gus

t
201
9

Business Scenario in India

THAPAR UNIVERSITY,
 gus
t

Structure of Indian Economy

201
9

• Mixed economy
• State-owned, privately-owned & jointly owned industries
• Government as regulator

THAPAR UNIVERSITY,
 gus
t

Structure of Indian Economy

201
9

1 USD = 70.74 ₹ Exports $ 330 b (48% services)

GDP $2.972 trillion Exporting partners EU 17.4%, USA 16.1%,
(₹209 lakh crore) UAE 9.6%, China 4.2%,
GDP rank 7th Hong Kong 5%
Imports $ 514 b (32% services)
GDP Growth 6.8%
Importing partners China 16.6%, EU 10.4%,
GDP per capita $2199 (₹1.54 lakh)
USA 5.7%, UAE 4.9%,
Sector-wise GDP Agri (16%), Mfg (30%), Saudi Arabia 4.6%
Services (54%) FDI Stock Inflows: $386.35 billion
Population below 3.5% (i.e. Earning less than Outflows: $166.19 billion
poverty line Rs. 27000 per year) Foreign Reserves US $ 430.37 b
Labour force 509.95 million
Labourforce by Agri (47%), Mfg (22%),
Occupation Services (31%)
Unemployment 7.6%
Per capita income Rs. 1,26,406 (yearly)

THAPAR UNIVERSITY,
Planning in India
History
• The Planning Commission was set up in March 1950.
• The main objective of the Government to promote a rapid rise in the standard of
living of the people by
• efficient exploitation of the resources of the country
• increasing production and
• offering opportunities to all for employment in the service of the community
• The Planning Commission was charged with the responsibility of making
assessment of all resources of the country, augmenting deficient resources,
formulating plans for the most effective and balanced utilization of resources and
determining priorities.
• Jawaharlal Nehru was the first Chairman of the Planning Commission.
 Plan Target Actual

First Plan (1951 – 56) 2.9% 3.6%

Second Plan (1956 – 61) 4.5% 4.3%
Third Plan (1961 – 66) 5.6% 2.8%
Plan Holiday
Fourth Plan (1969 – 1974) 5.7% 3.3%
Fifth Plan (1974 – 79) 4.4% 4.8%
Sixth Plan (1980 – 85) 5.2% 5.6%
Seventh Plan (1985 – 90) 5.0% 6.0%
Eighth Plan (1992 – 97) 5.6% 6.8%
Ninth Plan (1997 – 2002) 6.5% 5.4%
Tenth Plan (2002 – 2007) 8.0% 7.8
Eleventh Plan (2007-12) 9.0% 7.9%
Twelfth Plan (2012-17) 9.0%
Growth Rate (in %)
 Five-Year Plans
First (1951-56)
• The first Indian Prime Minister, Jawaharlal
Nehru presented the first five-year plan to
the Parliament of India on December 8, 1951.
• This plan was based on the Harrod-Domar
model.
• The plan addressed, mainly, the agrarian
sector, including investments in dams and
irrigation.
• The total planned budget of Rs.2069 crore
was allocated to seven broad areas
• irrigation and energy
• agriculture and community development
• transport and communications
• industry
• social services
• land rehabilitation , and
• for other sectors and services
Second (1956-61)
• The second five-year plan focused on industry,
especially heavy industry.
• The Second plan focus was also on development of
the public sector.
• The plan followed the Mahalanobis model,
an economic development model developed by the
Indian statistician Prasanta Chandra Mahalanobis in
1953 aiming to build up a domestic consumption
goods sector.
• The plan attempted to determine the optimal allocation
of investment between productive sectors in order to
maximise long-run economic growth.
• The plan assumed a closed economy in which the
main trading activity would be centered on importing
capital goods.
• The total amount allocated under the second five year
plan in India was Rs.4,600 crore.
• This amount was allocated among various sectors like
Power and irrigation, Social services, Communications
and transport, etc.
 Five-Year Plans
Third (1961-66) Plan Holiday (1966-69)
• The third plan stressed on agriculture and • In 1965–1966, India fought a [Indo-Pak] War with
improvement in the production of wheat, but the Pakistan.
brief Sino-India War of 1962 exposed
weaknesses in the economy and shifted the • There was also a severe drought in 1965.
focus towards the Defence industry. • The war led to inflation and the priority was
• Many cement and fertilizer plants were also shifted to price stabilization.
built. • The construction of dams continued
• Punjab began producing an abundance
of wheat.
• Many primary schools were started in the rural
areas.
 Five-Year Plans
Fourth (1969–1974)
• At this time Indira Gandhi was the Prime
Minister.
• The government nationalized 14 major Indian
banks and the Green Revolution in
India advanced agriculture.
Fifth (1974-79)
• The fifth plan was prepared and launched by
D.D. Dhar.
• It proposed to achieve two main objectives:
- removal of poverty (Garibi Hatao)

• Main emphasis was on growth rate of - attainment of self reliance

agriculture to enable other sectors to move • Promotion of high rate of growth, better
forward. distribution of income and significant growth in
• First two years of the plan saw record the domestic rate of savings were seen as key
production. instruments

• The last three years did not measure up due to • The plan was terminated in 1978 (instead of
poor monsoon. 1979) when Janta Party Govt. rose to power

• Influx of Bangladeshi refugees before and after

1971 Indo-Pak war was an important issue.

Rolling Plan (1978 - 80) : There were 2 Sixth Plans. Janta Govt. put forward a plan for 1978-
1983. However, the government lasted for only 2 years. Congress Govt. returned to power in
1980 and launched a different plan.
 Five-Year Plans
Sixth (1980-85) Eighth (1992-97)
• Focus – Increase in • The eighth plan was postponed by two years
• national income, because of political uncertainty at the Centre,
worsening balance of payment position and
• modernization of technology, inflation during 1990-91.
• ensuring continuous decrease in poverty
and unemployment, • The plan undertook drastic policy measures to
combat the bad economic situation and to
• population control through family undertake an annual average growth of 5.6%.
planning, etc.
• Some of the main economic outcomes during
eighth plan period were rapid economic growth,
Seventh (1985-90) high growth of agriculture and allied sector, and
• Focus – rapid growth in food-grains production, manufacturing sector, growth in exports and
increased employment opportunities and imports, improvement in trade and current
productivity within the framework of basic account deficit.
tenants of planning.
• The plan was very successful as economy
recorded 6% growth rate against the targeted
5%.
 Five-Year Plans
Ninth (1997- 2002) Tenth (2002-07)
• It was developed in the context of four important • Target was to attain 8% GDP growth per year.
dimensions: Achieved 7.7%
• quality of life • Other aims were-
• generation of productive employment
Reduction of poverty ratio by 5 percentage points
• regional balance and by 2007.
• self-reliance
Providing gainful and high-quality employment.
• Emphasis was on agricultural sector, rural
Reduction in gender gaps in literacy and wage
development, employment opportunities,
rates by at least 50% by 2007.
poverty reduction, price stabilization, food and
nutritional, security, checking the growing,
population increase, encourage social issues
like women empowerment, creation a liberal
market for increase in private investments,
and to provide for the basic infrastructural
facilities like education, safe drinking water,
primary health care, transport, energy,
 Five-Year Plans
Eleventh (2007-12) Twelfth (2012-17)
• Accelerate GDP growth from 8% to 10%. • Basic objective : Faster, More Inclusive, and
Sustainable Growth.
• Increase agricultural GDP growth rate to 4% per
year. • GDP growth rate aim - 9.0 to 9.5 percent
• Create 70 million new work opportunities and • For growth to be more inclusive there is a need:
reduce educated unemployment to below 5%. of better performance in agriculture
• Reduce dropout rates of children from • Faster creation of jobs, especially in
elementary school from 52.2% in 2003-04 to manufacturing
20% by 2011-12.
• Stronger efforts at health, education and
• Increase literacy rate for persons of age 7 years Infrastructure.
or above to 85%.
• Special plans for disadvantaged/backward
• Raise the sex ratio for age group 0-6 to 935 by regions
2011-12 and to 950 by 2016-17.
• Ensure that at least 33 per cent of the direct and
indirect beneficiaries of all government schemes
are women and girl children.
• Connect every village by telephone by
November 2007 and provide broadband
connectivity to all villages by 2012.
• Increase forest and tree cover by 5 %.
 gus
t
201

Planning Commission- criticism 9

• Achieved >9% GDP growth-rate during 2005-07, thanks to American boom prior to sub-prime
crisis. But nothing exceptional as almost all nations of world experienced high growth.
• Post sub-prime crisis, failed to lift Indian economy. GDP-fell, inflation rose during 2008-13.
• Reduced poverty by doctoring the BPL-line.
• Toothless body, can’t hold State/union/ministries/departments accountable for failing to achieve
targets.
• Failed to implement land reforms. Faulty policies for MSME, industrialization, Factory-labour law
problems.
• Office manned by Generalist IAS/IES with short tenure; panel members filled with general
academicians and NGOs. Need subject specialists with international exposure.
• Used one size fits all approach and a few extra crores to NE/J&K/Hill-state, etc.

THAPAR UNIVERSITY,
 gus
t
201

Planning Commission- criticism 9

• Tried to bypass state Governments via NGO-funding. Hence, States unenthusiastic about
implementing Central-schemes.
• Only in 2013- reforms done like reducing number of centrally sponsored schemes (CSS), 10%
flexifund to states, direct transfer of money to state consolidated fund etc.
• Shortcomings in planning commission sprung up new bodies like PM’s economic advisory
council, PM’s project monitoring group and so on with lack of coordination.
• The commission had remained powerful over the decades because it had emerged as a sort
of parallel cabinet with the Prime Minister as its head.
• The Commission's power in allocating central funds to states and sanctioning capital
spending of the central government was deeply resented by states and various government
departments.
• Times have changed, from being a underdeveloped country in 1950s – India has become a
major economic force.
• Hence, the country needs have changed- from mere food security to profitable agriculture. In
this playground, Government needs to become an “enabler” rather than a “player”.

THAPAR UNIVERSITY,
 gus
t

NITI AAYOG
201
9

• August 13 , 2014 : Cabinet of Modi Govt. scrapped the Planning Commission

• Aug. 15 2014 : P.M. Narendra Modi mentioned to replace Planning Commission by

National Institution for Transforming India (NITI) on the line of China

• The institution to serve as a ‘think tank’ of the government. It is to provide governments at

the Central and State levels with relevant strategic and technical advice across the
spectrum of key elements of policy.

• Instead of being in the controlling seat, is going to provide a direction. It is going to be an

‘enabler’ instead of a ‘provider of first and last resort’. Special stress to be put on the
benefit of those marginalised sections of the society that have been ignored due to the
template-nature of the Planning Commission so far.

THAPAR UNIVERSITY,
 gus
t
201
9

THAPAR UNIVERSITY,
gus
t
201
9
 gus
t
201
9

THAPAR UNIVERSITY,

Planning Commission Vs Niti Aayog
Planning Commission
• Imposed policies on states and enjoyed the
powers to allocate funds to ministries and state
governments
• The last Commission had eight full-time
members. Had deputy chairperson, a member
secretary and full-time members. Full Planning
Commission had no provision for part-time
members
• States' role was limited to the National
Development Council and annual interaction
during Plan meetings.
• Policy was formed by the commission and states
were then consulted about allocation of funds.
THAPAR UNIVERSITY,
gus
t
201
9
NITI Aayog
• NITI Aayog is an advisory body, or a think-tank.
The powers to allocate funds vested in the
finance ministry
• Representation given to states, experts &
specialists. New posts of CEO, of secretary
rank, and Vice-Chairperson. Has five full-time
members and two part-time members. Four
cabinet ministers serve as ex-officio members.
May have a number of part-time members,
depending on the need from time to time
• State governments are expected to play a more
significant role than they did in the Planning
Commission.
• Consulting states while making policy and
deciding on funds allocation. Final policy would
be a result of that.
 gus
t
201
9

For more details:

http://mrunal.org/2015/01/economy-niti-ayog-planning-
commission-evolution-structure-members-function-
criticism.html

THAPAR UNIVERSITY,
 gus
t

Economic Reforms
201
9

• The present process of economic reforms was born out of the crisis in the economy, which climaxed in 1991.
The three aspects of crisis were:
• Fragile BoP situation
• Inflationary Pressure
• Fiscal Imbalance
• BoP scene was highly critical in 1990-91. Current account deficit which was $2.1 billion in 80-81 rose to $4.9
billion and further to $9.7 billion in 90-91. These growing deficits had to be financed by borrowing from abroad
and as a consequence India’s external debt rose from 12% of GDP (80-81) to 23% of GDP in 90-91. US$2
billion FOREX reserves in June 1991 were barely enough to meet the requirement of India’s 2 weeks’ import
bills.
• Distinct Strands of Reforms
I. Macro Economic Stabilisation
 Control of Inflation
 Fiscal Adjustment and Reforms
 Measure for BoP Improvement
II. Structural Reforms
 Trade and Capital Flow (External Sector Reforms)
 Industrial Deregulation
 Disinvestment
 Financial Sector Reforms

THAPAR UNIVERSITY,
Main Features of Economic Reforms

PRIVATISATION

LIBERALISATION GLOBALISATION

ECONOMIC
REFORMS
 Liberalisation
• Prior 1991, government had imposed several types of controls on Indian economy e.g.
industrial licensing system, price control or financial control on goods, import
license, foreign exchange control, restriction on investment by big business
houses, etc. These controls leads to fall in economy growth. Liberalization aims to
free the economy from direct or physical controls imposed by the government.
Measures taken included:

• Abolition of industrial licensing and Registration : According to new industrial policy , with
the exception of 6 sectors, industrial licensing has been removed.
• Concession from MRTP Act
• Freedom from seeking permission for Expansion and Production to Industries
• Increase in the Investment Limit of the Small Industries
• Freedom to import capital goods
• Freedom to import technology
• Action plan for information Technology and software development
PRIVATISATION
Privatisation means allowing the private sector to set up industries that were
previously reserved for public sector.

• Contraction of Public sector

• Restructuring of sick units
• Disinvestment & sale of shares of public enterprises
• Labour sector reforms
• Land reforms
GLOBALISATION
It is defined as a process associated with increasing openness and economic
integration in the world economy.
• Reduction of trade barriers, import duties & custom duties
• Free flow of capital
• Free flow of technology
• Encouragement of foreign investment
• Devaluation of currency
• Currency convertibility

• Globalisation of markets
• Globalisation of Production
• Globalisation of Technology
• Globalisation of Investment
 gus
t

Monetary Policy
201
9

• Monetary Policy refers to the use of instruments by which monetary authority of a

country, generally a central bank controls the supply of money in the economy in order
to influence economic activity, and level of aggregate demand for goods and services so
as to achieve the economic objectives. In India, the central monetary authority is the
Reserve Bank of India (RBI) headed by Governor.

• Monetary operations involve monetary techniques such as money supply, interest rates
and availability of credit. (Expand or Contract )

• Aims of monetary policy include to maintain price stability, stable exchange rate, healthy
balance of payment, financial stability, economic growth.

• RBI takes into account the following quantitative & qualitative monetary policy tools.

THAPAR UNIVERSITY,
 gus
t
201

Monetary Policy (Quantitative Tools) 9

• Open Market Operations: An open market operation is an instrument of monetary policy which involves
buying or selling of government securities from or to the public and banks. This mechanism influences
the reserve position of the banks, yield on government securities and cost of bank credit. The RBI sells
government securities to control the flow of credit and buys government securities to increase credit
flow. Open market operation makes bank rate policy effective and maintains stability in government
securities market.
• Cash Reserve Ratio (CRR): Cash Reserve Ratio is a certain percentage of bank deposits which banks
are required to keep with RBI in the form of reserves or balances. Higher the CRR with the RBI, lower
will be the liquidity in the system and vice versa. RBI is empowered to vary CRR between 15 percent
and 3 percent. Current value of CRR is 4%
• Statutory Liquidity Ratio (SLR): Every financial institution has to maintain a certain quantity of liquid
assets at any point of time as percentage of their total time and demand liabilities. These assets have to
be kept in non-cash form such as G-secs, precious metals, approved securities like bonds, etc. The ratio
of the liquid assets to time and demand assets is termed as the SLR. Current value of SLR is 19%.
• Bank Rate Policy: The bank rate, also known as the discount rate, is the rate of interest charged by the
RBI for providing funds or loans to the banking system. Funds are provided either through lending
directly or buying money market instruments like commercial bills and treasury bills. Increase in Bank
Rate increases the cost of borrowing by commercial banks which results into the reduction in credit
volume to the banks and hence declines the supply of money. Increase in the bank rate is the symbol of
tightening of RBI monetary policy. Current bank rate is 6%.

THAPAR UNIVERSITY,
]
 gus
t
201

Monetary Policy (Quantitative Tools) 9

• Credit Ceiling: In this operation, RBI informs the banks to what extent / limit they would be getting
credit. In this case commercial bank will be tight in advancing loans to the public. RBI may also
direct the banks to provide certain fractions of their loans to certain sectors such as farm sector or
some specific priority sector.
• Marginal Standing Facility (MSF): This scheme was introduced in May, 2011 and all the
scheduled commercial bank can participate in this scheme. Banks can borrow overnight funds up to
one percent of their respective Net Demand and Time Liabilities.
• Liquidity Adjustment Facility (LAF): LAF is a facility provided by the Reserve Bank of India to the
scheduled commercial banks to avail of liquidity in case of need or to park excess funds with the
RBI on an overnight basis against the collateral of Government securities. The operations of LAF
are conducted by way of repurchase agreements called Repo & Reverse Repo.
• Repo Rate and Reverse Repo Rate: Repo rate is the rate at which RBI lends to commercial banks
generally against government securities. Reduction in Repo rate helps the commercial banks to get
money at a cheaper rate and increase in Repo rate discourages the commercial banks to get
money as the rate increases and becomes expensive. Reverse Repo rate is the rate at which RBI
borrows money from the commercial banks. This increase in Repo Rate and Reverse Repo Rate is
a symbol of tightening of the policy. Current repo rate is 5.40% and reverse repo rate is 5.50%.

THAPAR UNIVERSITY,
 gus
t
201

Monetary Policy (Qualitative Tools) 9

• Margin Requirements or LTV: Loan to Value is the ratio of loan amount to the actual value of
asset purchased. RBI regulates this ratio so as to control the amount bank can lend to its
customers. For example, if an individual wants to buy a car from borrowed money and the car
value is Rs. 10 Lac, he can only avail a loan amount of Rs. 7 Lac if the LTV is set to 70%. RBI
can decrease or increase to curb inflation or deflation respectively.
• Credit Authorization Scheme: Under this instrument of credit regulation, RBI as per the
guideline authorizes the banks to advance loans to desired sectors.
• Selective credit control: Under this measure, RBI can specifically instruct banks not to give
loans to traders of certain commodities e.g. sugar, edible oil etc. This prevents speculations/
hoarding of commodities using money borrowed from banks.
• Moral Suasion: Under this measure, the RBI tries to persuade bank through meetings,
conferences, media statements to do specific things under certain economic trends. For
example, when RBI reduces repo rate, it asks banks to reduce their base rate as well. Another
example of this measure is to ask banks to reduce their Non-performing assets.
http://mrunal.org/2014/01/banking-monetary-policy-quantitative-qualitative-tools-applications-
limitations-msf-laf-repo-omo-crr-slr-revisited-before-upcoming-urjit-article.html#716

THAPAR UNIVERSITY,
 Fiscal Policy
• Fiscal Policy is that part of Government policy which is concerned with raising
revenue through taxation and other means and deciding on the level and pattern of
expenditure.
• According to Keynesian economics, when the government changes the levels of
taxation and governments spending, it influences aggregate demand and the level of
economic activity. Fiscal policy can be used to stabilize the economy over the course
of the business cycle.
• The two main instruments of fiscal policy are changes in the level and composition
of taxation and government spending in various sectors. These changes can
affect the following macroeconomic variables, amongst others, in an economy:
• Aggregate demand and the level of economic activity;
• Savings and Investment in the economy
• The distribution of income
• The fiscal policy operates through the budget.
 Fiscal Policy
• The three main stances of fiscal policy are:

• Neutral fiscal policy is usually undertaken when an economy is in equilibrium.

Government spending is fully funded by tax revenue and overall the budget
outcome has a neutral effect on the level of economic activity.

• Expansionary fiscal policy involves government spending exceeding tax

revenue, and is usually undertaken during recessions. It is also known as
reflationary fiscal policy.

• Contractionary fiscal policy occurs when government spending is lower than tax
revenue, and is usually undertaken to pay down government debt.
Indian Financial System
Financial System
Financial System is an interaction of various intermediaries, market instruments,
policy makers and various regulators to aid the flow of saving from savers to investors
and checking various abuses faced in the proper functioning of the system.
• Resource transfer across time, sectors, and regions
• Risk management
• Fund Pooling & requisite distribution
• Clearing house function facilitating transactions between payers and payees

Main Components:
• Financial Instruments (assets)
• Financial Intermediaries including regulatory
• Financial Markets
Financial assets/instruments
• Enable channelizing funds from surplus units to deficit units
• There are instruments for savers such as deposits, equities, mutual fund units,
etc.
• There are instruments for borrowers such as loans, overdrafts, etc.
• Like businesses, governments too raise funds through issuing of bonds,
Treasury bills, etc.
• Instruments like PPF, KVP, etc. are available to savers who wish to lend money
to the government
 gus
t
201

Financial Instruments 9

Money Market Instruments Capital Market Instruments

Money market instruments are generally • Capital Markets deal in medium & long-term
financial claims that have high market risk with
financial claims that have low default risk,
maturity period above 1 year. Capital market
maturities under one year and high consists of primary market and secondary
marketability. Major money market instruments market. Major Capital market instruments are:
are: • Equity Securities
Treasury Bills
• Equity/Ordinary Shares
Call/Notice/ Term money
Certificate of Deposits • Preference Shares
Commercial Bills • Derivatives (Futures/ Forwards/ options)
• Debt Securities
• Debentures
• Bonds
• Government Securities

THAPAR UNIVERSITY,
 gus
t

Financial Intermediaries
201
9

Banking e.g. Developmental e.g.

 RBI  ICICI, IDBI,IFCI
 Commercial banks  NABARD
 Co-operative banks  SIDBI
 Regional Rural Banks  Tourism Finance Corporation
 EXIM Bank  SFCs
 Post office savings banks

Non-banking e.g. Regulatory Institutions e.g.

 LIC, GIC, Insurance companies  SEBI
 UTI & Mutual Funds  RBI
 Pension Funds  IRDA- insurance regulatory and development
 Housing development finance companies-HDFC, authority
HUDCO  BIFR- Board for Industrial and Financial
 Leasing Companies Reconstruction
 Venture Capital Companies

THAPAR UNIVERSITY,
 gus
t

Financial Markets
201
9

• Unorganised: Private money lenders, traders, chit fund companies, etc. who
lend money to public and whose activities are not controlled by RBI.

• Organised: There are standardised rules & regulations governing financial

dealings, and there is strict supervision & control by RBI & other regulatory
bodies.
• Money Market
• Capital Market
• Primary
• Secondary

THAPAR UNIVERSITY,
 gus
t
201
9

Stock Markets in India

THAPAR UNIVERSITY,
Definition
An association, organisation or body of individuals,whether
incorporated or not, established for the purpose of assisting,
regulating and controlling business in buying, selling and dealing in
securities

• It is a place where securities are purchased and sold.

• Both genuine investors and speculative buy and sell shares.
• The trading is strictly regulated by rules and regulations.
 Functions of Stock Market
• Ensure liquidity of capital to firms
• Regular market for securities
• Evaluation of securities
• Mobilising of surplus savings
• Helpful in raising capital
• Listing of securities
• Platform for public debt
• Clearing house facility
• Smoothens the price movements
• Liquidity of investments to investors
• Offers tax advantages on investments
• Reflects business conditions
 Stock Markets
• Total no. Of stock exchanges in India- 23
• Most of the trading in the Indian stock market takes place on its two stock
exchanges: the Bombay Stock Exchange (BSE) and the National Stock
Exchange(NSE).
• The BSE has been in existence since 1875.
• The NSE was founded in 1992 and started trading in 1994.
 gus
t
201
9

LEGAL ENVIRONMENT
IN
INDIA

THAPAR UNIVERSITY,
• Right to Information Act, 2005 : Every public authority shall - (a)maintain all its
records duly catalogued and indexed in a manner and the form which facilitates
the right to information under this Act and ensure that all records that are
appropriate to be computerized are, within a reasonable time and subject to
availability of resources, computerized and connected through a network all over
the country on different systems so that access to such records is facilitated.

• Consumer Protection Act, 2019 : Six consumer rights have been defined in the
Bill, including the right to: (i) be protected against marketing of goods and
services which are hazardous to life and property; (ii) be informed of the quality,
quantity, potency, purity, standard and price of goods or services; (iii) be assured
of access to a variety of goods or services at competitive prices; and (iv) seek
redressal against unfair or restrictive trade practices.
•
• Competition Act, 2002 : The Act establishes a Commission which is duty bound to protect
the interests of the free and fair competition (including the process of competition), and as a
consequence, protect the interests of consumers. Broadly, the Commission's duty is:-
 To prohibit the agreements or practices that have or are likely to have an appreciable
adverse effect on competition in a market in India, (horizontal and vertical agreements /
conduct);
 To prohibit the abuse of dominance in a market;
 To prohibit acquisitions, mergers, amalgamations etc. between enterprises which have
or are likely to have an appreciable adverse effect on competition in market(s) in India.
• The Foreign Exchange Management Act, 1999: The Foreign Exchange
Management Act (1999) or in short FEMA has been introduced as a replacement for
earlier Foreign Exchange Regulation Act (FERA)
• FEMA was introduced because the FERA didn’t fit in with post-liberalization policies.
The main objective behind the Foreign Exchange Management Act (1999) is to
consolidate and amend the law relating to foreign exchange with the objective of
facilitating external trade and payments. It was also formulated to promote the
orderly development and maintenance of foreign exchange market in India.
• It prohibits foreign exchange dealing undertaken other than an authorized person
 gus
t
201
9

• Companies Act, 2013: The Companies Act 1956 has been replaced by The Companies Act
2013. The Companies Act 2013 intends to promote self-regulation and has also introduced some
progressive concepts like One- Person Company, Small Company, Dormant Company, E-
governance, etc.
• The concept of Corporate Social Responsibility has also been introduced to encourage a
socially, environmentally and ethically responsible behaviour by companies. stipulates certain
class of companies to spend a certain amount of money every year on activities/initiatives
reflecting Corporate Social Responsibility. 2% of the average net profit of preceding three
financial years is to be spent annually on Corporate Social Responsibility (CSR) for Companies
with net worth of Rs 500 crore or more, turnover of Rs 1,000 crore or more, or net profit more
than Rs 5 crore.
• Further, the Companies Act 2013 aims to fortify investor protection & transparency by introducing
terms like Insider Trading, Price Sensitive Information, Class Action Suits and other additional
disclosures. The Companies Act 2013 also proposes a fast-track and simplified procedure for
mergers and amalgamations
• In an attempt to bring gender equilibrium, the Bill has asked companies to have at least one
woman director on board. It also intends to give greater responsibility to the auditors and to
widen their role. the auditors will be strictly monitored, for any misleading information could mean
imprisonment up to one year.
THAPAR UNIVERSITY,
 gus
t
201
9

SOCIAL & POLITICAL ENIRONMENT

THAPAR UNIVERSITY,
 gus
t
201

Social Environment 9

It includes all factors that influence business in a society like:

• Religions
• Caste system
• Languages, Foods & Dresses
• Customs, traditions & rituals
• Family structure & value system
• Lifestyle & etiquettes

THAPAR UNIVERSITY,
 gus
t
201

Political Environment 9

• The political environment includes factors such as the

characteristics and policies of the political parties, the
nature of the Constitution and government system and
the government environment encompassing the
economic and business policies and regulations. These
factors may vary very considerably between different
nations, between different provinces of the same nation
and also over time

THAPAR UNIVERSITY,
FUNCTIONS OF STATE
 Reservation
 Licensing
 Expansion
 FDI
 Import and Export Policy
 Taxes
 Supply of Money
 Supply of FOREX
 Incentives and Subsidies

OTHER FUNCTIONS
 LEGAL ROLE (PARLIAMENT)
 INFRASTRUCTURE DEVELOPMENT
 HUMAN RESOURCE
DEVELOPMENT
 Indian Political System
• India is a federal state with 29 states and seven union territories. With the recent decision on J&K, India will
have 28 states & 9 union territories
• Constitution provides for trifurcation of responsibly between the executive, legislature and the judiciary
• Executive comprises of the president, vice-president, prime minister and the council of ministers
• President has all the executive powers vested who acts on the advice of council of ministers and prime
minister heads the council of ministers
• The union legislature (Parliament, enacts laws) comprises of two houses-Lok Sabha( lower house, elected by
people) and Rajya Sabha (upper house, elected by state legislatures who are selected by people)
• State legislature has governor elected by president, council of ministers is headed by chief minister, people of
the state select the state legislative assembly who are responsible to enforce laws
• Constitution has further demarcated powers among the centre and the states – union, state and concurrent
lists with the supremacy of the centre
• Supreme court is the apex judicial authority, with high courts in each state and local courts at town levels
The Constitutional Environment
Preamble to the Constitution
The preamble to the Indian Constitution states that

THE PEOPLE OF INDIA have solemnly resolved to constitute India into a SOVEREIGN,
SOCIALIST, SECULAR and DEMOCRATIC REPUBLIC to secure to all the citizens

JUSTICE - social, economic and political

LIBERTY – of thought, expression, belief, faith and worship

EQUALITY – of status and of opportunity

And to promote among them all

FRATERNITY - assuring the dignity of the individual and the unity and integrity of the
nation
Why State Intervention in Business?

• Election system & political donations

• Heterogeneity in economic prosperity
• Welfare motive
• Unscrupulous business motives
• Market failures
• International treaties, rules & regulation…….