition, sex composition, urban-rural population education level
etc. Huge population size indicate cheap labour and more demand in the
economy. If population size is large then there will be more demand for
goods and services. It will have favourable effect on business. Similarly,
Education level is also important demographic factor affecting business.
If public is highly educated, supply of unskilled labour will decrease. On
the other hand if education level is low then supply of unskilled labour will
increase.
vii) International Environment :– International Environment is the
important component of the business environment. International
environment affect the business differently. International environment is
very important for certain types of business. It is particularly important
for industries directly depending on imports or exports. Recession in
foreign market may create difficulties for industries depending on exports.
Liberalisation of imports may help some industries but may adversely
affect other industries. For eg. the entry of multinationals such as LG,
Samsung in electronics industry has adversely affected the market share
of domestic business firms.
Q. How economic system can be described ?
A ns. ECONOMIC SYSTEM :– Economic system usually are classified as
capitalist, socialist or mixed. No company is purely market or purely
112
footer
commands, but they tend to lean to one direction or another. If an economy is
considered to be a market economy with a private ownership, it is so classified
because the market and private ownership dominate the economy.
When an economy moves to more balance between market and command
or between public and private ownership, it is considered mixed.
In a command economy, resources are allocated and controlled by
governmental decision. It is also possible to classify economic system
according to the other criteria:
i. Type of property ownership:- private or public.
ii. Methods of resources allocation and control:- a market economy or a
command economy.
These two criteria can be expanded to melude mixed ownership and
control with private ownership, individuals own the resources with public
ownership, the govt. owns the resources.
Interrelationship between control of economic activity and ownership of
production factor:-
Control Ownership
Private Mixed Public
Market A B C
Mixed D E F
Command G H I
As the matrix is suggesting that there can be 9 kinds of economic

environment. The business manager has to consider these before taking an
investment decision. These economic environments are:-
Ø Market-Private Ø Market-Mixed
Ø Market-Public Ø Mixed-Private
Ø Mixed-Mixed Ø Market-Public
Ø Command-Private Ø Command-Mixed
Ø Command-public
Market Economy :–
In a market economy two societal units play important roles :–
Ø The Individual
Ø The Company
Individual owns resources and consumer products. Companies use
113
footer
resources and produce products. The market mechanism involves an
interaction of price, quantity, supply and demand for resources and produces
as follows:-
Ø Labour is supplied by the individual if the company offers an adequate
wage.
Ø Products are consumed if the price is within a certain acceptable range.
Ø Company sets its wages on the basis of quantity of labour available.
Ø Resources are allocated as a result of constraint interplay between
individuals and companies.
The key factor that makes the market economy work is consumer
sovereignty. Consumer sovereignty is the freedom of consumer to influence
production by exercising their power of choice regarding purchases.
Companies are free to make economic decision. The demand and supply
ensure proper allocation of resources.
Market Economy implies a degree of economic freedom from :–
Ø Freedom from govt. restraints/ restrictions.
Ø Legal and Institutional frameworks to safeguard economic freedoms.
Examples :– USA, UK, Singapore, Hong Kong etc.
Command economy :–
In a command economy the govt. co-ordinates the activities of the different
economic sector. Goals are set for every enterprise in the country. The govt.
determines how much is produced by whom and for whom.
In this economy the govt. is assured to be a better Jude of How resources
should be allocated than are business or consumed. As a result of the recent
changes few countries strict central planning today. Ex-North Korea, Russia.
Mixed Economy :–
In actually, no economy is either purely market determined as completely
centrally planned. In practice, however what mixed economy generally have a
higher degree of govt. intervention and also a greater degree of govt.
intervention.
Countries in the mixed categories would be ‘partly free’ mostly not free’.
Examples of ‘partly free are :– Hungry, Israel, and Taiwan.
Examples of ‘Mostly not free’ are :– India, Mexico, and Brazil.
Mixed economies are characterized by different mixtures of market and central
planning control and public and private ownership of resources.
Q. Write a short note on development of public and private corporate
sector in India
Ans:1990s public sector expenditure gave some stimulus to demand for the
production of large industry. The private corporate sector also soaked up cheap
114
footer
finance from State agencies, and enjoyed partial protection from imports of
finished goods. Despite this comfortable environment, the underlying paucity
of domestic demand – reflecting the condition of the vast majority of people –
restricted the rate of industrial growth in India. And the nature of demand (i.e.,
for what types of products) skewed the pattern of growth, away from items of
mass consumption such as cheap textiles, and toward elite consumption. This
skewed, import-dependent pattern of production restricted employment
creation by industry; and the sluggish growth of industrial employment in turn
restricted the market for mass consumption goods.
Thus when spells of rapid growth occurred, they were distorted and self-
limiting. The high industrial growth rates of the 1980s were unleashed by the
relaxation of controls on industry, imports, and external borrowing. Given the
Indian elite’s insatiable desire for foreign goods, and the propensity of Indian
big business to operate as merchants rather than as industrialists, this
relaxation was accompanied by a surge of foreign collaborations; this resulted
in large imports and large trade deficits; this was in turn funded by foreign debt
(not coincidentally, international banks in this period were hunting for
borrowers). This culminated in the debt crisis of 1990-91. The further
liberalisation post-1991 unleashed another bout of growth in the mid-1990s
oriented toward elite demand; this petered out by the late 1990s, and was
followed by another bout of stagnation.
It is yet to be seen how long the present bout of growth can be sustained.
The proponents of the current policies argue that it is broad-based compared to
earlier such bouts, that Government finances are in better shape, and that
long-term trends in the international economy (in particular the growth of
outsourcing) imply that growth of services exports will continue indefinitely.
Let us assume there is some merit in these arguments. Regardless of whether
or not growth continues, however, the pattern of industrial development taking
place has some striking features which we need to note. These features help us
understand whether, either now or in the future, the present trends will
translate into the betterment of the people of India.
In fact the pattern of corporate sector growth, whether in industry or
services, not only fails to pull up the rest of the economy; the present pattern of
growth is based on exclusion, the fencing-off of the ‘growth’ sectors from the
rest of the economy.
Q. What is social responsibility of Business ? Are the Indian corporates
fulfulling this responsibility ? Give example.
Or
What is social responsibility of business ? How is it being
implemented by business houses in India ?
Ans. Fifty year ago the business was considered very good for earning profit to
115
footer
its owner but now a days the situation is completely changed. Today the
business’s responsibility is not limited to its owner but it has assumed large
dimension. Business has to look to the interest of other parties like
shareholders, employees, competitors, consumers, suppliers, government,
community and world etc. The responsibility of business which includes the
satisfaction of these parties along with the owner is called the social
responsibility of business.
Social Responsibility of business towards various parties of the society :–
Managers have a social responsibility towards various parties of the society. In
Indian corporates almost every firm fulfilling this responsibility towards
shareholders, competitors, employees, consumers, suppliers, government etc.
For example :– LG company fulfill their responsibility towards various parties of
the society. LG company provide different variety of product to consumer at
low cost and also provide quality product to the customer. On the other hand
the company fulfill the responsibility towards employees. It provide incentives
to the employees as well as various facilities. The company pay tax to the
government at time and follow the rules and regulations of the government. So
we can say that the Indian Corporates fulfilling the social responsibility
towards various parties of the society.
The main responsibility of various parties in the society is explained are as
follows :–
i) Towards Owners :– If the management and the owner happen to be
different the managers have the following responsibility towards the
shareholders :-
a) To ensure safety of the capital.
b) To ensure proper dividend.
c) To ensure proper utilization of invested capital.
d) To ensure timely payment of dividend.
e) To inform about the progress of the organization.
ii) Towards Employees :– Employees is very important for success of the
business. Employees is the key of success. If employees are satisfied the
enterprise can achieve their goals. The main responsibility towards
employees are explained as below :-
a) Giving the appropriate Remuneration.
b) Giving participation in Management.
c) Provide good work atmosphere.
d) Giving them a share of profit.
e) Provide education and training.
f) Provide opportunities for promotion.
g) Solve labour problem in time.
iii) Towards Consumers :– Consumers are so important for running the
116
footer
business. Without consumers business is meaningless. Following are

the responsibility of business towards consumers:-
a) To provide good quality products at cheap rates.
b) To provide after sale services.
c) Polite to consumers.
d) To solve their problems politely.
e) To treate consumers like God.
f) To make available goods according to the taste of the consumer.
iv) Towards Suppliers :– A manager also has a responsibility towards the
supplier. If the supplier do not supply the raw material in time so the
production will be hindered and the reputation of the organisation will
suffer. There are many responsibility towards suppliers are explains as
follow :-
a) To make timely payments.
b) Informing about the taste of consumers.
c) Informing about future development plans.
d) Give appropriate price of the material.
v) Towards Competitors :– A managers has the following responsibility
towards the competing organisation :–
a) To encourage mutual cooperation.
b) To encourage market research.
c) To work jointly for the development of business.
vi) Towards Self :– A manager’s towards his own self may also considered.
They are the following :–
a) To earn sufficient profit.
b) To earn reputation.
c) To enter new market.
d) To take interest in research.
vii) Towards Community :– The people of society have the following
expectations from business :–
a) To provide opportunities for employment.
b) To contributing to the raising of the standard of living.
c) To avoid indecent advertisement.
d) To avoid polluting the environment.
viii) Towards World :– A manager has also responsibility towards the world.
The following responsibility is explained as follow :-
a) To do business honestly.
Q. Explain the brand features of the New Economic Policy?
Ans. Meaning of New Economic Policy :– Since July 1991, the government
117
footer
has initiated a services of radical changes in its policies relating to industry,
trade, finance, foreign investment and fiscal aspects. The objective of the new
economic policy is to improve the efficiency of the business mechanism
involving multitudes of control, fragmented capacity and reduced competition
in the private sector. The thrust of new economic policy is creating a more
competitive environment in the economy as a means to improving the
productivity and efficiency of the system.
Main features of New Economic Policy :– The main features of New Economic
Policy is :–
1. Liberalisation
2. Privatisation
3. Globalisation
It is explained by the figure.
Features of
New Economic Policy
Libearlisation Privatisation Globalisation
1. Liberalisation :– The new economic policy provides freedom to the

enterepreneur to enter any industry, produce any product and each any
amount of money. The Liberalisation measures are :-
a) Licensing abolished except for 13 industries.
b) Limit for foreign equity stake has been hiked to 51 percent.
c) Basic telecommunication services opened to private participation,
including foreign investments.
d) Minimum lending rates for amounts exceeding Rs. 2 Lakh abolished.
e) Reforms in custom duties.
f) Rupee made fully convertible in current account through the
introduction of the Liberalised Exchange Rate Management System.
g) Setting up of private banks allowed.
h) Private investment allowed in Power Sector.
i) Greater thrust on exports to manage balance of Payment.
j) CCI abolished, FERA relaned.
k) Automatic approval for 100 percent export oriented units and units
in export processing zones.
2. Globalisation :– Glablisation refers to the process of integration of the
world into one huge market. In other words Globalisation means
118
footer
integration with the world economy. Glabalisation is the new

phenomenon. Now a days every company want to enter to global market.
Manifestations of Globalisation :– Globalisation manifests itself in many
ways. The more important of them are :-
i) Configuring Anywhere in the World :– An MNC can locate its
different operations in different countries on the basis of raw material
availability, consumer markets and low cost labour.
ii) Lowering of Trade and Tarriff Barriers :– An MNC locate their
business where trade tarriffs and custom barriers are getting
lowered, resulting in cheaper and abundant supply of goods.
iii) Increasing Trend Towards Privatisation :– Government are
everywhere withdrawing from owning and running business
enterprises. Private enterpreneurs are given greater access and
freedom to run business units.
iv) Mobility of Skilled Resources :– Skilled labour was considered to
the decisive factor in plant location. Modern factories use highly
skilled labour which is freely mobile. Where labour is unskilled
managements are spending vast sums of money to train workers
become skilled in their jobs.
v) Entrepreneur and his Unit have a Central Economic Role :– The
enterpreneur and his unit become central figures in the process of
economic growth and development of a nation. Given the right
environment he is able to innovate, bring in new products and
contribute the nation’s wealth.
3. Privatisation :– Privatisation of industries means opening the gates of
public sector to private sector. Private sector comes to play significant role
in the economic development of the country. Thus tranferring of public
sector industries to private sector is called privatisation.
Causes of Privatisation :– The main causes of privatisation is explained
are as follows :-
1. Inefficient Public Sector
2. Burden on the Government
3. For promoting Industrial Growth
4. For promoting Glabalisation
5. To solve Financial crisis of Government
Advantages of Privatisation :–
1. Increase the efficiency
2. Increase in competition
3. Increase in financial resources of Government
119
footer
4. Increase in foreign investment
5. Encouragement of New inventions.
6. Reduction in Economic Burden of Government
7. Increase in Industrial Growth Rate
8. Reduction in Political interferences.
Evaluation of New Economic Policy
Merits :-
1. Increase in Rate of Growth
2. Increase in competitiveness of industrial sector
3. Reduction in Poverty and inequality
4. Fall in Fiscal deficit
5. Control on Prices
6. Development of Small Scale Industries
7. Decline in disequilibrium of balance of payment
8. Favourable to Middle Class
Demerits :-
1. Less importance to Agriculture
2. More dependence on foreign debt
3. Dependence of foreign technology
4. More importance to privatisation
5. Problem of unemployment
b) To contributes towards international peace.
c) To observed rules of international market.
d) To help in the development of economically backward
countries.
ix) Towards Government :– A manager should help the govt. in the
development of the country by observing these laws. A manager has
the following responsibility towards the government.
a) To pay tax honesty.
b) To help the govt. by establishing new industries.
c) To observe rules laid down the government.
120
footer
UNIT – II
Q. Critically examine the New Industrial Policy ?
Ans. Government of India announced its new industrial policy on July 24,
1991. The main aim of the policy is to be liberalise the Indian industrial
economy from administrative and legals controls. Its main aim is to increase
industrial efficiency to the international level.
Main features of New Industrial Policy :– The main features of New Industrial
Policy is explained are as follows :-
1. Contraction of Public Sector :– In new industrial policy only three
industries will be reserved for public sector namely atomic mineral,
atomic energy and railways. All other areas will be thrown open to the
private sector.
2. Delicensing :– Under this policy the industrial licensing has been
abolished. Only 5 industries which are required to obtain compulsory
industrial license. These industries are alcoholic products, tobacco
products, aerospace and defence equipments, industrial explosives,
hazardous chemicals.
3. Abolition of Registration :– All existing registration schemes have been
abolished. Only entrepreneurs will have to give only a memorandum of
information about new projects and substantial expansion of existing
units.
4. Technical Experts :– There will need no permission for hiring foreign
technicians. For these payments, foreign exchange can be easily
purchased from reserve bank of India without any restrictions.
5. Foreign Capital :– The limit of foreign capital investment has been raised
from 40% to 51% equity. Now a days a country encourage the foreign
capital. Now our government is welcoming foreign investment.
6. Encouragement to Industries in Backward Areas :– The government
offered special incentives to industries in backward regions, for reducing
regional disparities.
121
footer
7. Freedom for Administrative Controls :- Expansion preogrammes of new
units will be exempted from administrative control. The existing units will
be free to produce any commodity on the basics of the license already
issued.
8. Location of Industries :– In cities with populations of less than 10 lakh,
location clearance will not be required except those industries where
licensing is compulsory.
9. Public enterprise Incurring Losses :– Public enterprise incurring losses
will be investigated by the Board for Industrial and Financial.
Reconstructions (BIFR). Government will formulate different schemes for
sick public sector units. Interest of the workers affected by these schemes
will be protected.
10. Reservation for Small Scale Industries :– Under new industrial policy
production of 239 items has been reserved for Small Scale Industries.
Large industries and medium enterpeises will not be allowed to go in for
their production.
11. New Definition of Micro, Small and Medium Enterprises :– In new
definition both manufacturing and service enterprise are covered in
meaning of micro, small and medium enterprise. The investment limit
have been fixed. This is explained are as follow :-
a) Manufacturing Enterprises :– Based on investment in plant and
Machinery.
i) Micro Enterprise - upto Rs. 25 Lakh
ii) Small Enterprise - above Rs. 25 Lakh and upto Rs. 5 Crore
iii) Medium Enterprise - above Rs. 5 Crore and upto Rs. 10 Crore
b) Service Enterpirse :– Based on investment in equipments.
i) Micro Enterprise - upto Rs. 10 Lakh
ii) Small Enterprise - above Rs. 10 Lakh and upto Rs. 2 Crore
iii) Medium Enterprise - above Rs. 2 Crore and upto Rs. 5 Crore
c) Facilities to Labourers :– For providing social security to the
Workers National Renewal Fund is set up. This fund provide relief to
the workers affected by technological changes, closure of public
sector units and privatisation of public sector units.
Evaluation of New Industrial Policy :– New Industrial Policy is a very liberal
policy. Its main objective is to liberalise industry from legal and administrative
control.
122
footer
Merit of New Industrial Policy :– The main merit of new industrial policy is
explained are as follow :-
1. Increase in Production.
2. Increase in Welfare of Workers.
3. Increase in Exports
4. Increase in Competitions.
5. Balance Regional Development.
6. Increase in efficiency of public sector.
7. Provide proper significance to Small Scale Industries.
Shortcoming of New Industrial Policy :– The shortcoming of New Industiral
Policy is explained are as follow :–
1. Reduction in the Role of Public Sector.
2. Adverse affect on Small Scale Industries.
3. Increase in Unemployment.
4. Increase in Regional Imbalances.
5. Ignore Social Objectives.
6. Adverse affect on Economic Sovereignity.
Q. Define New Industrial Licensing Policy ? And critically explain
objectives and working of Industrial Licensing Policy ?
Ans. Introduction :– The Indian Government established a licensing system in
Order to maintain control over industries according to the Industries
development and Regulation Act 1951. A license is a written permission
granted to an enterprise by the government, according to which the product
mentioned therein can be manufactured by the enterprise. The licence also
includes many other particulars such as :–
a) The name of the product to be produced.
b) The place where the factory is to be established.
c) Expansion of the enterprise.
d) The limit of the production capacity.
Objectives of Licensing :– The main aim of the licensing policy is to regulate
the industrial sector. The main aims of the licensing system are :-
1. Encouraging small scale industry.
2. Encouraging new entrepreneurs for setting industries.
3. Regulating location of industrial units.
4. To ensuring balanced regional development.
5. Promoting technological advancements in industries.
6. Development and control of Industrial Investment and production.
Compulsion for Licensing :– As per the licensing policy, it is necessary to
obtain licence in the following circumstances :–
1. For setting up New Industrial Units :– If any industrial unit is to be set
123
footer
up in the category of licensing industries it has to obtain licence under
Industries Development and Regulation Act, 1951.
2. For Expansion :– Under Industrial Licensing Policy, if any industrial unit
which is covered under licensing wants to expand its production capacity
then it will have to obtain prior approval under this act.
3. Location of Industrial Units :– Any Industrial Unit wants to change it
location then it will have to take prior approval. An Industrial License is
required for projects which are to be located in large cities with a
population of more than 10 lakhs. Only after obtaining approval, the
location can be changed.
4. For producing Articles Reserved for Small Scale Industries :– An
industrial undertaking wants to manufacture an item reserved for small-
scale sector it is required to obtain industrial license. The list of items
reserved for small scale industries is reviewed from time to time. At this
time 239 items were reserved for small scale sector.
5. Registration of Existing Industrial Units :– An existing Industrial Units
which were existing before enforcement of this act and are covered under
industrial licensing will have to obtain registration under this act.
Present Position of Licensing Policy :– Present position of licensing policy
explain are as follows:-
1. Compulsory Licensing :– According to the New Industrial Policy of 1991,
it is necessary to obtain license only in case of 15 industries which are
engaged in the field of defence-equipments, luxury goods and hazardous
commodities. In the wake of liberalization this number has been reduced
to 5. The five industries for which licensing is compulsory are :-
a) Alcoholic Products d) Aerospace and defence equipments
b) Industrial Explosives e) Tobacco products
c) Hazardous Chemicals
2. Protection to Small Industries :– In order to protect the small scale
industries and save them from competition with large industries, the
production of certain products was reserved for the small industries. Only
239 items are reserved for small scale industries.
3. Industries Reserved for Public Sector :– Some industries had been
resrved for the public sector. These industries could be established in the
public sector only and the private sector was not granted licences for the
establishment of these industries. Only 3 industries reserve for the public
sector such as atomic minerals, atomic energy and railway.
4. Definition of Large Industrial Houses :– In the new industrial policy fo
1991, the limit on holding assets was completely abolished and there is no
restrictions on size of large business houses. The new policy lays greater
124
footer
stress on preventing unfair trade practices rather than on the size of

business houses. In 2002 the government abolished MRTP Act.
5. Licensing for the Expansion of Production Capacity :– According to the
new policy of 1991, No license is required for the expansion of production
capacity of MRTP companies. In the present situation, there is no
restriction on expansion of production-capacity except five licensed
industries.
Criticism of Licensing Policy :–
1. Discourages the Entrepreneurs :– Under Industrial Licensing Policy,
industries have to obtain licences for setting up new unit, change location
etc. So excessive control discourages the entrepreneurs.
2. Conflicting Objectives :– Licensing involves conflicting objectives. Like
on one hand government wants to increase industrial production in the
economy on the other hand government is restricting the activities of
industrial units like substantial expansion, production of new articles etc.
3. Lengthy Procedure :– For obtaining industrial license the entrepreneur
has to take approval from various government departments. So all this
involves lengthy procedure and many formalities.
4. Corruption while Granting Licenses :– Licenses are given to such
entrepreneurs who have either political links or who can bribe the corrupt
officials. Licences are not granted on merit basis. Efficient entreprenurs
are ignored.
5. Poor Followup :– After granting license, authorities do not check whether
the business unit is following the provisions of licensing or not. So the
basic objective of licensing policy is defeated.
Q. Write short note on liberalization of private sector.
Ans. Liberatlisation of private sector. The new economic policy provides
freedom to the enterepreneur to enter any industry, produce any product with
each any amount of money. The Liberalisation measures are :–
a) Licensing abolished except for 13 industries.
b) Limit for foreign equity stake has been hiked to 51 percent.
c) Basic telecommunication services opened to private participation,
including foreign investments.
d) Minimum lending rates for amounts exceeding Rs. 2 Lakh abolished.
e) Reforms in custom duties.
f) Rupee made fully convertible in current account through the
introduction of the Liberalised Exchange Rate Management System.
g) Setting up of private banks allowed.
h) Private investment allowed in Power Sector.
i) Greater thrust on exports to manage balance of Payment.
125
footer
j) CCI abolished, FERA relined.
k) Automatic approval for 100 percent export oriented units and units
in export processing zones.
Q. Write short note on trends and issue in corporate management.
Ans.Sustainable development will steadily advance over the next 10 years, with
six major trends influencing industry world-wide, according to a new
Pricewaterhouse Coopers’ report, “Corporate Responsibility: Strategy,
Management and Value.” The challenge of creating strategies that meet
immediate needs without sacrificing the needs of future generations will be
driven by the growing influence of :–
Ø global market forces;
Ø revisions in corporate governance;
Ø high speed innovation;
Ø large scale globalisation;
Ø evolving societal requirements and communication,
the report says:
“Sustainable businesses balance their economic interests with the
need to be socially and environmentally responsible. The companies that
succeed over the long term are those that integrate ethical considerations into
company decision-making, and manage on the basis of personal integrity and
widely-held organisational values,” said Sunny Misser, Pricewaterhouse
Coopers’ global leader of sustainable business solutions.
The report identifies the following major trends :–
Ø Growing influence of global market forces, rather than government policy.
The influence of the markets in decision-making will grow as they reflect
rising demand, shrinking supply, and changing patterns of demand for
natural resources.
Ø Revisions in the financial model used to set corporate and government
strategy. The new model will include new scenarios, new risk factors, and
a growing number of intangible and non-financial factors.
Ø Innovation, particularly in core industries. Changing economic conditions
will expand the rate of innovation exponentially to include changes in
behaviour, product design, supply chains and geopolitical structure, in
addition to technology.
Ø Globalisation. International institutions will be responsible for
formulating global policies; the role of national or local institutions will be
limited to implementation.
Ø Evolution, not revolution. Progress toward sustainable development will
be largely incremental. Barriers to rapid change will die hard, but specific
catalysts may cause spurts of great change.
126
footer
Ø Communication. The global media may influence which issues

governments and industries focus on and accelerate the speed of changes
in policy and behaviour.
Misser advises that the business sector needs an elemental approach —
integration, action and communication. First, companies must formulate a
clear strategy for behaving responsibly and integrate that strategy within their
core business operations — like a gene that is encoded in their DNA and copied
to each cell in the corporate body. Second, they must adhere to the values and
standards they have articulated for themselves. Long-term sustainable
performance does not come from proclaiming a code of conduct but from
putting it into daily action. And last, they must tell the world clearly what they
are doing — both their successes and their challenges. Only then can they close
the gap in perceptions, maintain their reputations and act as an example to
other organisations.
“Sustainability has moved from the fringes of the business world to the top
of the agenda for shareholders, employees, regulators, and customers. Any
miscalculation of issues related to sustainability can have serious
repercussions on how the world judges a company and values its shares,”
Misser said.
“There is mounting evidence that companies that act in a responsible
manner consistently do better in the long run. Research by Pricewaterhouse
Coopers shows that more than half of institutional investors and analysts
believe that good governance and disclosure about sustainability issues are
critical indicators of a company’s value.”
Q. What are the major problems of small scale industries and what
major steps are taken by govt. to solve their problem?
Ans. The main problems of small scale industries are related to finance and
credit.
Problem of finance :– All kinds of business enterprises require sufficient funds
in order to meet their fixed as well as working capital requirements. Finance is
one of the critical inputs for growth and development of the micro,small and
medium enterprises. They need credit support not only for running the
enterprise and operational requirements but also for diversification,
modernization/upgradation of facilities, capacity expansion, etc.
Problem of credit :– Inadequate access to credit is a major problem facing
micro, small and medium enterprises. Generally, such enterprises operate on
tight budgets, often financed through owner’s own contribution, loans from
friends and relatives and some bank credit. They are often unable to procure
adequate financial resources for the purchase of machinery, equipment and
raw materials as well as for meeting day-to-day expenses. This is because, on
account of their low goodwill and little fixed investment, they find it difficult to
127
footer
borrow at reasonable interest rates. As a result, they have to depend largely on
internal resources.
In respect of MSMEs, the problem of credit becomes all the more serious
whenever any difficult situation occurs such as a large order, rejection of
consignment, inordinate delay in payment, etc. Sometimes, they have to close
down their operations due to shortage of funds. Also, there is little or no scope
for expansion and growth due to dearth of capital. Hence, economies of scale
are not available.
Recognising the importance of easy and adequate availability of

credit for ensuring sustainable growth of the MSME sector, the
government has undertaken several measures :–
Priority Sector Lending
Provision of finance to the sector is a part of the ‘Priority Sector Lending
Policy’ of the banks (both domestic and foreign banks operating in India. For
the public and private sector banks, 40% of the net bank credit (NBC) is
earmarked for the priority sector. For the foreign banks, 32% of the NBC is
earmarked for the priority sector, of which 10% is earmarked for the small scale
sector. In the case of foreign banks operating in India which fail to achieve the
priority sector lending target or sub-targets, an amount equivalent to the
shortfall is required to be deposited with SIDBI for one year at the interest rate
of 8 percent per annum.
Small Industries Development Bank of India (SIDBI)
SIDBI has been set up with the mission to empower the Micro, Small and
Medium Enterprises (MSME) sector with a view to contributing to the process of
economic growth, employment generation and balanced regional development.
It is the principal financial institution responsible for promotion, financing and
development of the sector. Apart from extending financial assistance to the
sector, it coordinates the functions of institutions engaged in similar activities.
The four basic objectives of SIDBI for orderly growth of industry in the small
scale sector are:
Ø Financing
Ø Promotion
Ø Development
Ø Co-ordination
SIDBI’s major operations are in the areas of (i) refinance assistance (ii)
direct lending and (iii) development and support services.
Taking into account the fact that a majority of such enterprises which are
at the lower-end of the sector are outside the ambit of institutional finance.
Hence, concerted efforts have been made by SIDBI to promote micro finance
128
footer
across the country to enable the unemployed persons to set up their own
ventures. There are more than 100 Micro Finance Institutions (MFIs) developed
by SIDBI that are engaged in implementation of its micro finance programme.
SIDBI has disbursed about Rs.1700 crore (cumulative) under its programme,
benefiting around 50 lakh beneficiaries.
At the State level, State Financial Corporations (SFCs) along with the State
Industrial Development Corporations (SIDCs) are the main sources of long-
term finance for the sector. State Financial Corporations, the state-level
institutions have played an important role in the development of small and
medium enterprises in their respective states with the main objectives of
financing and promoting these enterprises for achieving balanced regional
growth, catalyse investment, generate employment and widen the ownership
base of industry.
Credit Guarantee Cover Fund Scheme for Small Industries was launched
jointly by the Government of India and SIDBI (on a 4:1 contribution basis) in
August 2000, with a view to ensure greater flow of credit to the sector without
collateral security. It picked up during the last two years of the Tenth Plan and
till the end of March 2007, 68062 proposals were approved and guarantee
covers for Rs 1705 crore were issued. up during the last two years of the Tenth
Plan and till the end of March 2007, 68062 proposals were approved and
guarantee covers for Rs 1705 crore were issued.
Policy Package for Stepping up Credit to Small and Medium Enterprises
(SMEs), was launched with the objective of doubling the flow of credit to this
sector within a period of five years. The measures in the policy package, inter
alia, include banks to achieve a minimum 20% year-on-year growth in credit to
the MSME sector and cover on an average at least 5 new MSMEs at each of their
semi-urban/urban branches per year
Q. Explain in brief that private sector reforms leads to privatization.
Ans. Introduction :– Since the early 1990s, privatisation, in its many guises,
has become a cornerstone of economic reform strategies across the world
Increasingly, however, serious flaws are perceived to be accompanying the
privatisation model, particularly when it comes to the delivery of services which
have traditionally been provided by the state such as water, electricity,
education and health. Social priorities have been found to conflict with those of
private enterprise. Answerable to shareholders, private firms are rarely
interested in delivery to those on low incomes who cannot afford to pay. Rather
than simply reducing the role of the ineffective state, privatisation has
increasingly placed additional and new demands on the public sector,
especially in the monitoring of, and remedying of, private-sector performance.
While empirical research often finds in favour of the private sector,
research methods are typically skewed against the public sector by, for
129
footer
example, using such indicators as profit levels to show that private firms
perform better than state-run alternatives. Furthermore there are a growing
number of cases of effective state-led service providers, demonstrating that
ownership is not the defining determinant of enterprise performance.
Growth of private sector in India
The phenomenal growth of private sector of India can be attributed to
political will, financial reforms, usage of more advanced technology, young and
large English speaking working class. The 7-8 % of annual GDP growth rate
India is the one of the highest growth rate in the world. The last 15 years
witnessed a phenomenal rise of the growth of private sector in India. The
opening up of Indian economy has led to free inflow of foreign direct investment
(FDI) along with modern cutting edge technology, which propelled India’s
economic growth.
Previously, the Indian market were ruled by the government enterprises
but the scene in Indian market changed as soon as the markets were opened for
investments. This saw the rise of the Indian private companies which
prioritized customer’s need and speedy service. This further fueled competition
amongst same industry players and even in government organizations.
Further, the government of India also divested some of its enterprises to ensure
smooth operation of these companies which was otherwise were loss making. It
also went further and forged joint venture private Indian companies, especially
in sectors like, telecommunication, petroleum, housing and infrastructure.
This inculcated healthy competition and benefited the end consumers, since
the cost of service or products come down substantially.
B grade private Indian companies are also offering lucrative and
competitively priced products or service, whose quality is at par with A grade
companies. Big players of Indian markets have been forced to lower their price
bands to remain alive in the competition. Further, these big private Indian
companies are offering mouth watering benefits in the form of gifts, rebates and
even holding lucky draws to stay ahead in the race of ‘market supremacy’. Gone
are the days when ‘brand loyalty, accounted for big customer base. Today,
general Indian customers are trendy, flexible and are extremely flexible with
their choice. Steady growth of private sector has sent a sense of urgency and
insecurity amongst main market players. Defensive methods of protection of
Brands against competitors are becoming popular. Legal instruments like
patents, trademarks, industrial designs and copyrights filing has increased
many fold and so is counter claim and litigation. Further, Mergers and
Acquisitions, collaborations and licensing has become a popular amongst
private Indian companies.
The best thing that has happened to the overall Indian market with the
growth of private sector is that it has helped to shed bureaucracy and lengthy
official process and supplemented it by customer eccentric service, good work
ethics, professionalism and transparency of accounts.
130
footer
Some positive effect of the growth of private sector in India are as follows :–
Ø Manufacturing registered 11.9% growth
Ø The passenger vehicles sector grew by 11.61% during April-May
2007
Ø Electricity, gas & water supply performed well and recorded an
impressive growth rate of 8.3%
Ø Construction growth rate rose to 10.7%
Ø Trade, hotels, transport and communication registered a growth rate
of 12%
Ø Financing, insurance, real estate and business services recorded an
impressive growth rate of at 11% during the 1st quarter of this fiscal
Ø Exports grew by 18.11% during the 1st quarter of 2007-2008 and the
imports shoot up by 34.30% during the same period
Ø The food sector is estimated to be of US$ 200 billion and it is expected
to grow to $310 billion by 2015
Ø Merchandise Exports recorded strong growth
Q. Short note on Industrial Sickness.
Ans. Meaning of Industrial Sickness :– Industrial Sickness is a Universal
Phenomenon. It is a major problem of all industries in the world whether it is
developed or developing countries. It is a serious matter of the countries.
A sick unit is one which is not healthy. To an industrialist, it is a unit
which is making losses. To an investor it is one which skips dividends. To a
banker, it is one which is not repaying its loan or interest.
Definition of Industrial Sickness :–
Acc. to State Bank of India, “A sick unit is that unit which fails to generate
internal surplus on a continuing basis and depends for its survival on frequent
infusion of external funds.
Acc. to Reserve Bank of India, “A sick unit is that which has incurred cash
loss for previous year and is likely to incur losses for the current year as well as
in following year and the unit has an imbalance in its financial structure such
as current ratio is even less than 1:1 and there is a worsening trend in debt
equity ratio.
Sickness are two types, namely:-
1. Born Sickness
2. Achieved Sickness
1. Born Sickness: - Industrial units born sick are those which are destined
for disaster right from their conception due to various causes.
e.g Lack of experience of promoters, Lack of funds, Lack of good
location, Wrong plant layout.
131
footer
2. Achieved Sickness:- Industries which achieve sickness are those
which fail after becoming operational due to internal causes.
e.g Bad Management, Poor inventory management, Poor labour
managenment.
Causes of Industrial Sickness :– There are many causes for becoming sick
units. The main reasons of Industrial sickness is explained are as follows :–
i) Management Problems
ii) Financial Problems
iii) Labour Problems
iv) Technological Factors
v) Personal Wasteful Expenditure
vi) Faulty Demand Forecasting
vii) Government Policy
viii) Power Cuts
ix) Shortage of Raw Material
x) Infrastructure Problems
Steps taken by the Govt. for Sickness :–
i) Takeover by Management
ii) Setting up of Industrial Investment Bank of India
iii) Amalgamation with healthy units
iv) Diversification
v) Research and Development
vi) Soft Loans for Sick Units
vii) Periodical Review
viii) Avoid Excessive investment in Unproductive Capital Assets
ix) Strick Penalties to persons responsible for sick units
Q. Short note on MRTP Act and SICA
Ans. MRTP Act stands for Monopolies and Restrictive Trade Practices Act,
1969. The MRTP Act has been replaced by the Competition Act 2002 on the
recommendations of the SVS Raghvan Committee. With the coming into effect
of the competition act 2002, the Monopolies and Restrictive Trade Practices
(MRTP) Act 1969 was repealed and the Monopolies and Restrictive Trade
Practices Commission was dissolved. The MRTP Act applies to the whole of
India except the state of Jammu and Kashmir.
Establishment of the Competition Commission :– The Act provides for
the establishment of Competition Commission of India consisting of a
chairman and 2-10 members to be appointed by the Central Government and
having a term of five years. There is also the provision for the appointment of a
Director-General to assist the commission. The basic duties of the commission
as provided in the art are :-
132
footer
a) To eliminate practices have adverse impact on competition.

b) To promote and sustain competition.
c) To protect the interest of customers.
Prohibition of Anti Competitive Agreements :– The Act prohibits
persons and enterprises from entering into any agreement which has adverse
impact on competition in any area of production, supply, distribution, storage,
acquisition or control of goods or provision of services in the country. The act
prohibits the following agreements as these have anti-competitive effects :-
1. Decision taken by an association of persons or enterprises.
2. Tie in arrangement.
3. Refusal to deal.
4. Excessive supply arrangements.
5. Resale price maintanance.
Powers of the Commission :– The commission has following powers which are
explained as follows :–
a) Making enquiry and passing appropriate orders in matters related to
restrictive trade practices and unfair trade practices.
b) Making enquiry into monopolist trade practices and submitting
report to the Central Government.
c) The power of entry, search and seizure.
d) Granting of temporary injunctions.
e) Monitors the enforcement of its orders.
f) The power to amend or revoke any order passed by it
SICA :–
SICA 1985 was a special legislation enacted in public interest with the
twin objects of securing the timely detection of sick and potentially sick
companies and speedy determination and enforcement of remedial measures.
But some companies perceived SICA as an official exit route, thereby resulting
into losses to creditors and increased NPA’s in the banking sector SICA, 1985,
was repealed by sick industrial companies (special provisions) Repeal Act,
2003. Many processions of SICA have been incorporated in chapter VIA
(Section 424A-424L) is a considerably diluted form. The article below is a
section wise Comparison between old provisions of SICA, 1985 and new
provisions in Companies Act, 1956 with explanatory remarks on it, which
indicates that the new Act has made an attempt to remove the bottlenecks and
curb the practice of turning an operationally fit company into a sick unit.
The objectives of this Act (SICA) as incorporated in its preamble, emphasises
the following points :–
Ø The SICA had been enacted in the public interest to deal with the
problems of industrial sickness with regard to the crucial sectors
where public money is locked up.
133
footer
Ø It contains special provisions for timely detection of sick and
potentially sick industrial companies, speedy determination and
enforcement of preventive, remedial and other measures with respect
to such companies.
Ø Those measures are to be taken by a body of experts.
The measures are mainly
(a) Legal b) Financial restructuring (c) Managerial
Q. Short note on Industrial Disputes Act.
Ans. Meaning of Industrial Disputes :– “An Industrial disputes is any dispute
or difference between employees and employees, or between employees and
employers, or between employers and employers, which is connected with the
employment or non-employment, or the terms of employment or with the
conditions of work of any person.” The industrial disputes has various forms
such as strikes, lockouts, gherao and picketing and boycott. The main
characteristic of Industrial Disputes is explained as below :-
1. The dispute could be between employer-employer, employee-employee or
employer-employee.
2. The dispute must pertain to some work-related issue.
3. There should be difference or dispute. For example, labour demands
something, management does not grant the same.
4. Dispute between one or two workmen and their employers is not an
industrial dispute. It must be raised by a group or class of workmen.
Forms of Industrial Disputes :– The various forms of industrial disputes may
be stated :-
1. Strikes 3. Gherao 2. Lockouts 4. Picketing and Boycott
Forms of Industrial
Disputes
Strikes Lockouts Gheroa Picketing and Boycott
1. Strike :– Strike is a collective stoppage of work by a group of workers for

pressuring their employers to accept certain demands.
2. Lockouts :– Lockouts may be defined as the closing of a place of an
employment or the suspension of work or the refusal of an employer to
continue to employ any number of persons employed by him.
3. Gherao :– Gherao means to surround. In this method a group of workers
134
footer
initiate collective action aimed at preventing members of the management

from leaving the office.
4. Picketing and Boycott :– When picketing workers display banners
prevent others from the entering the place of work and persuade others to
join the strike.
Causes of Industrial Disutes :– There are many causes of Industrial disputes.
The main causes state below :–
1. Employment 2. Administration related issues
3. Institutional Causes 4. Political Causes
5. Recognition 6. Social Causes
1. Employment :– Employment is main cause of the industrial disputes. It
includes disputes over wages, allowances, bonus, benefits, working
conditions, change in method of production, method of job evaluation etc.
2. Administration-related Issues :– Administration-related issues is the
another cause of the industrial disputes. It includes ill treatment,
undeserved punishment and verbal abuse etc.
3. Institutional Causes :– It includes recognition of unions, membership of
unions, scope of collective bargaining, unfair practices etc. It is also
causes of industrial disputes.
4. Political Causes :– It is main cause of industrial disputes political leaders
have used unions as powerful weapons to build tensions inside the plant
industry.
5. Recognitions :– This disputes arises when employers failed to recognise a
union as a bargaining agent.
6. Social Causes :– Social cause is also cause which affect the industry or
firm. It is very important cause which is create the problem for firm.
Employment Causes of Industrial Political

Related Disputes Causes
Issues
Administration Recognition
Causes
Institutional Social
Causes Causes
135
footer
UNIT – III
Q. What are the major source of finance for industrial sector in India?
Are those adequate.
Ans. Following are the main financial institutions which provide finance for
industrial sector in India.
A) Industrial Finance Corporate of India (IFCI)
B) Industrial Credit and Investment Corporation of India (ICICI)
C) Industrial Development Bank of India (IDBI)
Main Financial
Institutions
IFCI ICICI IDBI
A) Industrial Finance Corporation of India :– Industrial Finance

Corporation of India was established on July 1, 1948 under the Industrial
Finance Corporation Act. This corporator gives short term and logn term
loans to both public and private sector units. At the time of establishment
its authorised capital was of Rs. 10 crores divided into equal parts of Rs.
5000 each. It’s shares were purchased by the Central Government, LIC,
Reserve Bank of India and various institutions of public sector. Shares
purchased by the government of India and Reserve Bank of India well
transfered to the Industrial Development Bank of India when it was
established in 1964. Presently 50% of the shrares of IFCI are with IDBI.
This corporation gives financial assistance in various forms :-
i) Gives loans for a maximum period of 25 years.
ii) Gives loans in foreign exchange.
136
footer
iii) Buys stocks and shares.

iv) Underwrites shares and debentures.
v) Gives security for the loan raised by an industry in the open market.
vi) Gives security regarding payments for the import of capital goods.
Criticism :–
1. The corporation is finding it difficult to recover the loans.
2. Its administration is inefficient.
3. Underwriting job of the corporation has been highly unsatisfactory.
4. The corporation has failed in supervising the industries taking loans.
5. Less assistance has been offered to basic and capital goods
industries.
B) Industrial Credit and Investment Corporation of India (ICICI)
:–Industrial Credit and Investment Corporation was established on
January 5, 1955. The main objective of the corporation are to give loans
for the development and modernisation of private sector industries. The
corporation is managed by the Board of Directors. There are presently 14
members of this Board. ICICI has been very successful in providing loans
of large amount to industries. It has provided loans in foreign exchange.
Functions of ICICI :–
1. To purchase new shares and debentures of the private sector.
2. Underwrite shares and debentures.
3. To give technical assistance to industries.
4. To guarantee the loans.
5. To give managerial assistance to industries.
6. To give loans for a period upto 15 years.
7. To help modernisation and expansion of Industries.
8. To give foreign exchange for the import of capital goods.
C) Industrial Development Bank of India (IDBI) :– Industrial Development
Bank was established in 1964. This development bank was started by the
government of India as a subsidiary of Reserve Bank of India. On
February 16, 1976 it became independent of the Reserve bank of India.
The bank is managed by the board of Directors Comprising of 24
members. Of these the chairman is appointed by the Central Government
and the Vice-Chairman by the Reserve Bank. 18 other members of the
board are also appointed by the Central Government and remaining 4
members are appointed by shareholders.
Objective :– Main objective of IDBI are as follows :–
a) To give loans both private and public undertaking.
b) To invest in shares of Industrial companies.
c) Underwrites the shares.
d) To provide technicaland managerial assistance to industries.
137
footer
e) To promote export-oriented industries and import substitution
industries.
f) To encourage growth of small and medium sized industries.
g) To promote industrial development of backward areas.
Criticism :–
1. It has not given much emphasis on provide technical and managerial
assistance.
2. Its role in underwriting shares and debentures of industrial units is
not very encouraging.
3. IDBI has sanctioned most of its loans to large scale industries. Small
units have not gained much from this bank.
Conclusion :–
In conclusion we can say that these institution provide finance for
Industrial Sector. These institution are not adequate for industrial sector.
These institution performing a significant role in promoting industrial
development, but these institution is not adequate. So for the development of
the industrial sectors new corporations are opened for promoting industrial
sectors
Q. Why are stock exchanges essential ? What steps have been taken to
regulate stock exchange in India? Also explain the main reasons of
fluctuations in the Stock Market in India ?
Ans. Introduction :– The market where existing securities are traded is
referred as stock market. It is also called the secondary market. In stock market
purchases and sale of securities whether of government or semi government
bodies or other public bodies and also shares and debentures issued by joint
stock companies are effected. The growth or health of the economy is
dependent on the stock market. Stock market is very essential for the economy.
Because it performs several economic functions and renders invalueable
services to the investors, companies and to the economy as a whole. They may
be explained as follows :-
1. Liquidity and Marketability of Securities :– The stock exchange provide
liquidity to securities. The securities can be converted into cash at any
time according to the discretion of the investor by selling them at listed
prices. They also facilitates buying and selling of securities at listed prices
by providing continuously marketability to the investors.
2. Safety of Funds :– Stock exchange ensure safety of funds invested
because they have to function under strict rules and regulations and the
bye-laws, are meant to ensure safety of investible funds.
3. Reflection of Business Cycle :– The changing business conditions in the
economy are immediately reflected on the stock exchange. Booms and
138
footer
depressions can be identified through the dealings on the stock

exchanges.
4. Marketing of New Issues :– A stock market helps in the marketing of new
issues. If the new issues are listed, they are readily acceptable to the
public.
5. Motivation for Improved Performance :– The performance of the
company is reflected on the prices quoted in the stock market. The stock
exchange helps the company to improve their performance.
6. Diversity the Risk :– Stock exchange supplies securities of different
kinds with different maturities and yields. It enables the investors to
diversity their risks by wider portfolio investment.
7. Promotion of Investment :– Stock exchange mobilise the savings of the
public and promote investment through capital formation.
8. Guide the investors :– The stock market guides the investors in choosing
securities by supplying the daily quotation of the listed dealings on the
stock exchange.
Main Reasons of Fluctuations in the Stock Market :– There are certain
factors which influence the stock market. These are explained are as follow :-
1. Interest Rate :– Interest rate is affected by the stock exchange. If interest
rate high then stock market low and vis-a-visa.
2. Inflation :– Inflation is most important factor which influence the stock
market.
3. Political Conditions :– Political condition also affected the stock market.
If the government of the country is not stable so the stock market
fluctuates.
4. Exchange Rate :– Exchange rate is that rate at which one unit of currency
of a country can be exchanged for the number of units of current of
another country. It is also affected stock exchange.
5. Speculation :– Speculation is also causes of fluctuation is the stock
market.
6. Economic Conditions :– Economic conditions such as protection policy,
war or peace, fiscal policy etc. which prevailing in the country is also
affected the stock market.
Steps taken to Regulate Stock Exchange :– For the effective functioning of
secondary market, proper control must be excercised. At present control is
exercised through the following three important processes :–
i) Recognition of Stock Exchange.
ii) Listing of Securities.
139
footer
iii) Registration of brokers.
This is explained are as follow :–
1. Recognition of Stock Exchange :– The stock exchange in India have to
be recognised by the Central Government under SCRA and SEBI, and they
have to comply with the provisions of the SCRA and SEBI, and also the
bye-laws and regulations duly approved by the government. Any stock
exchange which needs recognition under SEBI Act has to submit an
application in the prescribed manner to the Central Government. The
application must be accompanied by the following documents :-
a) A copy of the bye-laws of the stock exchange for its operation.
b) A copy of rules relating to its constitution, governing body, powers
and duties of the office bearers, the admission procedure etc.
If any stock exchange intends to renew its recognition it must once again
make an application to the control government in the aforesaid manner three
months before the expiry of the period of recognition.
The Central Government may withdraw the recognition granted to any
stock exchange at any time if it opines that the recognition granted is against
the interest of trade or public interest.
2. Listing of Securities :– Listing of securities means that the securities are
admitted for trading on a recognised stock exchange. Securities become
eligible for trading only through listing. Listing is compulsory for those
companies which intend to offer shares/debentures to the public for
subscription by means of issuing a prospectus. The companies which
have got there shares/debentures listed in one or more recognised stock
exchanges must submit themselves to the various regulatory must submit
themselves to the various regulatory measures of the stock exchange
concerns as well as the SEBI. They must maintain necessary books,
documents etc. and disclose any information which the stock exchange
may call for.
Criteria for Listing :– A company which desires its securities to be listed on a
recognised stock exchange must satisfy the following conditions :-
1. At least 60% of each class of securities issued must be offered to the public
for the subscription and the minimum issued capital should be Rs. 3
crores.
2. The minimum public offer for subscription must be at least 25% of each
issue and it must be offered through advertisement in newspapers at least
for a period of 2 days.
3. A company having more than Rs. 5 crore paid up capital must list its
securities or more than the one stock exchange.
140
footer
4. The existing companies must adhere to the ceiling in expenditure of public

issues.
5. A certificate to the effect that shares from promoter’s quota are not sold or
anferred for a period of 3 years must be submitted.
6. The company must pay interest one the excess application money received
at the rates ranging between 4% and 15% depending on the delay beyond
10 weeks from the date of closure of the subscription list.
3. Registration of Stock Brokers :– A broker is a commission agent who
transact the business in securities on behalf of his clients who are non-
members of stock exchange. A non-member can purchase and sell
securities only through a broker who is a member of the stock exchange.
To deal in securities on recognised stock exchanges, the broker should
register his name as a broker with the SEBI. A stock broker must posses
the following qualifications to register as a broker :-
a) He must be an Indian Citizen with 21 years of age.
b) He should not have been convicted for any fraud etc.
c) He should neither be a bankrupt nor compounded with creditors.
d) He should not have engaged in any other business other than that of
a broaker in securities.
e) He should have completed 12th standard examination.
f) He should not be a defaulter of any stock exchange.
An individual, corportae and institutional members can also become
brokers. Brokers will be selected by the selection committee of the stock
exchange on the basis of their qualifications, experience, financial status, their
performance in the written test interview etc.
A stock broker is the main prayers in the stock market. They may act in
different capacities as a principal, as an agent, as a speculator and so on.
Hence it is essential to study the different kinds of brokers and their assistants.
Q. Short note on SEBI.
Ans. Introduction :– The Securities and Exchange Board of India was set up on
April 12, 1988. The primary objective of the SEBI is to promote healthy and
orderly growth of the securities market and secure investor protection. For this
purpose SEBI monitors the activities is not only stock exchange but also
merchant bankers. The SEBI Act provides for the establishment of a Statutory
Board consisting of six members. The chairman and two members are to be
appointed by the Central Government, one member to be appointed by the
Reserve Bank and two members having experience of securities market to be
appointed by the Central Government.
SEBI has divided its activities into four Operational departments namely
Issue Management and Intermediaries Departments, Primary Market
141
footer
Department, Secondary Market Department and Institutional Department
each headed by an Executive Director.
Functions of the SEBI :– SEBI performs various functions. The function of
the SEBI are explained as follows :–
a) Regulatory Function
b) Development Function
Function
of SEBI
Regulatory Development
Function Function
a) Regulatory Function :–
i) Regulation of stock exchange and self regulatory organisation.
ii) Prohibition of fraud and unfair trade practices.
iii) Prohibition of insider trading in securities.
iv) Regulating take over of companies.
v) Registration and regulation of stock brokers, sub-broker, merchant
bankers, underwriters, portfolio managers etc.
b) Development Function :–
i) Promoting investors education.
ii) Promoting self regulatory organisations.
iii) Promotion of fair practices.
iv) Training of intermediaries.
v) Conducting Research and published information.
Powers of the SEBI :– The SEBI has following powers which explained are as
follows :-
1. Power to control and Regulate stock exchange.
142
footer
2. Power to call periodical returns from recognised stock exchanges.

3. Power to grant approval to bye laws of recognised stock exchange.
4. Power to compel listing of securities by public companies.
5. Power to call any information from recognised stock exchange.
6. Power to levy fees and other charges.
7. Power to grant registration to market intermediaries
Q. Discuss the major problems being faced by Indian Banking Sector.
Or
Explain the challenges faced by the public sector banks in India. Also
specify the steps taken by them in this connection.
Ans. In India Indian Banking Structure includes :–
Banking Structure
in India
Central Bank Commercial Cooperative Development

or RBI Bank Bank Bank
Urban Rural
Bank Bank
Public Sector Private Sector Foreign

Bank Bank Bank
State Bank Nationalised Regional

of India Bank Rural Bank
The banking sector is very important sector of the country. Through the
banking sectors a country can develop their economy.
The banking sectors provide loans to industries for the development of the
country.
143
footer
Challenges facing the Indian Banking Sector :- The Indian Banks are facing
certain problems which explained are as follows :-
1. Inadequate Foreign Business :– Most of the Indian Commercial Banks
are not able to handle foreign exchange business. So this problem is faced
by Indian Banks.
2. Less Banking Habit among the people :– Income of most of people in
India is very low. The little saving are made these are kept at home in the
form of cash or gold and jewellery. Because of this old habit of the people
banks receive less deposits.
3. Competition with exchange Banks :– Indian banks also face the
problems of competition from exchange banks in the country. People
prefer put their deposits in exchange banks because of their sound
financial condition and good services.
4. Insufficient Capital :– Many commercial banks in India operate with
insufficient capital. These banks tend to increase their brances which are
difficult to manage.
5. Unbalanced growth of banks :– The another problem face by the Indian
banks is unbalanced growth. This is the main problem that affecting the
Indian Banking Sector.
6. Lack of Banking Training :– Indian Banking lacks able and trained
bankers. Without training the bankers have not received sufficient
attention.
7. Loans on Immovable Property :– Some Indian Banks give loans on
immovable property. It is very difficult to sell immovable properties for
recovery of loans.
8. Continuous decline in Profit :– The Indian Banks’s profit is continuously
decline. So this is the another problem faced by Indian Banks.
9. Loans on Insufficient Security :– The Indian Banks give loans on
insufficient security. This weakness is also affect the financial position of
the Indian banks.
10. Lack of Mechonesation :– Most of the banking activity in India is
manual. As a result efficiency is low with high operational cost.
Suggestion for Improvement :– Following suggestion are offered to improve
the functioning of Indian Banks :–
1. Increase in the financial resources of the banks :– It is very necessary
for the development of Indian Banks that their financial resources are
increased.
2. Increase the number of banks :– To promote banking habit among the
people it is essential that bank branches are opened in area.
144
footer
3. Balanced development of banks :– It is very essential for development of

Indian Banks that new banks should be opened in only those areas where
there is no bank branch.
4. The confidence of people towards banks be increased :– For
development of banking it is almost imperative to develop confidence of
the people.
5. Improvement in the Credit Policy of the Banks :– Bank should improve
their credit policy. It should not give the loan on immovable property.
Bank should give the loan on sufficient security.
6. Improvement in the Management of Banks :– Management of the banks
should also be improved. Able, talented and experienced persons should
be appointed as bankers.
7. Improvement in the working of the banks :– Working system of the
commercial banks should be improved. This is also helpful in
development of banks.
8. Use of Regional Languages :– Regional languages like English should be
used in the banks. This would attract more savings from the peoples.
9. Concession of taxes to small banks :– Small commercial banks should
also be granted exemption from the payment of stamp duty and income
tax.
10. Cooperation among Nationalized banks and Private banks :– Modern
banks in India are both in private as well as public sector. Efforts should
be made to reduce competition between these banks by encouraging
mutual cooperation.
Q. Explain the working and operations of non banking financial
institutions.
Ans. Introduction :– Non-banking financial companies (NBFCs) are fast
emerging as an important segment of Indian financial system. It is an
heterogeneous group of institutions (other than commercial and co-operative
banks) performing financial intermediation in a variety of ways, like accepting
deposits, making loans and advances, leasing, hire purchase, etc. They raise
funds from the public, directly or indirectly, and lend them to ultimate
spenders. They advance loans to the various wholesale and retail traders,
small-scale industries and self-employed persons. Thus, they have broadened
and diversified the range of products and services offered by a financial sector.
Gradually, they are being recognised as complementary to the banking sector
due to their customer-oriented services; simplified procedures; attractive rates
of return on deposits; flexibility and timeliness in meeting the credit needs of
specified sectors; etc.
145
footer
The working and operations of NBFCs are regulated by the Reserve Bank
of India (RBI) within the framework of the Reserve Bank of India Act, 1934
(Chapter III B) and the directions issued by it under the Act. As per the RBI Act,
a ‘non-banking financial company’ is defined as:- (i) a financial institution
which is a company; (ii) a non banking institution which is a company and
which has as its principal business the receiving of deposits, under any scheme
or arrangement or in any other manner, or lending in any manner; (iii) such
other non-banking institution or class of such institutions, as the bank may,
with the previous approval of the Central Government and by notification in the
Official Gazette, specify.
Under the Act, it is mandatory for a NBFC to get itself registered with the
RBI as a deposit taking company. This registration authorises it to conduct its
business as an NBFC. For the registration with the RBI, a company
incorporated under the Companies Act, 1956 and desirous of commencing
business of non-banking financial institution, should have a minimum net
owned fund (NOF) of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The
term ‘NOF’ means, owned funds (paid-up capital and free reserves,minus
accumulated losses, deferred revenue expenditure and other intangible assets)
less, (i) investments in shares of subsidiaries/companies in the same group/
all other NBFCs; and (ii) the book value of debentures/bonds/ outstanding
loans and advances, including hire-purchase and lease finance made to, and
deposits with, subsidiaries/ companies in the same group, in excess of 10% of
the owned funds.
The registration process involves submission of an application by the
company in the prescribed format along with the necessary documents for
RBI’s consideration. If the bank is satisfied that the conditions enumerated in
the RBI Act, 1934 are fulfilled, it issues a ‘Certificate of Registration’ to the
company. Only those NBFCs holding a valid Certificate of Registration can
accept/hold public deposits. The NBFCs accepting public deposits should
comply with the Non-Banking Financial Companies Acceptance of Public
Deposits ( Reserve Bank) Directions, 1998, as issued by the bank. Some of
the important regulations relating to acceptance of deposits by the NBFCs are:-
Ø They are allowed to accept/renew public deposits for a minimum period of
12 months and maximum period of 60 months.
Ø They cannot accept deposits repayable on demand.
Ø They cannot offer interest rates higher than the ceiling rate prescribed by
RBI from time to time.
Ø They cannot offer gifts/incentives or any other additional benefit to the
depositors.
Ø They should have minimum investment grade credit rating.
Ø Their deposits are not insured.
146
footer
Ø The repayment of deposits by NBFCs is not guaranteed by RBI.

The types of NBFCs registered with the RBI are :–
Ø Equipment leasing company :– is any financial institution whose
principal business is that of leasing equipments or financing of such an
activity.
Ø Hire-purchase company :– is any financial intermediary whose principal
business relates to hire purchase transactions or financing of such
transactions.
Ø Loan company :– means any financial institution whose principal
business is that of providing finance, whether by making loans or
advances or otherwise for any activity other than its own (excluding any
equipment leasing or hire-purchase finance activity).
Ø Investment company :– is any financial intermediary whose principal
business is that of buying and selling of securities.
Now, these NBFCs have been reclassified into three categories :–
Ø Asset Finance Company (AFC)
Ø Investment Company (IC) and
Ø Loan Company (LC). Under this classification, ‘AFC’ is defined as a
financial institution whose principal business is that of financing the
physical assets which support various productive/economic activities in
the country.
Q. Explain Non-performing Assets ? Explain the reasons and remedies
to tackle this problem.
Ans. Meaning of Non-performing Asset :– An asset which ceases to generate
income for a bank is known as non-performing asset. In other words non-
performing assets are defined as a credit facility in respect to which interest has
remained unpaid for a period of two quarters. The main aim of commercial
bank is to get income on its loans and advances at regular intervals. But due to
certain unavoidable or unknown causes the receipt of income stops abruptly
then these assets are named as non-performing assets.
Causes of Emergence of Non-performing Assets :– The problems of non-
performing assets is the biggest problems which face the commercial banks.
There are certain causes which are explained as follows :–
1. Misutilisation :– The borrowers misutilize the amount given by the
banks. They do not utilize the money for the purpose which they have
applied rather they use it for some other purpose.
2. Intentional Defaulters :– Some firms and individuals are professional
borrowers. They maintain an equation with the bank officials and are able
to get loans by any means. These firms from time to time prepare false
147
footer
documents and apply for loans and advances for fictitious purposes, they
also succeed in getting the loan in the name of a fictitious firm.
3. Political Pressure :– The main cause of the non-performing asset is
political pressure. The emergence of non-performing assets is to be traced
to grant of advances under great pressure, political influence and
connections rather than evaluation and appraisal of factors and economic
consideration.
4. No proper follow up action :– The another causes of non-performing
asset is no proper follow up action. The bank authorities do not adopt any
proper follow up action for the advance which they have given. Due to no
proper follow up action it becomes very difficult to recover this amount
and thus the amount become NPA.
5. Natural causes and calamities :– Natural causes and calamities are also
responsible for the emergence of NPAs. For example a factor owner has
taken a loan for the improvement in functioning of the factory but during a
worker’s strike the factory has been demolished by the striking workers.
So this amount become NPA.
6. Over/Under Financing :– Some times the firms/individuals who require
higher amount of debt are given less amount and on the contrary who are
in the need of less amount are given a higher amount. In both the cases
the amount of debt is trapped. So this amount is also become NPA.
7. Pressure of Seniors on the Operating Managers :– Sometimes due to
excessive pressure of the seniors on their operating staff/managers.
These managers know it that it will be very difficult to recover the amount
of debt.
8. Non-availability of proper Security Against Funds :– The fund which
are loaned under any type of pressure the non availability of proper
security against these funds makes them insecure to recover.
Measures for the solution of the Problem :- The measure regarding the
solution of NPAs of the banks is explained as follows :–
1. Recover :– The government make sponsored programmes to recover

advances. Under this programme the bank official must posses the exact
data regarding the recovery of the amount.
2. Credit Appraisal and Management :– Before giving the loans and
advances the bankers should done credit appraisal. The bankers should
make the criteria for credit appraisal. If the borrowers satisfied the
conditions of the bank then it should give the loans and advances.
3. Proper Verification :– Banks must verify the financial position of the
148
footer
borrowing customer before giving any loan to him so that there may not be
any difficulty in the recovery of loan. If any person looks to be doubtful,
full enquiry may be done.
4. Less Political Pressure :– The ruling party should not interfere in the
working of the banks. These measure is very important for the NPA.
5. Compromise with Borrowers :– A compromise is negotiated settlement
in which the borrower agrees to pay a certain amount to the banks after
getting certain concessions. A large number of proposals approved by
banks to reduce the NPAs.
6. Fixation of Suitable Repayment Schedule :– The repayment schedule
should be fix properly. When fixing the repayment schedule the borrower’s
capacity should be considered.
7. Drastic Measures :– The drastic measures include filing suits in the civil
courts, filing suits in the recovery tribunals etc. If all other methods fail to
yield results the bank file the case for recovering their dues.
149
footer
UNIT – IV
Q. What are the main reasons of unfavourable balance of payments in
India’s Foreign Trade ? What are the methods to correct it ?
Ans. Meaning of Balance of Payment :– Balance of payment refers to the
recording of all economic transactions of a given country with rest of the world.
Each country has got to enter into economic transactions with other countries
of the world. As a result of such transactions it receive payment and make
payment to other countries. So balance of payment is a statement of accounts
of these receipts and payments.
Acc. to Benham :– “Balance of payment of a country is a record of the
monetary transactions over a period of time with the
rest of the world.
Acc. to Kindlebergr :– The balance of payment of a country is a systematic
record of all economic transactions between its
residents and residents of foreign countries”.
Features of Balance of Payments :– Main features of balance of payment are
explained as follows :–
1. Systematic Record :– It is a systematic record of receipts and payment of
a country.
2. Double Entry System :– Receipts and payments is based on the double
entry system.
3. Fixed Period of Time :– It is a statement of account related to a given
period of time usually one year.
4. Comprehensive :– Balance of payment includes receipts and payments of
all items government and non-government.
Balance of payment may be three kinds :–
A) Favourable Balance of Payment :– When receipts are more than
payments then balance of payment turn favourable.
BF = R - P > 0
150
footer
B) Unfavourable Balance of Payment :– Balance of payments is

unfavourable when its payments are more than its receipts.
BU = R - P < 0
C) Equilibrium in Balance of Payments :– Balance of payment is in
equilibrium when payment is equal to the receipts.
B=R-P=0
Causes of Unfavourable Balance of Payment :– Main causes of unfavourable
balance of payment are as follows :–
1. Import of Machinery :– The first cause of unfavourable balance of trade is
import of machinery. India imported the large amount of machinery
during the World War II. So these imports caused disequilibrium in the
balance of payment.
2. Price Disequilibrium :– There has been wide difference in the domestic
prices of the goods and the prices of goods in foreign countries. Due to
inflation domestic prices have increased more than the increase in prices
of foreign goods. This lead to increase in imports and decrease in exports.
3. Foreign Competition :– Now a days foreign competition is growing. India
mainly exports jute, tea. Sri Lanka and Indonesia is India’s rival. This has
adversely affected our exports.
4. Import of War Equipment :– During the World War India import the large
amount of war equipment. These imports also caused disequilibrium in
the balance of payment.
5. Payment of Interest on Foreign Debts :– India borrowed the foreign
debts in large amount. The interest on these debts is also due. The huge
interest burden also caused disequilibrium in the balance of payment.
6. Less Growth in Exports :– Government promote various export
promotion scheme but out exports are still less than our imports.
Therefore growth rate of exports is less than the growth rate of imports. So
this is also caused disequilibrium in the balance of payment.
7. Poor Quality of Industrial Production :– The quality of product is also
caused the disequilibrium in the balance of trade. Our quality of product
is not good so the export can not be increased. The growth rate of export is
still.
8. Expenditure on Foreign Embassies :– India had to establish its political
relations with other countries. It had to set up its embassies in foreign
countries. It was an expensive affair. So this caused in disequilibrium in
balance of payment.
151
footer
9. Backward Technology :– Now a day competition is growing. Our
technology of production is not good. So our quality is not good. Therefore
Backward Technology is also caused in disequilibrium in balance of
payment.
10. More demand on Consumption Goods :– In the post war period, demand
not only of foreign goods but also of Indian goods went up. Because of
increase in the population their demand within the country has gone up.
So export of these goods has gone down very much.
Suggestion to correct disequilibrium in the balance of payment :– The
main factor of disequlibrium in balance of trade is the excess of imports over
exports. Following specific measures are suggested to correct disequilibrium
in the balance of payment.
1. Promotion of Exports :– Promotion of exports is the best measure to
correct an adverse balance of trade. For this export industries should be
provided raw material and transport facilities at reduced prices. So that
price of these goods is low.
2. Encourage to Foreign Investment :– India has to encourage the foreign
industries and multinational corporations to invest their capital special
facilities are provided to attract foreign capital. It leads to inflow of foreign
exchange the country.
3. Increase in Production :– Government want to encourage exports it is
essential that agricultural, industrial and mineral production be
increased. Raw material should be made available to export industries at
International prices.The government provide various facilities to
industries to increase their production.
4. Attraction of Foreign Tourists :– Attractive picnic spots be developed in
different parts of the country to attract foreign tourists. Special facilities
are provided to attract foreign capital. Government spends a lot of money
to develop resorts. The foreign tourist be provided with transport and
other facilities.
5. Trade Agreement :– Government of India enters into trade agreements
with the government of other countries to expand trade. India enters into
trade agreements with all other countries signing GATT, so automatically
India has entered into trade agreement with WTO nations. More Trade
Agreements should be done with foreign countries to promote our foreign
trade and exports.
6. Deflation :– Deflation means the price of goods produced in the country
should be brought down. As a result the foreigners will get export goods at
cheaper price. So exports will be encouraged.
7. Import Substitution :– Import substitution plays an important role to
152
footer
correct an adverse balance of payments. Import substitution means total

or partial replacement of an imported product with domestic product of
the same functionaly requirements. This main objective is to reduce
imports.
8. Restriction on Inessential Imports :– Another important method of
correcting balance of Trade is restriction on imports. If the import are
restricted then balance of trade are automatically favourable.
9. Devaluation of Indian Currency :– Lowering of the value of domestic
currency in terms of foreign currencies is called devaluation. A country
resorts to devaluation when its exports fall short of imports. As a result of
devaluation, imports become dearer and exports cheaper.
Q. Describe the main features of New EXIM Policy.
Ans. The New Exim policy was announced on August 31, 2004. This policy is
names as Foreign Trade policy 2004-09. The main objective of the policy is to
double our percentage share in world trade within the next five years. This
policy is designed to use foreign trade as an instrument for promoting economic
growth. This policy has launched new export promotion scheme and has given
emphasis on exports of agricultural sector, handicrafts, gens and jewellery,
handloom service sector, leather etc. In this policy various incentives have
been announced for promotion of exports.
Main Features of New EXIM Policy :– Main features of New Exim Policy are
explained as follows :-
1. Facilities for Agricultural Sector :– Agricultural has the potential to
bring prosperity in rural areas, special package has been announced for
agricultural sector.
a) A new scheme called Vishesh Krishi Upaj and Gram Udyog Yojana
has been announced to boost exports of fruits, vegetables, flowers
etc.
b) To promote export of Medicinal plants and herbal products.
c) Import of capital goods for agricultural sector will be duty free.
d) Agri-export Zones set up in the early EXIM Policy. Various
concessions and incentives are provided to these Agri-export Zones.
These zones help to promote export of agriculture products.
2. Facilities for Handloom and Handicraft Sector :– Special benefits has
been given this sector for promotion of export.
a) Duty free import of capital goods for promoting this industry.
b) The limit of designated towns of export excellence has been reduced.
On attaining the export fo Rs. 250 crore by any town in a year it will
get the status of town of export excellence. The government will
provide special assistance in the form of better infrastructures etc.
153
footer
c) Exports of village and cottage industries are covered under Vishesh
Krishi Upaj and Gram Udyog Yojana.
d) The limit of status holder exporter has been brought down from
exports of Rs. 45 crore to Rs. 15 crore in a year.
3. Facilities for Gems and Jewellery Industries :– The government
announced special package for this sector :–
a) Duty free import of commercial samples of jewellery has been
allowed.
b) Duty free import of machinery, metal scrap, jewellery for melting,
consumable metals has been allowed.
c) Import of gold has been made duty free under the condition that
export of equivalent jewellery will be made.
4. Special Schemes for Export Promotion :– some new export promotion
schemes have been introduced to promote exports :–
a) Vishesh Krishi Upaj and Gram Udyog Yojana :- A new scheme
called Vishesh Krishi Upaj and Gram udyog Yojana has been
announced to boost exports of fruits, vegetables, flowers etc. In this
scheme the exporter can import equal to 5 percent of his export and
these imports will be exempted from import duty.
b) Seved from India :- To boose export of Indian services in the foreign
market, a special brand ‘Served from India’ will be promoted. The
individual service providers who earn foreign exchange reserve of at
least 5 lakhs in a year, can apply to government for using this brand
name.
c) Duty free Import Authorisation Scheme :- This scheme will be
effective from 1st May 2006, under this scheme, if the export unit
fulfils 20% value addition norms then it will be authorised from duty
free imports of inputs and capital goods. Value addition means
difference in the value of output and input.
d) Target Plus :- This is a progressive exprot incentive scheme in which
the rate of incentive increase with export growth rate. So the exports
are motivated to achieve higher export growth rates.
Growth rate Duty free Credit
in Exports Entitlement (Imports)
1. 20% to 24% 5% of Exports
2. 25% to 99% 10% of Exports
3. 100% and above 15% of Exports
5. Setting up of free trade and warehousing zones :– Government has
154
footer
started a new scheme named ‘free trade and warehousing zones’. This
scheme is aimed at making India a global trading centre. In this scheme
100% foreign direct investment is allowed, for setting these warehousing
zones. In these zones there is freedom to carryout import and export
transactions. Under this scheme an Indian Trader can buy and sell goods
anywhere in the world. By establishing these zones the image of India will
improve at international level. It will give a boost to India’s foreign trade.
6. More facilities to Special Economic Zones :– The special economic
zones setup to boost exports from these areas will be further strengthed.
In these zones infrastructure of international quality will be setup. Units
set up in SEZs will continue to get income tax concessions, exemption
from customs and excise duties etc. An present there are 15 functional
SEZs.
7. Special concessions for Export-Oriented Units :– Export oriented unit
are those untis which produce mainly for exports. The government
provide special concession for export oriented unit which is explained as
below :-
a) Income Tax benefits to E.O.U.s
b) Duty free Imports of Capital goods.
c) Duty free import of raw material.
d) E.O.Us will be exempted from service tax in proportion of their
exports to total sales.
8. Procedural Simplification :–
a) Validity of all licences related to foreign trade will be calid for 24
months.
b) For speedy redressal of grievances, a new mechanism for grievance
redressal has been formulated.
c) All exporters with minimum turnover of Rs. 5 crore will be exempt
from furnishing bank guarantee.
d) The number of returns and forms has been recued and these forms
have been simplified.
9. Scheme of Categorisation of Star Export Houses :– In this scheme one
to five stars are allowed, based on performance of total exports in current
year and in last three years. On achieving total export of 5000 crores or
more in current year and in last three years the export hose is given the
status of five-star export house. On the other hand on achieving total
export of Rs. 15 crores in current year and in last three years the export
house is given the status of one star export house.
10. Other Provisions :–
a) Pragate Maidan of Delhi will be transformed into world class
complex.
155
footer
b) India has entered into a free trade agreement with Thailand. It
means foreign trade between India and Thailand will be exempt from
custom duty.
c) An exclusive service export promotion council has been proposed to
be set up to promote service exports.
d) This Exim policy has introduced various meansures to promote India
as a hub of auto components.
Q. Short notes on FDI.
Ans Meaning of FDI :– FDI stands for Foreign Direct Investment. Foreign
Direct Investment is made by foreign companies. It established wholly owned
companies in another country. It manage them or to purchase shares of
companies in another country for the purpose of managing such companies.
In foreign direct investment the foreign investor who takes risk. It is solely
responsible for profit/loss of the company. The main feature of foreign direct
investment is that native companies are managed by the foreign companies. It
includes foreign collaboration. It may be of following types :–
a) Collaboration between Indian and Foreign Private companies.
b) Collaboration between Indian Govenment and Foreign Government.
c) Collaboration between Indian Government and Foreign Private
Companies.
The form of Foreign Direct Investment is explained by the figure :–
DIAGRAM
Foreign Direct
Investment
Establishing Wholly Acquistion by Foreign

Owned Companies Purchasing Shares Collaborations
Contribution of foreign capital in the Economic Development of India :–

i) Availability of Capital.
ii) Availability of Foreign Exchange.
iii) Availability of Risk Capital.
iv) Helpful in Export Promotion.
156
footer
v) Increase in Employment.
vi) Reduction in Inflation.
vii) Availability of Foreign Technology.
viii) Exploitation of Natural Resources.
Limitation of Foreign Capital :–
i) Increase in Foreign Dependence.
ii) More burden of External Debt.
iii) Harmful for Domestic Produces.
iv) Uncertainty.
v) Problems of Debt Servicing.
vi) Adverse effect on the Development of Indian Technology.
vii) Unbalanced Regional Development.
viii) Insufficient Development of Internal Financial Resources
Q. Explain the impact of globalisation in India.
Ans. Globalisation is the new buzzword that has come to dominate the world
since the nineties of the last century with the end of the cold war and the break-
up of the former Soviet Union and the global trend towards the rolling ball. The
frontiers of the state with increased reliance on the market economy and
renewed faith in the private capital and resources, a process of structural
adjustment spurred by the studies and influences of the World Bank and other
International organisations have started in many of the developing countries.
Also Globalisation has brought in new opportunities to developing countries.
Greater access to developed country markets and technology transfer hold out
promise improved productivity and higher living standard. But globalisation
has also thrown up new challenges like growing inequality across and within
nations, volatility in financial market and environmental deteriorations.
Another negative aspect of globalisation is that a great majority of developing
countries remain removed from the process. Till the nineties the process of
globalisation of the Indian economy was constrained by the barriers to trade
and investment liberalisation of trade, investment and financial flows initiated
in the nineties has progressively lowered the barriers to competition and
hastened the pace of globalisation
Definition :–
Globalised World - What does it mean?
Does it mean the fast movement of people which results in greater interaction?
Does it mean that because of IT revolution people can be in touch with each
other in any part of the world?
Does it mean trade and economy of each country is open in Non-Intrusive way
so that all varieties are available to consumer of his choice?
Does it mean that mankind has achieved emancipation to a level of where we
can say it means a social, economic and political globalisation?
157
footer
Though the precise definition of globalisation is still unavailable a few
definitions worth viewing, Stephen Gill : defines globalisation as the reduction
of transaction cost of transborder movements of capital and goods thus of
factors of production and goods. Guy Brainbant : says that the process of
globalisation not only includes opening up of world trade, development of
advanced means of communication, internationalisation of financial markets,
growing importance of MNC’s, population migrations and more generally
increased mobility of persons, goods, capital, data and ideas but also
infections, diseases and pollution
Impact on India :–
India opened up the economy in the early nineties following a major crisis
that led by a foreign exchange crunch that dragged the economy close to
defaulting on loans. The response was a slew of Domestic and external sector
policy measures partly prompted by the immediate needs and partly by the
demand of the multilateral organisations. The new policy regime radically
pushed forward in favour of a more open and market oriented economy.
Major measures initiated as a part of the liberalisation and globalisation
strategy in the early nineties included scrapping of the industrial licensing
regime, reduction in the number of areas reserved for the public sector,
amendment of the monopolies and the restrictive trade practices act, start of
the privatisation programme, reduction in tariff rates and change over to
market determined exchange rates.
Over the years there has been a steady liberalisation of the current
account transactions, more and more sectors opened up for foreign direct
investments and portfolio investments facilitating entry of foreign investors in
telecom, roads, ports, airports, insurance and other major sectors.
The Indian tariff rates reduced sharply over the decade from a weighted average
of 72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in
the late nineties it touched 35.1% in 2001-02. India is committed to reduced
tariff rates. Peak tariff rates are to be reduced to be reduced to the minimum
with a peak rate of 20%, in another 2 years most non-tariff barriers have been
dismantled by march 2002, including almost all quantitative restrictions.
India is Global :–
The liberalisation of the domestic economy and the increasing integration
of India with the global economy have helped step up GDP growth rates, which
picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Growth
rates have slowed down since the country has still bee able to achieve 5-6%
growth rate in three of the last six years. Though growth rates has slumped to
the lowest level 4.3% in 2002-03 mainly because of the worst droughts in two
decades the growth rates are expected to go up close to 70% in 2003-04. A
Global comparison shows that India is now the fastest growing just after China.
158
footer
This is major improvement given that India is growth rate in the 1970’s
was very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea,
and Mexico was more than twice that of India. Though India’s average annual
growth rate almost doubled in the eighties to 5.9% it was still lower than the
growth rate in China, Korea and Indonesia. The pick up in GDP growth has
helped improve India’s global position. Consequently India’s position in the
global economy has improved from the 8 position in 1991 to 4 place in 2001.
th th
When GDP is calculated on a purchasing power parity basis.

Globalisation and Poverty :–
Globalisation in the form of increased integration though trade and
investment is an important reason why much progress has been made in
reducing poverty and global inequality over recent decades. But it is not the
only reason for this often unrecognised progress, good national polices , sound
institutions and domestic political stability also matter.
Despite this progress, poverty remains one of the most serious
international challenges we face up to 1.2 billion of the developing world 4.8
billion people still live in exterme poverty.
But the proportion of the world population living in poverty has been
steadily declining and since 1980 the absolute number of poor people has
stopped rising and appears to have fallen in recent years despite strong
population growth in poor countries. If the proportion living in poverty had not
fallen since 1987 alone a further 215million people would be living in extreme
poverty today.
India has to concentrate on five important areas or things to follow to
achieve this goal. The areas like technological entrepreneurship, new business
openings for small and medium enterprises, importance of quality
management, new prospects in rural areas and privatisation of financial
institutions. The manufacturing of technology and management of technology
are two different significant areas in the country.
There will be new prospects in rural India. The growth of Indian economy
very much depends upon rural participation in the global race. After
implementing the new economic policy the role of villages got its own
significance because of its unique outlook and branding methods. For example
food processing and packaging are the one of the area where new
entrepreneurs can enter into a big way. It may be organised in a collective way
with the help of co-operatives to meet the global demand.
Understanding the current status of globalisation is necessary for setting
course for future. For all nations to reap the full benefits of globalisation it is
essential to create a level playing field. President Bush’s recent proposal to
eliminate all tariffs on all manufactured goods by 2015 will do it. In fact it may
exacerbate the prevalent inequalities. According to this proposal, tariffs of 5%
159
footer
or less on all manufactured goods will be eliminated by 2005 and higher than
5% will be lowered to 8%. Starting 2010 the 8% tariffs will be lowered each year
until they are eliminated by 2015.
GDP Growth rate :–
The Indian economy is passing through a difficult phase caused by several
unfavourable domestic and external developments; Domestic output and
Demand conditions were adversely affected by poor performance in agriculture
in the past two years. The global economy experienced an overall deceleration
and recorded an output growth of 2.4% during the past year growth in real GDP
in 2001-02 was 5.4% as per the Economic Survey in 2000-01. The performance
in the first quarter of the financial year is5.8% and second quarter is 6.1%.
Export and Import :–
India’s Export and Import in the year 2001-02 was to the extent of 32,572
and 38,362 million respectively. Many Indian companies have started
becoming respectable players in the International scene. Agriculture exports
account for about 13 to 18% of total annual of annual export of the country. In
2000-01 Agricultural products valued at more than US $ 6million were
exported from the country 23% of which was contributed by the marine
products alone. Marine products in recent years have emerged as the single
largest contributor to the total agricultural export from the country accounting
for over one fifth of the total agricultural exports. Cereals (mostly basmati rice
and non-basmati rice), oil seeds, tea and coffee are the other prominent
products each of which accounts fro nearly 5 to 10% of the countries total
agricultural exports.
Where does Indian stand in terms of Global Integration?
India clearly lags in globalisation. Number of countries have a clear lead
among them China, large part of east and far east Asia and eastern Europe.
Lets look at a few indicators how much we lag.
Ø Over the past decade FDI flows into India have averaged around 0.5% of
GDP against 5% for China 5.5% for Brazil. Whereas FDI inflows into China
now exceeds US $ 50 billion annually. It is only US $ 4billion in the case of
India
Ø Consider global trade - India’s share of world merchandise exports
increased from .05% to .07% over the part 20 years. Over the same period
China’s share has tripled to almost 4%.
Ø India’s share of global trade is similar to that of the Philippines an
economy 6 times smaller according to IMF estimates. India under trades
by 70-80% given its size, proximity to markets and labour cost
advantages.
Ø It is interesting to note the remark made last year by Mr. Bimal Jalan,
160
footer
Governor of RBI. Despite all the talk, we are now where ever close being
globalised in terms of any commonly used indicator of globalisation. In
fact we are one of the least globalised among the major countries - however
we look at it.
Ø As Amartya Sen and many other have pointed out that India, as a
geographical, politico-cultural entity has been interacting with the
outside world throughout history and still continues to do so. It has to
adapt, assimilate and contribute. This goes without saying even as we
move into what is called a globalised world which is distinguished from
previous eras from by faster travel and communication, greater trade
linkages, denting of political and economic sovereignty and greater
acceptance of democracy as a way of life.
Consequences :–
The implications of globalisation for a national economy are many.
Globalisation has intensified interdependence and competition between
economies in the world market. This is reflected in Interdependence in regard
to trading in goods and services and in movement of capital. As a result
domestic economic developments are not determined entirely by domestic
policies and market conditions. Rather, they are influenced by both domestic
and international policies and economic conditions. It is thus clear that a
globalising economy, while formulating and evaluating its domestic policy
cannot afford to ignore the possible actions and reactions of policies and
developments in the rest of the world. This constrained the policy option
available to the government which implies loss of policy autonomy to some
extent, in decision-making at the national level.
Q. “Indian Small Scale Sector can not survive the competition from
Large Scale Sector MNCs. Comment in the light of evidences
available in this content.
Ans. “Indian small scale sector can not survive the competition from large scale
sector MNCs.” This statement is correct. Because the small scale sector does
not have sufficient resource to survive the competition from large scale sector
MNCs. Before explaining the statement we discuss the meaning of small scale
enterprise and multinational company.
Small Scale Industry :– Small scale industry has been defined as a unit
having investment upto Rs. 5 crore in plant and machinery. The government
made special provisions for promotion of small scale industries. Production of
239 items has been reserved for small scale industries. Large industries and
medium enterprises will not be allowed to go in for their production.
Multinational Corporations :– Multinational corporation is that
corporation whose sphere of activity is spread over more than one country.
These corporations are known as several names e.g. Transnational
161
footer
Corporation, Internationa Corporation or Global Corporation. In other words
Multinational Corporation is a big firm, whose headquater is located in one
country but whose trading and manufacturing activities are spread over many
othr countries.
Multinational corporations have unique capacity to increase production
and large scale distribution. Wherever they go they make radical changes in the
existing production system of that country. Their superior technology,
professioal managerial competences and quality are important to the host
country. These MNC provide various product at low prices then the small scale
industry can not survive the competition with the MNCs. The small scale
industry do not have sufficient resources then it do not provide various
products.
Reasons for Growth of Multinational Corporations :– MNCs are
diversifying the market of their products in various countries. They can sell
easily whatever products they manufacture. People of underdeveloped
countries have craze for the products of MNCs. This help the MNCs to expand
the market of their products in developing countries. Main reasons for the
growth of MNCs are as follows :–
1. International Image :– Due to International Image, the MNCs sell their
products easily. These MNCs have sufficient resources, they want to start
their operation wherever. Because of the international image these
corporations are welcomed in all parts of the world.
2. Technological Superiority :– Technology of MNCs is better than the
technology of domestic entrepreneurs. MNCs can start any high
technology industry. Because of the technological superiority MNCs are
welcomed all over the world. MNCs provide good quality products. It
utilise the unutilised resources in developing countries is possible with
the help of technological superiority of MNCs.
3. Financial Superiority :– The size of MNCs is very big and it hold a large
amount of financial resources. MNCs have capacity to start any type of
business which require a large amount of capital. Domestic
enterprenures cannot start such ventures because of lack of capital. Due
to international image the MNCs raise financial resources from domestic
and foreign capital markets.
4. Marketing Superiority :– Marketing Superiority is strength of the MNCs.
MNCs enjoy better marketing superiority because of many reasons such
as international image, well reputed brands, good quality products,
effective sales promotion programmes, reliable market information
system etc.
5. Research and Development Capabilities :– MNCs have set up the
Research and Development Department for improving the existing
162
footer
products and development of new products. Research and Development

facility helps the MNCs to timely upgrade the technology and invent the
new method of products through which cost per unit can be reduced and
quality of product can be improved.
For the above reasons the Indian Small Scale Sector can not survive the
competition from Large Scale Sector MNCs. The MNCs have various
advantages and disadvantages for the country which is explained as below :-
Advantages of MNCs :–
1. Availability of Capital.
2. Availability of Latest Technology.
3. Increase the Exports.
4. Increase the Knowledge.
5. Availability of Marketing Services.
6. Increase the Competition.
7. Increase in Employment.
8. Availability of Foreign Exchange.
Disadvatages of the MNCs :–
1. Competition with Small Scale Industries.
2. Less use of Modern Technology.
3. Producing Prohibited Goods.
4. Political Interference.
5. Unbalanced Regional Development.
6. Harmful for Consumers.
7. Outflow of funds from Host Country.
8. Provide non-essential products.
9. Purchase of Raw Material from Foreign Subsidiaries.
10. Lack of Morality and Ethics.
Q. Short note on International Monetary Fund (IMF).
Ans. Introduction of International Monetary Fund (IMF) :– International
th
Monetary Fund was founded on 27 December 1945. The main objective of the
fund is to solve the problem of balanced growth of world trade, international
monetary cooperation, the balance of payments of member countries and their
temporary disequilibrium. There are two types of members of the fund.
1. Original Member 2. Ordinary Member
1. Original Members :– All those countries whose representatives took part
in Bretion Woods Conference is called Original Member.
2. Ordinary Members :– All those countries who became its member
subsequently are called ordinary members.
Organisation of the Fund :– To manage the fund administrative boards have
been setup :–
163
footer
1. Board of Governors :– It consists of one Governor and an alternate
governor for each member country. It frames the policies of fund.
2. Board of Executive Directors :– It conducts day to day affairs of the fund.
It consists of 24 directors. Of it 6 are permanent directors and other 18 are
elected directors.
Successes of IMF :–
1. International Monetary Cooperation.
2. Reconstruction of European Countries.
3. Increase in International Trade.
4. Increase in International Liquidity.
5. Special Aid to Developing Countries.
6. Providing Statistical Information.
7. Multilateral System of Foreign Payments.
8. Easiness in Making International Payments.
9. Helpful in Times of Difficulties.
Failure of IMF :–
1. Lack of stability in Exchange Rate.
2. No help for development projects.
3. Less aid for developing countries.
4. High rate of Interest.
5. No solution for International Liquidity.
6. Lack of stability in the price of Gold.
7. Inability to Remove Restrictions on foreign trade.
Q. Short notes on World Bank ?
Ans. World Bank was founded on 1945. World Bank is also known as
International Bank for Reconstruction and Development. The main purpose of
the World Bank was the reconstruction of war-ravaged economics and
provision of necessary funds for the economic development of all developed and
underdeveloped countries. Every member country of World Bank will
automatically become the member of the IMF. In the year 2005-06, 184
countries wee members of the World Bank. If a country member fail to
observes the rules of the World Bank, its membership can be terminated. Each
member country had to pay 20 percent of its quota at the time of membership.
Of it 18% was to be paid in own currency and remaining 2% was to be paid in
Gold. The balance of 80 percent of the capital subscription can be called by the
Bank as and when required.
Management of the World Bank :– Management of the World Bank includes in
the following four boards/committee :–
i) Board of Governors.
ii) Board of Executives.
164
footer
iii) Advisory Council.

iv) Loan Committee.
Board of Advisory
Governors Council
Management of
the World Bank
Board of Loan
Executives Committee
This is show by figure :–

1. Board of Governors :– Board of Governors represents the General
Council of the bank. Every member country appoints one Governor and
one alternative governor for five years. Boards of Governors selects from
its members one presidet who presides over its annual meeting.
2. Board of Executive Directors :– Board of executive directors consists of
21 members. Board of Executive Directors elects Presidents of the bank.
The President is the Chief Officer of the bank.
3. Advisory Council :– It consists of minimum 7 members. Their
appointment is made by Board of Executive Directors. The council gives
its advice on different issues to the bank.
4. Loan Committee :– Loan committee is appointed to sanction loans to
member countries and private enterprises. This committee examine the
loan application and gives its report to the board of Executive Directors.
Functions of the World Bank :–
1. Provide Loans and Advances.
2. Provide Training.
3. Provide Technical Assistance.
4. Settlement of International Disputes.
5. Provide Financial Assistance.
6. Conducts Economic Research.
7. Agricultural and Rural Development.
Q. Write short note on World Trade Organisation (WTO).
Ans. World Trade Organisation was established on 1st January, 1995. It took
165
footer
over GATT. World Trade Oganisation was formed to promote free trade among its
member nations. The main objective is to promote trade among many nations in
goods and services by removing tariff and non tariff barriers. Tariff barriers
means import duties and non tariff barriers means import quotas, import
licensing etc. WTO is an International Trade Organisation which have set of
rules and principles. It includes trade in goods, trade of services, protection of
intellectual property rights, foreign investment etc.
Features of WTO :– The main features of the WTO is explained as follows :–
1. It is an international organisation to promote trade among many
nations.
2. It promotes free trade by remong tariff and non-tariff barriers in
international trade.
3. It took over GATT.
4. It has fined set of Rules and Regulations.
5. WTO has a large secretariat and huge organisational set up.
6. WTO members have equal voting rights.
7. Unlike IMF and World Bank, WTO is not an agent of United Nations.
8. It includes trade in goods, trade of services, protection of intellectual
property rights, foreign investment etc.
Arguments in favour of WTO :–
1. Increase in foreign trade.
2. Increase in inflow of foreign investment.
3. Improvement in services.
4. Increase in agricultural exports.
5. Inflow of better technology
6. Benefits of multilatual trade system.
7. Better Quality products.
8. Restricts Dumping.
9. Promotion to Research.
10. Benefits for clothing and textile industry.
Arguments against WTO :–
1. Loss to Domestic Industries.
2. Disadvantages to Service Sector.
3. Increase in Unemployment.
4. Disadvatage to Agricultural Sector.
5. Effects on Prices.
6. Loss to Regional Groupings.
166
footer
INDIAN BUSENESS ENIRONMENT
Past Year Question Papers
JAN 2009
UNIT–I
1. What are the major determinants of business environment? How do they
affect the business conditions in a country like India.
2. Indian corporate sector has failed to fulfill its social responsibilities. Agree or
not? Eloborate your answer.
UNIT–II
3. Industrial licensing policy was good in theory but failed in practice.
Comment.
4. Bring out the relevance of MRTP act in the current period of economic
liberization in India.
UNIT–III
5. Define Non Performing asset. Also discuss the steps taken by the commercial
banks in India to manage the NPA’s.
UNIT–IV
6. Explain the reasons behind fast growth in export in the country.
7. Do You think level of foreign direct investment in India is sufficient? What
steps should be taken to attract more FDI?
JULY 2008
UNIT–I
1. Explain the main component of business environment in India.
2. Discuss the basic nature of Indian economic system at present.
UNIT–II
3. Discuss the trends and issues in corporate management in India.
4. What are the main problems of small scale sector in India? What remedial
measures will you suggest.
UNIT–III
5. Write short notes on:
i) IDBI ii) ICICI
UNIT–IV
6. What is balance of payment? How an adverse balance of payments can be
corrected?
167
footer
7. Define foreign direct ivestment. What steps should be taken to promote direct
foreign investment in India.
JAN 2008
UNIT–I
1. Explain the broad features of India’s new economic policy.
2. What is social responsibility of business? How is it being implemented by
business houses in India?
UNIT–II
3. Critically examine the industrial licensing policy of the Government of India.
4. Write short notes on
i) MRTP Act ii) Industrial Disputes Act
UNIT–III
5. What are the major challenges facing public sector banks? How these
challenges can be met.
6. Explain non-performing assets. Explain the reasons and remedies to tackle
this problem.
UNIT–IV
7. Discuss the main features of latest exim policy announced by the
Government of india.
8. Explain the major trends in globalization of the Indian economy. Are these
trends helpful for the Indian economy.
JAN 2007
UNIT–I
1. What is the basic nature of indian economy? What changes have been
introduced by new economic policy?
2. Trace the growth of public section in India. What is the relationship between
sector and private sector in Indian economy?
UNIT–II
3. Critically examine the industrial growth of India. What further improvement
will you suggest for future growth?
4. Write notes on :
(a) Industrial Sickness (b) Industrial Disputes Act
UNIT–III
5. Discuss the major financial reforms with regard to the Indian industrial
sector. Are these reforms adequate?
6. Define non-performing assets. Give reasons for these assets in India. Suggest
remedial measures.
168
footer
UNIT–IV
7. What are the main reasons of unfavourable balance of payments in India’s
goreign trade? What are the methods to correct it?
8. Write notes on :
(a) Exim Policy (b) IMF
JULY 2007
UNIT–I
1. Write a detail note on the Indian economy system adopted after
independence. Can you also specify the rationale behind that.
2. Explain the impact of new economic policy on the Indian business with
suitable examples.
UNIT–II
3. Discuss the evolution of Industrial policy adopted by the country during
planning era.
4. “Indian small scale sector cannot survive the competition from large scale.
UNIT–III
5. Discuss the role of development banks for corporate sector in the new
economic policy regime.
6. Explain the challenges faced by the public sector banks in India. Also specify
the steps taken by them in this connection.
UNIT–IV
7. Bring out the salient features of the latest Exim policy of India.
8. “Free trade is better or fair trade.” Elaborate your answer.
JAN 2004
UNIT–I
1. What are the main components of business environment? Account for the
inherent dynamism of business environment.
2. What do you mean by social responsibility of business: Why should business
organisation be socially responsible?
UNIT–II
3. Explain the ways in which private corporate sector has been liberalised under
the new economic policy. Has liberalisation accelerated industrialisation
process in the country?
4. Explain the major public sector reforms that have been undertaken since
1991. Have these reforms improved the performance of public sector
enterprises?
UNIT–III
5. What is the function of development bank? Explain the leading policies and
Criteria of the IDBI.
169
footer
6. Give an overview of banking sector reforms in india. How have these reforms
affected the performance of public sector bank?
UNIT–IV
7. Explain India’s policy commitment towards:
(a) IMF and (b) WTO
8. Explain recent trends in India’s balance of payments. What are the main
factors deficit position in the current account?
JULY 2004
UNIT–I
1. Indian economy exhibits the characteristics of both traditional and modem
dynamic economy. Explain the statement.
2. How public sector and private sector can play cooperative role in building
Indian economy?
UNIT–II
3. Are you in favour of liberalising Indian economy? If so, what role should be
played by Industrial licensing policy in this regard?
4. Which are the major steps taken to reform Indian economy? Are they
sufficient?
UNIT–III
5. Discuss the major problems being faced by Indian Banking Sector.
6. Why are stock exchanges essential? What steps have been taken to regulate
stock exchanges in India?
UNIT–IV
7. Which are the main multilateral world institutions? What is the attitude of
India towards these institutions?
8. Write notes on the following.
(a) World Bank (b) SEBI
JAN 2003
UNIT–I
1. What is business environment? What are its various components?
2. What is social responsibility of business? Are the Indian corporates fulfilling
this responsibility? Give examples.
UNIT–II
3. Discuss the main trends and issues in corporate management in India.
(a) Industrial licensing policy
(b) MRTP Act.
170
footer
UNIT–III
5. What are the major sources of finance for industrial sector in India? Are those
adequate?
6. Explain the main reasons of fluctuations in the stock market in India. What
steps have been taken to regulate stock market in India.
UNIT–IV
7. Discuss the position of India’s foreign trade. What measures are needed to
improve it?
(a) Foreign direct investment
(b) WTO
JULY 2003
UNIT–I
1. Discuss the need and importance of study of Business Environment for an
organisation. Outline the components of micro and macro environment
which have an impact on business organisations.
2. Define social responsibility. Why is social responsibility important for
business?
UNIT–II
3. Explain various types of roles of Government in an economy. Do you find any
change in these roles of the Government before and after the implementation
of the policies of economic liberalisation? Explain.
4. Highlight the salient features of Industrial Disputes Act.
UNIT–III
5. What are the objectives of development banks? Have they fullfilled their
objectives?
6. Is SEBI an effective control system to regulate the functioning of the capital
market?
UNIT–IV
7. Describe the functions and structure of WTO. Explain the implications of
India joining the WTO.
8. Highlights the benefits and drawbacks of Foreign Direct Investment in a
country’s economy. Recommend suitable strategies to promote foreign direct
investment in India.
171
footer
WORKSHEET
172
footer
WORKSHEET
173
footer
WORKSHEET
174
footer

Indian Business Environment Syllabus MBA 2nd Semester

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Indian Business Environment Syllabus MBA 2nd Semester

Uploaded by

Copyright:

Available Formats

SYLLABUS

INDIAN BUSINESS ENIRONMENT

Ans. Meaning of Business Environment :– Business environment refers to

Acc. to Wheeler, “Business Environment is the total of all things external to

Acc. to Keith Davis, “Business Environment is the aggregate of all conditions,

Components of Business Environment :– Business Environment has two

a) Internal Environment b) External Environment

Components of Business Environment

External Environment Internal Environment

a) Internal Environment :– Internal Environment refers to environment

b) External Environment :– External Environment refers to external

Micro Environment Macro Environment

Socio Cultural Technological

i) Economic Environment :– Economic Environment refers to those

Private Mixed Public

As the matrix is suggesting that there can be 9 kinds of economic

business. Without consumers business is meaningless. Following are

Libearlisation Privatisation Globalisation

1. Liberalisation :– The new economic policy provides freedom to the

integration with the world economy. Glabalisation is the new

stress on preventing unfair trade practices rather than on the size of

Ø Communication. The global media may influence which issues

Recognising the importance of easy and adequate availability of

a) To eliminate practices have adverse impact on competition.

Strikes Lockouts Gheroa Picketing and Boycott

1. Strike :– Strike is a collective stoppage of work by a group of workers for

initiate collective action aimed at preventing members of the management

Employment Causes of Industrial Political

IFCI ICICI IDBI

A) Industrial Finance Corporation of India :– Industrial Finance

iii) Buys stocks and shares.

depressions can be identified through the dealings on the stock

4. The existing companies must adhere to the ceiling in expenditure of public

2. Power to call periodical returns from recognised stock exchanges.

Central Bank Commercial Cooperative Development

Public Sector Private Sector Foreign

State Bank Nationalised Regional

3. Balanced development of banks :– It is very essential for development of

Ø The repayment of deposits by NBFCs is not guaranteed by RBI.

1. Recover :– The government make sponsored programmes to recover

B) Unfavourable Balance of Payment :– Balance of payments is

correct an adverse balance of payments. Import substitution means total

Establishing Wholly Acquistion by Foreign

Contribution of foreign capital in the Economic Development of India :–

When GDP is calculated on a purchasing power parity basis.

products and development of new products. Research and Development

iii) Advisory Council.

This is show by figure :–

You might also like