Business Environment Unit 2

Centre for Distance and Online Education
Punjabi University, Patiala
Class : M.Com. Part-I Semester : II

Paper : MCOP-1202T (Business Environment)
Medium : English Unit : II

Lesson No.
2.1 : Political and Legal Environment
2.2 : The Competition Act, 2002
2.3 : The Consumer Protection Act 1986
2.4 : The Right to Information (RTI) Act, 2005
2.5 : Environment Degradation
2.6 : Environment Protection Act, 1986
2.7 : FEMA and Promotion of Foreign Trade
2.8 : Foreign Direct Investment
2.9 : International Monetary Fund (IMF)
Website : www.pbidde.org
Update On : January, 2024
M.COM. PART-I MCOP-1202T
BUSINESS ENVIRONMENT
LESSON NO. 2.1 DR. SHAILINDER SEKHON
POLITICAL AND LEGAL ENVIRONMENT OF BUSINESS
Structure of the Lesson :

2.1.0 Objectives of the Lesson
2.1.1 Introduction
2.1.2 Elements of Political Environment
2.1.3 Economic Role of Government
2.1.4 Effect of Political Philosophies on Economy
2.1.5 Relationship between Government and Business
1. Business Responsibilities to Government
2. Government Responsibilities to Business
Self-Check Exercise
2.1.6 Legal Environment and the Economy
1. Pre Independence Era
2. Post Independence Era
2.1.7 Rationale for Government Intervention
2.1.8 Summary
2.1.9 Glossary
2.1.10 Answers to Self-Check Exercise
2.1.11 Exercise
2.1.12 Suggested Readings
2.1.0 OBJECTIVES OF THE LESSON
The present lesson aims to give an idea of the impact of political environment on
the economy of a country. This lesson focused on the interdependence of
business and government of a country and explains that how the political and
legal system of a country shapes the development.
2.1.1 INTRODUCTION
The Economic Policies have depended upon the political policies of a political
party. In this way political environment of a country has great impact on the
business houses. The dominated role of public sector in our country is outcome
of ‘socialist pattern of society’ adopted by the Congress Party. In short, important
1
M.COM. PART-I 2 MCOP-1202T
economic policies such as industrial policy, foreign capital policy, fiscal policy
and import policy are often political decisions which established the great impact
of political and legal environment on the business houses. A stable and dynamic
political environment is indispensable for business growth.
2.1.2 ELEMENTS OF POLITICAL ENVIRONMENT
The political institutions i.e. legislature, Executive and Judiciary plays important
role in economic policies as well as in the development of country whereas the
legislature is vested with most vital powers like policy making, budget making
and executive control. The decisions of the legislature affect each and every
activity of business houses. Legislatures have to check that profit earning is not
only justified but also whether the activities of business houses are in a manner
beneficial to the society. The other important political institution is the
Executives of the actual law and policies enforcing agency. What the legislative
made in their chamber actually come in force in the hands of executives. In the
way the functions of executive also effects the economic development. Some
times the legislature makes some policies but there is conflict between the
executives and business houses about implementation. In case of such conflicts,
the judiciary, the third important political institution resolves the conflicts. It is
the power of the judiciary to settle legal disputes that effect business
considerably. It is therefore necessary to discuss about the impact of political and
legal environment on the economy.
2.1.3 ECONOMIC ROLE OF GOVERNMENT
Depending upon the nature and stage of development on the economy, the
behaviour of the private sector, the political philosophy, social attitudes,
administrative system etc., it is a universal phenomenon that state control
economy. In the modern era, two most powerful institutions in the society are
‘business’ and ‘government’ which meet on common ground or otherwise together
they determine the public policy both foreign and domestic for a nation. But four
corner development of a country is only possible if the government plays
significant role in the economy of a country. Normally government plays four
important roles in an economy i.e.
1. Regulatory Role
2. Promotional Role
3. Planning Role
4. Enterpreneurial Role
1. Regulatory Role : Government regulation of the economy may be broadly
into two parts direct and indirect control. The reservation of industries to small
scale, public and cooperative sector, licensing system, import and export
regulations, the subsidies for different sectors are some examples of regulatory
measurements of the governments.

2. Promotional Role : For the development of economy, state/government
will have to assume direct responsibility to build up and strengthen the
necessary development of infrastructure i.e. transport, power, finance, marketing
and institutions for training and guidance along with other promotional
activities.
3. Planning Role : A Well planned economy may lead to a country on the
path of development. State especially plays important role in planning economy.
How to use resources and achieve the goal within the time frame set etc. are
the basic needs for proper development of economy and proper planning is most
important tool for the same.
4. Enterpreneurial Role : Sometimes to boost-up the economic development
government plays the role of an entrepreneur. It establishes the business
enterprises and bear the risks. Dominating trend of public sector is basic
ingredient of under developed countries. But recently many governments have
resorted to privatization.
2.1.4 EFFECT OF POLITICAL PHILOSOPHIES ON ECONOMY
The impact of political parties and their policies in the country may be seen from
economic set-up. The dominated role of public sector in India is outcome of
Congress Party's policies and adoption of ‘socialist approach by the party’. Like
wise easter Europe and U.S.S.R. with several common characteristics, controlled
and role of private sector to a very limited extend with lot of restriction on
imports and foreign business. But with the changing era the various countries
are running towards the privatization. The communist country like China where
communist party is still in power, are on the rapid road of privatization. Impact of
coalition/ governments on the economy is of different style. In such a situation
if all the allied wings worked with common agenda it leads to lesser problems.
But even in coalition governments when all the allied parties want to impose
their party's policies it will lead to nowhere. If we discuss about India, since
independence except a short span, Congress Party rule the country till 1995, and
core sector has been fully dominated by the public sector. But after that, with
change of ruling and command in the hands of NDA there started the reformative
phase and disinvestment of the various public units was undertaken. In the
mean time one of the partner of the NDA government stopped the path of
privatization which effect the economic growth of the country. Thus, policies of
political parties have a great impact on business houses.
2.1.5 RELATIONSHIP BETWEEN GOVERNMENT AND BUSINESS
From the above discussion it is clear that the government and business are the
one and other side of coin. To accelerate the growth of business, it is foremost
for the government to make such policies which are beneficial for the business
and economy. But in the same way the business house is also responsible (for
some duties) towards the government.
1. Business Responsibilities to Government : Business firms have a
number of responsibilities to the government. Business firms must obey the laws
of central, state and local governments. Business should look to the government
for support encouragement and guidance. Business leaders must look upon
government as a big brother who is wiser, more matured in business. Business
has following responsibilities towards government :
1. Tax Payment : Pay regular taxes on their sale, inputs and income and also
deduct, at source, income taxes from salaries and wages of employees and remit
the collections to the government.
2. Voluntary Programmes : Business Firms cooperate with government agencies
on a voluntary basis in connection with various programs such as withholding
stated amounts from wages and salaries of employees for the purchase of
National Saving Certificates or giving special assistance to local government
units in connection with drought relief education, tree planting etc.
3. Providing Information : Some times political leaders may take certain
decisions that may not be in the overall interest of business. The onus then lies
with the business leaders to place before the decision makers, the facts and
problems, individually or though forums and argue for the modification or change
of decisions.
4. Government Contracts : Many business firms bid for Government contracts
and if successful, carry out the resulting projects with the required specifications
and standards.
5. Government Service : Business offers services of its leaders of the
Government. It is not unusual for business executive to lead or accompany
delegations to foreign countries for exploring trade and industry prospects.
6. Political Activity : Business can make monetary contributions to political
parties particularly at the time of elections. The other way of participation is to
contest election as independents on party labels. The third way refers to
behaviour after election and is concerned with securing legislation in favour of
business.
2. Government Responsibilities to Business
Government responsibilities to business are much greater than the obligations of
business to Government that have the power, will and resources to decide, shape,
guide and control business activities.
1. Establishment and Enforcement of Law : Government establishes and
enforces laws and regulations under which the business functions. Governments
is responsible for providing the rule of the game which make the business
systems function smoothly and which help to maintain competition.

2. Maintenance of Order : Government has the responsibility of maintaining
order and protecting person and property. It would be impossible to carry on the
business in the absence of a peaceful atmosphere.
3. Money and Credit : It is the responsibility of Government to regulate money
and credit and protect the integrity of the rupee i.e. to guard against rapid fall in
its value.
Self-Check Exercise
Q.1 What types of roles government mainly plays for the development of
economy?
2.1.6 LEGAL ENVIRONMENT AND THE ECONOMY
Introduction : The impact of political environment on the development of
economics is irresponsible as long as the impact of legal environment is not
forgettable. Apart from the direct laws which control investment and related
matters. There are number of laws that regulates the conduct of the business
like laws relating to standards of product, packing, promotion, ethics and
ecological factors etc.
With the origin of concept of ‘consumerism’ a wide range of laws have been
enacted to save that interests of consumers, to remove the unwanted and
unhealthy competitions between the companies i.e. the Consumer Protection Act
1986, MRTP Act etc. Various laws have also been enacted in favour of labourers
pertaining to labour reform i.e. to control working hours, working conditions,
labour charges, child labour etc, these laws named as industrial Dispute Act,
Factories Act, Trade Union Act, Workmen Compensation Act etc. The regulatory
act to control the business activities subject to foreign exchange, import, export
has been made i.e. EXIM Policy, FEMA. Tax collection is most important revenue
source of the government and various statutes to collect taxes are in our country
like the Central sales Tax, Excise Act and moreover the Income Tax Act.
In the crowd of these number of enactment and statutes, the impact of
legal environment do not require any special detail. The effect of legal system on
the business environment is very important. Regulation of business units and
their proper management and relation with other enterpreneur when organized
and controlled by the statutes, then there remains less chance for frauds and
irregularities. Some policies that create opportunities for development of one
may lead to threat to others. The policy of liberalization in India has opened up
new dimensions to achieve and threats to deceive. But the public interest and
benefits of society at large is to be seen while enactment of statute. Thus the
changing scenario of legal environment, its impact on business in each and
every aspect of the economy is very important. The important statutes relating to
business as follows in two broader parts :
1. Pre Independence Era : To regulate the business activities from the

ancient times certain norms have been put forward to comply by the business
houses. It was the British period market by the drain of wealth and certain
fundamental laws had been enacted to regulate business and economy.
1. The Indian Contract Act 1872 : First step for origin of business is contract
law enacted in 1872 provided norms relating to the very basic aspects of contract
formation, which is fundamental to any economy.
2. The Partnership Act 1932 : Increase in business activity gave birth to
partnership and the act regulates the conduct of partners in firms and with
outsiders and gives sanction to the institution of partnership.
3. The Sales of Goods Act 1930 : The Sales of Goods Act 1930 provide provisions
for different types of aspects on the sale, purchase of goods.
4. The Negotiable Instrument Act 1881 : Finance is soul of business and
economy, but credit also plays most important role in the economy, thus,
negotiable instruments are like blood in veins and Act deals with basic needs of
validity of instrument and its enforceability.
2. Post Independence Era : A variety of statutes have been enacted since
the independence. To accelerate the pace of economics as well as to regulate the
obstacles that come before government a number of statues have been made
like.
1. The Companies Act 1956 : A big chunk of business houses have been hold by
companies and to regulate the conduct of companies Act 1956 is being amended
from time to time to provide an exhaustive law on regulation of companies
incorporated under the act.
2. Labour Laws : India has started its development process with socialistic
approach and as such number of statutes has been enacted to improve the
conditions of persons involved in commerce and trade or in industry by way of
labour. Some important statutes like the Industries Disputes Act, 1947, The
Factories Act, 1948, The payment of Wages Act, The Minimum Wages Act, The
Workmen Compensation Act, Trade Union Act are basically concerned with the
safeguard of labour class and to save the workmen from exploitation of employers
on account of less wages, working hours, working conditions, dispute regarding
service matters, lock-out etc.
3. The Consumer Protection Act 1986 : Drastic changes have been caused in
the economy with the intervention of multinational companies and due to poor,
illiterate, people of country, it becomes duty of the Government to save consumer
interests. With the object to provide better protection to the interest of
consumers. The Consumers Councils have been established under the act. The
magnacarta of consumer rights, not only recognize the rights but also provide
effective agency to redress the consumer grievances.
4. The Securities and Exchange Board of India Act 1992 (SEBI) :

SEBI was established in 1988, to end the director intervention and regulation of
Government. SEBI is a statutory body under the act of 1992 and regulate listing,
promote the security markets and prohibit the unfair fraudulent practice. And
amendment in the year of 1995 has been made to make SEBI more powerful and
to keep transparency in the security market transactions.
5. The MRTP Act, 1969 : The MRTP Act came into force from 1 June 1970, and
has been amended in 1974, 1980, 1982, 1984 and 1991. This act applies in the
whole of India except the State of Jammu and Kashmir. The Act had two
objectives viz. (1) Controlling monopolistic trade practices, and (2) Regulating
restrictive and unfair trade practices. After this the economic reforms initiated
from the beginning of 1990 necessitated a shift in the focus from regulating
monopolies to promoting competition. Hence a Competition Act was conceived in
time with the recommendations of the Raghavan Committee, and the MRTP Act
was replaced.
6. The Competition Act, 2002 : The Competition Act, 2002 was implemented and
designed to promote and sustain competition and thereby protect the interests of
consumers. The Act seeks to deal with market failures, advancing consumer
interest and ensuring the freedom of trade for other participants in markets in
India. The Act runs into sixty six sections, divided into none chapters. It extends
to the whole of India except Jammu and Kashmir.
7. The Foreign Exchange Regulation Act and Foreign Exchange Management Act :
The Foreign Exchange Regulation Act came into force in India with effect from
Ist January, 1974. The primary objective of this Act was to prevent the outflow
Indian currency and to see that the foreign exchange legitimately due to India
should be received. Keeping in view the changed envirionment, on 4 August,
1998, the Foreign Exchange Management bill was introduced. The FEMA aims it
simplifying, consolidating and amending the law relating to foreign exchange
with the objective of facilitating external trade and payments, and for promoting
the orderly development and maintenance of foreign exchange markets in India.
2.1.7 Rationale For Government Intervention
Pure public goods such as defence, law and order and environmental protection
cannot be provided by private markets alone. Because everybody wants them but
no one is willing to play for them individually. Government can provide them and
imposes their cost on tax payers.
Goods with positive externalities or spillover benefits are worth more to society
than to any one consumer. Public health and education, for example, reduce
infection rates, add to society's knowledge base and raise productivity. Market's
tend to undersupply these goods and complementary public funding or provision
can therefore improve efficiency. Natural monopolies such as gas pipelines, local
transport networks and other infrastructure services are most efficiently provided
by a single firm. Unconstrained, monopoly procedures tend to overprice and
undersupply these services. But the public provision or regulation can in
principle be efficient.
Imperfect information on the part of either consumers or producers may make
markets fail. Private commercial insurers cannot efficiently insure against risks
like unemployment, longevity and deteriorating health in old age, because these
risks are influenced by characteristics and behaviours of the insured that the
insurer can't observe along with the government policy and they affect large part
of the population equally and simultaneously. Government can regulate private
pensions and insurance and complement them with basic public pensions and
insurance to improve efficiency and fill gaps in coverage.
Role of the Government :
1. Orderly Growth : It means balanced regional development, distributive justice,
full employment and protecting the economy against ‘booms and busts’.
2. Infrastructure : Business needs for its effective functioning such
infrastructural facilities as transportation, power, finance trained personal and
civil amenitites.
3. Information : Government should provide information through departments of
commerce and industry, labour, health, education, banking, atomic energy and
host of others.
4. Assistance to Small Industries : Being small in size, these firm face problems
relating to finance, marketing, know-how and infrastructural facilities. It is
again the responsibility of Government to provide the required facilities and
encourage the small scale sector to grow.
5. Transfer of Technology : Government owned research establishment transfer
their discoveries to the private industry in order to put them to commercial
production.
6. Government Competition : Government often competes with private business
firms for the purpose of regulating competition, improving quality or to
supplement private activities with Government programmes.
7. Inspection and Licences : Government agencies conduct inspection activities
on foods and drugs for assuring quality products to consumers. Government
issues licenses to competent business establishment to carry on different
activities.
8. Tariffs And Quotas : These are used by government to project business from
foreign competition. Incentives and subsidies are granted by Government to
encourage development of home industries.
2.1.8 SUMMARY
The state (i.e. the Government) plays a very active role in all economies,
including the market economies, the extent and nature of state intervention
vary widely between nations. The national necessity for proper utilization of
scarce resources and prioritization of development objectives and ideological
reasons have made the planning role of government an important role in
socialist and developing countries. Government interference is also necessary
because speedy development of trade and industry depend upon development of
infrastructure which is developed by government. The role of Government in
India is governed by the principles and provisions of Indian Constitution. The
central government's role has declined to a great extent in industrial
development because of decentralisation of power and responsibility. Now it is left
to states to play an active and independent role in industrial development by
creating a conducive environment for development of industries including
attracting foreign investment.
2.1.9 Glossary
1. Pre-Independence Era : A period before the independence of India.
2. Post-Independence Era : A period after the independence of India.
3. SEBI : Securities Exchange Board of India.
4. MRTPACT : Monopolies and Restrictive Trade Practices, act, 1969.
5. FEMA : Foreign Exchang and Management Act, comes into force in 1974.
2.1.10 Answer to Self-Check Exercise
Ans. Normally, role of the government regarding economic development
can be explained as per the undermentioned areas :
1. Regulatory role of the government.
2. Promotional role of the government.
3. Planning role of the government.
4. Entrepreneuria role of the government.
2.1.11 EXERCISE
(A) Short Questions :
Q.1. What are the various elements of political environment of an economy?
Q.2. What do you mean by the Governmental responsibilities towards business ?
Q.3. Why the Promotional role of the government for the development of
economy is required ?
(B) Long Questions :
Q.1. What is the legal environment and its basic elements ?
Q.2. How does political environment affect the economy of a country ?
Q.3. How does legal environment affect the economy of a country ?
2.1.12 SUGGESTED READINGS

1. Business Environment
(Text & cases)
By : Francis Cherunilam
By : Rosy Joshi, Sangam Kapoor
3. Essentials of Business Environment
By : K. Aswathapka
M.COM. PART–I MCOP-1202T
Lesson No. 2.2 Author : Dr. Harpreet Kaur Kohli
The Competition Act, 2002

2.2.1 Introduction
2.2.2 Objectives of Competition Act, 2002
2.2.3 Restrictive practices under the purview of competitive law
2.2.4 The Competition Act, 2002
2.2.5 Government policies related to competition
2.2.6 The Competition Commission
2.2.7 Anti-competitive agreement
Self-check exercise 1
2.2.8 Regulation of dominance
2.2.9 Determination of dominance
2.2.10 Division of enterprise enjoying Dominant Position
2.2.11 Regulation of combinations
2.2.12 Exemptions under this Act
2.2.13 Summary
2.2.14 Glossary
2.2.16 Exercise

The basic aim of the lesson is to provide the students knowledge about the competition
act, 2002. The lesson focused on the Indian government policies relating to
competition, role of the competition commission; and restriction practices determined
under the act under the perview of competition law.
2.2.1 Introduction
The Monopolies and Restrictive Trade Practices Act, 1969 has been an important
economic legislation designed to assume that the operation of the economic system
does not result in the concentration of economic power to the common detriment.
The authority for this has been derived from the Directive Principles of State Policy
contained in Article 39 of the Constitution of India, which require the State to secure
that “the operation of the economic system does not result in the concentration of
wealth and means of production to the common detriment”.
The Act came into force from 1st June, 1970 and has been amended in 1974, 1980,
1982, 1984 and 1991. The MRTP Act was a very controversial legislation. The High
Level Committee on Competition Policy and Law, appointed by the Government of
India, recommended that a new Competition Act may be enacted and the MRTP Act
may be repeated.
The principal objectives of MRTP Act, 1969, were :
1. Prevention of concentration of economic power to the common detriment.
2. Control of Monopolistic, Restrictive and Unfair Trade Practices which are
prejudicial to public interest.
The economic reforms initiated in 1991 repealed the provisions of the Act related to
concentration of economic power excluding the provisions empowering the government
to defuse concentration of economic power to the common detriment. The main focus
of MRTP Act now was the achievement of prevention of monopolistic, restrictive and
unfair trade practices. Large companies have been liberated from MRTP Act
requirement of prior provision of the government for substantial expansion of existing
undertakings, establishing new undertaking and M & As.
2.2.2 Objectives of Competition Act, 2002
The economic liberalisation has increased the relevance of competition policy Fair
Competition is inherent in a free enterprise economy. This requires safeguards against
competitors crushing small firms through unfair means, mergers and acquisition
detrimental to competition.
The Competition Act, enacted in December 2002, following the recommendations of
the High Level Committee on Competition Policy and Law aims at fostering competition
through prohibition of anti-competitive practices, abuse of dominance and regulation
of combinations beyond a certain size.
With the coming into effect of the Competition Act, 2002, the Monopolies and
Restrictive Trade Practices Act (MRTP) Act, 1969, was repealed and the Monopolies
and Restrictive Trade Practices Commission was dissolved.
This Act, which extends to the whole of India except the state of Jammu and Kashmir,
deals mainly with anti-competitive agreements, combinations and abuse of dominance
and it provides for the establishment of a Competition Commission to control these.
The economic reforms have unleashed liberalisation and globalisation and enhanced
the need and relevance of competition policy. The main objective of competition laws
is to preserve and promote competitions as a means to ensure the efficient allocation

of resources in an economy so that the consumers get supplies at lowest prices and of
good quality. In addition may competition laws refer to allied objectives, such as control
of concentration of economic power in the hands of few, promoting the competitiveness
of indigenous industries, encouraging innovations, supporting small and medium
sized enterprises and encouraging regional development.
Objectives of the Competition Act, 2002
- to promote and sustain competition in markets
- to protect the interests of consumers and to ensure freedom of trade carried or
by other participants is markets in India and for matters connected therewith
or incidental there to
- to establish the competition commission, to prevent practices having adverse
effect on competition.
Most competition laws contain certain exceptions (mostly sectoral) and exemptions
in most cases is related to categories of practices) to the application of their provisions.
The logic behind exemptions differ. In some cases (market failures for eg.) competition
and market forces are not viewed as the best tools leading to the maximisation of
economic efficiency; rather direct regulation of prices is used. A number of countries,
however, are reviewing the soundness and validity of those across the board
exemptions. The stress is more on applying competition law to all business practices
not explicity imposed on Firms by legal provisions. It is then the task of competition
authority/courts to consider business practices and emphasise on those that have
the highest probability of anti-competitive effects and least justification based on
efficiency. Usually, such cartel practices as price fixing, collusive tendering and
market allocation are prohibited without need for market analysis. On the contrary,
distribution, joint ventures and merger agreements are assessed in a market context
and increasingly under a rule of reason standard taking into account the efficiencies
and economics likely to be achieved and passed on to consumers.
2.2.3 Restrictive business practices under the Purview of Competition Law
These are main types of business practices that can have anticompetitive effects by
a firm enjoying dominant position.
Horizontal Restraints
Price Fixing C om p e t i n g su p p l i er s en t e r i n t o co o p er a t i v e
agreements regarding prices and sales conditions.
Restraint of output C om p e t i n g su pp l i er s en t er i n t o a g r eem e n t s
regarding output and product quality.
Market allocation Competing suppliers allocate customers amongst
themselves, who therefore cannot benefit from

competition by other suppliers.
Exclusionary practices Competing suppliers employ practices that inhibit
or preclude the ability of other actual or potential
suppliers to compete in the market for a product.
Collusive tendering Competing suppliers exchange commercially
(bid-rigging) sensitive information on bids and agree to take
turns as to who will make the most competitive
offer.
Conscious parallelism Competing suppliers generally set the same prices,
but without an explicit agreement.
Other restrainst on Generally characterized by suppliers entering into
competition cooperative agreements not to undertake certain
actions of competitive value (e.g., advertising).
Vertical Restraints
Exclusive dealing A producer supplies, distributes and guarantees not
to supply other distributors in a given region.
Reciprocal exclusivity A producer supplies on the condition that the
distributor does not carry anybody else’s products.
Refusal to deal A supplier refuses to sell to parties wishing to buy.
Resale price maintainance A producer supplies distributors only on the
conidition that the distributor sells at a minimum
price set by the supplier.
Territorial restraint A supplier sells to distributors only on the condition
that the distributor does not market the product
outside a specified territory.
Discriminatory pricing A supplier charges different parties different prices
under similar circumstances.
Predatory pricing Suppliers sell at a very low price (or supply
intermediate inputs to competitors at excessive
price) in order to drive competitor out of business.
Premiumoffers or loyalty A dominant supplier offers discounts or other
i n du ce m e n t s on l y t o c er t a i n p a r t i e s o n t h e
condition they, do not sell someone else’s products.
Tied selling Producers force purchases to buy goods they do not
want as condition to sell them those they do want.
Full time forcing A supplier requires distributors, for access to any
product, to carry all of the supplier’s products.

Transfer pricing It can involve over-involving or under involving of
intermediate inputs between foreign affiliates.
2.2.4 The Competition Act, 2002
In the present phase of economic reforms based on the three pillars of liberalisation,
privatisation and globalisation, the MRTP act, as seen in its original spirit, appeared
redundant. A number of its provisions in the present day context lost relevance and
required to be substituted with new provisions in tune with the contemporary trends
in business environment. The Act did not address a number of present-day issues
like the abuse of intellectual property rights. In many respects its provisions were
draconian and the implementation and control structure was heavily bureaucratic
in nature. The Act was often cited as one of the main hindrances to foreign direct
investment in the country.
The MRTP Act has been replaced by the Competition Act 2002 on the recommendations
of the S.V.S. Raghvan Committee. As already pointed out, all the cases pertaining to
RTPS and MTPS under the MRTP ACT have been transferred to the Competition
Commission of India established under the new Act and will be decided according to
the provisions of the repealed MRTP Act. The major provisions of the Competition Act
2002 are as follows :
Coverage and Applicability
The Act, like the earlier MRTP ACT, applies to the whole of India except the state of
Jammu and Kashmir. The Act however, empowers it to exempt any class of enterprises
from the Act in interest of public or national security. It can also exempt any practice
or agreement arising out of and in accordance with any obligation assumed bythe
country under any treaty, agreement or convention with other countries. Under the
Act, no civil court has jurisdiction to entertain any suit or proceeding, which the
competition Commission established under the Act is empowered by the Act to
determine. However, the provisions of the Act are in addition to and not in derogation
of, provisions of any other law in force.
2.2.5 Government Policies Related to Competition
Many government policies and guidelines designed to serve socio-economic objectives
tend to distort competitions,it has been observed that multiplicity of law and rules in
India have protected favoured players, reduced competition and given discretion in
decision making to politicians and bureaucrats in the name of public interest. Public
interest has been frequently invoked to favour specific interestgroups (unionized
labour, small scale industries, handloom weavers with no justification as to how the
interest of this group transcends all.
Restrictive policies have slackened competition like reservation of industries for

the public sector (Coal, Railways, Postal Service, Insurance) canalization of exports
and imports through the public sector reservation of items for the small scale sector
and handloom sector. All governmental policies have to be viewed through the angle
of competition to ensure that consumer interest and economic efficiency are not
sacrificed. Governments rely on several policy tools to ensure that their market shares
are competitive. The tools include trade policy, FDI policy, regulatory policy w.r.t.
domestic economic activity and competition policy. Competition policy relates
specifically to the rules and regulations implemented by competitions authorities
w.r.t. arrangements among firms/suppliers and the conduct of individual firm
generally and not exclusively, in national markets, consistency and coherence
between the different policies could serve competitive objectives. This is evident
from the fact that in many developing countries, trade liberalisation, FDI liberalisation
and domestic deregulation are taking place simultaneously.
2.2.6 Establishment of Competition Commission
The Competition Act provides for the establishment of the Competition Commission
of India , by the Central Government, consisting of a chairperson and not less than
two and not more than ten other members.
The chairperson and other members shall be whole-time members and every one of
them shall be a person of ability, integrity and standing and who, has been or is
qualified to be, a judge of High Court; or has special knowledge and professional
experience of not less than fifteen years in international trade, economics, business,
commerce, law, finance, accountancy, management, industry, public affairs,
administration or in any other matters which in the opinion of the Central
Government, may be useful to the Commission.
The Act also provides that the Central Government may appoint a Directior General
and as many Additional, Joint, Deputy or Assistant Directors General or such other
advisers, consultants or officers, as it may think for, the purposes of assisting the
Commission in conducting inquiry into the contravention of any of the provisions of
the Act and for the conduct of cases before the Commission and for performing such
other functions under this Act.
The functions of the Commission are to :
* Eliminate the practice having adverse effect on competition.
* Promote and sustain competition.
* Protect the interests of consumers.
* Ensure freedom of trade carried on by other participant, in market in India.
For the purpose of discharging its duties the Commission is authorized by the
Act to enter into any memorandum or arrangements, with the prior approval of the
Central Government, with any agency of any foreign country.
In discharging its duties, the Commission shall be bound by such directions on matters
of policy, other than those relating to technical and administrative matters, as the
Central Government may give in writing from time to time. However, the Commission
shall as far as practicable, be given an opportunity to express its views before any
such direction is given. The Central Government is also empowered to supersede the
Commission, for any period not greater than six months, in certain circumstances
such as when the Commission is unable due to situations beyond its control, to
discharge its functions or perform its duties; or the Commission has continuously
made default in complying with any direction given by the Central Government under
this Act. Before issuing any notification superseding the Commission, the Central
Government shall give a reasonable opportunity to the Commission to make
representations against the proposed supersession and shall consider representations,
if any of the Commission.
Powers and Functions of Commission : Section 18 lays down that it shall be the duty
of the Commission to eliminate practices having adverse effect on competition,
promote and sustain competition and protect the consumers' interest.
The Commission shall, while determining whether an agreement has an appreciable
adverse effect on competition under section 3, will consider the following factors :
(i) Creation of barriers to new entrants in the market;
(ii) drawing existing competition out of the market;
(iii) preclosure by competition by hindering entry into the markets;
(iv) accrual of benefit to consumers;
(v) improvements in production or-distribution of goods or provision of services ;
or
(vi) promotion of technical, scientific or distribution of goods.
The Commission shall , while inquiring whether an enterprise enjoys a
dominant position or not under sec.4 have due regard to the various factors such as:
(i) market share of the enterprise;
(ii) size and resources of the enterprise;
(iii) size and importance of the competitors;
(iv) economic power of the enterprise including commercial advantage over
competitors;
(v) vertical integration of the enterprises.
(vi) dependence of consumers on the enterprise;
(vii) monopoly whether acquired as a result of any statute or by virtue of being a
Government company or a public sector undertaking or otherwise;

(viii) entry barriers including regulatory barriers, financial risk, high capital cost
of entry etc;
(ix) countervailing buying power;
(x) market structure and size of market;
(xi) social obligations and social cost;
(xii) Any other factor which the commission finds relevant.
The Commission shall, while determining the "relevant geographic market"
have due regard to the gollowing factors, viz :
(a) regulatory trade barriers;
(b) local specification requirements;
(c) national precurement policies;
(d) adequate distribution facilities;
(e) transport costs;
(f) language;
(g) consumer preferences;
(h) need for secure, regular supplies or rapid after-sales services.
The Commission shall, whiledetermining the "relevant product market" shall consider
the following factors viz :
(a) physical characteristics or end-use of goods
(b) price of goods or services
(c) consumer prefrences
(d) exclusion of in-house production
(e) existence of specialised producers
(f) classification of industrial products.
2.2.7 Anti-Competitive Agreements
The Competition Act declares void any agreement in respect of production, supply,
distribution, storage, acquisition or control of goods or provision of services, which
causes or is likely to cause an appreciable adverse effect on competition within India.
According to Sub-section 3 of Section 3 of the Competition Act, anti competitive
agreements include the following :
1. Any collusive agreement which
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development,
investment or proivison of services;
(c) shares the market or source of production or provision of services by
way of allocation of geographical area of market, or type of goods or
services, or number of customers in the market of any other similar

way;
(d) directly or indirectly results in bid rigging or collusive bidding.
2. Any agreement, which causes or is likely to cause an appreciable adverse effect
on competition in India, amongst enterprises or persons at different stages or levels of
the production chain in different markets, in respect of production, supply, distribution,
storage, sale or price of, or trade in goods or provision of services, including-
(a) tie-in arrangment (i.e., an agreement requiring a purchaser of goods,
as a condition of such purchase, to purchase some other goods);
(b) exclusive supply agrement (i.e., an agreement restricting in any
manner the purchaser in the course of his trade from acquiring or
otherwise dealing in any goods other than those of the seller or any
other persons;
(c) exclusive distribution agreement (i.e., an agreement to limit, restrict
or withhold the output or supply of any goods or allocate any area or
market for the disposal or sale of the goods);
(d) refusal to deal (i.e. an agreement which restricts, or is likely to restrict
by any methods the persons or classes of persons to whom goods are
sold or from goods are bought);
(e) resale price maintenance (i.e. an agreement to sell goods on condition
that the prices to be charged on the resale by the purchaser shall be
the prices stipulated by the seller unless it is clearly stated that price
lower than those prices may be charged).
Self–check exercise 1
Q.1 Discuss the powers of Competition Commission.
2.2.8 Regulation of Dominance
Section 4 of the Competition Act lays down that no enterprise shall abuse its dominant
position. Dominant position mean’s a position of strength, enjoyed by an enterprise,
in the relevant market, in India, which enables it to (i) operate independently of
competitive forces prevailing in the relevant market; or (ii) affects its competitors or
consumers or the relevant market in its favour.
The following cases are regarded as an abuse of dominant position, where by an
enterprise –
(a) directly or indirectly, imposes unfair or discriminatory -
(i) condition in purchase or sale of goods or service; or
(ii) price in purchase or sale (including predatory price, i.e. price which is
kept below the cost with a veiw to reduce competition or eliminate the
competitors) of goods or service.

However, such discriminatory condition or price which may be adopted to meet the
competition is excluded from the application of this Section.
(b) limits or restricts -
(i) production of goods or provision of services or market therefore; or
(ii) technical or scientific development relating to goods or services to the
prejudice of consumers; or
(c) indulges in practice or practices resulting in denial or market access; or
(d) makes conclusion of contracts subject to acceptance by other parties of
supplementary obligations which, by their nature or according to commercial
usage, have no connection with the subject of such contracts; or
(e) uses its dominant position in one relevant market to enter into, or protect,
other relevant market.
Where the Commission finds that any agreement causes or is likely to cause an
appreciable adverse effect on competition or action of an enterprise is or is likely to
be an abuse of its dominant position, it may pass all or any of the following orders,
namely :
(a) direct any party involved in such agreement, or abuse of dominant position, to
discontinue and not to re-enter such agreement or discontinue such abuse of
dominant position , as the case may be ;
(b) impose such penalty, as it may deem fit which shall be not more than ten
percent of the average of the turnover for the last three preceding financial
years, upon each of such person or enterprises which are parties to such
agreement or abuse.
(c) award compensation to parties in accordance with the provisions contained in
the Act;
(d) direct that enterprise concerned to abide by such other orders as the
Commission may be specified in the order by the Commission;
(e) direct the enterprises concerned to abide by such other orders as the
Commission may pass and comply with the directions, including payment of
costs, if any;
(f) recommending to the Central Government for the division of an enterprise
enjoying dominant position;
(g) pass such other order as it may deem fit.
Even if an anti-competitive agreement has been entered into outside India; or any
party to such agreement is outside India; or any enterprise abusing the dominant
position is outside India, Commission shall the have power to inquire into such
agreement or abuse of dominant position or combinations if such agreement or

dominant position or combination has or is likely ot have, an appreciable adverse
effect on competition in the relevant market in India.
2.2.9 Determining Dominant Position
The Commission shall, while inquiring whether an enterprise enjoys a dominant
position or not shall have due regard to all or any of the following factors, namely :-
(a) market share of the enterprise;
(b) size and resources of the enterprise;
(c) size and importance of the competitor;
(d) economic power of the enterprise;
(e) vertical integration of the enterprises;
(f) dependence of consumers on the eneterprise;
(g) monopoly or dominant position whether acquired as a result of any statute or
by virtue of being a Government company or a public sector undertaking or
otherwise;
(h) entry barriers including barriers such as regulatory barriers, financial risk,
high capital cost of entry, marketing entry barriers.
(i) countervailing buying power;
(j) market structure and size of market;
(k) social obligations and social costs;
(l) relative advantage, by way of the contribution to the economic development;
(m) any other factor which the Commission may consider relevant for the inquiry.
2.2.10 Division of enterprise enjoying dominant position (sec 28)
The Central Government on the recommendation of the Commission can order
division of an enterprise enjoying dominant position to prevent it from abusing its
dominant position. The order under sec 28 (2) may provide for all or any of the following
matters :
(i) transfer or vesting of property, rights, liabilities or obligation;
(ii) adjustment of contracts either by discharge or reduction of any liability;
(iii) creation, allotment, surrender or cancellation of any shares, stocks ;
(iv) payment of compensation to any person who suffered any loss due to dominant
position of such enterprise;
(v) formation or winding up of an enterprise or amendment of memorandum of
association or articles of association;
(vi) any other matter which may be necessary to give effect to the division of the
enterprise.
2.2.11 Regulation of combinations

Section 5 of the Act, which deals with combinations, considers only those acquisitions,
mergers or amalgamations which result in assets or turnover above the specified
threshold limits or control of enterprise with assets or turnover above the specific
threshold limits. Accordingly the following fall under combination.
Any acquisition, merger or amalgamation which result in combined assets of the
value of more than rupees one thousand crores or turnover more than rupees three
thousand crores in India; or assets of the value of more than five hundred million US
dollars or turnover morethan fifteen hundred million US dollars or outside India when
a group or enterprises is involved, the respective further assets of more than rupees
four thausand crores or turnover morethan rupees twelve thousand crores and assets
of more than two billion US dollars or turnover more than six billion US dollars.
Section 6 of the Competition Act declares void any combination which causes, or is
likely to cause an appreciable adverse effect on competition within the relevant market
in India.
Subject to the above provision, any person or enterprise proposing to enter into a
combination, may, at his option, give notice to the Competition Commission disclosing
the details of the proposed combination, as prescribed in the Act.
Where the Commission is of the opinion that the combination has, or is likely to
have, an appreciable adverse effect on competition, it shall direct that the combination
shall not take effect.
The provisions of Section 6 shall not apply to share subscription or financing facility
or any acquisition, by a public financial institution, foreign institutional investor,
bank or venture capital fund, pursuant to any convenant of a loan agreement or
investment agreement.
Procedure for Investigation of Combinations
(i) Notice to Parties to Combinations :
Where the Commission is of the opinion that a combination is likely to cause an
appreciable adverse effect on competition within the relevant market in India, it
shall issue a notice to show cause to the parties to combination to respond within
thirty days of the reseipt of the notice, as to why investigation in respect of such
combination should not be conducted.
(ii) Parties to be Directed to Publish Details of Combination :
If the Commission is of the opinion that the combination has or can have adverse
effect on competition, it shall, within seven working days from the date of receipt of
response of the parties to the combination, direct the parties to the combination to
publish details of combination within ten working days for bringing the combination
to the information of the public and persons affected by such combination.

(iii) Objection by Third Party :
The Commission may, within fifteen working days from the expiry of the specified
period, call for such additional information from the parties if it requires. This
additional information shall be furnished to the Commission within fifteen days from
the expiry of the period specified before after receiving all the information and within
45 working days from expiry of the period for additional information, the Commission
shall proceed to deal with the case under Sec 31.
Q.1 Define dominance. How does Competition Act propose to regulate it ?
2.2.12 Exemptions under the Act
The Central Government is empowered to exempt from the application of this Act, or
any provision thereof, and for such period as it may specify :
(a) any class of enterprises if such exemption is necessary in the interest of
security of the State or public interest;
(b) any practice or agreement arising out of and in accordance with any obligation
assumed by India under any treaty, agreement or convention with any other
country or countries;
(c) any enterprise which performs a sovereign function on behalf of the Central
Government or a State Government, provided that in the case an enterprise
is engaged in any activity including the activity relatable to the sovereign
functions of the Government, the Central Government may grant exemption
only in respect of activity relatable to the soverign functions.
2.2.13 Summary
The economic liberalisation has increased the need for and relevance of competition
policy and law because, while the liberalisation unleashes competitive forces, in the
absence of safeguards, this may also provide scope for unfair competition, like powerful
competitors crushing small firms through, collusion and M & As detrimental to
competition.
Competition policy refers to the government policy designed to ensure contestability
and fair competition by removing/preventing factors and forces that tend to distort
fair competition.
Accoriding to the High Level Committee on Competition Policy and Law appointed by
Government of India, competition process is likely to run smoothly and thus lead to
desirable results, only if several pre-requisites are met. Micro-industrial Governmental
policies that may support or adversely impinge on the application of competition policy
would include the industrial policy, reservation for the small scale industrial section;
privalization and regulatory reforms; trade policy, including tariffs, quotas, subsidies
anti-dumping action etc.; state monopolies policy; and labour policy.
The focus for most Competition Laws in the world today being in the three areas, viz.
agreement among enterprises; abuse of dominance; mergers or, more generally,
combination among enterprises, the Committee centered its recommendations on
the same. Horizontal and Vertical agreements between firms have the potential of
restricting competition. The Committee, therefore, recommended that both these
types of agreements should be covered by the Competition Law. The Committee felt
that abuse of dominance rather than dominance should be the key for Competition
Policy Law. Abuse of dominance will include practices like restriction of quantities,
markets and technical development. Abuse of dominance which prevents, restricts
or distorts competition needs to be frowned upon by Competition Law. Relevant market
needs to be an important factor in determining abuse of dominance.
Competition Policy/Law needs to have necessary provisions and teeth to examine
and adjudicate upon anti-competition practices that may accompany or follow
developments arising out of the implementation of WTO Agreements. In particular,
agreements relating to foreign investment, intellectual property rights, subsidies,
countervailing duties, anti-dumping measures, sanitary and phytosanitary measures,
technical barriers to trade and Government procurement need to be reckoned in the
Competition Policy/Law with a view to dealing with anti competition practices.
As a follow up of the Report of the Committee, the Union Cabinet proposed to set up a
10–member multidisciplinary Trade Competition Commission of India (TRCCI) to
replace the existing Monopolies and Restrictive Trade Practices Commission (MRTPC).
2.2.14 Glossary
1. TRCCI : Trade Related Competitive Commission of India.
2. Tie-in arrangement : An agreement in requiring in requiring a purchaser of
goods, as a condition of such purchase, to purchase some other goods.
3. Exclusive supply agreement : An agreement restricting in any manner the
purchaser in the course of trade from acquiring/dealing in any goods other
than there of seller or any other persons.
4. Dominant Position : A position of strength enjoyed by an enterprise, in the
relevant market, in India, which enables it to :
(a) operate independently of competitive forces prevailing in the relevant
market.
(b) affect its competitiors or consumers of relevant factors in its power.
5. Exclusive distribution agreement : An agreement to limit, restricts, without
the output or supply of any goods or allocate any area or market for the disposal/
sale of the goods.

6. M & As : Mergers and Acquisitions.
7. RTP : Restrictive Trade Practice.
8. UTP : Unfair Trade Practice.
9. MTP : Monopolistic Trade Practice.
10. EDI : Foreign Direct Investment.
Exercise-1
Ans.1 Powers of Commisssion : Section 18 of the competition act, lays down the
powers of the commission and define the areas practices iwth regard to :
(1) elimation of adverse effect on competition;
(2) promote and sustain competition;
(3) Project the interest of the consumers; and
(4) ensure freedom of trade carried on.
Exercise-2
Ans.1 Dominance section-4 of the competition act lays down that no any undertaking
shall abuse its dominent position. For determining dominant position following factors
of the enterprise are considered :
(1) market share
(2) size and resources
(3) economic power
(4) competitor
(5) dependence of consumers
(6) monopoly
(7) entry barriers
(8) market structures
(9) social obligations
(10) relative advange etc.
2.2.16 Exercise
Short Questions
1. What is exclusive distribution agreement ?
2. Distinguish between MRTP act and competition act.
3. State the objectives of the competition act, 2002.
Long Questions
1. What has been the need to frame the Competition Act in place of MRTP Act
1969 ?
2. Compare and contrast the provisions of Competition Act 2002 and MRTP Act,
1969.
3. Discuss the powers and functions of the Competitive Commission.

Business Environment : By Francis Cherunilam
Essentials of Business Environment : By K. Aswathappa
This chapter has been written with the grant of DEC.
LESSON NO. 2.3 AUTHOR : Dr. SHAILINIDER SEKHON
CONSUMERISM AND CONSUMER PROTECTION ACT, 1986

2.3.1 Introduction
2.3.2 Consumer Rights
2.3.3 Exploitation of consumers
2.3.4 Consumer Protection
2.3.5 Utility of Consumerism
2.3.6 Government Measures
1. Statutory Regulations
2. Development and Expansion of Public Sector
2.3.7 Consumer Protection Act
1. Definitions
2. Extent and coverage of the Act
3. Structure of the Act
4. Who is a consumer
5. Who can file a complaint
6. Complaint
7. Relief available to the consumers
8. Procedure for filling the appeal
Self-Check Exercise
2.3.8 Amendments to the consumer protection Act
2.3.9 Summary
2.3.10 Glossary
2.3.12 Exercise
2.3.0 OBJECTIVES OF THE LESSON

The main objective of the lesson is create understanding in students about
the consumer protection act, 1986. In this direction, lesson covers consumer
rights, concept and measures of consumer protection. The body of the
lesson covers detailed information about structure of the consumer
protection act and latest amendments made in this act.
2.3.1 INTRODUCTION
An important socio-political confronting the business in the growth of
consumerism and legislative measures to project the consumers. Consumer

movement had its conspicuous beginning and development in the United States.
There has been a growth of consumer awareness in most countries leading to
growth of consumerism and growing demand for consumer protection.
Consumer movement is growing, albeit slowly in India. It may gather
momentums from the growing consumer awareness and the growing feeling that
the consumer is rutheless by exploited and taken for a ride. Many consumerism,
organization have been demaning government action to ensure quality standards.
In short, the business can no more take the consumer for granted. This does
not, however, mean that consumerism in necessarily a problem for the business.
Consumerism is, in fact, regarded as an opportunity by consumer-oriented
businessman.
2.3.2 CONSUMER RIGHTS
Consumers in the advanced countries, obviously are much more conscious of
their rights than in countries like India, in 1962, USA President John F.
Kennedy, and in 1965 the USA president Johnson emphasized the consumer
rights and gave an imputes to consumerism in the U.S.A. and other countries.
Important consumer rights include :
1. Right against exploitation by unfair trade practices;
2. Right to protection of health and safety from the goods and services
the consumers buy or are offered free;
3. Right to be informed of the quality and performance standards,
Ingredients of the product operational requirements freshness of the
product, possible adverse side effects other relevant facts concerning
the product or service;
4. Right to be heard if there is a grievance or suggestion;
5. Right to get the grievances redressed;
6. Right to choose the best from a variety of offers;
7. Right to physical environment that will protect and enhance the
quality of life.
The consumer protection Act, 1986, has listed the consumer rights it seeks to
protect in India.
2.3.3 EXPLOITATION OF CONSUMERS
Consumers are, however, by large practically denied most of these rights. They
are exploited by a larger number of restrictive and unfair trade practices. It has
been reported that over the past half-a-century, the federal trade commission of
the U.S.A. has labelled under the federal trade commission act, 1914, numerous
practices not know before. A situation has developed in which the public have
become victims of false claims for produce blatantly advertised even through they
may not have an adverse effect on the competition.
Behavioural science is extensively applied in marketing to ruthlessly exploit the
consumers by stimulating the week points and soft corners of their mind.
Misleading false or deceptive advertisements are quite common. Many a time the
advertisements deliberately give only half-truths so as to give a different
impression than the actual fact. Thus, advertisements may be misleading
because things that should be said have not been said or because
advertisements are composed or purposefully printed in such a way as to mislead.
2.3.4 CONSUMER PROTECTION
For effective consumer protection a practical response on the part of three
parties. viz. the business, the government and the consumers, is essential.
Firstly, the business comprising the producers and all the elements of the
distribution channels has to pay due regard to consumer rights. The producer
has an incapable responsibility to ensure efficiency in production and the quality
of output. He should also resist the temptation to charge exorbitant prices in a
seller's market.
Secondly, the government has to come to the rescue of the helpless consumer to
prevent him from being misled, duped, cheated and exploited. The motive of
private gain tempts business to maximize income by socially undesirable trade
practices and this calls from government intervention.
Thirdly, consumer should accept consumerism as a means of asserting and
enjoying their rights. Consumerism should succeed in making the business and
the government more responsive to the rights of the consumers. Consumerism is
a social force to
(i) make the business more honest, effect responsive and responsible; and
(ii) pressurizes the government to adopt the necessary measures to protect
consumer interests by guaranteeing their legitimate rights.
2.3.5 UTILITY OF CONSUMERISM
Well - organized and dynamic consumerism may be expected to produce the
following results :
1. Producers and sellers will not take the consumer for granted. When
consumers are aware to protect their rights the business will stand
composed to shun unfair trade practices.
2. Consumerism will provide feedback for the business. It will enable
the producers to understand consumer needs and wants. This will
assist in the more effective implementation of the marketing concept
or the societal marketing concept depending upon the nature of
consumerism.
3. Producers will be able to enlist the support of consumers to minimize
the made worse by hoarding and black marketing by traders. Further,

many sellers have a tendency to charge a price which is higher than
the actual by giving one or other reason. There is no reason why
consumer and producer should not co-operate to get rid the
unscrupulous traders.
4. Consumerism will make the government more responsive to
consumer interests, prompt it to take necessary statutory measures
and make the required institutional arrangements to safeguards
consumer rights.
2.3.6 GOVERNMENT MEASURES
In India, the Government has taken a number of measures to protect consumer
interests. The various government measures may be classified into
(i) statutory regulation of private business, and
(ii) development and expansion of the public sector.
1. Statutory Regulation
Government of India has armed itself with number of statutory weapons to
control the production, supply distribution, price and quality of a large number of
goods and services. It is empowered to regulate the terms and conditions of sale,
the nature of trade and commercial etc. There is a feeling that unlike in the
west the government in India has a large number of controls on industry and is,
therefore, in position to correspond more swiftly and effectively than western
governments. In some ways our bureaucracy has perfected the art of assuming
the guardianship of all interests of the consumers and the vulnerable section.
Important legislations in this respect include the MRTP Act, Industries
Development and Regulation Act, Essential Commodities Act., Prevention of Food
Adulteration Act, Prevention of Black-Marketing and Maintained of Supplies of
Essential Commodities act, Trademarks and Merchandise Marks Act, Sale of
Goods Act, Indian Patents and Designs Act, Agricultural Products Grading and
Marketing Act, Drugs Act, and Drugs Control Act, Indian Standard Institute's
Certification Act, Standard Weights and Measures Act, Imports and Exports
Control Act, Packaged Commodities Order, Price and Stock Display Order,
Consumer Protection Act etc.
2. Development and Expansion of Public Sector
There has been a significant growth and expansion of the public sector in India.
One of the most important objectives of the public sector is the enhancement of
consumer welfare by increasing production, improving efficiency in production
and supply, making available goods and services at fair prices, curbing private
monopolies, and reducing market imperfections. Improving the distribution
system and so on. The public sector, in fact, is expected to implement the
societal marketing concept.
There is, however, a general feeling that the public sector in India has still a
long way to go to realize these objectives. It has established monopolies in public
utilities whose performance is far from satisfactory. There is a widespread
impression that the monopolization of public transport by the public sector has
only aggravated the problems of the common man. Denationalization of road
transport or allowing the private sector also to operate will help to reduce the
suffering of the public Consumerism.
A well-developed consumerism is essential for the protection of consumer rights.
Consumerism has the following important roles to play :
1. Consumer Education : The consumer is given information about
various consumer goods and services. This relates of prices, what the consumer
can expect from standard trade practices, etc.
2. Product Rating : In order to guide the consumer in his choice of
products, some of the agencies carry out tests and submit reports on them.
3. Liaison with government and with Producers : Another important
role of consumer organizations is to maintain liaison with producers on the one
hand and government authorities on the other. As government is the key factor
in meeting most consumer needs in India these organizations have a larger role
to play.
2.3.7 CONSUMER PROTECTION ACT
Government has accorded a very high priority to the consumer protection
programme. Ministry of Food and Consumer affairs Department of Consumer
Affairs in the central government, has been designated as the nodal department
to deal with the subject of consumer protection. Since, 1986, the department has
taken a number of measures to promote a strong and broad based consumer
movement in the country. Some of such measures include :
• Enactment and enforcement of the consumer protection act, 1986;
• Amendment of various legislations such as prevention of food
adulteration act, 1954 etc.
• To empower the consumers and registered consumer organizations to
file complaints in the courts;
• Institution of Swami Vivekananda national awards for consumer
organizations, youth and women;
• Grant of financial assistance to consumer organizations through
CWF;
• Preparation of audio-visual material;
• Publishing quarterly magazine “upbhokta jagaran”;
• Publishing of printed material and its free distribution etc. The
various measures taken by the government have aroused lot of
expectations amongst the consumers.

In the last few years, a major thrust has been given to the consumer protection
programme and a number of additional steps have been taken to protect the
interests of the consumers.
Enactment of consumer protection act, 1986 was one of the most important steps
taken. The present position with regard to implementation of this act is as
follows :
(i) all the provisions of the act came into force w.e.f. 1.7.1987.
(ii) the state level consumer protection councils are functioning in all
states.
The central government constituted the first central consumer protection
council on 1.6.1987. Though it was re-constituted in the year 1990, 1993, 1997
and 2000. The main objective of the councils is to protect and promote the rights
of consumers such as the right to safely, the right to information, the right to
choose, the right to be heard, the right to seek redressal and the right to
consumer education.
( ii i ) As per the act the national commission was established and it started
functioning from December 1998.
(iv) Initially, the progress in establishment of state commissions/district
forums by the state government has been very slow. However, after
constant persuasion of the central government and the writ petition
filed by a consumer organization “common cause” in the supreme
court, the position has improved. Now 32 state commissions and 570
district forums are functioning in the country including state
commission and two divisional forums set up under the jammu and
kashmir consumer protection act the cases are dealt with promptly.
(v) Central Government provided one-time-grant assistance of Rs. 61.80
crore, during 1995-1999, to the states/uts to supplement their efforts
to strengthen the infrastructure facilities of the consumer disputes
redressal agencies.
1. Definitions
In order to the have a clear understanding about the consumer protection, one
has to be well versed with the definitions, are mentioned below :
(i) “goods” means goods as defined in the sale of goods act, 1930 (3 of
1930). According to the sale of goods act, 1930, “goods” means very kind of
movable property other than actionable claims and money, and includes stock
and shares, growing crops, grass, and this attached. To or forming part of the
land which are agreed to be severed before sale or under the contract of sale.
(ii) “service” means service of any description which is made available
to potential users and includes the provision of facilities in connection with
banking, financing, Insurance, transport, processing, supply of electrical or other

energy, board or lodging or both, housing construction, entertainment,
amusement or the purveying of news or other information, but does not include
the rendering of any service free of charge or under a contract of personal
service;
(iii) “restrictive trade practice” means any trade practice which
requires a consumer to buy, hire or avail of any goods or, as the case may be,
services as a condition precedent for buying, hiring or availing of other goods or
services;
(iv) “defect" means any fault, imperfection or shortcoming in the quality,
quantity, potency, purity or standard which is required to be maintained by or
under any law for the time being in force or under any contract express or
implied as is claimed by the trader in any manner whatsoever in relation to any
goods.
(v) “deficiency” means any fault, imperfection, shortcoming or
inadequacy in the quality, nature and manner of performance which is required
to be maintained by or under any law for the time being in force or has been
undertaken to be performed by a person in pursuance of a contract or otherwise
in relation to any service.
(vi) “unfair trade practice” the detailed definition is given in the
consumer protection act, 1986 as amended by the consumer protection
(amendment) act, 1993. It means a trade practice which, for the purpose of
promoting the sale, use or supply of any goods or for the provision of any service,
adopts any unfair method or unfair or deceptive practice including any of the
following practices, namely :-
(A) false of misleading representation
(B) bargain price
(C) offering of gifts, prize, contest etc.
(D) non-compliance of product safety standard
(E) hoarding or destruction of goods.
The act may be consulted before filing a complaint for unfair trade
practice.
Objectives
The consumer protection act, 1986 is a milestone in the history of socio-
economic legislation in the country. It is one of the most progressive and
comprehensive pieces of legislations enacted for the protection of consumers. It
was enacted after in-depth study of consumer protection laws in a number of
countries and in consultation within the government.
The main objective of the act is to provide for the better, protection of
consumers. Unlike existing laws, which are punitive or preventive to nature, the
provision of this act are compensatory in nature. The act is intended to provide
simple, speedy and inexpensive redressal to the consumers grievances, and
reliefs of a specific nature and award of compensation wherever appropriate to
the consumer. The act was amended in 1993 both to extent its coverage and
scope of the powers of the redressal machinery.
2. Extent and Coverage of the Act
The salient features of the act are summed up as under :
• The applies to all goods and services unless specifically exempted by
the central government.
• It covers all the sectors whether private, public or co-operative.
• The provisions of the act are compensatory in nature. It provides
following rights of consumers :
(i) Right to be protected against the marketing of goods and services
which are hazardous to life and property,
(ii) Right to be informed about the quality, quantity, potency, purity,
standard and price of goods or services so as to protect the consumer
against unfair trade practices;
( ii i ) Right to be assured, wherever possible, access to a variety of goods
and services at competitive prices;
(iv) Right to be heard and to be assured that consumers interests will
receive due consideration at appropriate forums;
(v) Right to seek redressal against unfair trade practices unscrupvious
exploitation of consumers; and
(vi) Right to consumer education.
The act envisages establishment of consumer protection councils at
the central and state levels, whose main objects will be to promote
and protect the right of the consumers.
3. Structure of the Act
• To provide simple, speedy and inexpensive redressal of consumer
grievances, the act envisages a three-tier quasi-judicial machinery
at the national, state and district levels.
• National consumer disputes redressal commission known as
“National Commission”.
• Consumer disputes redressal commission known as “State
Commission.”
• Consumer disputes redressal forums known as “district forum.”
The provisions of this act are in addition to end not in derogation of the
provisions of any other law for the time being in force.
4. Who is a consumer ?
All of us are consumers of goods and services. For the purpose of the consumer
protection act, the word “consumer” has been defined separately for “goods” and
“services”.
(A) For the purpose of goods, a “consumer” means a person belonging to
the following categories:
(I) one who buys or agrees to buy any goods for a consideration which
has been paid or promised or partly paid and partly promised or under
any system of deferred payment;
(II) it includes any user of such goods other than the person who actually
buys goods and such use is made with the approval of the purchaser.
It may be further, noted that a person is not a consumer if he
purchases goods for commercial or resale purposes. However, the
word “commercial” does not include use by consumer of goods bought
and used by him exclusively for the purpose of earning his livelihood,
by means of self-employment.
(B) For the purpose of services, a “consumer” means a person belonging
to the following categories:
(I) one who hires or avails of any service or services for a consideration
which has been paid or promised or partly paid and partly promised or
under any system of deferred payment;
(II) it includes any beneficiary of such service other than the one who
actually hires or avails of the service for consideration and such
services are availed with the approval of such person.
5. Who can file a complaint ?
The following can file a complaint under the act :
• A consumer.
• Any voluntary consumer organization registered under the societies
registration act, 1860 or under the companies act, 1956 or under any
other law for the time being in force.
• The central government.
• The state government or union territory administrations.
• One or more consumers on behalf of numerous consumers who are
having the same interest.
6. Complaint
Under the act, a complaint means any allegation in writing made by complainant
in regard to one or more of the following :
• Any unfair trade practice as defined in the act or restrictive trade
practices like tie-up sales adopted by any trader.
• One or more defects in goods. The goods hazardous to life and safety,
when used are being offered for sale to public in contraventlon of
provisions of any law for the time being in force.
• Deficiencies in services.
• A trader charging excess of price
(i) fixed by or under any law for the time being in force; or
(ii) displayed on goods; or
( ii i ) displayed on any packet containing such goods.
Where to file a complaint
If the cost of goods or services and compensation asked for is up to rupees five
lakh, then the complaint can be filed in the district form which has been notified
by the state government for the district where the cause of action has arisen or
where the opposite party resides. A complaint can also be filed at a place where
the branch office of the opposite party is located.
If the cost of goods or services and compensation asked for is more than rupees
five lakh, but less than rupees twenty lakh then the complaint can be filed
before the state commission notified by the state government or union territory
concerned.
If the cost of goods or services and compensation asked for exceed rupees twenty
lakh then the complaint can be filed before the national commission at New
Delhi.
How to file a complaint
Procedures for filing complaints and seeking redressal are simple.
• There is no filing complaints before the district forum, the state
commission or the national commission. A stamp paper is also not required.
There should be 3 to 5 copies of the complaint on plain paper.
• The complainant or his authorized agent can present the complaint
in person.
• The complaint can be sent by post to the appropriate forum/
commission.
A complaint should contain the following information :
(A) the name, description and the address of the complainant.
(B) the name, description and address of the opposite party or parties,
as the case may be. As far as they can be ascertained.
(C) the facts relating to complaint and when and where it arose.
(D) documents, if any in support of the allegations contained, in the
complaint.
(E) the relief which the complainant is seeking.
The complaint should be signed by the complainant or his authorized
agent. The complaint is to be filed within two years from the date on which
cause of action has arisen.
7. Relief available to the Consumers
Depending on the nature of relief sought by the consumer and facts, the
redressal forums may give orders for one or more of the following reliefs :
(A) Removal of defects from the goods;
(B) Replacement of the goods;
(C) Refund of the price paid;
(D) Award of compensation for the loss or injury suffered;
(E) Removal of defects or deficiencies in the services;
(F) Discontinuance of unfair trade practices or restrictive trade practices
or direction not to repeat them;
(G) Withdrawal of the hazardous goods from being offered to sale; or
(H) Award for adequate costs to parties.
8. Procedure for filling the appeal
Appeal against the decision of a district forum can be filed before the state
commission within a period of thirty days. Appeal against the decision of a state
commission can be filed before the national commission within thirty days.
Appeal against the orders of the national commission can be filed before the
supreme court within a period of thirty days.
There is no fee for filing appeal before the state commission or the national
commission.
Procedure for filing the appeal is the same as that of complaint, except the
application should be accompanied by the orders of the district/state commission
as the case may be an grounds for filing the appeal should be specified.
Speedy Disposal of the Complaint
The thrust of the act is to provide simple, speedy and inexpensive redressal to
consumers grievances. To ensure speedy disposal of consumers' grievances, the
following provisions have been incorporated in the act and the rules framed
hereunder.
It is obligatory on the complainant or appellant or their authorized agents and
the opposite parties to appear the forum/commission on the date of hearing or
any other date to which hearing could be adjourned.
The national commission, state commission and district forums are required to
decide complaints, as far as possible, within a period of three months from the
date of notice received by the opposite party where complaint does not require
analysis or testing of the commodities and within five months if it requires
analysis or testing of commodities.
The national commission and state commissions are required to decide the
appeal as far as possible, within 90 days from the first date of hearing.
Self-Check Exercise
Q.1 How you will define the concept of consumer protection as per act ?
Q.2 What are the basic aspects of role played by the consumerism ?
2.3.8 AMENDMENTS TO THE CONSUMER PROTECTION ACT
The act was amended in the years 1991 and 1993 make it more effective and
purposeful. However, the delay in disposal of cases by the redressal agencies at
the District, State and National level has been a cause of major concern.
Therefore, the government made further proposal for amending the consumer
protection act. The amendments are mainly aimed at
• Facillitating quicker disposal of complaints.
• Enhancing the capability of redressal agencies.
• Strengthening them with more powers.
• Strengthening the procedures and widening the scope of the act to
make it more functional and effective.
These proposals have been conceived based on the recommendations of the
working group report, export group report, consultations with president of the
national/state commission, members of the central consume protection council,
national commission and ministry of law in addition of the experience gained in
administering the act by the department.
The highlights of the amendment proposals contained in the consumer protection
(amendment) bill, 2002 which has been passed by rajya sabha in March, 2001 are
as follow :
(A) For quicker disposal of complaints
• Enabling provision for creation of benches of national commission
and state commission and holding of circuit courts.
• Time frame prescribed for admission of complaint, issue of notice and
disposal of complaint.
• Ordinarily no adjournment.
• Enabling provision for service of notions by courier, fax, etc.
• Monetary limits of cases to be disposed of by consumer courts at
different levels substantially revised as per the following:
 District forum not more than 50 lakh or upto thrice of the limits of
the said value.
 State commissionFrom Rs. 50 lakhs to less than ten crores or upto
thrice of the limits of the said value.
 National commissionFor above Rs.10 Crores or upto thrice of the
limits of the said value.
• Services utilized for commercial purpose excluded from the review of
consumer courts (goods already excluded).
Another significant part of it is that now commercial organizations will not be

able to approach consumer court and will have to seek relief in civil courts.
Consumers courts will, therefore, concentrate on providing relief to individual
consumers.
(B) Making consumer courts more capable
• Minimum qualification prescribed for members (graduate, minimum
35 years of age, minimum 10 years in relevant field).
• Disqualification also prescribed (conviction for offence involving
moral turpitude, insolvency, etc.)
• Provision for reappointment of presidents and members of forums/
commission.
(C) Widening scope of act
• Sale of spurious goods/services included in unfair trade practice.
• Concept of unsafe goods widened. Also extended the scope of services.
• Complaint can also be made against service provider indulging in
unfair/restrictive trade practice.
(D) Strengthening consumer courts
• Consumer courts to have powers of first class judicial magistrate to
punish those not obeying order of court. This will remove any scope
for challenging the constitutional validity of power of consumer courts
to impose penalty of imprisonment.
• Compensation amount ordered by court can be recovered through
certificate case as arrears of land revenue.
• Consumer courts can issue interim orders (complainant can get
immediate relief in deserving cases).
(E) Streamlining Procedure
• Legal heir can be substituted if complainant/opposite party dies.
• Minimum amount to be deposited before appeal.
Further, there is a proposal to establish a consumer protection council at district
level and also make it as necessary requirement for the government to establish
district, state, central level councils. Besides, also enabling nomination of up to
10 official or non-official members to the state councils by the central
government. These amendments are targeted at making the consumer protection
a movement.
A lot of thrust is required to be carried out to accomplish the given below targets :
(I) taking consumer movement to the rural areas.
(II) need for training, education and creation of awareness amongst the
consumers.
(III) structural/organizational changes required in the redressal
machinery to make it more effective.
(IV) liberalization and consumer protection.

The convention was well attended by the representatives of consumer
organizations and consumer activists from all over the country.
The consumer co-ordination council (CCC) has taken initiative in this direction;
They consumer co-ordination with the department organized national
conventions in 1999 in New Delhi and in 2000 at Kolkata.
Meetings of presidents of National/ State commission should be on frequent
basis so that they can take the decisions in a more systematic manner. Of late
it has been observed that these commissions have been disposing of the cases
very expeditiously. One landmark decision taken recently is that these
commission/forums will only take up the cases of consumers and not the
manufacturers/traders etc. The national consumer disputes redressal
commission with the help of the ministry, organizes the meeting of the
presidents of the state commissions and sections incharge of consumer affairs in
the states/Uts, to discuss the problems of three-tier consumer disputes redressal
machinery set up under the consumer protection act, 1986. The recommendations
made in such meetings are sent to all the States/UTs for implementation of
appropriate action.
Meetings of the central consumer protection council are also hold twice a year. A
number of suggestions and recommendations come in these meetings. In one
such meeting conducted in 1994, the following resolutions were passed to set up
working groups on :
(i) introducing the concept of citizen charter in India.
(ii) to consider code of conduct for consumer organizations.
(iii) to implement the report of working group on perspective plan.
In the 21st meeting of the council held in march 2002, the council discussed the
functioning of consumer forums, utilization of one-time grant, district
information center scheme, jagriti shivir yojana scheme, computerization of
consumer and training of consumer forum etc.
During the past few years, however, it has been found that the meetings are
sometimes convened after a long gap, sometimes as long as two years. Recently,
grievance cells have been set up to ensure prompt attention to consumer
grievances. The government has designated an officer of the rank of deputy
secretary as director of consumer grievances. Similar action has been taken by a
number of states/UTs also. The government has conducted a survey in
consultation with IIPA, new delhi to assess the impact of consumer protection
programme on consumers and the functioning of district forum in five states.

The findings of the survey have been sent to states/UTs for taking necessary
action.
2.3.9 SUMMARY
Indian Market is generally a sellers market and it is very easy to cheat the
innocent consumers. India where majority of consumers are poor and helpless,
consumers are not well informed of his rights.
Now there has been growth of consumer awareness in most of the countries
leading to growth of consumerism and growing demand for consumer protection.
Consumerism reflects not only the faiture of the business to widely implement
the marketing concept but also the need to give the business policies to social
orientation so as to enhance long-run social welfare. So, Consumer Protection
Act is introduced which seeks to provide for better protection of the interests of
consumers.
2.3.10 Glossary
USA - United States of America
CCC - Consumer Co-ordination Council
UTs - Union Territories
IIPA - Indian Institute of Public Administration
District Forum - The consumer disputes redressal forums known as district
forum.
Ans.1 Many consumer protection is the responsibility of the business which is
ensured by the government, therefore it is connected with the three players i.e.
consumers, government and business. For effective consumer protection a
practical response is required from all of these parties. Thus consumersim is a
social force to
(a) make the business honest and responsible; and
(b) to protect the consumer interests by guaranteeing their legitimate
rights.
Ans.2 Following are the main/basic aspects of the consumerism :
(a) Consumer education in context to available goods and services,
prices, standard trade practices etc.
(b) Product rating guidance is required for the consumers in case
feedback is required.
(c) Liaison with government and producers is required to maintain as
on the one hand government is the key factor in meeting most
consumer needs in India and on the other hand business
organisations have a large role to play.

2.3.12 EXERCISE
(A) Short Question :
Q.1. Mention the various rights of the consumers.
Q.2. What are the objects of the consumer protection Act, 1986?
Q.3. What are the latest amendments to the Consumer Protection Act ?
Q.1. What do you mean by consumerism ? What steps have been taken by
Government of India to protect the consumer interests ?
Q.2. What is the Jurisdiction of the various Forums/ commissions for the
purpose of the consumer protection Act, 1986.
Q.3. Who can file a complaint and where ? Explain the manner in which
complaint is made.
(Text & Cases)
By : Francis Cherunilam
By : Rosy Joshi, Sangam Kappor
3. Business Regulatory Framework
By : K.C. Garg
V.K. Sareen
Mukesh Sharma
LESSON NO. 2.4 AUTHOR : DR. SHAILINDER SEKHON
The Right to Information Act, 2005

2.4.0 Objective
2.4.1 Introduction
2.4.2 Definitions and need for a law on the Right to Information
2.4.3 Basic Elements of RTI law
2.4.4 RTI and Obligations of Public Authorities
1. Obligation of Public authorities
2. Designation of Public Information officers
3. Request for obtaining Information
4. Disposal of request
5. Exemption from disclosure of Information
6. Grounds for rejection
2.4.5 The Central Information Commission
2.4.6 The State Information Commission
2.4.7 Powers and functions of Commission
2.4.8 Appeals
2.4.9 Penalties
Self Check Exercise
2.4.10 Summary
2.4.11 Glossary
2.4.12 Answers to Self check Questions
2.4.13 Exercise
2.4.0 OBJECTIVE
The main objective of this lesson is to give the detailed explanation about
1. Concept, need and basic elements of Right to Information Act ;
2. Obligation of Public Authorities to provide information ; and
3. Establishment, powers and functions of commissions.
2.4.1 INTRODUCTIONIn 1946 the United Nations General Assembly passed
one of its very earliest resolutions regarding freedom of Information. It stated
that,” Freedom of Information is a fundamental human right.” On the same
line in India, The Right to Information Act has been passed in 2005, for
setting out the
1) Practical regime of right to information for citizens to secure access to
information under the control of Public authorities, in order to promote
transparency and accountability in the working of every public authority,

and
2) Provide the constitution of a Central Information Commission and
State Information Commissions for matter connected therewith or incidental
there to. The Right to Information Bill, 2005 as introduced by the Union
Ministry of Personnel, Public Grievance and Pension was passed by the Lok
Sabha on 11 May, 2005 and by the Rajya Sabha on 12 May, 2005. It received
the assent on 15 June, 2005, and come on the statute book as “The Right to
Information Act, 2005.”
2.4.2 DEFINITIONS AND NEED FOR A LAW ON THE RIGHT TO
INFORMATION
This act extends to the whole of India except the state of Jammu and
Kashmir.
Definitions:
1. Information : Information means “any material in any form including
records, documents, memos, e-mails, opinions, advices, press releases,
circulars, orders, logbooks, contracts, reports, papers, samples, models, data
material held in any electronic form and information relating to any private
body which can be accessed by a public authority under any other law for the
time being in force.”
2. Public Authority: It means any authority or body or institution of self-
government established or constituted-
a) by or under the constitution;
b) by any other law made by Parliament;
c) by any other law made by state legislature;
d) by notification issued or order made by the appropriate government,
and includes any –
(i) body owned, controlled or substantially financed;
(ii) non-government organisation substantially financed, directly or
indirectly by funds provided by the appropriate government.
3. Right to Information : Right to information means the right to
information accessible under this Act which is held by or under the control
of any public authority and includes the right to-
inspection of work, documents, records;
1) taking notes, extracts or certified copies of documents or
records;
2) taking certified samples of materials;
3) Obtaining information in the form of diskettes, floppies, tapes,
video cassettes or in any other electronic mode or through printouts where
such information is stored in a computer or in any other device.
4. State Information Commission: It means the State Information Commission

constituted under sub-section (i) of section 15.
5. Central Information Commission: It means the Central Information
Commission constituted under sub-section (i) of section 12.
The fundamental argument in favour of freedom of information is that the
information belongs not to the government, but to the people as a whole.
Need for a law on the right to Information is justified on following counts :
-Law is needed to make access to information a reality for every citizen.
-the law will operationalise the fundamental right to information.
-Legislation will help to set up systems and mechanisms that facilitate
people’s easy access to information.
-Law can promote transparency and accountability and enable people’s
participation in governance.
-Law will minimise corruption and inefficiency in public offices.
Thus, need for a law on the Right to information is useful, desirable,
usable, accessible, credible and valuable.
2.4.3 BASIC ELEMENTS OF RTI ACT
Following can be the basic elements of an ideal right to information law:-
 Minimal Exception;
 Duty to inform-Suo moto disclosures;
 Accountability Provisions;
Provisions for setting up systems to maintain records and store information
for easy retrieval;
 Reasonable fee structure to obtain information;
 Time limits for providing information;
 Be applicable to provide bodies too;
 Protection of Privacy;
 Protection of whistleblowers; and
 Publicity and Training.
2.4.4 RTI AND OBLIGATIONS OF PUBLIC AUTHORITIES
The right to information is available to citizen of India only in the Right to
Information Act, 2005 of India. If one is not a citizen to India, he does not
have the right under the RTI Act, 2005.
Public Accountability is a part of governance. It is the Government that is
accountable to the public for delivering a broad set of outcomes but more
importantly it is the public service consisting of public servants that
constitutes the delivery mechanism. Thus, subject to the provisions of this
act, all public authorities have obligations to provide required information to
the public on its demand.
1. Obligations of Public Authorities : (1) Every Public authority shall-
(a) maintain all its records duty 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 computerised are,
within a reasonable time and subject to availability of resources,
computerised and connect through a network all over the country on
different systems so that access to such records is facilitated;
(b) Publish within 120 days from the enactment of this Act,-
I. the particulars of its organisation, functions and duties;
II. the powers and duties of its officers and employees;
III. the procedure followed in the decision making process, including
channels of supervision and accountability;
IV. the norms set by it for the discharge of its function;
V. the rules, regulations, instructions, manuals and records, held by
it or under its control or used by its employees for discharging
its functions;
VI. a statement of the categories of documents that are held by it or
under its control;
VII. the particulars of any arrangement that exists for consultation
with, or representation by, the members of the public in relation
to the formulation of its policy or implementation thereof;
VIII. a statement of the boards, councils, committees and other bodies
constituted for the purpose of its advice, and as to whether
meetings of those boards, councils, committees and other
bodies are open to the public, or the minutes of such
meetings are accessible for public;
IX. a directory of its officers and employees;
X. the monthly remuneration received by each of its officers and
employees, including the system of compensation;
XI. the budget allocated to each of its agency, indicating the
particulars of all plans, proposed expenditures and reports on
disbursements made;
XII. the manner of execution of subsidy programmes, including the
amounts allocated and the details of beneficiaries of such
programmes;
XIII. particulars of recipients of concessions, permits or authorisations
granted by it;
XIV. details in respect of the information available to or held by it,
reduced in any electronic form;
XV. the particulars of facilities available to citizens for obtaining

information, including the working hours of a library or reading
room, if maintained for public use;
XVI. the names, designations and other particulars of the Public
Information Officers;
XVII.Such other information as may be prescribed, and thereafter
update these publications every year;
(c) publish all relevant facts while formulating important policies or
announcing the decisions which affect public;
(d) provide reasons for its administrative or quasi judicial decisions
to affected persons.
(2) It shall be constant endeavour of every public authority to take
steps to provide as much information suo motu to public at
regular intervals through various means of communication,
including internet.
(3) For the purpose of sub-section (1) every information shall be
disseminated widely and in such form and manner which is
easily accessible to the public.
(4) All materials shall be disseminated taking into consideration the
cost effectiveness, local language and the most effective method of
communication in that local area.
2. Designation of Public Information Officers:
(1) Every public authority shall, within one hundred days of the enactment of
this Act, designate as many officers as Central Public Information Officers
or State Public Information Officers, as the case may be, in all
administrative units or officers under it as may be necessary to provide
information to persons requesting for the information under this Act.
(2) Without prejudice to the provisions of sub-section (1) every public
authority shall designate an officer, within one hundred days of the
enactment of this Act, at each sub-divisional Officer, within one hundred
days of the enactment of this Act, at each sub-divisional level or other
sub-district level as a Central Assistant Public Information Officer or a
State Assistant Public Information Officer, as the case may be, to receive
the applications for information or appeals under this Act, for forwarding
the same forthwith to the Central Public Information Officer or the state
Public Information Officer or senior officer specified under sub-section (1)
of section 19.
(3) The Central Public Information Officer or State Public Information Officer,
as the case may be, may seek the assistance of any other officer as he or
she considers it necessary for the proper discharge of his or her duties.
3. Request for obtaining information : (1) A person, who desires to obtain any
information under this Act, shall make a request in writing or through
electronic means in English or Hindi in the official language of the area in
which the application is being made, accompanying such fee as may be
prescribed to-
(a) the Central Public Information Officer or State Public Information
Officer, as the case may be, of the concerned public authority;
(b) the Central Assistant Public Information Officer or State Assistant
Public Information Officer, as the case may be;
specifying the particulars of the information sought by him or her :
provided that where such request cannot be made in writing, the
Central Public Information Officer or State Public Information Officer,
as the case may be shall render all reasonable assistance to the person
making the request orally to reduce the same in writing.
2) An applicant making request for information shall not be required to
give any reason for requesting the information or any other personal
details.
3) Where an application is made to a public authority requesting for an
information-
(i) which is held by another public authority; or
(ii) the subject matter of which is more closely connected with the
function of another public authority, the public authority, to which
such application is made, shall transfer the application or such part of
it as may be appropriate to that other public authority and inform the
applicant immediately about such transfer. In no case such transfer is
made later than five days from the date of receipt to the
application.
4. Disposal of request:
(1) Subject to the proviso to sub-section (2) of section 5 or the proviso to sub-
section (3) of section 6, the Central Public Information Officer or State Public
Information Officer, as the case may be on receipt of a request under section
6 shall as expeditiously as possible, and in any case within thirty days of the
receipt of the request, either provide the information on payment of such fee
as may be prescribed or reject the request for any of the reasons specified in
sections 8 and 9.
Provided that where the information sought for concerns the life or liberty of
a person, the same shall be provided within forty-eight hours of the receipt of
the request.
(2) If the Central Public Information Officer or State Public Information
Officer, as the case may be fails to give decision on the request for
information within the period specified under sub-section(1), the Central

Public Information Officer or State Public Information Officer, as the case
may be shall be deemed to have refused the request.
(3) Where a request has been rejected under sub-section (1), the Central
Public Information Officer or State Public Information Officer, as the case
may be shall communicate to the person making the request
I. the reasons for such rejection;
II. the period within which an appeal against such rejection may be
preferred; and
III. the particulars of the appellate authority.
5. Exemption from disclosure of information:(1) Notwithstanding anything
contained in this Act, there shall be no obligation to give any citizen,-
I. information the disclosure of which would prejudicially affect the
sovereignty and integrity of India, the security, strategic, scientific or
economic interests of the State, relation with foreign State or lead to
incitement of an offence;
II. information which has been expressly forbidden to be published by any
court of law or tribunal or the disclosure of which may constitute
contempt of court;
III. information, the disclosure of which would cause a breach of privilege
of Parliament or the State Legislature;
IV. Information including commercial confidence, trade secrets or
intellectual property, the disclosure of which would harm the
competitive position of a third party, unless the competent authority is
satisfied that larger public interests warrants the disclosure of such
information;
V. information available to a person in his fiduciary relationship, unless
the competent authority is satisfied that the larger public interest
warrants the disclosure of such information;
VI. information received in confidence from foreign government;
VII. information, the disclosure of which would endanger the life or
physical safety of any person or identify the source of information or
assistance given in confidence for law enforcement or security
purposes;
VIII. information which would impede the process of investigation or
apprehension or prosecution of offenders;
IX. cabinet papers including records of deliberations of the Council of
Ministers, Secretaries and other officers;
X. information which relates to personal information the disclosure of
which has no relationship to any public activity or interest, or which
would cause unwarranted invasion of the privacy of the individual

unless the Central Public Information Officer or the State Public
Information Officer or the appellate authority, as the case may be, is
satisfied that the larger public interest justifies the disclosure of such
information.
Provided that the information, which cannot be denied to the Parliament or a
State Legislature shall not be denied to any person.
(2) Notwithstanding anything in Official Secrets Act, 1923 (19 of 1923) nor
any of the exemptions permissible in accordance with sub-section (1) a
public authority may allow access to information, if public interest in
disclosure outweighs the harm to the protected interests.
(3) Subject to the provisions of clauses (a), (c) and (i) of sub-section (1), any
information relating to any occurrence, event or matter which has taken
place, occurred or happened twenty years before the date on which any
request is made under section 6 shall be provided to any person making a
request under that section.
Provides that where any question arises as to the date from which the said
period of twenty years has to be computed, the decision of the Central
Government shall be final, subject to the usual appeals provided for in this
Act.
6. Grounds for rejection to access in certain cases: Without prejudice to the
provisions of section 8, a Central Public Information Officer or state Public
Information Officer, as the case may be may reject a request for information
where such a request for providing access would involve an infringement of
copyright subsisting in a person other than the State.
2.4.5 THE CENTRAL INFORMATION COMMISSION
The Central Government shall, by notification in the official Gazette,
constitute a body to be known as the Central Information Commission to
exercise the powers conferred on, and to perform the functions assigned to, it
under this Act.
Constitution of Central Information Commission: The Central Information
Commission shall consist of –
(a) the Chief Information Commission, and
(b) such number of Central Information Commissioners not exceeding 10
as may be deemed necessary.
The chief Information Commissioner and Information Commissioners shall
be appointed by the President on the recommendation of a committee
consisting of-
(1) the prime minister (chairperson of the committee);
(2) the leader of opposition in the Lok Sabha ; and
(3) a Union Cabinet Minister to be nominated by the prime minister.
The Chief Commissioner or an Information Commissioner shall not be a

member of Parliament or member of the Legislature of any state or Union
territory, as the case may be or hold any other office of profit or connected
with any political party or carrying on any business or pursuing any
profession.
Term of Office: The Chief Information Commissioner and Information
Commissioner shall hold office for a term of 5 years from the date on which
he enters upon his office or till he attain the age of 65 years, whichever is
earlier, and shall not be eligible for reappointment.
Removal of Chief Information Commissioner or Information Commissioner:
Subject to the provisions of sub-section (3) the chief Information
commissioner or any Information commissioner shall be removed from his
office only by order of the President on the grounds of proved misbehaviour
or incapacity.
2.4.6 THE STATE INFORMATION COMMISSION
Every State Government shall, by notification in the official Gazettee,
constitute a body to be known as the (name of the state) Information
Commission to exercise the powers conferred on, and to perform the
functions assigned to, it under this Act.
Constitution of the State Information Commission: The State Information
Commission shall consist of –
(a) the State Chief Information Commission; and
(b) such number of State Information Commission, not exceeding ten, as
may be deemed necessary.
The State Chief Commissioner and the state Information Commissioners shall
be appointed by the Governor on the recommendation of a committee
consisting of-
1. the Chief Minister, who shall be the chairperson of the Committee;
2. the leader of opposition in the Legislative Assembly;
3. a Cabinet Minister to be nominated by the Chief Minister.
The State Chief Information commissioner or a State Information
Commissioner shall not be a member of Parliament or member of the
Legislature of any state or union territory, as the case may be, or hold any
other office of profit or connected with any political party or carrying on any
business or pursuing any profession.
Term of office : Every state chief Information Commissioner and State
Information Commissioner shall hold office for a term of five years from the
date on which he enters upon his office or till he attains the age of 65 years,
whichever is earlier, and shall not be eligible for reappointment.
Removal of State Chief Information Commissioner or State Information

Commissioner: Subject to the provisions of sub-section (3) the State Chief
Information Commissioner or any State Information Commissioner shall be
removed from his office only by order of the Governor on the grounds of
proved misbehaviour or incapacity.
2.4.7 POWERS AND FUNCTIONS OF COMMISSIONER
(1) Subject to the provisions of this Act, it shall be duty of the Central
Information Commission or State Information Commission as the case may be
to receive and inquire into a complaint from any person-
i. who has been unable to submit a request to a Central Public may be .
ii. who has been refused access to any information requested under this
Act;
iii. who has not been given a response to a request for information or
access to information within the time limits specified under this Act;
iv. who has been required to pay an amount of fee which he or she
considers unreasonable;
v. who believes that he or she has been given incomplete, misleading or
false information under this Act; and
vi. in respect of any other matter relating to requesting or obtaining
access to records under this Act.
(2) Where the Central Information Commission or State Information
Commission, as the case may be is satisfied that there are reasonable
grounds to inquire into the matter, it may initiate an inquiry in respect
thereof.
(3) The Central Information Commission or State Information Commission, as
the case may be shall, while inquiring into any matter under this section,
have the same powers as are vested in a civil court while trying a suit under
the Code of Civil Procedure, 1908, in respect of the following matters,
namely:-
a. summoning and enforcing the attendance of persons and compel them
to give oral or written evidence on oath and to produce the documents
or things;
b. requiring the discovery and inspection of documents;
c. receiving evidence on affidavit;
d. requisitioning any public record or copies thereof from any court or
office;
e. issuing summons for examination of witnesses or documents; and
f. any other matter which may be prescribed.
(4) Notwithstanding anything inconsistent contained in any other act of
Parliament, or the state Legislature, as the case may be, the Central
Information inquiry of any complaint under this Act, examine any record to
which this Act applies which is under the control of the public authority, and
no such record may be withheld from it on any grounds.
2.4.8 APPEAL
(1) Any person who, does not receive a decision within the time specified in
sub-section (1) or clause (a) of sub-section (3) of section 7, of a aggrieved
by a decision of the Central Public Information Officer or the state Public
Information Officer, as the case may be, may within thirty days from the
expiry of such period or from the receipt of such a decision prefer an
appeal to such officer who is senior in rank to the Central Public
Information Officer or the State Public Information Officer, as the case
may be, in each public authority.
(2) Where an appeal is preferred against an order made by a Central Public
Information Officer or a State Public Information Officer, as the case may
be under section 11 to disclose third party information, the appeal by the
concerned third party shall be made within thirty days from the date of
the order.
(3) A second appeal against the decision under sub-section (1) shall lie
within ninety days from the date on which the decision should have been
made or was actually received, with the Central Information Commission
or the State Information Commission.
(4) If the decision of the Central Public Information Officer or State Public
Information Officer, as the case may be, against which an appeal is
preferred related to information of a third party, the Central Information
Commission or State Information commission, as the case may be shall
give a reasonable opportunity of being heard to that third party.
(5) An appeal under sub-section (1) or sub-section (2) shall be disposed of
within thirty days of the receipt of the appeal or within such extended
period not exceeding a total of forty-five days from the date of filling
thereof, as the case may by, for reasons to be recorded in writing.
(6) The Central Information Commission or State Information Commission, as
the case may be, shall give notice of its decision, including any right of
appeal, to the complainant and the public authority.
2.4.9 PENALTIES
(1) Where the Central Information Commission or the State Information
Commission, as the case may be, at the time of deciding any complaint or
appeal is of the opinion that the Central Public Information Officer or the
State Public Information Officer, as the case may be has without any
reasonable cause, refused to receive an application for information or has not
furnished information within the time specified under sub-section (1) of
section 7 or malafidely denied the request for information or knowingly

given incorrect, incomplete or misleading information or destroyed
information which was the subject of the request or obstructed in any
manner in furnishing the information, it shall impose a penalty of two
hundred and fifty rupees each day till applications received or information is
furnished, so however, the total amount of such penalty shall not exceed
twenty-five thousand rupees.
Self Check Exercise
Ques.1. What do you mean by RTI Act, who is covered under this act? What is
the application procedure for requesting Information?
Ques.2. What is the time limit to get the information?
2.4.10 SUMMARY
The right to information is derived as stated earlier from the area of
fundamental rights under Article 19(1)(a) of the constitution of India. The
right to freedom of expression and speech copes with the principle of
receiving and sharing of information. If one advances towards the provisions
of Article 21 then, the directive right that is ‘right to know’ also comes from
it.
India observed the Judicial Pronouncement and democratic need of such
right during the past years. Likewise in May 2005, the Right to Information
Act was passed by the Indian Parliament. On the perusal of the whole of the
Act, it is inferred that the statutory provisions are made for the right to
information and all citizen posses such right.
2.4.11 GLOSSARY
1. RTIA : Right to Information act
2. State Information Commission : Information Commissions Constituted
in States as per RTI act.
3. CPIO : Central public Information Officer
4. Central Information Commission : Information Commission Constituted
at the Central level as per RTI act.
5. SPIO : State Public Information Officer.
6. CIC : Central Information Commission
2.4.12 ANSWERS TO SELF CHECK QUESTION
Ans. 1. RTI means the Right to Information Act, which comes into force on
the 12th October, 2005.
Who is Covered ?
The Act extends to the whole of India except the State of Jammu and
Kashmir.
Application Procedure for requesting information: (1) Apply writing or

through electronic means in English or Hindi or in any other language to the
PIO, specifying the particulars of the information sought for;
(2) Reason for seeking information are not required to be given;
(3) Pay fees (as prescribed).
Ans. 2. Time limit to get Information:
1. 30 days from the date of application;
2. 48 hours for information concerning the life and liberty of a person;
3. 5 days shall be added to the above response time, if Application is
given to Assistant Public Information Officer.
4. If the interests of a third party involved then time limit will be 40 days.
2.4.13 EXERCISE
(A) Short Questions:
Ques. 1. Define the concept of Public Authority as per RTI Act.
Ques. 2. Discuss the scope where Public authority has no obligation to
disclose the information.
Ques. 3. What do you mean by ‘Right to Information’ concept ?
(B) Long Question :
Ques. 1. Write a detailed note on the constitution of Central or State
Information Commission.
Ques. 2. Discuss the salient features of RTI Act, 2005.
Ques. 3. What are the obligations of public authorities as per provisions
defined under RTI act ?
1. The Right to Information Act, 2005
By : P.K.Das
Universal Publications
2. The Bare Act on Right to Information Act.
LESSON No.- 2.5 AUTHOR : DR.NAVNINDERJIT SINGH
ENVIRONMENT DEGRADATION
2.5.1 Objectives
2.5.2 Introduction
2.5.3 Classification of Environment
1. Natural Environment
2. Human Made Environment
2.5.4 The Dynamism and the Variety of the Environment
2.5.5 Importance of Environment
2.5.6 Environmental Degradation
2.5.7 Types of Environment Pollution
1. Water Pollution
2. Air Pollution
3. Solid Waste Pollution
4. Noise Pollution
5. Land or Soil Pollution
6. Greenhouse Gas Emissions
2.5.8 Causes of Environmental Degradation
1. Social Factors
2. Economic Factors
Self-Check Exercise
2.5.9 Effects of Environmental Degradation
2.5.10 How to stop Degradation
2.5.11 Glossary
2.5.12 Summary
2.5.14 Exercise
2.5.1 OBJECTIVES
The main objective of this lesson is to introduce the students with the concept and
management of environment degradation how human being eating and wasting the
natural resources. The environment and resources are of most concern to the
present society and also future generation. The natural resources in the form of
matter and energy are vital significance for the successful survival of all types of life
on the planet earth in general and for human being in particular.
2.5.2 INTRODUCTION
If you live in a village, you would have seen the trees being cut for using the land to grow
crops or to construct houses. You may have also observed that small water bodies that
existed some time ago are no longer seen now. If you are a resident in a city, you must
have seen trees being felled for constructing houses, multiplexes and roads. We all feel
the impact of air pollution owing to emission of carbon monoxide by large number of
vehicles and harmful gases from factories. We come to know by reading newspapers or
listening to discussions on radio or watching on television how the rivers and even the
underground water sources are being polluted and the water level is going down fast. In
hilly areas, forests are being cut to meet the fast growing needs of the people. Many of us
are aware that all these are adversely affecting our environment. The deterioration of
environment has also led to various kinds of man-made disasters and natural calamities.
You may be aware of some of these like The Bhopal Gas tragedy, Tsunamis, Landslides
and London Smog, and what happened regarding their management. In this lesson,
therefore, we shall study the phenomenon of environmental degradation and how it is
related to natural calamities, disasters and their management.
Let us begin the discussion on environmental degradation by understanding the term
‘environment’ itself. What does the word ‘environment’ mean? Commonly environment
means the surroundings in which we live. You may have read or heard terms like social
environment, political environment, literary environment and school environment.
But the environment which we shall discuss has a different meaning.
2.5.3 CLASSIFICATION OF ENVIRONMENT
When we consult different sources of information, we find that environments can be
classified in many ways based on various factors. We have seen above that environment
is referred to as social environment, political environment, literary environment and
school environment. These references are based on the specific contexts, social, political,
literary and school. But the environment which we are trying to understand is classified
on the basis of the process of its creation or evolution.
Based on this, environment falls into two main categories: natural environment and
human-made environment.
1. Natural Environment: It includes all living and non-living things that occur naturally
on Earth. It comprises the nature of the living space. The living space may be land or
sea, that is, it may be soil or water. It also includes the chemical constituents and
physical properties of the living space, the climate, and a variety of organisms.
Natural environment includes both biotic and abiotic components as these have been
evolved through a natural process. The creation of these components has been done by
nature, and not by any human intervention or support. It is true that human beings live
in an environment where both biotic and abiotic factors influence them and they learn to
adapt themselves to these in several ways. But human beings have no role to play in the
creation and evolution of natural environment.
2. Human-made Environment: On the other hand, human-made environment includes
all those things which are created by humans for their use. Human beings construct
these surroundings, as these are needed for providing the required setting for human
activity. These things range from the large-scale civic surroundings to personal places.
For example, houses, roads, schools, hospitals, railway lines, bridges and parks are
components of human-made environment.
There is yet another kind of environment which plays an important role in the living
conditions of human beings. This is called the social environment. Social environment
includes cultural norms and values, the culture that individuals live in, and social,
political, economic and religious institutions with which they interact.
Components of Environment
Normally, the environment at any place is a combination or sum total of the natural
component and the human-made component. For example, in a town or city the people
and animals living in it, the land, air, water and trees are the components of the natural
environment, whereas the buildings, roads, other structures like schools, hospitals and
establishments for water and electricity supplies are the components of the human-made
environment. As you may observe, human beings use natural environment for creating
human-made environment.
2.5.4 THE DYNAMISM AND THE VARIETY OF THE ENVIRONMENT
One of its most significant characteristics is its dynamism. It is continuously changing.
Both the biotic and the abiotic elements in the environment are dynamic by their nature.
Let us understand what this dynamism is and how it works. The environment differs
from place to place and also from one time in history to another. For example, the
environment of the Himalayas is different from that of the Great Indian Desert, and even
there it is not the same over the years and decades. Climatic conditions change in
different places in different seasons. If you observe the evolution of the environment of
the same place, say over a period of 20 or 30 years, you will find that the environment of
that place has changed. Some changes take place naturally, while others are caused by
the activities of human beings.
Even the human-made environment has been undergoing changes over a period of time
and space. There have been notable changes in human dwellings. The skyscrapers that
you see today in many cities were not present about 20 years ago. A number of villages
have developed into towns, cities and mega-cities. Means of transport and
communications have been revolutionized. All these changes and developments show the
dynamic nature of environment.
2.5.5 IMPORTANCE OF ENVIRONMENT
The environment is our life support system. In fact, it affects and influences the growth,
development, and survival of all organisms, including human beings. All kinds of our
needs are met by the environment. It supplies the basic necessities for life and supports
large number of life forms. We are dependent on the environment for our food, shelter,
water, air, soil, energy, medicines, fibers, raw materials, and many other things. The
environment maintains atmospheric composition and protects all kinds of life on earth
from harmful effects of solar radiation. But in spite of all these benefits we find that the
quality of environment is deteriorating and it is being degraded continuously. It is not
only that the resources of the environment are being irrationally utilised, we are
contributing dangerously to its pollution.
2.5.6 ENVIRONMENTAL DEGRADATION
It is the process by which our environment i.e., air, water and land, is progressively
contaminated, overexploited and destroyed. When the environment becomes less
valuable or damaged, environmental degradation is said to occur. In specific term,
environmental degradation is the deterioration of the environment through depletion of
resources such as air, water, soil and forest; the destruction of eco-systems and the
extinction of wildlife. Let us recall our experiences in daily life. We are utilizing resources
like water, soil, trees, coal, petrol without caring for the future. In fact, there are many
forms of environmental degradation. Whenever habitats are destroyed, biodiversity is
lost, or natural resources are depleted, the environment is hurt.
2.5.7 TYPES OF ENVIRONMENT POLLUTION
1. Water pollution
India has major water pollution issues. Discharge of untreated sewage is the single most
important cause for pollution of surface and ground water in India. There is a large gap
between generation and treatment of domestic waste water in India. The problem is not
only that India lacks sufficient treatment capacity but also that the sewage treatment
plants that exist do not operate and are not maintained. The majority of the government-
owned sewage treatment plants remain closed most of the time due to improper design or
poor maintenance or lack of reliable electricity supply to operate the plants, together with
absentee employees and poor management. The waste water generated in these areas
normally percolates in the soil or evaporates. The uncollected wastes accumulate in the
urban areas cause unhygienic conditions and release pollutants that reach to surface
and groundwater.
According to a World Health Organization study, out of India's 3,119 towns and cities,
just 209 have partial sewage treatment facilities, and only 8 have full wastewater
treatment facilities. Over 100 Indian cities dump untreated sewage directly into the
Ganges River. Investment is needed to bridge the gap between 29000 million litre per day
of sewage India generates, and a treatment capacity of mere 6000 million litre per day.
Other sources of water pollution include agriculture run off and small scale factories
along the rivers and lakes of India. Fertilizers and pesticides used in agriculture in
northwest have been found in rivers, lakes and ground water. Flooding during monsoons
worsens India's water pollution problem, as it washes and moves all sorts of solid
garbage and contaminated soils into its rivers and wetlands.
2. Air pollution
A rural stove using biomass cakes, fuelwood and trash as cooking fuel. Surveys suggest
over 100 million households in India use such stoves (chullahs) every day, 2–3 times a
day. It is a major source of air pollution in India, and produces smoke and numerous
indoor air pollutants at concentrations 5 times higher than coal. Clean burning fuels and
electricity are unavailable in rural parts and small towns of India because of poor rural
highways and limited energy generation infrastructure.
Air pollution in India is a serious issue with the major sources being fuelwood and
biomass burning, fuel adulteration, vehicle emission and traffic congestion. Air
pollution is also the main cause of the Asian brown cloud, which is causing the
monsoon to be delayed. India is the world's largest consumer of fuelwood,
agricultural waste and biomass for energy purposes. Traditional fuel (fuelwood, crop
residue and dung cake) dominates domestic energy use in rural India and accounts
for about 90% of the total. In urban areas, this traditional fuel constitutes about
24% of the total. Fuel wood, agri waste and biomass cake burning releases over 165
million tonnes of combustion products into India's indoor and outdoor air every
year. These biomass-based household stoves in India are also a leading source of
greenhouse emissions contributing to climate change.
The annual crop burning practice in northwest India, north India and eastern
Pakistan, after monsoons, from October to December, are a major seasonal source of
air pollution. Approximately 500 million tons of crop residue is burnt in open,
releasing smoke, soot, NOx, SOx, PAHs and particulate matter into the air. This
burning has been found to be a leading cause of smog and haze problems through
the winter over Punjab, cities such as Delhi, and major population centers along the
rivers through West Bengal. In other states of India, rice straw and other crop
residue burning in open is a major source of air pollution.
Vehicle emissions are another source of air pollution. Vehicle emissions are
worsened by fuel adulteration and poor fuel combustion efficiencies from traffic
congestion and low density of quality, high speed road network per 1000 people.
On per capita basis, India is a small emitter of carbon dioxide greenhouse. In 2009,
IEA estimates that it emitted about 1.4 tons of gas per person, in comparison to the
United States’ 17 tons per person, and a world average of 5.3 tons per person.
However, India was the third largest emitter of total carbon dioxide in 2009 at 1.65
Gt per year, after China (6.9 Gt per year) and the United States (5.2 Gt per year).
With 17 percent of world population, India contributed some 5 percent of human-
sourced carbon dioxide emission; compared to China's 24 percent share.
The Air (Prevention and Control of Pollution) Act was passed in 1981 to regulate air
pollution and there have been some measurable improvements. However, the 2012
Environmental Performance Index ranked India as having the poorest relative air
quality out of 132 countries.
3. Solid waste pollution
Trash and garbage is a common sight in urban and rural areas of India. It is a major
source of pollution. Indian cities alone generate more than 100 million tons of solid
waste a year. Street corners are piled with trash. Public places and sidewalks are
despoiled with filth and litter, rivers and canals act as garbage dumps. In part, India's
garbage crisis is from rising consumption. India's waste problem also points to a
stunning failure of governance.
In 2000, India's Supreme Court directed all Indian cities to implement a comprehensive
waste-management programme that would include household collection of segregated
waste, recycling and composting. These directions have simply been ignored. No major
city runs a comprehensive programme of the kind envisioned by the Supreme Court.
Indeed, forget waste segregation and recycling directive of the India's Supreme Court, the
Organisation for Economic Cooperation and Development estimates that up to 40
percent of municipal waste in India remains simply uncollected. Even medical waste,
theoretically controlled by stringent rules that require hospitals to operate incinerators,
is routinely dumped with regular municipal garbage. A recent study found that about
half of India's medical waste is improperly disposed of.
Municipalities in Indian cities and towns have waste collection employees. However,
these are unionised government workers and their work performance is neither
measured nor monitored.
Some of the few solid waste landfills India has, near its major cities, are overflowing and
poorly managed. They have become significant sources of greenhouse emissions and
breeding sites for disease vectors such as flies, mosquitoes, cockroaches, rats, and other
pests.
In 2011, several Indian cities embarked on waste-to-energy projects of the type in use in
Germany, Switzerland and Japan. For example, New Delhi is implementing two
incinerator projects aimed at turning the city’s trash problem into electricity resource.
These plants are being welcomed for addressing the city’s chronic problems of excess
untreated waste and a shortage of electric power. They are also being welcomed by those
who seek to prevent water pollution, hygiene problems, and eliminate rotting trash that
produces potent greenhouse gas methane. The projects are being opposed by waste
collection workers and local unions who fear changing technology may deprive them of
their livelihood and way of life.
Along with waste-to-energy projects, some cities and towns such as Pune, Maharashtra
are introducing competition and the privatisation of solid waste collection, street cleaning
operations and bio-mining to dispose the waste. A scientific study suggests public private
partnership is, in Indian context, more useful in solid waste management. According to
this study, government and municipal corporations must encourage PPP-based local
management through collection, transport and segregation and disposal of solid waste
4. Noise Pollution
Noise pollution or noise disturbance is the disturbing or excessive noise that may
harm the activity or balance of human or animal life. The source of most outdoor
noise worldwide is mainly caused by machines and transportation systems, motor
vehicles, aircraft, and trains. Outdoor noise is summarized by the word
environmental noise. Poor urban planning may give rise to noise pollution, since
side-by-side industrial and residential buildings can result in noise pollution in the
residential areas.
Indoor noise can be caused by machines, building activities, and music
performances, especially in some workplaces. Noise-induced hearing loss can be
caused by outside (e.g. trains) or inside (e.g. music) noise.
High noise levels can contribute to cardiovascular effects in humans and an
increased incidence of coronary artery disease.[citation needed] In animals, noise
can increase the risk of death by altering predator or prey detection and avoidance,
interfere with reproduction and navigation, and contribute to permanent hearing
loss.
The Supreme Court of India which is in New Delhi gave a significant verdict on noise
pollution in 2005. Unnecessary honking of vehicles makes for a high decibel level of
noise in cities. The use of loudspeakers for political purposes and for sermons by
temples and mosques makes noise pollution in residential areas worse.
In January 2010, Government of India published norms of permissible noise levels
in urban and rural areas.
5. Land or Soil pollution
In March 2009, the issue of Uranium poisoning in Punjab attracted press coverage.
It was alleged to be caused by fly ash ponds of thermal power stations, which
reportedly lead to severe birth defects in children in the Faridkot and Bhatinda
districts of Punjab. The news reports claimed the uranium levels were more than 60
times the maximum safe limit. In 2012, the Government of India confirmed that the
ground water in Malwa belt of Punjab has uranium metal that is 50% above the
trace limits set by the United Nations' World Health Organization. Scientific studies,
based on over 1000 samples from various sampling points, could not trace the
source to fly ash and any sources from thermal power plants or industry as
originally alleged. The study also revealed that the uranium concentration in ground
water of Malwa district is not 60 times the WHO limits, but only 50% above the
WHO limit in 3 locations. This highest concentration found in samples was less than
those found naturally in ground waters currently used for human purposes
elsewhere, such as Finland. Research is underway to identify natural or other
sources for the uranium.
6. Greenhouse Gas Emissions
A greenhouse gas (sometimes abbreviated GHG) is a gas in an atmosphere that
absorbs and emits radiation within the thermal infrared range. This process is the
fundamental cause of the greenhouse effect. The primary greenhouse gases in
Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and
ozone. Without greenhouse gases, the average temperature of Earth's surface would
be about 15 °C (59 °F) colder than the present average of 14 °C (57 °F). In the Solar
System, the atmospheres of Venus, Mars and Titan also contain gases that cause a
greenhouse effect.
Human activities since the beginning of the Industrial Revolution (taken as the year
1750) have produced a 40% increase in the atmospheric concentration of carbon
dioxide, from 280 ppm in 1750 to 400 ppm in 2015. This increase has occurred
despite the uptake of a large portion of the emissions by various natural "sinks"
involved in the carbon cycle. Anthropogenic carbon dioxide (CO2) emissions (i.e.
emissions produced by human activities) come from combustion of carbon-based
fuels, principally coal, oil, and natural gas, along with deforestation.
India was the third largest emitter of carbon dioxide in 2009 at 1.65 Gt per year,
after China and the United States . With 17 percent of world population, India
contributed some 5 percent of human-sourced carbon dioxide emission; compared
to China's 24 percent share. On per capita basis, India emitted about 1.4 tons of
carbon dioxide per person, in comparison to the United States’ 17 tons per person,
and a world average of 5.3 tons per person.
2.5.8 CAUSES OF ENVIRONMENTAL DEGRADATION
1. Social Factors
1. Growing Population: Population is the greatest resource of any country and a
major contributory factor for development, and yet it is a major cause of environmental
degradation. As we find, the rapid pace of population growth has led to the excessive
utilization of natural resources. Huge population also leads to huge production of wastes.
The resultant outcomes are loss of biodiversity, pollution of air, water and soil and
increased pressure on arable land. All these have been putting great stress on the
environment. If you take the case of India, it supports 17 percent of world population on
just 2.4 per cent of the world land area.
2. Poverty: Poverty is said to be both the cause and effect of environmental
degradation. You may have seen that the poor people use natural resources more than
the rich. They use these for building their huts, for cooking, for their food and for
meeting many other needs. In this way they deplete these resources faster as they have
no opportunity of gaining access to other types of resources that are primarily exploited
by the rich.
3. Urbanisation: You may have observed a large number of poor people from
villages moving to towns, cities and mega cities to earn their livelihood. This has led to
unplanned and rapid expansion of cities, creating enormous pressure on the
infrastructural facilities. If you live in a city, you may be experiencing these pressures on
housing, water and electric supply and sewage. You would be aware of the growing
slums. Urban slums are major sources of pollution and suffer from the worst kind of
unhygienic conditions. The fast pace of urbanisation has also been responsible for the
depletion of forests and irrational use of other resources.
4. Changing Life Style: There has been a remarkable change in the style of living of
people. This change is visible not only among the people living in cities and towns but
also among those who live in villages. The changing life style of people has enormously
increased their level of consumption. It has also resulted in the increase of human
activities that are causing serious damage to environment in many ways. It has
contributed to air, water, sound, vehicular and industrial pollution. The fallout of the
fast increasing use of modern gadgets like refrigerators and air conditioners is the
release of harmful gases in the atmosphere. This has been causing global warming which
is very dangerous. In fact, due to overuse of modern gadgets, harmful gases like carbon
monoxide and carbon dioxide are released which lead to global warming.
5. Deforestation: Deforestation is the process of clearance of forests by logging
and/or burning. Deforestation occurs due to many reasons that include trees or derived
charcoal are used as, or sold, for fuel or as a commodity, while cleared land is used as
grassland for livestock, plantations of commodities, and settlements. The exclusion of
trees without sufficient reforestation has resulted in harm to habitat, biodiversity loss
and dryness. It has adversative impacts on bio-sequestration of atmospheric carbon
dioxide. Deforested regions characteristically sustain substantial adverse soil erosion
and frequently damage into wasteland. There are several causes of current deforestation
such as dishonesty of government institutions, the unfair distribution of wealth and
power, population growth and overpopulation, and urbanization. Globalization is also
major cause of deforestation, though there are cases in which the impacts of
globalization have supported localized forest recuperate.
2. Economic Factors
1. Agricultural Development: Agricultural development is so important for a
country like ours. But this has been affecting the environment adversely. Various kinds
of farming activities especially directed towards increasing agricultural production have a
direct impact on environment. These activities have been contributing to soil erosion,
land salination, alkalization and loss of nutrients. As we have been experiencing in India,
the green revolution has led to over exploitation of land and water resources. Extensive
use of fertilizers and pesticides has been a major source of contamination of water bodies
and land degradation.
2. Industrialization: Rapid industrialization has been the foremost contributor to
environmental degradation. Based on the information collected through various sources,
we find that most of the industries adopt the technologies that place a heavy load on
environment. These technologies lead to intensive use of resources and energy. The
current pace of industrialization therefore is resulting in the depletion of natural
resources like fossil fuel, minerals and timber, and contamination of water, air and land.
All these are causing immense damage to ecosystems and leading to health hazards.
3. Economic Development: It is a fact that the pattern of economic development
has also been creating environmental problems. The pace of economic development has
been putting immense pressure on resources. The economy today has become
consumption intensive which demands greater use of resources and promotes life styles
that lead to wastage. The irrational use of resources and wastages are resulting in
depletion of environment.
Self-Check Exercise
1. Briefly state the possibilities of stoping degradation.
2. Which economic factors do you think are mainly responsible for environmental
degradation ?
2.5.9 EFFECTS OF ENVIRONMENTAL DEGRADATION
1. Impact on Human Health: Human health might be at the receiving end as a
result of the environmental degradation. Areas exposed to toxic air pollutants can
cause respiratory problems like pneumonia and asthma. Millions of people are
known to have died of due to indirect effects of air pollution.
2. Loss of Biodiversity: Biodiversity is important for maintaining balance of the
ecosystem in the form of combating pollution, restoring nutrients, protecting water
sources and stabilizing climate. Deforestation, global warming, overpopulation and
pollution are few of the major causes for loss of biodiversity.
3. Ozone Layer Depletion: Ozone layer is responsible for protecting earth from
harmful ultraviolet rays. The presence of chlorofluorocarbons, hydro
chlorofluorocarbons in the atmosphere is causing the ozone layer to deplete. As it
will deplete, it will emit harmful radiations back to the earth.
4. Loss for Tourism Industry: The deterioration of environment can be a huge
setback for tourism industry that rely on tourists for their daily livelihood.
Environmental damage in the form of loss of green cover, loss of biodiversity, huge
landfills, increased air and water pollution can be a big turn off for most of the
tourists.
5. Economic Impact: The huge cost that a country may have to borne due to
environmental degradation can have big economic impact in terms of restoration of
green cover, cleaning up of landfills and protection of endangered species. The
economic impact can also be in terms of loss of tourism industry.
There are a lot of things that can have an effect on the environment. If we are not
careful, we can contribute to the environmental degradation that is occurring all
around the world. We can, however, take action to stop it and take care of the world
that we live in by providing environmental education to the people which will help
them pick familiarity with their surroundings that will enable to take care of
environmental concerns thus making it more useful and protected for our children
and other future generations.
2.5.10 HOW TO STOP DEGRADATION
There are ways which you can help to decrease degradation in our environment.
Some of these include:
 Purchase recycled products.
 Conserve water.
 Do not litter or toss waste into inappropriate places.
 Conserve energy.
 Join an awareness group.
 Talk with others about the impacts of environmental degradation.
 Be an advocate to save our planet.
2.5.11 GLOSSARY
 Bio-mining- is an approach to the extraction of desired minerals from ores.
 Biotic components- Biotic components are the living things that shape an
ecosystem
 Abiotic componenets- abiotic components or abiotic factors are non-living
chemical and physical parts of the environment that affect living organisms
 Traffic congestion- Traffic congestion is a condition on road networks that occurs
as use increases, and is characterized by slower speeds, longer trip times, and
increased vehicular queueing.
 Biodiversity- Biodiversity refers to the variety of life. It is seen in the number of
species in an ecosystem or on the entire Earth
2.5.12 SUMMARY
Pollution is due to harmful substances or products into the environment. There are
several types of pollutions in the environment such as Water Pollution, Air Pollution, Soil
Pollution, land pollution. Environmental degradation is the collapse of the earth or
worsening of the environment through consumption of assets such as air, water and soil,
the destruction of environments and the annihilation of wildlife.
2.5.13 ANSWER TO SELF-CHECK EXERCISE
Ans.1 Following are some ways to stop degradation :
(a) Concerve Water
(b) Conserve Energy
(c) Join awareness group
(d) 20 discussions on degradation impacts
(e) Purchase recycled products etc.
Ans.2 You can explain the following economic factors in detail;
(a) Agricultural development
(b) Industrialization
(c) Economic Development
2.5.14 EXERCISE
Short Questions:
1. Define the terms environment and environmental degradation
2. Identify various physical and biological components of environment?
3. Analyse various reasons for the deterioration of environment and the variety of
ways in which human beings interfere with their environment?
Long questions:
1. Highlight the importance of conservation of environment?
2. Establish relationship between deterioration of environment and natural
calamities?
3. Describe impacts of disaster and natural calamities on development?
4. Examine the role of individuals and society in protecting and maintaining the
environment?
2.5.15 RECOMMENDED READINGS
1. Environmental Degradation: Issues and Challenges
By G. Y. Shitole
Global Research Publications
2. Environmental Law and Policy in India: Cases, Material & Statutes
By Divan Shyam , Rosencranz Armin
3. Environmental Degradation and Crisis in India
By S. S. Negi
South Asia Books Publication
M. COM. PART-1 MCOP-1202T
LESSON NO. 2.6 AUTHOR : HARPREET KAUR KOHLI
THE ENVIRONMENT (PROTECTION) ACT, 1986
2.6.0 Origin and Introduction

2.6.1 Objectives of the Act
2.6.2 Scope and Scheme Of the Act
2.6.3 Definitions
2.6.4 General Powers.
2.6.4.1 General Powers of Central Govt. U/S 3
2.6.4.2 Power to appoint officers, their powers and functions U/S 4
2.6.4.3 Power of Central Govt to give directions U/S 5
2.6.4.4 Power tc make rules to regulate erndionmental pollution U/S 6
2.6.5 Prevention, control and abatement of the environment pollution.
2.6.5.1 Emission/ Discharge of Pollution in excess of standards U/S 7
2.6.5.2 Certain procedural safeguards incase of handling of hazardous
substances U/s 8
2.6.5.3 Furnishing of information to authorities and agency in certain
cases U/S 9
2.6.5.4 Power of entry and inspection U/S 10
2.6.5.5 Power to take sample and procedures to be followed in connection:
cerewith U/S 11
2.6.5.6 Environment Laboratories U/S 12
2.6.5.7 Govt. Analysts U/S 13
2.6.6 Penalties and Offences
2.6.6.1 Penalty for contravention (Section 15)
2.6.6.2 Offences by companies (Section 16)
2.6.6.3 Offences by Govt. Deptt (Section 17)
2.6.6.4 Cognizance of offence (Section 19)
2.6.7. Miscellaneous Provisions
2.6.7.1 Protection of action taken in good faith (Sec. 18)
2.6.7.2 Furnishing information, Reports or Returns (Sec 20)
2.6.7.3 Members, officers and employees of the authority constituted
under Sec-3 to be public servants (Sec 21)
2.6.7.4 Bar ofjürisdiction (Sec 22)
2.6.7.5 Fower of Central Govt. to delegate (Sec23)
69
2.6.7.6 Powers of Central Govt, to make rules (Sec. 25)

2.6.7.7 Laying the rules before Parliament (Sec. 26)
2.6.8 Summary
2.6.9 Ans wers to Self- Check Exercises
2.6.10 Glossary
2.6.11 Suggested .readings
2.6.0 Origin & Introduction
The Constitution of India was amended in1976, by incorporating article 51-A. with
the heading “Fundamental Duties” clause (g) thereof requires every citizen of India
to protect and improve the natural environment including forest, lakes, rivers, and
wild life and other living creatures. Also article 48 A forming part of part IV (Directive
Principles of State Policy) directs the state to endeavor to protect and improve the
environment and to safeguard the forest and wild life of the country.
Finally, in the wake of Bhopal Gas tragedy, the Govt, of India enacted the Environment
Protection Act, 1986 under the article 253 of the constitution. The Environment
Protection Act, 1986 is in addition to the two allied Acts viz. Water Prevention and
Control of the Pollution Act. 1974 and Air (Prevention and control of Pollution) Act,
198. The act is an umbrella legislation designed to coordinate the activities of various
central and state authorities established under the previous laws.
2.6.1 Objectives of the Act
It provides a law that covers not merely land or water or air but all aspects of the
Environment. The long title of the act describes it as an act to provide for the protection
and improvement of environment and for matters connected therewith.” The general
objectives of the act are as follows:
(i) To coordinate the activities of various Central and State authorities
already established.
(ii) To create appropriate agencies to protect environment.
(iii) To make regulation for the discharge of environment pollutants and
handling of hazardous substances.
(iv) To ensure speedy/quick response in the event of environment pollution
and to punish those who are responsible.
(v) To empower Central Govt, to make rules and regulations regarding
protection of environment.
2.6.2 Scope and scheme of the act
This act came into force w.e.f. 19th Nov. 1986 and extends to the whole of India. This
act is the most comprehensive piece of legislation relating to environment as it : -
(i) Contains a very wide definition of environment
(ii) Empowers the Central Govt. to take strict actions for non-€ompl iance
of its provisions,
(iii) Provides for penalties for various offences.
The chapter scheme of the act and arrangement of sections are as follows:-
Chapter Subject matter Sections

i) Preliminary 1-2
(ii) General powers of Central Govt 3-6
(iii) Prevention, Control and-abatement of 7-17
environment Pollution
(iv) Miscellaneous 18-26
* Self-Check exercise -1
Discuss the objectives and scheme of regulation under the Environment.- Protection
Act, 1986.
2.6.3 Definitions
Section 2 contains definitions of certain terms and phrases :-
“Environment” (Section 2(a)) includes water, air and land and the inter
relationship which exists among and between water, air and land and human
beings, other living creatures, plants, microorganism and property.
“Environment Pollutant” (Section 2(b)) means any solid, liquid or gaseous
substance present in such concentration as may be, or tend to be injurious to
environment.
“Environment Pollution” (Section 2(c)) means the presence in the
environment of any environmental pollutant.
“Ha ndling” (Sec tion 2(d )) in relation to any subst ance, mean s the
manufacture, processing, treatment, package, storage transportation, use,
collection, destruction, conversion, offering for sale, transfer or the like of
such substance.
“Hazardous substances” (Section 2(e)) means any substance or preparation
which by reason of its chemical or physt chemical properties of handling it,
liable to cause harm to human beings, other living creatures plants,
microorganism, property of the environment.
“Occupier” (Section 2(f)) in relation to any factory or premises, means a person
who has control over the affairs of the factory premises and includes, in relation
to any substance, the person in possession of the substance.
2.6.4 General Powers
2.6.4.1 General Powers of the Central Govt. (Section 3)
The Central Government has powers to take necessary measures for protecting and
improving the quality of environment and preventing, controlling and abating
environment pollution for the following purposes :
(i) Co-ordination of actions by Central and State Government, officers and other
authorities.
(ii) Planning and execution of a nation-wide programme for the prevention, control
and abatement of environment pollution
(iii) Laying down standards for the quality of environment in its various aspects.
(iv) Laying down standards for discharge of environment pollutants from various
sources whatever so.
(v) Restrictions of areas in which any industry, operates or class of industry,
operation or processes shall not be carried out or shall be carried out to certain
safeguards.
(vi) Laying down procedures and safeguards for the prevention of accidents which
may cause environment pollution and remedial measures for such accidents.
(vii) Laying down procedures and safeguards for the handling of hazardous
substances.
(viii) Examination of such manufacturing processes, materials and substances as
are likely to cause environmental pollution;
(ix) Carrying out and sponsoring investigations and research relating to problems
of environmental pollution.
(x) Inspection of any premises, plant, equipment, machinery, manufacturing or
other process, material or substances and giving by order of such direction to
such authorities as it may consider necessary to take steps for the preventions,
control and abatement for the environmental pollution.
(xi) Establishment of environmental laboratories and institutes.
(xii) Collection and dissemination of information in respect of matters relating to
environmental pollution.
(xiii) Preparation of manuals, codes, or guides relating to the prevention, control
and abatement of environmental pollution;
(xiv) Such other matters as Central Governmentdeems fit.
2.6.4.2 Power to appoint officers and their powers and functions (Section 4)
The Central Govt. may appoint officers with such designations as it thinks fit for; the
purpose of this act and may entrust to them such of the powers and functions under
this act as it may deem fit. The officer shall be subject to the general control and
directions of Central Government.
2.6.4.3 Powers of the Central Government to give directions (Section 5)
The Central Government may issue directions in writing to any person, 1 officer or
any authority. Such persons, officer or authority is bound to comply with the directions
as issued by Central Govt.
2.6.4.4 Powers to make rules to regulate environmental pollution (Section 6)
The Central Government may, by notification in the official gazette, make rules
inrespect of all or any of the matters referred to in section 3.

Such rules may provide for all or any of the following matters :
(i) the standards of quality of air, water or soil for various areas and purposes;
(ii) the maximum allowable limit of concentration of various environmental
pollutants (including noise) for different areas.
(iii) the procedures and safegurads for the handling of hazardous substances;
(iv) the prohibition and restrictions on the hanling of the hazardous subtances in
different areas;
(v) the procedures and sefeguards for the prevention of accidents which may cause
environmental pollution and for providing for remedial measures for such
accidents.
Self CheckExercise - 2
Enumerate the general powers of Central Govt. under the Environment Protection
Act,1986.
2.6.5 Prevention, control and abatement of the environment pollution
This part summarises provisions contained in section 7 to 17 concerning prevention,
control and abatement of environmental pollution
2.6.5.1 Emission/ Discharge of Pollution in excess of standards (Section 7)
No person carrying on any industry, operation or process shall discharge or emit or
permit to be discharged or emitted any environmental pollution in excess of the
Standards prescribed.
16.5.2 Certain procedural safeguards in case of handling of hazardous substances
(Section 8)
No person shall handle or cause to be handled any hazardous substance except in
accordance with snch procedures and after complying with stich safeguards as are
prescribed.
2.6.5.3 Furnishing of information to authorities and agency in certain cases
(Section 9)
This section provides as follows :
(i) Where the discharge of any environmental pollutant-in excess of the prescribed
standards occurred or deems to occUrdueto acàident çr whatsoever, the person
incharge or responsible for such discharge shall. be bound to prevent the
environmental pollution caused as a result of such discharge and intimate
the fact and render all the assistance to such authorities as may be prescribed
by the Central Government.
(ii) On, the receipt of information w.r.t. the fact the authorities shall as early as
practicable take such remedial measures as are necessary.
(iii) The expenses, if any, incurred by any authority w.r.t. the remedial measures,
together with interest (at such reasonable rate as govt, may fix) may be
recovered from the person concerned as arrears of land revenue or of public

demand..
2.6.5.4 Power of entry and inspectlon (Section 10)
This section provides as follows :
(i) Govt, may empower any person to enter at all reasonable times, at any place
for the
(a) For ascertaining whether any provisions, rules, notice, order, directions,
under this act is being complied with or not.
(b) For examining, testing and seizing any equipment of industrial plant,
record register, document or any other material in which he has
reasons to believe that an offence under this act has been or is being
committed. The person carrying on industry operation or process shall
be bound to render all assistance to the person empowered by the
govt.
(iii) Further, if any person makes a default in assisting without any reasonable
cause or wilfully delays or obstructs, he. shall be guilty of an offence under
this act.
(iv) The provisions relating to search and seizure under this act are applicable as
they are in Code of Criminal Procedure, 1973.
2.6.5.5 Power to take sample and procedures to be followed in connection there
with (Section 11)
This section empowers the CentralGovt. or any officer to take samples of air, water
or soil or other substances for analysis from factory premises or other places in such
manner as may be prescribed. The result of analysis can be admitted as evidence, if
following provisions are complied with:-.
(i) The person taking the sample shall:
(a) serve on the occupier, his agent or person incharge of the place, a notice
for analysis.
(b) Collect a sample in the presence of occupier or person incharge.
(c) Put the sample in container (s), marked and sealed and signed by both
occupiers and person taking the sample.
(d) Send container(s) without delay to the laboratories recognized by the
govt.
(ii) When person taking the sample serves notice on occupier or his agent or
person incharge and:
(a) Occupier, an agent or person wilfully absents himself, then person taking
sample, collects the sample and place in a container marked, sealed
and signed by him.
(b) Occupier, his agent or person refuses to sign the mark and sealed
containers, then person taking the sample himself will sign the same.
(iii) The person taking the sample shall inform the govt. analyst appointed under
section 13 in writing about the wilful absence or refusal to sign as the case
may be.
2.6.5.6 Environment Laboratories (Section 12)
This section empowers the Central Govt. to :
(i) Establish one or more laboratories
(ii) Recognize one or more laboratories or institutes as environmental laboratories.
(iii) Make rules specifying the functions, procedure and fees payable to such
laboratories.
2.6.5.7 Govt. Analysts (Section 13)
This section empowers Central Govt. to appoint such persons as it thinks fit and
having prescribed qualifications to be Govt. Analyst. Any document purporting to be a
report signed by Govt. Analyst may be used as evidence in legal proceedings (Sect 14)
Self-Check Exercise 3
* Summarise the provisions, as regard to prevention, control, and abatement, o
f environmental pollution.
2.6.6 Penalties and offences
2.6.6.1 Penalty for contravention (Section 15)
This section provides that whoever fails to comply with or contravenes any provision
of this act or rules, orders, directions, issued under it shall in respect of each such
failure or contravention, be punishable with imprisonment extends to 5 years or with
fine which extends to 1 Lakh rupees or with both
In case, failure or contravention continues then additional fine extend to Rs 5000/-
for-every day shall be charged 11 failure or contravention continues beyond the period
of 1 year after the date of conviction, then imprisonment extends to 7 years.
2.6.6.2 Offences by companies(Section 16)
When any offence has been committed by a company, the person responsible for the
conduct of business of compariyh as company, shall be punished accordingly. However,
he shall not be liable if he proves that the offence was committed without his
knowledge. For this purpose, company means any body corporate includes a firm or
association of individuals.
2.6.6.3 Offences by Govt Deptt (Section 17)
The head of the department shall deemed to be guilty of the offences and shall be
liable to punish accordingly. However, he will not be liable, if the offence was committed
without his knowledge Further, if it is proved that the offence was committed with
the consent or attributable to any neglect on the part of any officer, such officer, shall
also be punished accordingly.
2.6.6.4 Cognizance of offences (Section 19)

This section provides that no court shall take cognizance of any offence under the
act. except on a complaint made by (a) central govt, or any authority or officer so
authorised (b) Any person who has given notice of not less than 60 days of the alleged
offences
2.6 .7. Miscellaneous Provisions
2.6.7.1 Protection of action taken in good faith (Section 18)
This section provides that no suit protection or other legal proceeding shall lie against
the govt, or any officer or other employee of the govt, or any other authority constituted
under the act in respect of anything which is done or intended to be done in good
faith in pursuance of this act or the rules made or orders or directions issued there
under.
2.6.7. 2 Furnishing information Reports or Returns (Section 20)
The Central Govt, may, from time to time require any person officer, state govt, or
other authority to furnish to it any reports, returns, statistics, accounts and other
information.
2.6.7.3 Members, officers and employees of the authority constituted under Sec.
3 to be public servants (Section 21)
All the members of the authority constituted under section 3 and all officers and
employees of such authority when acting or purporting to act in pursuance of any
provision of this act or the rules made or orders of directions issued there under are
deemed to be public servants with in the meaning of section 21 of the Indian Penal
Code.
2.6.7.4. Bar of jurisdiction (Section 22)
No civil court shall have jurisdiction to entertain any suit of proceeding in respect of
any thing done, action taken or order or direction issued by the Central Govt, or any
other authority or officer in pursuance of any power conferred by or in relation to its
or his functions under this act.
2.6.7.5. Power of Central Govt. to delegate (Section 23)
The Central Govt, may delegate such of its power and functions under this act as it
may deem necessary or expedient, to any officer, state govt, or other authority. However,
it cannot delegate the following :
1 The power to constitute an authority under sec 3 (3)
2. Power to make rules under sec.25.
2.6.7.6 Powers of Central Govt. to make rules (Section 25)
The central govt, is empowered to make rules for the following matters
(i) The standards in excess of which environmental pollutants shall not be
discharged U/S 7
(ii) The procedures and safeguards in compliance with which hazardous substances
shall be handled U/S 8
(iii) The authorities or agency to which intimation and assistance regarding
discharge of environmental pollutants in excess of prescribed standards U/S
9(1).
(iv) The manner in which samples of air, water, soil or other substances for the
purpose of analysis shall be taken U/S 11(1). -
(v) The form in which the notice of intention to have a sample analysed shall be
served U/S 11 (3) (a).
(vi) The functions, procedures, and fees payable to environmental laboratories and
other matters U/S 12(2).
(vii) The qualifications of govt, analyst appointed U/S 13.
(viii) The manner and form of notice of the offence and complaint to Central Govt
U/S 19(b).
(ix) The authority or officers to whom any report, return, accounts or other
information shall be furnished U/.S 20.
(x) Any other matters as may be prescribed.
2.6.7.7 Rules made under this Act to be laid before Parliament(Section 26)
Every rule made under this Act shall be laid, as soon as may be after it is made,
before each house of parliament, white it is session, for a total period of thirty days
which may be comprised in one session or in two or more successive sessions. In
case both houses agree in making any modification the rule or both houses agree
that the rule should not be made, the rule shall the thereafter have effect only in
such modified form or be of no effect, as the case may be; so however, that any such
modification or annulment shall be without prejudice to the validity of anything
previously done under that rule.
2.6.8 Summary
In short, this act is made for the protection and improvement of the human
environment and the prevention of hazards to human beings, other living creatures,
plants and property. Under the umbrella of this legislation, Central Govt. has made
Environmental laboratories to test the sample drawn by the authorized authorities,
so that the penalties and punishments are forced on the persons responsible for the
same. In the end, this act is mainly made for the protection of the environment from
the hazardous substances and pollutants by enacting various sections under the act.
2.6.9 Answers to Self-Check Exercises
1. See 21.1 and 21.2
2. See 21.4.1to21.4.4
3. See 21.5.1 to 21.5.7
2.6.10 Glossary
1. Hazardous Substance : A preparation harmful to human beings,
other living creatures, plants and other
property of environment.
2. Environmental Pollutants : Any solid, liquid or gaseous preparation
injurious to environment.
3. Emission of pollutants : Discharge of substances injurious to
environment.
4. Good faith : A duty to act with reasonable degree of
prudence.
5. Recognition : Acknowledgement of a fact alleged
6. Jurisdiction : Area under Power.
7. Abatement : Quashing or destroying the plaintiff’s writ
8. Person-incharge : A person who has control over the affairs
of the factory.
1. Business Regulatory. Framework : Garg K.C.,Chawla R.C.
2. Economic and other legislations : Gulshan S.S.Kapoor G.K.
3. Environment Protection act, 1986 : The Bare Act
LESSON NO. 2.7 AUTHOR : DR. SHAILINDER SEKHON
FEMA AND PROMOTION OF FOREIGN TRADE

2.7.0 Objective
2.7.1 Introduction
2.7.2 The Foreign Trade Development and Regulation Act, 1992
2.7.2.1 Objectives of the Act
2.7.2.2 Main Provisions of the Act
2.7.3 Export - Import Policy
2.7.4 EXIM Policy 2002-07
2.7.5 Foreign Exchange Management Act, 1999
2.7.5.1 Salient Features of FEMA
2.7.5.2 Current Account Transactions
2.7.5.3 Capital Account Transactions
Self-Check Exercise-I
2.7.6 Foreign Capital
2.7.6.1 Forms of Foreign Capital
2.7.6.2 Significance of foreign trade
Self-Check Exercise-II
2.7.7 Summary
2.7.8 Glossary
2.7.9 Answer to Self-Check Exercises
2.7.10 Exercise
2.7.0 OBJECTIVE
The main objective of this lesson is to highlight the Foreign trade provisions in
reference to India. To achieve this objective the Lesson covers
(1) Foreign Trade Development and Regulation Act, 1992 in brief;
(2) Export - Import Policy of India;
(3) Foreign Exchange Management Act, in detail;
(4) Status of Foreign Capital; and
(5) India's Foreign Trade.
2.7.1 INTRODUCTION
The Export import policy (EXIM Policy) reflects the foreign trade policy of India.
The policy is implemented mostly by means of the regulatory framework provided
by the (Foreign Trade Development and Regulation) FTDR Act, 1992.
Control of foreign trade in India dates back to the early years of the Second World
War. Import control was introduced in 1940 as a war tie measure under the
Defence of India rules with the primary objectives of conserving the foreign
exchange resources and restricting physical import so as to reduce the pressure
on the limited available shipping space. Initially the import of only 68
commodities many consumer goods, were brought under control. Subsequently
with the increasing pressure on the foreign exchange resources, import control
was extended to other commodities as well.
Beside the FTDR Act, there are some laws, which control the trade in certain
items. For incance the export of antiquities is regulated under the Antiquities
and Art Treasures Act, 1972; export of tea is regulated under the Tea act, 1953,
etc. The export and import currency notes, bank notes and coins have been
controlled by the Reserve Bank of India under the Foreign Exchange
Management, 1999 Act, (FEMA).
In turn with the general economic liberalization seen in India in 1991 the EXIM
Policy and the regulation have undergone a change. The difference between the
past and present attitudes is reflected in the change in the title of the law from
Import and Export Control Act to Foreign Trade (Development and Regulation) Act
and the difference in the statement of the objectives of the present Act is to
prohibit and control import and export. The objectives of the present Act is to
provide for the development and regulation of foreign trade by facilitating import
and augmenting exports, FEMA has been introduced in place of FEMA in 1999.
2.7.2 THE FOREIGN TRADE DEVELOPMENT AND REGULATION ACT, 1992
This Act came into force on 19th June 1992. This was replaced from the (Import
and Export Control) Act of 1947. No export or import shall be made by any person
except in accordance with the provisions of this Act, the orders and rules made
under this Act and the export and import policy.
2.7.2.1 Objectives of the Act
The objective of the Act is to provide for the development and regulation of
foreign trade by facilitating imports into and augmenting export from India and
for matters connected therewith or incidental there to.
2.7.2.2 Main Provisions of the Act
The main provisions of the FTDR Act are the following :
1. Development and Regulation : The FTDR Act empowers the Central
Government to make provisions for the development and regulation of foreign
trade by facilitating import and increasing exports.
2. Prohibition and Restriction : The Act also empowers the Central
government to make provision for prohibiting, restricting or otherwise regulating
the import or export of goods and when required. All goods, which after so
regulated under this sub-section shall be deemed to be goods the import or export
of which has been prohibited under section 11 of the Customs Act, 1962 and all
the provisions of the act shall have effect accordingly.
It may be noted that it is according to this sub-clause that the government has
provided for negative lists of exports and Imports in the EXIM policy.
EXIM Policy : The Act lays down that the Central Government may from time to
time, formulate and announce the Export and import policy and may also amend
that policy.
Director General of Foreign Trade : The Act provides for the appointment by the
Central Government of a Director General of foreign trade for the purpose of this
act. The DGFT shall advise the central government in the formulation of the
export and import policy and shall be responsible for carrying out that policy. The
corresponding authority under the Import and Export (Control Act). 1947 was
called the Chief Controller of Imports and Exports (CCIE).
Importer-Exporter Code Number : The Act lays down that no person shall make
any import or export under an Importer-Exporter Code (IEC) numbers granted by
the DGFT or the officer authorized by him in this behalf.
The Director General is empowered to suspend or cancel the importer exporter
code number granted to any person if there is valid reason to do so, like
contravention of law relating of central excise or customs or foreign exchange or
having conducted import/export in a manner gravely prejudicial to trade
relations of India with any foreign country or in a way detrimental to the
interests of country.
Issue and Suspension/Cancellation of License : The Director General or any
other office authorized under this act is empowered to suspend or cancel a
licence issued for export or import of goods in accordance with this act for good
and sufficient reasons after giving the license holder a reasonable opportunity of
being heard.
Search Inspection and Seizure : Where any contravention of any condition of the
licence or letter of authority under which any goods are imported is suspected or
made any person authorized by the central government may search, inspect and
seize such goods, documents, things and conveyances subject to such
requirements and conditions as may be prescribed.
Penalty for Contravention : Where any person makes or abets or attempts any
Export or Import in contravention of any provision of this act any rules or orders
made under this act or the Exim policy, he shall be liable to a penalty not
exceeding 1,000 rupees or five times the value of the goods involved whichever is
more.
2.7.3 EXPORT-IMPORT POLICY

The export import policy announced on March 31, 1992 gave the EXIM policy for
the first time validity for a period of five years and in coincided with the Eighth
Plan period (1992-97). The current Export Import policy (1997-2002), which seeks
to consolidate the gains of the previous policy and to further carry forward the
process of liberalization, is to coincide with the 9th plan. By 1999 a large number
of items Including consumer and agriculturals goods were shifted from the
negative list of imports.
Objectives of the policy : The principal objectives of the EXIM policy 1997-2002
are as follows :
1. To accelerate the country's transition to an internationally oriented
vibrant economy with a view to derive maximum benefit from the
expanding global market opportunities.
2. To stimulate sustained economic growth by providing access to essential
raw materials, components, consumables and capital goods required for
augmenting production.
3. To enhance the technological strength and efficiency of Indian agriculture,
Industry and services thereby improving their competitive strength while
generating new employment opportunities and encourage the attainment
of Internationally accepted standards of quality.
4. To provide consumers with good quality products at reasonable process.
Highlights of EXIM Policy 2009-2014

Following are the highlights of EXIM Policy 2009-2014 :
1. Higher support for market and product diversification.
2. Technological Upgradation.
3. EPCG Scheme Relaxations
4. Support for green products and products from north east.
5. Stability of the foreign trade policy
6. Changes in the rules/regulations of marine gems and jewellery,
agriculture, leather, tea, pharmacentical and handloom sectors.
7. Thrust to value added manufacturing.
8. Flexibility provided to exporters.
9. Weiver of incentives recovery.
10. Simplication of procedures.
11. Reduction of transaction costs.
12. Set up of directorate trade remedy measures.
2.7.5 FOREIGN EXCHANGE MANAGEMENT ACT, 1999

The Foreign Exchange Management Act, 1999, (FEMA) which seeks to replace the
Foreign Exchange Regulation Act, 1973 (FERA), has come into effect from 1st
June, 2000.
FERA aimed to regulate certain payments, dealings in foreign exchange and
securities, transactions indirectly affecting foreign exchange and the import and
export of currency for the conservation of the foreign exchange resources of the
country and the proper utilization thereof in the interests of the economic
development of the country.
FEMA aimed to achieve the objective of facilitating external trade and payments
and for promoting the orderly development and maintenance of foreign exchange
market in India.
While FERA sought to ‘control’ foreign exchange transaction, FEMA seeks to
‘regulate’ and ‘manage’ such transactions. FERA, in its substantive form,
prohibited all foreign exchange transactions unless there was a general or
specific permission to do so and subject to conditions as specified. Under FEMA,
however, all current account transactions are permissible by the law itself and,
thus, it is a positive law to this extent.
Further, an offence under FERA attracted criminal proceedings, whereas the
offences under FEMA is considered as a one of civil nature. Also under FEMA,
maximum penalty would be twice the sum involved as against 5 times under
FERA.
Under FERA there is presumption of existence of a guilty mind, unless the
accused person proves otherwise. Under FEMA, it is for the prosecution to prove
that a person has committed the offence.
Section 35 of FERA empowers the Enforcement Officers to arrest a person, if they
had reasons to believe that the person was guilty of FERA violations. FEMA
provides such power of arrest only if penalty levied under section 11 of FEMA is
not paid by the guilty within the given time.
Transition from FERA to FEMA
A cut-off period of two years has been stipulated for transition from FERA to
FEMA, which means that cases in which proceedings have already begun under
FERA will continue to be governed by it. All such cases must be disposed off
within the period of two years from the date of enforcement of FEMA.
2.7.5.1 Salient Features of FEMA
• It will facilitate trade rather than prevent misuse of foreign
exchange.
• Definitions of capital account transaction and current account
transaction have been introduced keeping in mind the possibility of
introduction of capital account convertibility in the near future.

• All current account transactions shall be allowed (subject to
reasonable restrictions). Reserve Bank to classify those capital
account transactions that are to be permitted and to regulate transfer
and issue of foreign securities by a resident in/outside as well as
setting up of branches/offices by foreign companies in India.
• All key sections relating to dealings, holding and payments in foreign
exchange and exports have been simplified.
• Liberalization in enforcement provision reflects that the attitude is of
putting trust in the persons covered.
Scheme of FERA and FEMA
FERA had 81 sections (some of which were deleted by 1993 amendment), out of
which 32 sections related to operational part and the balance dealt with
Penalties, Enforcement Directorate, etc. FEMA has only 49 sections divided into
seven chapters. First 3 chapters containing 12 sections relate to operational part
and the balance 4 chapters containing 37 sections deal with Penalties,
Adjudication, Appeals, Enforcement, Directorate, etc.
Power to Make Rules
Section 46 of FEMA empowers the Central Government, by notification, to make
rules to carry out the provisions of the Act. Such rules may provide for :
• Imposition of reasonable restrictions on current transactions u/s(5);
• Manner in which the contravention may be compounded u/s 15(1);
• Manner of holding an inquiry by the Adjudicating Authority u/s 16(1);
• Form of appeal and fee for filing such appeal u/s 17 and 19;
• Salary and allowances payable to and other terms and conditions of
service of the Chairperson and other Members of the Appellate
Tribunal and the Special Director (Appeals) u/s 23;
• Salaries and allowances and other conditions of service of the officers
and employees of the Appellate Tribunal and the officer of the Special
Director (Appeals) may exercise the powers of a civil count u/s 28(2)
(I);
• Additional matters in respect of which the Appellate Tribunal and the
Special Director (Appeals) may exercise the powers of a civil court
u/s 39(2) (I);
• Authority or person, and the manner in which any document may be
authenticated u/s 39 (11); and
• Any other matter which is required to be or may be prescribed.
Power to Make Regulations
Section 47 of FEMA empowers the Reserve Bank, by notification, to make
regulations to carry out the provisions of this act and the rules there under.
Such regulations may provide for:
• Permissible classes of capital account transactions, limits of
admissibility of foreign exchange for such transactions, and the
prohibition, restriction or regulation of certain capital account
transactions u/s 6;
• Manner and form in which declaration is to be furnished u/s 7 (I) (a);
• Period within which and the manner of repatriation of foreign
exchange u/s 18;
• limit up to which any person may possess foreign currency of foreign
coins u/s 9(a);
• Class of persons and limit up to which foreign currency account may
be held or operated u/s 9 (b);
• limit up to which foreign exchange acquired may be exempted u/s
9(d);
• limit up to which foreign exchange acquired may be retained u/s
9(e);
• Any other matter which is required to be or may be specified.
The Central Government and Reserve Bank have, by various notifications, issued
rules and regulations. A summary of these rules and regulations is described in
this lesson.
2.7.5.2 Current Account Transactions
In terms of provisions of section 5 of Foreign Exchange Management Act, any
person may sell or draw foreign exchange to or from an authorised dealer if such
sale or withdrawal is a current account transaction. The provision to section 5
empowers Government of India, in public interest and in consultation with the
Reserve Bank to impose reasonable restrictions on certain current account
transactions.
Drawing of foreign exchange for the following purpose is prohibited:
Remittance out of lottery winnings; Remittance of income from racing/ riding,
etc. or any other hobby; Remittance for purchase of lottery tickets, banned/
prescribed magazines, football pools, sweepstakes, etc,; Payment of commission of
exports made towards equity investment in Joint Ventures/Wholly Owned
Subsidiary abroad of Indian companies; Remittance of dividend by any company to
which the requirement of dividend balancing is applicable; Payment of
commission on exports under rupee State Credit Route. Payment related “Call
Bank Services” of telephones; Remittance of interest income on funds held in
Non-resident Special Rupee Scheme a/c; or Travel to Nepal or Bhutan.
A transaction with a person resident in Nepal or Bhutan. This prohibition may be

exempted by RBI subject to terms and conditions, by special order.
Exchange facilities for transactions included in Schedule II to the Rules may be
permitted by authorised dealers provided the applicant has secured the approval
from the Ministry/ Department of Government of India indicated against the
transactions.
In respect of transactions included in Schedule III where the remittance applied
for exceeds the limit, if any, indicated in the Schedule or other transactions
included in Schedule III for which no limit have been stipulated would require
prior approval of Reserve Bank. Remittances for transactions included in
Schedule III may be permitted by authorised dealers up to the ceilings prescribed
therein.
The existing procedure to be followed by Indian companies for entering into
collaboration arrangement with overseas collaborators would continue. There
would be no restriction regarding receipt of advance payment or back-to-back
letter of credit for merchanting trade transactions.
In terms of Notification GSR (F) regarding Borrowing or Lending in Foreign,
approval of Reserve Bank would be required for importers availing of supplier's
Credit beyond 180 days and Buyer's Credit irrespective of the period of credit.
Remittances of surplus freight/ passage collections by shipping airline
companies or their agents, remittances by break bulk agents, multi-model
transport operators, remittance of freight pre-paid on inward consolidation of
cargo, operating expenses or Indian airline/ shipping companies etc. may be
permitted by authorised dealers after verification of documentary evidence in
support of the remittance.
2.7.5.3 Capital Account Transactions
Capital account transaction means a transaction which alters the assets for
liabilities including contingent liabilities (a) outside India of person resident in
India; or (b) in India of persons resident outside India, and includes transactions
referred to in Section 6(3) of FEMA, 1999.
In terms of these Regulations investment in India by a person resident outside
India in any business of Chit Fund or as a Nidhi Company or in Agricultural or
Plantation activities or in Real Estate business (other than development of
townships, construction of residential/ commercial premises, roads or bridges) or
construction of farm houses or trading in Transferable Development Rights
(TDRs) is prohibited.
Q.1 Whar are the main forms/types of foreign investments ?
Following Capital Account Transactions are permissible :
By persons resident in India :
According to Schedule I, following transactions are permitted:
• Investment in foreign securities;
• Foreign currency loans raised in India and abroad;
• Transfer of immovable property outside India;
• Guarantees issued in favour of a person resident outside India;
• Export, import and holding of currency/ currency notes;
• Loans and overdrafts (borrowings) from a person resident outside India;
• Maintenance of foreign currency accounts in India and outside India;
• Taking out of insurance policy from an insurance company outside India;
• Remittance outside India of capital assets;
• Sale and purchase of foreign exchange derivatives in India and abroad and
commodity derivatives abroad.
By persons resident outside India : According to Schedule II, the following
transactions are permitted for Investment in India;
• Acquisition and transfer of immovable property in India;
• Guarantee in favour of, or on behalf of a person resident in India;
• Import and export of currency/ currency notes into/ from India;
• Deposits between a person resident in India and a person resident outside
India;
• Foreign currency account in India;
• Remittance outside India of capital assets in India.
• Any transfer or issue of any security or a foreign security in India by a
branch, office or agency in India of any person resident outside India
which is covered by the provisions of the Act or Rules or Regulations made
under the Act would require prior approval of the Reserve Bank.
Borrowing or Lending in Foreign Exchange
These regulations relate to the Borrowing or lending in foreign exchange by a
person resident in India. In terms of these Regulations approval of Reserve Bank
would be necessary for any borrowing or lending in foreign exchange by any
person resident in India except those covered in Regulation number 4 and 5.
Reserve Bank of India's approval is required if loan is borrowed under US $ 5
million scheme or US $ 10 million scheme or under scheme for raising of foreign
currency loans by residents from Non-resident Indians not exceeding US $
250,000. These schemes are subject to certain eligibility criteria, which are
explained in the Schedule to these Regulations.
Any foreign currency borrowing, which is not covered by these schemes or by the
provisions of Regulation number 4 and 5 would require approval of both
Government of India and Reserve Bank of India.
Any lending by a person resident in India to a person resident outside India,
which is not covered by Regulation number 4 and 5 of these Regulations would
also be subjects to Reserve Bank's approval.
By notification dated September, 2000 no prior approval of Reserve Bank of India
is required for External Commercial Borrowings in foreign exchange received by
India entities up to US $ 50 million.
Export and Import of Currency
There is no change in the regulations as existed earlier under FERA for export/
import of Indian currency/foreign currency from/into India contained in Part G
of Chapter 6 and Part D of Chapter 7 of Exchange Control Manual except that:
A person is permitted to take out of India while on a visit to a foreign country
other than Nepal or Bhutan, India currency notes not exceeding Rs. 5,000 while
returning of India. Earlier, these limits were Rs. 1,000.
Regulations for export and import of Indian currency to/from Nepal are applicable
to Bhutan also.
Deposits
These regulations relate to the deposits between a person resident in India and
a person resident outside India.
General permission has been granted for retention of funds raised through
external commercial borrowings or raising of resources through ADRs/GDRs in
deposit with a bank outside India pending their utilisation or repatriation in
India.
General permission has been granted to Indian companies to accept deposits
from NRIs/OCBs by issue of a Commercial paper subject to term and conditions
specified in Regulation No. 8(2).
Any deposit between a person resident in India and a person resident outside
India which is not covered by the provisions of the Act or these Regulations
would require approval of Reserve Bank.
Guarantees
Giving a guarantee or a surety or undertaking any transaction which has the
effect of guaranteeing a debt or obligation or other liability owned by a person
resident in India to or incurred by a person resident outside India, requires
approval of Reserve Bank except where issue of such a guarantee or surety is
permissible under the Regulations. General permission has been granted by
Reserve Bank to authorised dealers to issue guarantees in respect of
transactions specified in Regulation No.4.

General permission has been granted to agents in India of foreign shipping or
airline companies on behalf of their principles in favour of any statutory or
Government authority in connection with the obligations owned by the principals
to such authorities.
Remittance of Assets
Remittance of capital assets in India held by a person whether resident in or
outside India would require approval of the Reserve Bank except to be provided in
the Act or Rules or Regulations made under the Act.
Authorised dealers have been permitted to allow remittance of assets of a person
referred to in Regulation 4(2) who has retired from India or who has inherited
assets from a person who was a resident of India, or remittance of assets in
India of a foreign born widow of an Indian national resident outside India in
annual instalments of Rs. 20 lakhs subject to the terms and conditions
mentioned therein.
Authorised dealers have been permitted to allow remittance of balance amount
held in bank account by a foreign student after completion of his studies.
General permission has also been granted to Indian entitles to make remittance
towards their share of contribution to provident fund or superannuation/ pension
fund in respect of their expatriate staff who are resident in India but not
permanently resident therein.
Remittance of winding up proceeds of branch in India, remittance of legacy,
bequest or inheritance or remittance of assets on hardship ground would require
approval of Reserve Bank.
Acquisition or transfer of Immovable Property
Under the provisions of the Act, or rules of regulations made thereunder,
acquisition or transfer of immovable property in India by a person including an
Indian citizen resident outside India would require approval of Reserve Bank.
In term of section 6(5) of the Act, a person resident outside India can hold, own
or transfer Immovable property in India if such property was acquired by him
when he was resident in India or inherited from a person resident in India.
An Indian citizen resident outside India is permitted to
• acquire any immovable property in India other than agricultural
land/farm house/ plantation property.
• transfer any immovable property in India to a person resident in
India; and
• transfer any immovable property other than agricultural land or
plantation property of a farm house to an Indian citizen or a person

of Indian origin resident outside India.
• A person of Indian origin resident outside India has been permitted
to acquire immovable property in India other than agricultural land/
plantation property or a farm house by way of purchase subject to the
conditions mentioned in clause (a) of the Regulation;
• acquire any immovable property in India other than agricultural
land/plantation property or a farm house in India by way of gift from
an Indian citizen resident outside India or from a PIO;
• acquire immovable property in India by inheritance subject to the
conditions stipulated in clause C of the Regulation;
• transfer by way of sale any immovable property in India other than
agricultural land/plantation property or a farm house by way of sale
to a person resident in India.
• transfer agricultural land/plantation property or a farm house by way
of gift or sale to an Indian citizen resident in India, transfer
residential or commercial property in India by way of gift to a person
resident in India or a Indian citizen resident outside India or a PIO
resident outside India.
A branch or office in India of a foreign entity other than liaison office has been
permitted to acquire immovable property, which is necessary for, of incidental to
the activity carried on in India by such branch or office subject to the terms or
conditions mentioned in Regulation 5. Such property can also be mortgaged to an
authorised dealer as a security for any borrowing by a branch or office.
Authorised dealers have been permitted to allow remittance of sale proceeds of
property other than agricultural land/plantation property or a farm house to an
Indian Citizen resident outside India or PIO as defined in clauses C of Regulation
2 who has sold the property in India subject to the term and conditions stipulated
in Regulation.
A person who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan,
China, Iran, Nepal or Bhutan requires approval of Reserve Bank for acquisition
or transfer of property in India other than lease not exceeding 5 years, in terms
of Regulation.
Establishment in India of a Branch or Office or other Place of Business
Establishment or a branch or liaison office or project office or any other place of
business in India by any entity resident outside India other than a banking
company requires approval of Reserve Bank of India. The application for
permission should be made to Reserve Bank, Central Office, Mumbai in Form
FNC.
A banking company registered or Incorporated outside India is, permitted to open

a branch or office in India if it has obtained necessary permission under the
Banking Regulation Act 1949.
Permissible activities which can be undertaken by a branch or a liaison office
have been specified in the schedules annexed to these Regulations. A project or
site office is permitted to undertake activities relating and incidental to
execution of project in India. Authorized dealers have been permitted to allow
remittance of profit by a branch and remittance of surplus after completion of the
project by the project office subject to terms and conditions specified in
Regulation.
For details see “Setting up business activities in India” Alternatives available to
Foreign Companies.
Investment in firm or Proprietary Concern in India
These regulations provide that expect as otherwise provided in the Act of rules or
regulations made or directions or orders thereunder, any investment by way of
contribution to the capital of a firm or proprietary concern or association of
persons in India by a person resident outside India requires prior approval of
Reserve Bank.
Reserve Bank has granted general permission to an Indian citizen or a PIO
(Person of Indian Origin) as defined in Regulation 2 (vi), resident outside India to
make investment by way of contribution to the capital of a firm or a proprietary
concern in India on non-repatriation basis subject to conditions mentioned in
Regulation 4.
General permission has also been granted to a firm or proprietary concern to
make payment in rupees to or for credit of the non-resident Indian or a PIO, the
amount invested in the said firm/concern and income accruing on such
investment by way of profit of such person.
There is no change in the regulations a existed under FERA regulations
governing such Investment by NRIs/PIQs in a firm/proprietary concern on non-
repatriation basis.
2.7.6 FOREIGN CAPITAL
If a backward and under developed country is interested in rapid economic
development, it will have to import machinery, technical know-how spare parts
and even raw materials. One of the alternative for paying for the imports is to
step up exports. This is possible if the government is prepared to curtail
consumption drastically and export more and simultaneously curtailing import of
consumption goods. Russia, china and others had adopted this method after the
establishment of communist governments in these countries. As this involves a
lot of sacrifice, it can be adopted only by a government, which is committed to

such a policy. The second alternative of getting foreign technology and equipment
is to depend upon foreign assistance in some form or the other. Most countries of
the world which embarked on the road to economic development had to depend on
foreign capital to some extent. The degree of dependence, however, varied with
the extent to which domestic resources could be mobilized. The state of the
domestic economy in respect of technical progress, the attitude of the respective
governments, etc. But the fact cannot be denied that foreign capital contributed
in many important ways to the process of economic growth and industrialization.
The need for foreign capital for a developing country like India can arise on
account of the following reasons :
1. Domestic capital is inadequate for purposes of economic growth and
it is necessary to invite foreign capital.
2. For want of experience domestic capital entrepreneurship may not
flow into certain lines of production. Foreign capital can show the way for
domestic capital.
3. There may be potential savings in a developing economy like India
but this may come forward only at a height level of economic activity. It is,
therefore, necessary that foreign capital should help in speeding up economic
activity in the initial phase development.
4. It may be difficult to mobilize domestic savings for the financing of
projects that are badly needed for economic development. The capital market is
itself underdeveloped during the period in which the capital market is in the
process of development, so, foreign capital is essential as a temporary measure.
2.7.6.1 Forms of Foreign Capital
The different forms of foreign investment are :
1. Direct foreign investment
Foreign capital can enter India in the form of direct investment. In the past
companies had been formed in advanced countries with the specific purpose of
operating in India. Sometimes companies of advance countries start their
subsidiary officers or branches and affiliates in India. Alternately, foreigners may
subscribe to stock and debentures of concerns in India (this is known as portfolio
or retire investment).
2. Foreign Collaboration
In recent years there has been joint participation of foreign and domestic capital.
India has been encouraging this form of foreign collaborations-joint participation
between private parties, between foreign firms and Indian government and
between foreign governments and Indian government.
3. Inter-government loans
Since the second word war there has been a growing tendency towards direct
inter government loans and grants. Marshal aid was a massive systems of
american in which aid given to the war devastated european countries to
reconstruct their economy. Other advanced countries too provide grants and
loans to governments of less developed countries.
4. Loans from international institutions
Since 1946, the world bank and its affiliates have been important suppliers of
capital to India. International monetary fund (IMF), India consortium asian
development bank and the world bank have been the major sources of external
assistance to India in recent years.
5. External commercial borrowing (ECB)
India has also been tapping export credit agencies like the us EXIM bank, the
japan EXIM, ecgc of the UK, etc. To obtain a major portion of the commercial
borrowing from the capital market.
2.7.6.2 Significance of Foreign Trade
Before 1947 when India was a colony of the British the pattern of her foreign
trade was typically colonial. India was a supplier of foodstuffs and raw materials
to the industrialized nations particularly England and an importer of
manufactured goods. This dependence on foreign countries of manufactures did
not permit industrialization at home rather as a result of the competition from
British manufactures the indigenous handicrafts suffered a severe below.
With the dawn of independence, the colonial pattern of trade to be changed to
suit the needs of a developing economy. An economy, which decides to embark
on a programme of development, it required to extend its productive capacity at a
fast rate. For this imports of machinery and equipment, which cannot be
producted in the intial stages at home are essential. Such imports which either
help to create new capacity in some lines of production or enlarge capacity in the
other lines of production are called development import. For instance import
required for the setting up of the steel plants the locomotives factory and the
hydro-electric projects are of a developmental nature. Secondly, a developing
country, which sets in motion, the process of industrialization at home requires
the imports of raw materials and intermediate goods so as to properly utilize the
capacity created in the country. Imports which are made in order to make a full
use of the productive capacity are called maintenance imports. These imports
are vital for a developing economy as many of the industrial projects are also
held up for lack of maintenance imports set limits to the extent of
industrialization, which can be carried out, in a given period. Besides these
imports a developing economy is short supply at home during the period of
industrialization. Such imports are anti-inflationary because they reduce the
scarcity of consumer goods. One example of such imports it the food grains
imports in India in the post-independence period, which helped to arrest the rise
of prices at home.
It is, therefore inevitable that during the early years of development imports
have to be increased at a very fast rate. It is natural that the balance of trade in
such a situation will turn heavily against the developing country. This
necessitates the enlargement of export. External assistance can help to share
the burden of growth in the short run but in the long period the developing
country has to bear the burden of development itself. To meet the growing foreign
debt in view of inelastic imports, a developing country must increase its exports.
As economic development proceeds, the raw material exports generally decline
because of their growing domestic industries. With fast growing population, the
surplus of food grains available for exports either dwindles or is turned into a
deficit. Consequently a developing economy is required to find new commodities,
and new markets in which it can sell its manufactures. The developed nations
can help the process of industrialization in an under developed country by
reducing trade barriers. And accepting its consumer goods and semi-
manufactured goods. Foreign aid is important for an under developed country, but
trade is more significant. Thus, the new slogan which has been raised by the
under developed nations is ‘trade and aid’.
Q.1 What is the scheme of FERA and FEMA ?
2.7.7 SUMMARY
Foreign trade, also called international trade, is as old as history. It exists for
different reasons. The fact remains that the natural resources of the earth are
not evenly distributed. Developed countries spend substantially on research and
development and as a result, these countries enjoy virtual monopoly in the
manufacture of new products. Other countries, particularly less developed
countries, are forced to buy new products from the developed countries. In India,
the RBI has managed the external trade reasonably well through its monetary
policy measures, and various Acts. On August 4, 1998, Finance Minister
introduced the FEMA bill in the lok sabha and this act was implemented.
2.7.8 Glossary
1. EXIM - Export Import Policy
2. FTDR Act - Foreign Trade Development and Regulation Act
3. FEMA - Foreign Exchange Management Act
4. DGET - Director General of Foreign Trade
5. CCIE - Chief Controller of Imports and Exports
6. IEC - Importer-EXporter Code
7. ADRs/GDRs - American Depositary Receipts Globa Depositary

Receipts
8. TDRs - Transferable Development Rights
9. OCBs - Overseas Corporate Bodies
10. PIOs - Persons of Indian Origin
2.7.9 EXERCISE
(A) Short Questions :
Q.1. What are current account transactions ?
Q.2. What do you mean by Capital account transactions ?
Q.3. Write a short note on the Foreign trade development and regulation act,
1992.
Q.1. Write a detailed note on powers of the RBI to regulate and manage foreign
exchange under FEMA, 1999.
Q.2. Distinguish between FERA and FEMA.
Q.3. Analyse the EXIM Policy 2009-2014 Critically.
2.7.10 Answers to Self-Check Exercises
Ans.1 Following are the main forms of foreign investment;
(a) Foreign collaboration
(b) Direct foreign investment
(c) Inter-government loans
(d) Loan from IMF
(e) Loan from world bank
(f) External commercial borrowing
Ans.2 FERA - This act, had 81 sections (some of which were deleted by 1993
amendment), out of these 32 sections are related to operational part and
rest of the sections dealt with penalities, enforcement directorate etc.
FEMA - Under this act, 49 sections are crated by divided into seven
chapters. First three chapters are related to operational part and rest of
the four chapters dealt with penalities, adjudication, appeals, enforcement,
directorate etc.
1. Cherunllam. Francis. Business environment, Himalaya Publishing House,
New Delhi.
2. K. Aswathappa, Essentials of Business Environment, Himalaya Publishing
House, Delhi.
3. Ghosh Viswanath. Economic Environment of Business, Vikas Publishing
House, New Delhi.
4. Economic Times (Various Issues).
LESSON NO.- 2.8 AUTHOR : DR.NAVNINDERJIT SINGH
FOREIGN DIRECT INVESTMENT AND NON RESIDENT INDIANS

2.8.1 Objectives
2.8..2 Introduction
2.8.3 Background
2.8.4 Procedure for Receiving Foreign Direct Investment
2.8.5 Instruments for Receiving Foreign Direct Investment
2.8.6 Modes of Payment allowed for receiving Foreign Direct Investment
2.8.7 Prohibition of FDI
2.8.8 Guidelines for Transfer of Existing Shares from Non-Residents to Residents
or Residents to Non-Residents
2.8.9 Transfer of Shares/ Fully and Mandatorily Convertible Debentures by way of Gift
2.8.10 Latest Initiatives W.R.T FDI Made by Indian Government
2.8.11 Summary
2.8.12 Glossary
2.8.14 Exercise
2.8.1 OBJECTIVES
One of the most striking developments during the last two decades is the
spectacular growth of FDI in the global economic landscape. This unprecedented
growth of global FDI in 1990 around the world make FDI an important and vital
component of development strategy in both developed and developing nations and
policies are designed in order to stimulate inward flows. Infact, FDI provides a win –
win situation to the host and the home countries. Both countries are directly
interested in inviting FDI, because they benefit a lot from such type of investment.
The ‘home’ countries want to take the advantage of the vast markets opened by
industrial growth. On the other hand the ‘host’ countries want to acquire
technological and managerial skills and supplement domestic savings and foreign
exchange. Moreover, the paucity of all types of resources viz. financial, capital,
entrepreneurship, technological know- how, skills and practices, access to markets-
abroad- in their economic development, developing nations accepted FDI as a sole
visible panacea for all their scarcities. Further, the integration of global financial
markets paves ways to this explosive growth of FDI around the globe.
2.8.2 INTRODUCTION
The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its
approval to review of Foreign Direct Investment (FDI) Policy on investments by Non-
Resident Indians (NRIs), Persons of Indian Origin (PIOs) and Overseas Citizens of
India (OCIs). Following are the amendments approved by the Cabinet to
incorporated in FDI policy:
By amending relevant para, definition of NRI will be as under:
‘Non-Resident Indian' (NRI) means an individual resident outside India who is
citizen of India or is an ‘Overseas Citizen of India’ cardholder within the meaning of
section 7 (A) of the Citizenship Act, 1955. ‘Persons of Indian Origin’ cardholders
registered as such under Notification No. 26011/4/98 F.I. dated 19.8.2002 issued
by the Central Government are deemed to be “Overseas Citizen of India’
cardholders”.
To provide that investment by NRIs on non-repatriable basis is domestic. Following
new para is approved to be added:
‘Investment by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by
Persons Resident Outside India) Regulations will be deemed to be domestic
investment at par with the investment made by residents.
The decision that NRI includes OCI cardholders as well as PIO cardholders is meant
to align the FDI policy with the stated policy of the Government to provide PIOs and
OCIs parity with Non Resident Indians (NRIs) in respect of economic, financial and
educational fields. Further the decision that NRIs investment under Schedule 4 of
FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations
will be deemed to be domestic investment made by residents, is meant to provide
clarity in the FDI policy as such investment is not included in the category of foreign
investment. The measure is expected to result in increased investments across
sectors and greater inflow of foreign exchange remittance leading to economic
growth of the country.
2.8.3 BACKGROUND
In the last one year, the Government has taken a number of reform measures
ranging from policy corrections to bold economic reforms. On FDI policy, measures
taken by the Government are historic and far reaching. To begin with, the
Government first reviewed the FDI policy in defence and railways sectors. Entire
range of rail infrastructure was opened to 100% FDI under automatic route, and in
defence, sectoral cap was raised to 49%. To boost infrastructure creation and to
bring pragmatism in the policy, the Government reviewed FDI policy in construction
development sector also by creating easy exit norms, rationalizing area restrictions
and providing due emphasis to affordable housing. To give impetus to medical
devices sector, a carve out was created in FDI policy on pharmaceutical sector and
now 100% FDI under automatic route is permitted. Bold reforms were needed in the
services sector also. The Government, in order to expand insurance cover to its large
population and to provide required capital to insurance companies, raised the FDI
limit in the sector to 49%. Pension sector has also been opened to foreign direct
investment up to the same limit.
India has a large available skilled and unskilled workforce. However unless the
manufacturing sector grows we will not be able to take advantage of this
demographic dividend. The Prime Minister launched ‘Make in India’ on 25
September 2014 to provide boost to manufacturing sector in the country.
Subsequently, Government embarked upon a number of initiatives on ease of doing
business. A number of regulations and procedures were either done away with or
eased. Foreign investors have now shown unprecedented interest for investment in
the manufacturing sector. Measures taken on this front have shown highly
encouraging results and foreign investment on a series of manufacturing sectors has
shown increased growth from October onwards. See the chart below:
Above are some of the main measures which have been taken by the government in
the first year of its term. These measures are historic and will have highly positive
impact on the economy. Though gestation period of any reform ranges from 12 to 18
months, the results of these reforms are visible even in a short period of time.
Foreign direct investment has shown substantial increase across the sectors. During
the period October, 2014 to March, 2015, FDI inflow recorded a growth of 38% from
US $ 18.13 billion in US $ 24.95 billion. More than 50 percent of the FDI was
received from October, 2014 to March 2015. FDI equity inflows also increased from
US $ 11.7 billion to US $ 16.24 billion, recording an increase of 39 percent. See the
chart below:
Cardinal principle of the FDI policy of the country has been to keep maximum of the
sectors under automatic rule and regulating only those sectors which are strategic
in nature or have security concerns. It is not surprising that more than 90% of the
FDI received in the country comes under automatic route. However the last year saw
significant jump in the approval route though no new sector was placed under the
government approval. In fact more sectors were liberalised during this period. As
against US$ 1.19 billion received under the approval route in financial year 2013-
14, during the financial year 2014-15 recorded FDI inflow of US $ 2.22 billion with a
growth of 87%. This is a result of fast pace of approvals being accorded by the
government and confidence of investors in the foreign investment climate of the
country. See chart below:
The Government of India has the stated policy to provide Overseas Citizens of India
(OCIs)/ Persons of Indian Origin (PIOs) parity with Non Resident Indians (NRIs).
NRIs can make investment under schedules 1, 3 and 4 of FEMA 20/2000 issued by
the Reserve Bank of India. Under Schedule 4 of FEMA, NRI investments are made on
non-repatriation basis though it has not been provided that these are domestic
investments. As per the FDI policy, definition of NRIs includes PIOs, and OCIs are
not specifically mentioned.
Facility of investment on non-repatriable basis under Schedule 4 of FEMA 20/2000
was introduced primarily with the intention of providing NRIs an investment option
for utilization of their domestic resources, which were not freely repatriable. The
scheme was intended to provide NRIs an incentive to bring funds into India without
repatriation rights, at a time when foreign exchange reserves were limited and
capital inflows were modest. The provision should continue to incentivise
investments by NRIs, including OCIs and PIOs, resulting in increased investments in
the country. Since the investment made under Schedule 4 are on non-repatriable
basis, it needs to be clearly provided that such investments, for the purposes of FDI
policy, are domestic investments. This will enable investments by NRIs, OCI
cardholders and PIO cardholders under Schedule 4 on non-repatriation basis,
across sectors without being subjected to any of the conditions associated to foreign
investment.
A foreign company planning to set up business operations in India may:

 Incorporate a company under the Companies Act, 1956, as a Joint Venture
or a Wholly Owned Subsidiary.
 Set up a Liaison Office / Representative Office or a Project Office or a Branch
Office of the foreign company which can undertake activities permitted under the
Foreign Exchange Management (Establishment in India of Branch Office or Other
Place of Business) Regulations, 2000.
2.8.4 PROCEDURE FOR RECEIVING FOREIGN DIRECT INVESTMENT
An Indian company may receive Foreign Direct Investment under the two routes as
given under:
I. Automatic Route
FDI is allowed under the automatic route without prior approval either of the
Government or the Reserve Bank of India in all activities/sectors as specified in the
consolidated FDI Policy, issued by the Government of India from time to time.
II. Government Route
FDI in activities not covered under the automatic route requires prior approval of the
Government which are considered by the Foreign Investment Promotion Board
(FIPB), Department of Economic Affairs, Ministry of Finance. Application can be
made in Form FC-IL.
The Indian company having received FDI either under the Automatic route or the
Government route is required to comply with provisions of the FDI policy including
reporting the FDI to the Reserve Bank. An Indian company issuing shares
/convertible debentures under FDI Scheme to a person resident outside India shall
receive the amount of consideration required to be paid for such shares /convertible
debentures by:
I. inward remittance through normal banking channels.
II. debit to NRE / FCNR account of a person concerned maintained with an AD
category I bank.
III. conversion of royalty / lump sum / technical know how fee due for payment
or conversion of ECB, shall be treated as consideration for issue of shares.
IV. conversion of import payables / pre incorporation expenses / share swap can
be treated as consideration for issue of shares with the approval of FIPB.
V. debit to non-interest bearing Escrow account in Indian Rupees in India which
is opened with the approval from AD Category – I bank and is maintained with the
AD Category I bank on behalf of residents and non-residents towards payment of
share purchase consideration.
If the shares or convertible debentures are not issued within 180 days from the date
of receipt of the inward remittance or date of debit to NRE / FCNR (B) / Escrow
account, the amount shall be refunded. Further, Reserve Bank may on an
application made to it and for sufficient reasons permit an Indian Company to
refund / allot shares for the amount of consideration received towards issue of
security if such amount is outstanding beyond the period of 180 days from the date
of receipt.
2.8.5 INSTRUMENTS FOR RECEIVING FOREIGN DIRECT INVESTMENT
Foreign investment is reckoned as FDI only if the investment is made in equity
shares, fully and mandatorily convertible preference shares and fully and
mandatorily convertible debentures with the pricing being decided upfront as a
figure or based on the formula that is decided upfront. Partly paid equity shares and
warrants issued by an Indian company in accordance with the provision of the
Companies Act, 2013 and the SEBI guidelines, as applicable, shall be treated as
eligible FDI instruments w.e.f. July 8, 2014 subject to compliance with FDI scheme.
Any foreign investment into an instrument issued by an Indian company which:
 gives an option to the investor to convert or not to convert it into equity or
 does not involve upfront pricing of the instrument as a date would be
reckoned as ECB and would have to comply with the ECB guidelines.
The FDI policy provides that the price/ conversion formula of convertible capital
instruments should be determined upfront at the time of issue of the instruments.
The price at the time of conversion should not in any case be lower than the fair
value worked out, at the time of issuance of such instruments, in accordance with
the extant FEMA regulations [valuation as per any internationally accepted pricing
methodology on arm’s length basis for the unlisted companies and valuation in
terms of SEBI (ICDR) Regulations, for the listed companies] without any assured
return.
2.8.6 MODES OF PAYMENT ALLOWED FOR RECEIVING FOREIGN DIRECT
INVESTMENT
An Indian company issuing shares /convertible debentures under FDI Scheme to a
person resident outside India shall receive the amount of consideration required to
be paid for such shares /convertible debentures by:
(i) inward remittance through normal banking channels.
(ii) debit to NRE / FCNR account of a person concerned maintained with an AD
category I bank.
(iii) conversion of royalty / lump sum / technical know how fee due for payment or
conversion of ECB, shall be treated as consideration for issue of shares.
(iv) conversion of import payables / pre incorporation expenses / share swap can be
treated as consideration for issue of shares with the approval of FIPB.
(v) debit to non-interest bearing Escrow account in Indian Rupees in India which is
opened with the approval from AD Category – I bank and is maintained with the AD
Category I bank on behalf of residents and non-residents towards payment of share
purchase consideration.
If the shares or convertible debentures are not issued within 180 days from the date
of receipt of the inward remittance or date of debit to NRE / FCNR (B) / Escrow
account, the amount shall be refunded. Further, Reserve Bank may on an
application made to it and for sufficient reasons permit an Indian Company to
refund / allot shares for the amount of consideration received towards issue of
security if such amount is outstanding beyond the period of 180 days from the date
of receipt.
Q.1 In which areas/sectors FDI is prohibited under the government route ?
Q.2 How a foreign company can set-up business operations in India ?
2.8.7 PROHIBITION OF FOREIGN DIRECT INVESTMENT
FDI is prohibited under the Government Route as well as the Automatic Route in the
following sectors:
i) Atomic Energy
ii) Lottery Business
iii) Gambling and Betting
iv) Business of Chit Fund
v) Nidhi Company
vi) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal
Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under
controlled conditions and services related to agro and allied sectors) and Plantations
activities (other than Tea Plantations)
vii) Housing and Real Estate business (except development of townships,
construction of residential/commercial premises, roads or bridges.
viii) Trading in Transferable Development Rights (TDRs).
ix) Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco
substitutes.
2.8.8 GUIDELINES FOR TRANSFER OF EXISTING SHARES FROM NON-
RESIDENTS TO RESIDENTS OR RESIDENTS TO NON-RESIDENTS
The term ‘transfer’ is defined under FEMA as including "sale, purchase, acquisition,
mortgage, pledge, gift, loan or any other form of transfer of right, possession or lien”
{Section 2 (ze) of FEMA, 1999}.
The following share transfers are allowed without the prior approval of the Reserve
Bank of India
A. Transfer of shares from a Non Resident to Resident under the FDI scheme where
the pricing guidelines under FEMA, 1999 are not met provided that :-
i. The original and resultant investment are in line with the extant FDI policy and
FEMA regulations in terms of sectoral caps, conditionalities (such as minimum
capitalization, etc.), reporting requirements, documentation, etc.;
ii. The pricing for the transaction is compliant with the specific/explicit, extant and
relevant SEBI regulations / guidelines (such as IPO, Book building, block deals,
delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and
iii. Chartered Accountants Certificate to the effect that compliance with the relevant
SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to
be filed with the AD bank.
B. Transfer of shares from Resident to Non Resident:
i) where the transfer of shares requires the prior approval of the FIPB as per the
extant FDI policy provided that :
a) the requisite approval of the FIPB has been obtained; and
b) the transfer of share adheres with the pricing guidelines and documentation
requirements as specified by the Reserve Bank of India from time to time.
ii) where SEBI (SAST) guidelines are attracted subject to the adherence with the
pricing guidelines and documentation requirements as specified by Reserve Bank of
India from time to time.
iii) where the pricing guidelines under the Foreign Exchange Management Act
(FEMA), 1999 are not met provided that:-
The resultant FDI is in compliance with the extant FDI policy and FEMA regulations
in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.),
reporting requirements, documentation etc.;
The pricing for the transaction is compliant with the specific/explicit, extant and
relevant SEBI regulations / guidelines (such as IPO, Book building, block deals,
delisting, exit, open offer/ substantial acquisition / SEBI SAST); and
Chartered Accountants Certificate to the effect that compliance with the relevant
SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to
be filed with the AD bank
iv) where the investee company is in the financial sector provided that :
 The FDI policy and FEMA regulations in terms of entry route, sectoral caps,
conditionalities (such as minimum capitalization, etc.), reporting requirements,
documentation etc., are complied with.
2.8.9 TRANSFER OF SHARES/ FULLY AND MANDATORILY CONVERTIBLE
DEBENTURES BY WAY OF GIFT
A person resident outside India can freely transfer shares/ fully and mandatorily
convertible debentures by way of gift to a person resident in India as under:
Any person resident outside India, (not being a NRI or an erstwhile OCB), can
transfer by way of gift the shares/ fully and mandatorily convertible debentures to
any person resident outside India (including NRIs but excluding OCBs).
Note: Transfer of shares from or by erstwhile OCBs would require prior approval of
the Reserve Bank of India. NRI may transfer by way of gift, the shares/convertible
debentures held by him to another NRI only, Any person resident outside India may
transfer share/ fully and mandatorily convertible debentures to a person resident in
India by way of gift.
A person resident in India who proposes to transfer security by way of gift to a
person resident outside India [other than an erstwhile OCBs] shall make an
application to the Central Office of the Foreign Exchange Department, Reserve Bank
of India furnishing the following information, namely:
Name and address of the transferor and the proposed transferee
Relationship between the transferor and the proposed transferee
Reasons for making the gift.
In case of Government dated securities, treasury bills and bonds, a certificate issued
by a Chartered Accountant on the market value of such securities.
In case of units of domestic mutual funds and units of Money Market Mutual
Funds, a certificate from the issuer on the Net Asset Value of such security.
In case of shares/ fully and mandatorily convertible debentures, a certificate from a
Chartered Accountant on the value of such securities according to the guidelines
issued by the Securities & Exchange Board of India or the valuation as per any
internationally accepted pricing methodology on arm’s length basis with regard to
listed companies and unlisted companies, respectively.
Certificate from the Indian company concerned certifying that the proposed transfer
of shares/convertible debentures, by way of gift, from resident to the non-resident
shall not breach the applicable sectoral cap/ FDI limit in the company and that the
proposed number of shares/convertible debentures to be held by the non-resident
transferee shall not exceed 5 per cent of the paid up capital of the company.
The transfer of security by way of gift may be permitted by the Reserve bank
provided:
I. The donee is eligible to hold such security under Schedules 1, 4 and 5 to
Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from
time to time.
II. The gift does not exceed 5 per cent of the paid up capital of the Indian
company/each series of debentures/ each mutual fund scheme.
III. The applicable sectoral cap/ foreign direct investment limit in the Indian
company is not breached.
IV. The donor and the donee are relatives as defined in section 6 of the
Companies Act, 1956.
V. The value of security to be transferred by the donor together with any
security transferred to any person residing outside India as gift in the
financial year does not exceed the rupee equivalent of USD 50000.
VI. Such other conditions as considered necessary in public interest by the
Reserve Bank.
Transfer of Shares by Resident which requires Government approval
The following instances of transfer of shares from residents to non-residents by way
of sale or otherwise requires Government approval:
(i) Transfer of shares of companies engaged in sector falling under the Government
Route.
(ii) Transfer of shares resulting in foreign investments in the Indian company,
breaching the sectoral cap applicable.
Prior permission of the Reserve Bank in certain cases for acquisition / transfer of
security
i) Transfer of shares or convertible debentures from residents to non-residents by
way of sale requires prior approval of Reserve Bank in case where the non-resident
acquirer proposes deferment of payment of the amount of consideration. Further, in
case approval is granted for the transaction, the same should be reported in Form
FC-TRS to the AD Category – I bank, within 60 days from the date of receipt of the
full and final amount of consideration.
(ii) A person resident in India, who intends to transfer any security, by way of gift to
a person resident outside India, has to obtain prior approval from the Reserve Bank.
Any other case not covered by General Permission.
2.8.10 LATEST INITIATIVES W.R.T. FDI MADE BY INDIAN GOVERNMENT
The Indian Government has favourable policy regime with respect to FDI inflows in
India. In this direction Government relax FDI norms across sectors such as defence,
PSU – oil refineries, telecom, power, stock exchanges etc.
During the period of 2018-2019 and 2019-2020, Indian Government
permitted 100% FDI in –
(a) Coal mining;
(b) Insurance intermediaries;
(c) E-commerce; and
(d) Real estate broking servies
In January 2018, Government allowed foreign airlines to invest in Air India upto
49% with Government approval.
According to department of promotion of industry and internal trade, in 2019-20 (till
Oct.2019) FDI equity inflow in India stood at US $ 23.35 billion. The net FDI stood
at US $ 2.15billion in October 2019.
The total FDI inflow to India grew by 55% from US $231.37 billion (in 2008-14) to
US $358.29 billion (in 2014-20). India's FDI saw a significant jump in November
2020 as the commerce ministry shows data that India has attracted total FDI inflow
of $ 58.37 billion during April to November 2020, which is 22% higher as compared
to the Ist 8 months of 2019-20 i.e. $47.60 billion. The equity inflow of FDI received
during F.Y. 2020-21 (i.e. April 2020 to November 2020) is $43.85 billion, which is
37% more as compared to the first eight months of 2019-20 (i.e. $32.11 billion).
Thus, measures taken by the Government on the FDI policy reforms, investment
facilitation, and ‘Ease of doing business’ have resulted in increased FDI inflows in
India.
2.8.11 SUMMARY
India has made tremendous progress in building a policy environment to encourage
investment. As a result, the country’s economy is growing more rapidly and FDI inflows
have accelerated impressively. However, investment remains insufficient to meet India’s
needs, particularly in infrastructure.
Current efforts to strengthen and liberalise the regulatory framework for investment need
to be intensified and India’s well-developed economic legislation implemented at an
accelerated pace both at national level and right across India’s states and union
territories.
The government of India may wish to consider policy options to address these challenges,
including:
1. Further relaxing restrictions on inward FDI where public interest objectives can
be achieved by non-discriminatory means, including foreign ownership ceilings in
sectors such as banking, insurance and retail trade, and regularly reviewing
remaining FDI restrictions to ascertain that their costs do not outweigh their
expected benefits.
2. Developing a system of comparable FDI statistics for states and union territories
as a basis for cross-state monitoring of FDI performance.
3. Conducting a study into the design of mechanisms that can be employed by
central government to induce states to streamline investment approval
procedures.
4. Conducting a study and/or establishing an inter-state forum to evaluate the
costs and benefits of investment incentives, their transparency and their impact
on other states, using the OECD’s Checklist for Foreign Direct Investment Incentive
Policies as a reference.
5. Strengthening implementation of measures to enhance corporate transparency
and responsibility to align India more closely with internationally-recognised
standards and practices.
2.8.12 GLOSSARY
Liberalise: remove or loosen restrictions on (something, typically an economic or political
system
FC-TRS: Foreign Currency- Transfer of Shares
FEMA: Foreign Exchange Management Act
OECD: Organization for Economic Cooperation and Development
2.8.13 ANSWERS TO SELF-CHECK EXERCISE
Ans.1 Under the following sectors FDI is prohibited through government
(a) Atomic Energy
(b) Lottery Business
(c) Business of Chit Fund
(d) Nidhi Company
(e) Agricultural
(f) Gambling and Betting
(g) Housing
(h) Trading in Transferable Development Rights (TDRs)
(i) Manugacture of Cigars, Cheroots, Tabacco etc.
Ans.2 A foreign company can set-up business operations in India by :
(a) Incorporation of a company under the companies act, 1956, joint venture.
(b) Set-up a liaison office/project office or a branch office of the foreign
company.
(c) Undertake activities permitted under FEMA, regulations, 2000.
2.8.14 EXERCISE
Short Questions
1. What are the guidelines for transfer of existing shares from non-residents to
residents or residents to non-residents?
2. Can a person resident in India transfer security by way of gift to a person resident
outside India?
3. What was the FDI inflow in the year 2014-15?
Long questions
1. What are the forms in which business can be conducted by a foreign company in
India?
2. What is the procedure for receiving Foreign Direct Investment in an Indian
company?
3. What are the instruments for receiving Foreign Direct Investment in an Indian
company?
4. What are the recent changes in FDI has been made by government of India?
1. Impact of Foreign Direct Investment on Economic Growth In India
By Atul Bansal
2. Indian Economy
By V.K .Puri & S.K. Misra
3. Business Environment- Text and Cases
By Prof. M.B.Shukla
M.COM. PART - I MCOP-1202T
LESSON NO. 2.9 AUTHOR : DR. M.L. SHARMA
INTERNATIOAL MONETARY FUND (IMF)

2.9.0 Objective
2.9.1 Introduction
2.9.2 Objectives of IMF
2.9.3 Organisation of IMF
2.9.4 Functions and working of IMF
2.9.5 IMF and Underdeveloped countries
Self-Check Exercise
2.9.6 The India - IMF Relationship
2.9.7 Summary
2.9.8 Glossary
2.9.10 Exercise
2.9.0 OBJECTIVE
The main objective of the lesson is to introduce the students with the
(1) Organisation of IMF;
(2) Functions and working of IMF;
(3) Objectives of IMF; and
(4) Role of IMF for the economic development countries.
2.9.1 INTRODUCTION
The Collapse of gold exchange standard in the 1930’s, competitive exchange depreciation,
exchange restriction, wide fluctuations in the exchange rates, discriminating trade
policies, and general uncertainty about the medium of international exchange were some
of the factors responsible for economic instability and decline in world trade in the post
world war period. The lack of cooperation in matter of trade and payment was the main
problem in the field of international economic policy. The international community was,
therefore, in search of a substitute for the old gold standard and an alternative to a system
of completely free exchange control. It was also considered desirable to evolve an
international monetary system, which could reconcile the autonomy of international
economy with the discipline of international mechanism of payment. A conference was,
therefore organised in 1944 under the auspices of the United National at Britton Woods
in U.S.A. The conference was attended by the representative of 44 countries. Many experts
contributed to the Bretton Woods Agreement, but the major influence was exerted by Lord
Keynes and Harry Dexter White, under secretary of the US Treasury. As a result of The
Bretton Woods agreement, the international Monetary Fund (IMF) was set up in 1945.
110
M.Com. Part -I 111 MCOP-1202T
19.2 OBJECTIVES OF IMF
The International Monetary Fund started functioning on the 1st March 1947 with the
following objectives:
(1) The promote international monetary co-operation amongst the various
member countries.
(2) To facilitate the expansion and balanced growth of international trade and to
contribute thereby to the promotion and maintenance of high level of
employment and real income.
(3) To promote exchange stability, to maintain orderly exchange agreements
among members, and to avoid competitive exchange depreciation.
(4) To assist in the establishment of a multilateral system of payment in respect
of current transactions between members and in the elimination of foreign
exchange restrictions which hamper the growth of world trade.
(5) To give confidence to the members by coming to their timely rescue by giving
them short period monetary resources to help them tide over the temporary
mal adjustments in their balance of payments without resorting to measures,
destructive to national and intranational prosperity.
(6) To shorten the duration and reduce the degree of disequilibrium in the
international balance of payments of members.
The above mentioned objectives as embodied in the Article of Agreement clearly indicate
the obligations of the international Monetary Fund. These objectives indicate that IMF
shall be required to regulate monetary relationships among the member countries in
accordance with the code of good conduct and also to provide finance to members facing
balance of payments deficit.
2.9.3 ORGANISATION OF IMF
The total membership of IMF was only 40 at the time of its inception on March 1, 1947. In
September 1976, the IMF had a total membership of 135. The capital resources of the IMF
consist of the total of the quota allotted to member countries. The quota to a member
country is based upon its importance as measured by the value of the foreign trade, gross
national product, gold and foreign exchange and certain other related factors. Each member
country is required to contribute its quota both in terms of gold as well as in its national
currency. Each member has to pay its quota in gold (either 20 percent of the quota or 10
percent of the entire gold and dollar holding whichever is less). The aggregate of quotas
amounted to $ 7.5 billion on 1st March, 1946. In September, 1976, the aggregate quotas
amounted to $ 43 billion, amounts to SDR 39 billion.
The IMF has also appointed certain Central Banks as its gold depositories where members
can deposit gold to the credit of IMF. The gold and national currencies deposited with IMF
are the properties of the IMF. The IMF utilized its gold holdings to acquire dollars and
other currencies for its operations. The IMF holds two kinds of accounts with the Reserve
Bank of India, Account No. 1 and Account No. 1 is the major account in which the proportion
of India’s IMF quota subscription and other payments in rupees are credited and through
which all the major transactions with the IMF involving purchase of foreign currencies
(sale of rupees) are routed. For day to day use, the IMP maintains Account No. 2 with the
Reserve Bank of India. This is a current account Deposits in Account No. 2 produce their
impact on the supply of money in India.
There are two bodies to run the management of the IMF (1) The Board of Governors and
(2) The Board of Directors. Every member country appoints one Governor and one alternate
Governor. The alternate Governor participates in the meeting in the absence of the
Governor. The Board of Governors formulates the general policy of the IMF. Thus, the
Board of Governors is a decision making body of IMF. There are 21 members in the Board
of Directors. The Board of directors has to carry out the day to day working of the IMF. The
chief executive of the IMF is the Managing Director. The head office of the IMF is at
present located at Washington.
2.9.4 FUNCTIONS AND WORKING OF IMF

1. Determination of Exchange Rate: The very first article of the IMF
agreement stipulates that one of the purposes of the IMF is to promote exchange stability.
The IMF adopted the ‘par value’ system of detaining the exchange rates for member
countries. Under the ‘par value’ system, each member country is required to define the
value of its currency; in terms of weight of gold as a common denominator or in terms of
the United States dollar of the weight and finances in effect on July 1,1944 which was
$35= one ounce of gold of 0.095 finances. The initial par value of the India rupee, established
with the IMF on December 18, 1946 was 0.268601 gram of fine gold or 30.2250 U.S. cents.
In other words, the exchange rate determined in terms of par value was Rs. 30.30 = $1.00.
When all the member countries express the value of their currencies in gold or dollars, it
becomes easier for the IMF to fix the foreign exchange rate of the concerned countries.
2. Management of Exchange Stability: In order to facilitate multilateral
trade among member countries, the IMF bars competitive exchange alternation and
requires each member country to maintain orderly exchange agreement with other
members. IT does not mean that the IMF favours a fixed exchange rate system. As a
matter of practice and principle, the IMF is against the floating exchange rate policy. The
IMF believes in the merits of stable exchange rate policy in order to achieve the goal of
exchange stability the IMF provides for a 10 percent adjustment, upward or downward in
the external value of member country’s currency without its prior approval, and for a
more than 10 percent adjustment with its prior consent, it must however, be pointed out
that the adjustment in the external value of the currency is permitted only for correcting
a fundamental disequilibrium in a member country’s balance of payments. The downward
adjustment in the external value of the Indian rupee was made when the rupee was
devalued on September 18, 1949 and again on June 6, 1966. Thus IMP seeks to manage
the stability of exchange rates. It must, however, be pointed out that from December 18,
1975 the IMF has allowed the fluctuation in the exchange rate of member’s currency
within a wider margin of 2.25 percent in place of old margin of percent.
3. Establishment of a Multilateral System of Payment and Elimination of
Foreign Exchange Restrictions: Article 1(IV) of the IMF agreement indicates that IMF
shall operate to assist in the Establishment of a multilateral system of payments in respect
to current transactions between members and in the elimination of foreign restrictions
which hamper the growth of world trade. In order that this objective may be achieved,
Article VIII provides that no member country may without the approval of the IMF, impose
restrictions on the making of payments or transfers for current International transaction
or engage in discriminatory currency arrangements or multiple currency practices. It is
also stipulated that the monetary authority of each member country shall convert any
balances with another member country. In short, all the member country’s monetary
authority has acquired from or needs for current transactions, into gold into currency of
that member countries shall abolish restriction upon currency payments, avoid
discriminatory currency practices and Promote convertibility of foreign held balance. As
a result, multi-lateral system of payments will be established and trade volume will be
increased.
4. Lending to members to cover up Deficit in Balance of Payment: The
IMF’s resources consist of a common pool of gold and currencies, which in turn consist of
‘aggregate quotas' paid in or payable by its members countries. The IMF lends to a member
country, which is in need of a short-term credit to settle a current deficit in its balance of
payments. The deficit country borrows the necessary funds in exchange for its I.O.U.S. It
implies that a deficit country borrows the necessary funds in exchange from the IMF with
its own currency. If the short-term credit thus acquired helps the deficit country to
overcome its adverse balance of payments, the country is required to repurchase its own
currency in exchange for gold or convertible currencies. As a result, the IMF is protected
against quick depletion of its scarce currencies (e.g. dollar resources). It must however
be pointed out that member country can buy foreign exchange from the IMF upto an
amount equal to 25 percent of its quota in any given year. However, the currency of a
member country with IMF at any time should not increase 200 percent of its quota. Let us
suppose, as an example, that the quota of a member country is $ 100 million comprising
$ 25 million in gold and $ 75 million in its own national currency. If this country wishes
to obtain some foreign currency from the IMF, it cannot secure the foreign currency of
the value greater than $ 125 million. The IMF charges rate of Interest, which varies,
between 0.5 2.5 percent. It also levies service charges to the extent of 0.75 percent on its
loans. These drawings of the member countries from the IMF are conditional.
5. Dealing with the problem of ‘scarce currencies’: The currency of member
country is said to be ‘scare’ if the supply is less than its demand. If the country sells its
goods to other countries but does not buy from them, then the other countries are not
able to acquire the currency of the former. As a result, currency of that export surplus
country becomes scarce in relation to demand. Dollar, for most of the time, has been a
scarce currency. The IMF can deal with the problem of dollar scarcity in two ways, namely:
(a) by increasing its supply of dollars through purchase of dollars with its gold and (b) by
declaring the dollar to be a scarce currency. If the gold assets are enough to buy all the
dollars needed by the deficits members then it will not have to ration its scarce dollar
holdings among the dollar needing members. Fundamentally, however, it is more important
to correct a sustained equilibrium between those members whose currencies are scarce
and those whose currencies are not scarce, because that is what gives rise to a general
scarcity of the former’s currencies. This suggests that the burden of responsibility should
not rest on the shoulders of deficit countries alone.
6. The Special Drawing Right: Under, the original articles of the IMF it had
powers to lend sums to member countries, but this lending was conditional, and it was
repayable. The unprecedented growth in international trade in the post war era had posed
serious problem of International liquidity. The introduction of special drawing rights (SDRs)
by the IMF was an important step in improving international liquidity. The plans for SDRs
were approved in September 1967 and were introduced in 1969. The essence of these
special drawing rights (SDRs) is that they create a new international reserve assets.
They can be used unconditionally by the participating countries and they are not backed
by any assets. Unlike existing IMF drawing rights, SDRs are not created by country’s
contributions of gold and currency to the IMF and one drawn they do not have to be paid
back to the fund. The peculiarity of new drawing rights is that they would not be treated
as borrowing as the existing claims of IMF. The SDRs are sometimes nicknamed paper
gold. They could be used as gold in, as much as they would be the ultimate resource for
purchasing the currencies. They are not pieces of paper like bank notes or treasury bills.
They are simply entries in a special account kept by the IMF. The SDRs are allocated to
each member country in proportion of its IMF quota. They can only be transferred, to
another member country in exchange of usable foreign exchange. It means they cannot
be spent directly on goods and services. In short SDR is an international medium of
exchange and store of value.
By the end of 1976, 131 members were participants in SDRs. The allocations of SDRs
were made at the beginning of 1970-1971 and 1973. The total SDRs allocated during this
period amounted to SDR 9.3 billion. On 4th January, 1979, the IMF decided to make fresh
allocation of total of SDR 13 billion India was entitled to receive 3.6 billion out of a total of
SDR 13 billion.
Alongwith financial help, the IMF also grants technical assistance to the member countries.
The experts and specialists of IMF render valuable help to the member countries in solving
their complicated economic and monetary problems. In fact the under-developed countries
have been helped in the formulation of their monetary fiscal and exchange policies. Thus,
the IMF helps the member countries to stablized their economies.
2.9.5 IMF AND UNDER DEVELOPED COUNTRIES

The stable exchange rate system was set up in the Bretton Wood system. The developing
countries have been favouring stable exchange rate system because it is in the interest
of such countries. These countries often face adverse balance of payment problem. The
stable exchange rate with the support of international liquidity is better arrangement
because they are in a better position to pursue their development programmes under
such international monetary system. In 1986, underdeveloped countries had deficits in
their balance of payment of the order of $30 billion, whereas in 1973, the deficits were $
10 billion. The developing economies therefore, want an adequate supply of international
liquidity to meet the adverse balance of payment. The total SDRs created and allocated
from 1970 to 1972 stood at $9.3 billion.
This system worked reasonably well as long as the deficits in the balance of payments of
the United States did not exceed the normal needs for the growth of world reserves. The
accumulation of dollar balances by foreign central bank over 1950-1969 was of the order
of $4.5 billion. As a matter of fact, 96 percent of the overall deficits of the United States
balance of payments were financed by the acceptance of American dollars as international
reserves by other-countries. In 1971, the position was such that the world, having acquired
dollar balances for American gold reserves finally lost its confidence in the dollar as the
principal reserve currency. This forced U.S.A. to abrogate convertibility of dollar into gold
on August 15, 1971. The countries haying surplus of payments had to adopt the floating
rate system because of the inflationary implications of rising dollar with them. In short,
the inconvertibility of the dollar and the generalized adoption of floating rates is the basic
contravention of the Bretton Woods agreement. These were the manifestations of the
total breakdown of the international monetary system institutionalized in the form of
IMF. Gold has been dethroned from its, position of constitutional head of the international
monetary system. Thus, we see Triffins’s prediction come true man made credit reserves
will continue to displace and will eventually replace gold reserves just as man-made
credit money has long replaced gold money in every national monetary system, the world
over. He has criticised use of gold as component of International liquidity on the ground
that for a long time the monetary stock of gold has been rising more slowly than the
volume of world trade. It is significant to point put that even though the IMF evolved in
1969, SDRs as an international liquidity, the fixation of its value in terms of gold proved
ineffective. In accordance with the recommendations made by the G-20 (the committee
of twenty), the SDRs were delinked from gold in July 1974, Triffin argues that it does not
sound logical that the gold should also compete with the newly created reserve asset.
Triffin has given a proposal for reform of the international monetary system. He has
advocated the centralization of reserves and establishment of an international reserve
creating institution. He suggested to adopt the model of domestic monetary systems and
establish an international reserve creating institution to perform tasks similar to those
of domestic central banks.
A new international monetary system was born on January 8, 1976 as a result of the
conference of the G-20. The old Bretton Woods monetary system has collapsed on December
18, 1971 when the dollar was devalued. The basic features of the new monetary system
are 1) the new monetary system has now given legal recognition to the fluctuation of
currencies in the foreign exchange market of the world, 2) the new monetary instituted
a “Special Trust Fund* with the same proceeds of gold stock of the IMF. Thus fund was
intended to be utilised to help the developing countries to meet chronic deficits in their
balance of payments. However, the assistance from this will be given only to those
developing countries whose per capita income was less than $ 360. Third, the quotas of
the member countries in the capital resources of the IMF had been increased by 33
percent under the new system, the paper gold i.e. SDRs has been declared as the principal
reserve asset of the international monetary system.
Self-Check Exercise
Q.1 What do you understand by SDRs ?
Q.2 How you will explain the system of determination of exchange rate under IMF ?
2.9.6 THE INDIA - IMF RELATIONSHIP
India has a strong and positive relationship with the IMF. The fund has provided financial
assistance to India, which has helped in accelerating the growth of the country's economy.
The IMF has praised the country for it was able to avoid the South East Asian Financial
crisis in 1999 and was also able to continue the average rate of growth of its economy.
The fund said that the reasons behind the economic growth of India are that the RBI has
been able to maintain, to a great extent, the stability of the rupee and has also handled
its monetary policies very skilfully. The IMF has been recommended that India can become
a financial super power by bringing in more monetary and fiscal reforms that will augment
its growth rate to 8%. India has been provided the following loans by the IMF :
In 1992 = SDR 3,260,405,000
In 1993 = SDR 3,584,905,000
In 1994 = SDR 2,763,180,833
In 1995 = SDR 1,966,633,125
In 1996 = SDR 1,085,250,003
In 1997 = SDR 589,791,667
In 1998 = SDR 284,916,664
In 1999 = SDR 38,500
India's relationship with IMF has moved from strength to strength over the past few years.
Actually, India has, from being a borrower, turned into a creditor to the IMF and has not
been taking loans from it. This relationship has been advantageous both for India and
the IMF.
2.9.7 SUMMARY
The above discussion deary brings that the IMF succeeded in achieving such objectives
like exchange rate stability, convertibility of a currency and multilateral payments system.
But it could work satisfactorily only in the first two decades of its existence the reliance
on one national currency (dollar) and convertibility of dollar into gold, enshrined under
the IMF agreement, brought a halt and ultimately collapse of the Bretton Woods system in
the beginning of 1970s. Fortunately, in the amended 1976 international monetary system,
the yellow mental has been dethroned from its central position.
2.9.8 GLOSSARY
(i) IMF : Internatioinal Monetary Fund
(ii) SDR : Special Drawing Rights
(iii) US : United States
2.9.9 ANSWERS TO SELF-CHECK EXERCISE
Ans.1 The plans of SDRs (Special Drawing Right) were approved in september
1967 and were intorduced in 1969. The SDRs are simply entries in a special account kept
by the IMF, which are allocated to each member country in promotion of its IMF quota.
The peculiarity of these drawing rights is that they would not be treated as borrowing so
don't have to be paid back. SDRs can be described as 'Paper Gold'. Thus, SDRs, schemes
provides more facilities for reserve and creation of credit flexibility.
Ans.2 One of the purposes of the IMF is to promote the exchange rate. For this IMF
started the 'Par Value System' of detaining the exchange rates for members countries.
Under this system each member country is required to identify the value of its currency
in terms of weight of gold as a common denominator or in terms of weight of gold as a
common denominator or in terms of the US dollar of the weight and finances (e.g. $35=
one ounce of gold of 0.095 finances). In this way when all the member countries express
the value of their currencies in gold or dollars, it becomes easier for the IMF to fix the
foreign exchange rate of the concerned countires.
2.9.10 EXERCISE
(A) Short Questions:
Q.1. Write a short note on the structure of the IMF.
Q.2. Why was the IMF established?
Q.3. Explain the operations of the IMF.
(B) Long Questions:
Q.1. Write a detailed note on the objectives and organization of IMF.
Q.2. Define IMF. And state the functions of International Monetary Fund.
2.9.11 SUGGESTED READING
Business Environment : By Francis Cherunilum
Essential of Business Environment : By K Aswathapa
Business Environment : By Rosy and Joshy.
Sample Questions
Short Questions:
1. What do you mean by NRI?
2. Globalization
3. Objectives/purpose of RTI Act
4. Environmental scanning
5. Fiscal Deficit
6. Explain the concept of EXIM Policy
7. What do you mean by FDI?
8. Who can file a complaint under Consumer Protection Act, 1986
9. IMF
10. Monetary Policy
Long Questions:
1. Explain the concept of Business Environment. Discuss the elements of internal and
external environment.
2. Explain in detail the salient features of current Monetary policy of India.
3. Discuss the salient features of RTI Act 2005.
4. Discuss the salient features of Consumer Protection Act, 1986.
5. Explain the Privatisation Policy of Indian Government. Discuss the merits or demerits
of privatization.
Mandatory Student Feedback Form
https://forms.gle/KS5CLhvpwrpgjwN98
Note: Students, kindly click this google form link, and fill this feedback form once.

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Centre for Distance and Online Education

Punjabi University, Patiala

Class : M.Com. Part-I Semester : II

Medium : English Unit : II

2.3 : The Consumer Protection Act 1986

2.4 : The Right to Information (RTI) Act, 2005

2.5 : Environment Degradation

2.6 : Environment Protection Act, 1986

2.7 : FEMA and Promotion of Foreign Trade

2.8 : Foreign Direct Investment

2.9 : International Monetary Fund (IMF)

LESSON NO. 2.1 DR. SHAILINDER SEKHON

POLITICAL AND LEGAL ENVIRONMENT OF BUSINESS

Structure of the Lesson :

measurements of the governments.

systems function smoothly and which help to maintain competition.

1. Pre Independence Era : To regulate the business activities from the

4. The Securities and Exchange Board of India Act 1992 (SEBI) :

2.1.12 SUGGESTED READINGS

The Competition Act, 2002

2.2.0 Objectives of the Lesson

is to preserve and promote competitions as a means to ensure the efficient allocation

themselves, who therefore cannot benefit from

product, to carry all of the supplier’s products.

Restrictive policies have slackened competition like reservation of industries for

Government company or a public sector undertaking or otherwise;

services, or number of customers in the market of any other similar

competitors) of goods or service.

agreement or abuse of dominant position or combinations if such agreement or

2.2.11 Regulation of combinations

to the information of the public and persons affected by such combination.

sale of the goods.

3. Discuss the powers and functions of the Competitive Commission.

LESSON NO. 2.3 AUTHOR : Dr. SHAILINIDER SEKHON

CONSUMERISM AND CONSUMER PROTECTION ACT, 1986

2.3.0 OBJECTIVES OF THE LESSON

consumerism and legislative measures to project the consumers. Consumer

the made worse by hoarding and black marketing by traders. Further,

expectations amongst the consumers.

banking, financing, Insurance, transport, processing, supply of electrical or other

Another significant part of it is that now commercial organizations will not be

(IV) liberalization and consumer protection.

programme on consumers and the functioning of district forum in five states.

organisations have a large role to play.

LESSON NO. 2.4 AUTHOR : DR. SHAILINDER SEKHON

The Right to Information Act, 2005

transparency and accountability in the working of every public authority,

4. State Information Commission: It means the State Information Commission

XV. the particulars of facilities available to citizens for obtaining

information within the period specified under sub-section(1), the Central

would cause unwarranted invasion of the privacy of the individual

The Chief Commissioner or an Information Commissioner shall not be a

Removal of State Chief Information Commissioner or State Information

section 7 or malafidely denied the request for information or knowingly

Application Procedure for requesting information: (1) Apply writing or

LESSON No.- 2.5 AUTHOR : DR.NAVNINDERJIT SINGH

THE ENVIRONMENT (PROTECTION) ACT, 1986

2.6.0 Origin and Introduction

2.6.7.6 Powers of Central Govt, to make rules (Sec. 25)

Chapter Subject matter Sections

inrespect of all or any of the matters referred to in section 3.

recovered from the person concerned as arrears of land revenue or of public

2.6.6.4 Cognizance of offences (Section 19)