2.24 Busin. Envir. | Privatization | Strategic Management

INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU

Unit-I Nature, components and determinants of business environment; basic nature of Indian economic system; relation size and growth of public and private corporate sector; social responsibility of business; broad features of India’s now economic policy. Q.1 What are the main components of business environment? Account for the inherent dynamism of business environment. Ans. Generally Business refers to those activities that are related to the buying and selling of goods. Business Environment consists of all those factors that have a bearing on the business. The survival and success of a business firm depend on its strength, resources at its command, including physical resources, financial resources, human resources, skill and organisation and its adaptability to the environment and the extend to which environment is favourable to the development of the organization. The survival and success of a fir, thus, depend on two sets of factors, viz., the internal factors the internal environment and external factors- the external environment. Some of the external factors have a direct intimate impact on the firm (like the suppliers and distributors) of the firm. These factors are classified as microenvironment also known as task environment and operating environment. These are other external factors which effect an industry very generally (such as industrial policy, demography factors etc.). They constitute what is called macroenvironment, general environment or remote environment. Hence business environment has three components. − − − Internal environment Micro environment/task environment/operating environment Macro environment/general environment/remote environment

Internal Environment The important internal factors which have a bearing on an organisation include: a) Value system: The value system of the founders and those at the helm of affairs has imported bearing on the choice of business, the mission and objective of the organisation, business policies and practices. b) Mission and objectives: The business domain of the company, priorities, direction of development, business philosophy, business policy etc. are guided by the mission and objectives of the company e.g. Ranbaxy’s thrust in to the foreign markets and development have been driven by its mission “to become a research based international pharmaceutical company.” c) Management Structure and Nature: The organisation structures the composition of the Board of Directors, experts of professionalisation of management etc. are important factors influencing business decisions. Some management structures and styles delay decision while some others facilitate quick decisions making. d) Internal Power Relationship: Factors like the amount of support the top management enjoys from different levels of employees, shareholders and board of directors have important influence on the decisions and their implementation. e) Human Resources: The characteristics of the human resources like skill, quality, morale, commitment, attitude etc. could contribute to the strength and weakness of an organisation.

INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU
Company Image and Brand Equity: The image of the company matters while raising finance, forming, joint venture or other alliances, soliciting marketing intermediaries, entering purchase or sale contracts, launching new products etc. Microenvironment: The microenvironment consists of the actors in the company’s immediate environment that affects the performance of the company. These include the suppliers, marketing intermediaries, competitors, customers’ etc. Suppliers: Supplier supply the inputs like raw materials and components to the company. For the smooth functioning of business, it is important to have a reliable source of supply of raw material and components. Marketing intermediaries: Marketing intermediaries are the firms that aid the company in promoting, selling and distributing its goods to final buyers. Marketing intermediaries include middlemen such as agents and merchants like: help the company find customers or close sales with them “, physical distribution firms which assist the company in stocking and moving goods from their origin to their destination such as advertising agencies marketing research firms etc and financial intermediaries which finance marketing activities and insure business risk. Competitors: The firm’s competitors include not only the other firms which market the same or similar products but also all those compete for the discretionary income of the consumers. An implication of these different demands is that a marketer should strive to create primary and selective demand for his products. Customers: The major task of a business is to create and sustain customers. A business exists only because of its customers monitoring the customer sensitivities, therefore, prerequisite for the business success. A company may have different categories of customers like individuals, households, industries and other commercial establishments, and government and other institutions. With the growing globalization, the customer environment is increasingly becoming global. Not only the markets of other countries are becoming more open the Indian market is becoming more exposed to the global competition and the Indian customer is becoming more “global” in his shopping. Macro Environment: The macro environment consists of the societal forces that affect all the sectors in the company’s macro environment namely, the demographic, economic, natural, technological, political and cultural forces. These environment forces are beyond the control of a firm, its success will depend to a very large extend on its adaptability to the environment. Socio-cultural Environment: The buying and consumption habits of the people, their language, beliefs and values, customs and traditions, tastes and preferences, education etc are the constituents of Socio-economic environment. For a business to be successful, its strategies should be the one that is appropriate in the Socio-cultural environment. The marketing characteristics of the market e.g. Nestle, a Swiss multinational company brews more than forty varieties of instant coffees as per different national tastes. Natural Environment: Difference in geographical conditions between markets may sometimes call for changes in the marketing mix, geographical and ecological factors also influence the location of certain industries, climate and weather conditions affect the location of certain industries like the cotton textile industry. Topographical factors may affect the demand pattern. For example, in hilly areas with a difficult terrain, jeeps may be in greater demand than cars.

INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU
Demographical Environment: Demographic factors like the size, age composition, sex composition etc of the population, family size, educational levels, language, religion etc are all factors which are relevant to business. The occupational and spatial mobility of population have implications for business if labour is easily mobile between different occupations and regions, its supply will be relatively smooth and this will affect wage rate. Technological Environment: Technological developments may increase the demand for some existing products. For example, voltage stabilizers help increase the sale of electrical appliances in market characterized by frequent voltage fluctuations in power supply. However, the introduction of TVs, refrigerators etc. with build-in-voltage stabilizers adversely affects the demand for voltage stabilizers. Political Environment: Political and government has close relationship with the economic system and economics policy. Certain changes in government policies such as the industrial policy, traffic policy, fiscal policy etc. may have profocused impact on business. In may countries with a view to protecting consumer business. In many countries with a view to protecting consumer interests, regulations have become stronger. Regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many counties. . 2 What do you mean by social responsibility of business: Why should business oirganisation by socially responsible? Ans. As business operates in society, it can’t exist and grows unless it cares for society. It exist vis-àvis with society. It is required to meet different needs of the society. For meeting these needs, business has certain social responsibilities to discharge. “Cooperate social responsibilities” is defined as considering the impact of the company’s action on society. A newer concept,” social responsibilities”, is defined as the ability of a cooperation to relate it’s operation and policies to social environment in ways that are mutually beneficial to both the company and society. Social responsibilities of business are different for different sections of society, which include responsibilities towards (a) (b) (c) (d) employees consumers Government Society as a whole

Responsibilities towards employee 1. 2. 3. 4. 5. 6. 7. Fair wages and regular payment. Good working conditions and safety Reasonable working standards and norms Labour welfare services,- Health, education, recreation and accommodation Training and promotion Recognition and respect for hard work, honesty, sincerity and loyalty Efficiency of redressing employees grievances.

Responsibilities towards customers 1. Providing goods and services at a reasonable price 2. Supply goods and services of promised quality, durability and services. 3. Supply social harmless products. 4. Offering an efficient consumer redressal mechanism 5. Resisting profiteering and black marketing. 6. Improving product quality towards R & D. Responsibilities towards government

Q3 Explain the ways in which private corporate sector has been liberalised under the new economic policy. merger or acquisition on the part of such companies. These measures are related to (a) (b) (c) (d) (e) the industrial sector the trade region foreign investment & technology public sector the financial sector In the financial sector. amalgamation. The liberal access to imports to technology aims at facilitating technology up gradation. It is hoped that the exposure of domestic firms to international competition in this manner will compels them to become more efficient In this relatively open environment domestic firms will have to upgrade technology. Cooperating with go of in social values. Till recently the commercial banking system and the domestic capital market were over regulated and under-governed. bureaucrat and administers. Preservation of ethical and moral values. Minimizing ecological imbalance. The MRTP Act has been amended to remove the threshold limit of one billion rupees on the assets of large business houses. 2. Regular payment of taxes. these has been a substantial reduction in tariffs on imports along With abolition of subsidies in exports. the govt. It may be required in expected cases.In response to the economic crises of 1991. Prior to 1991 the Indian economy was a highly regulated economy. barriers to entry for new firms and limits on growth in the size of existing firms have been removed. 2. Liberalization has definitely led to increases industrialization. Responsibilities towards society as a whole 1. reduce cost and improve the quality of product. 4. Cooperating with go of in up gradation of environment. Policy changes made to unshackle the economy from controls and to orient it towards the free market are known as the Liberalization measures. now wants to enlarge non-debt-creating inflows. The policy regime for foreign investment and foreign technology has been liberalized at a rapid pace. 3.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU 1. Making provision of health education and cultural services. The govt. Resisting bribing. In . The trade policy reforms have a limited quantitative restriction on imports and exports. 3. prior approval for foreign investment is not the rule. Over the past few years and attempt has been made to improve the health of the financial sector through deregulation. is no longer required for capacity creation. In the July 1991 the beginning was made to dismantle controls which over the time had become a major obstacle to industrial growth. Industrial licensing has been abolished for most of the industries irrespective of the levels of investment. which is a necessary condition for increasing international competitiveness in industry. Direct foreign direct investment has accelerated the industrial growth. With the reductions in the statutory liquidity ratio and cash reserve ratio resources received by the banks in the form of deposits are not preempted by the govt. The exchange rate changes have led to a sizable depreciation of the rupee. but are made available to the private sector. The prior approval from the govt. Now. Interest rates in the domestic capital have been deregulated. Further. Has liberalization accelerated industrialization process in the country? Ans. 4. it is necessary that Indian firms penetrate foreign markets. embarked on a wide-ranging reform of the policy regime. Hence. Prevention of environmental pollution.

the govt. have these reforms improved the performance of public sector enterprises? Ans. In 1993. high tech industries and essential infrastructure. Industrial policy 1991 emphasized that public enterprises must be growth oriented and technologically dynamic. is easier said than done.000 crore. In February 1992. The less developed companies have failed to create major players in the global economy. however. Its protected growth over a period of time. many public enterprises become a burden rather than an asset. has resulted in many shortcomings: • • • • insufficient growth in productivity poor project management inadequate attention to research & development low rate of return on investment As a result.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU December 1995. All these necessitated a change in approach. Industrial Policy 1991 set the future priorities for public enterprises as follows: # Essential infrastructural goods & services. Public enterprise was accorded preference even in areas where private investments were possible. # Exploration and exploitation of oil & minerals # Manufacture of goods of strategic importance # Development of technology and manufacturing capabilities in crucial areas for long term economic development Thus. Public enterprises grew dominantly in terms of units and investments both at the central and state levels. This. One third of public enterprises were accounted for by nationalized sick units. A number of public enterprises had come up in non-strategic non-core. many Indian companies now find that they are the target rather than beneficiaries of the increased activity of foreign MNCs. public sector would be confined to strategic.47. The correct approach is to create our own MNCs. number of central Public Enterprises stood at 237 with an investment of Rs 1. It is argued that under the present circumstances. The industrial Policy Resolution 1956 accorded a strategic role to public enterprises. consumer goods and service sectors.The Public sector has been central to India’s industrialization within the mixed economy framework. Q4 Explain the major public sector reforms that have been undertaken since 1991. areas of strategic importance and core sectors were exclusively reserved for public sector enterprises. Chronically sick and unviable public sectors units would be referred to Board for industrial & financial reconstruction (BIFR) Workers of such units would be protected. one need not become defeatist about foreign MNCs. In 1993. the performance of public sector enterprises has been far from satisfactory. The Indian corporate business does not consider the presence of foreign companies in India beneficial to them. only about 60% of total investment in public enterprises was in the areas originally envisaged as the “commanding height”. However. There is a greater thrust on the performance improvement through the memorandum of understanding (MOU) by which management is granted greater autonomy and is held accountable. of Indian joint ventures abroad was 592 of which 70% were concentrated in just thirteen countries. In fact. established a non-statutory National Renewal Fund (NRF) to provide assistance to cover the cost of retraining and redeployment of labour and also provide compensation to labour affected by the closure of unviable public sector units etc. Indian business at the most can hope to survive only in those industries in which major global players have little stakes. Therefore. the no. Technical . Accordingly.

as a result of VRS.217 crores which signify an increase of 58..41 lakh. communication needs a follow up to ensure that is was properly understood and carried out. There is great importance of timing in Business communication.19 lakh employees in PSUs of the central govt. The move was aimed at mobilising extra budgetary resources for the public sector and was applicable to all state enterprise fully owned by central govt. This implies that. The govt. the govt. of India announced its decision to permit public sector undertaking to float bonds. as it will be lost if the words used are complex and do not lend to clear single meaning. Political and bureaucratic subordinate. Along with this. When these concerned levels are omitted or by passed. . The language used should be simple. it is necessary to be precise. On the whole the reforms of PSUs. The response and feedback to the communication would determine. Business communication must pass through the proper channels to reach the intended receiver. there were 22.MOU Policy etc.) was that the overall net profit earned by central PSEs increased from Rs. The communication flow ant its spread must avoid by passing levels or people. it was necessary that the overstaffing of the public sector undertaking (PSUs) be reduced. A reasonable projection and assessment of future needs environment both work and be incorporate when planning and executing communication. Investment has been piecemeal and the funds so raised are being used to reduce budget deficits rather than strengthening of PSUs. To remedy the situation. Whether the action to the communication has been appropriate and accurate. Similarly gestures taken by the listeners can help the communicator to know their reactions. In writing messages. A verbal communication may need to be followed up by written confirmation. but in 1994-95 their number has been reduced to 20. A well written business report eliminates the possibility of misunderstanding and misinterpretation. is upgraded to make the MOU negotiations and implementation more effective. This is a welcome development. including privatization and phasing out of unviable units have not gathered as much momentum as had been hoped for. In February 1962. Unless it is one-way communication that is simply meant to inform al business. Finance Corporation issued guidelines.8% over the previous year. Essential Qualities of Good Business Report A well written business report can help avoid semantic and perception barriers. the Controller of capital issues in the connection for floatation of bonds by existing as well as new corporate undertakings including. overstaffing has been reduced by 8%. making the meaning as clear as possible so that it accomplishes the desired purpose.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU expertise on the part of the govt. The major aim of economic reforms is to improve the public sector so that rate of return improves. 4.545 crores on 1993-94 to Rs. Accordingly be specific and to the point. labour problems. Accordingly the established channels must be used as required. In 199091. An important message delivered at he wrong time or in a non-conducive environment may lose its effectiveness. (URS. Business communication should be complete so as not only to meet the demands of today but should also be based on future need of the organization as well as individuals. it creates bickering distrust confusion and conflict. 7. has taken steps in this direction by its Voluntary retirement scheme (VRS). The communication should not only be timely so that the decisions and actions can be taken in time and when necessary but also the timing of the message and the environment setting in which the message is delivered and received is equally important. The net results of the efforts of the Govt. Vagueness destroys accuracy which leads to misunderstanding of the meaning or intent of the message.

It decides a company’s overall direction in terms of its general attitude towards growth and the management of its various business and product lines. which. Functional Strategy:. however. Support the corporate Strategy (ies). Business firms use all three types of Strategy Simultaneously. A hierarchy of Strategy is the grouping of strategy types by level in the organization. a budget lists the detailed cost of each program. The budget thus not only serves as a detailed plan of the new strategy in action. of stability. Budgets:A budget is a statement of a corporations programs in terms of dollars. Strategy Implementation:Strategy implementation is the process by which Strateges & polices are put into action through the development of programs. before management will approve a new program. This hierarchy of strategy is a nesting of one strategy within anther so that they complement & support one another. but also specifies through pro forma financial statements the expected impact on the firms financial future. This process might involve changes within the overall culture. objectives and strategies. Except when such drastic corporate-wide changes are needed. changing the company’s internal culture. Policies:A Policy is a broad guideline for decision making that links the formulation of strategy with its implementation. . Business Strategy:. in turn. Used in planning & control. Programs:A program is a statement of the activities or steps needed to accomplish a single use plan. Functional strategies support strategies. It may involve restructuring the corporation.is the approach taken by a functional area to achieve corporate & business unit objectives & strategies by maximizing resource productivity. & it emphasizes improvement of the competitive position of a corporations’ products or services in the specific industry or market segment served by that business unit. Corporate strategies typically fit within the three main categories.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU The typical business firm usually considers three types of strategy: corporate: business and functional. & or management system of the entire organization. Sometimes referred to as operational planning. It makes the strategy action oriented. Corporate Strategy:. Many corporations demand & certain percentage return on investment often called a “hurdle rate”. It is concerned with developing & nurturing a distinctive competence to provide a company or business unit with a competitive advantage. This ensures that the new program will significantly add to the corporations’ profit performance & thus build shareholder value. strategy implementation often involves day-to-day decisions is resource allocation. the implementation of strategy is typically conducted by middle & lower level managers with review by top management. budgets & procedures. structure. or beginning a now research effort. Companies use polices to make sure that employees throughout the firm make decisions & take actions that support the corporations’ mission. growth and retrenchment.usually occurs at the business unit or product level.

The New Policy:The industrial policy announced in July 1991 has abolished industrial licensing. . (v) Change of location. MRTP Act. Industries for which industrial licensing is compulsory now are the following:1) Distillation & brewing of alcoholic drinks. prevention of concentration of economic power. irrespective of the levels of investment. Since it is not possible to privatize a large component of the public sector. it would be advisable to reform it. for all industries exempt 18 specified industries. is issued in the name of the applicant and later when the company has been formed. (ii) Manufacture of new item. 2) Cigars & Cigarettes of tobacco & manufactured tobacco substitutes. It is also subject to a validity period with in which the licensed capacity should be established. regulation of foreign capital & technology & scale economics. (iv) Expansion of the enterprises etc. liberalisation of the private sector. Sometimes termed Standard Operating Procedures (SOP). (iii) Substantial expansion of capacity. The license also includes many other particular such as:(i) The place where the factory is to be established. a license was required for following purposes:(i) Establisment of new undertaking. public sector reforms and privatisation the problem of industrial sickness.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Procedures:Procedures. If a new company has to be formed. There has been subsequent liberalizations. are a system of interface have not been effectively reduced. achieving demand-supply balance promotion of exports & import substitution employment generation etc. Objectives:Encouraging new entrepreneurs & wider dispersal of industrial ownership. protection & promotion of the small-scale sector. industrial licensing policy. (Development and control Act 1951. A license is a written permission granted to an enterprise by the government according to which the product mentioned therein can be manufactured by the enterprise. Before the policy liber alisation of 1991. Industrial licensing Policy The Indian government resorted to the licensing system in order to maintain control over industries according to the Industrial. the industrial license in the first instance. SICA and Industrial Disputes Act. growth and problems of the small scale sector. review of industrial policy developments. trends and issues in corporate management. (iv) Continuation of business in certain cases. (iii) The limit of production capacity. Unit-II Trend and pattern of industrial growth. 3) Electronic Aerospace & defence equipment all types. (ii) The name of the product to be produced. the necessary endorsement to that effect will be made in the license.

An industrial undertaking in which the investment in Plant and Machinery. Locational Policy:Industrial undertakings are free to select the location of a project. component or rendering the services is termed as ancillary undertaking. It was Rs 7. As regards the formation of an SSI as a limited company.S. Electronics. Small Scale Industries Sector The Central excise Department.5 million in fixed assets.An industrial undertaking which is engaged or is proposed to be engaged in the manufacture or production of parts. it is to be located in an area designated as an “industrial area” before the 25 th July 1991. Computer Software & Printing ( and any other industry which may be notified in future as “non polluting industry”) are exempt from such locational restriction. the proposed location should be at least 25 KM away from the Standard Urban Area limits of that city unless. SSI units cannot be controlled or owned a subsidiary of any other industrial undertaking. (4) Small scale service and Business Enterprise (SSSBES): Enterprise rendering industry related Services business with investment up to Rs 0. ( The Investment ceiling has been revised from time to time.I. whether held on ownership terms or on lease/hire-Purchase basis does not exceed Rs 10 million is graded as small scale industrial undertaking. the equity investment by other companies in SSI’s should not exceed 24%. The distinguishing features & major advantages of these industries particularly khadi & Village industries are:- . The Compulsory licensing provisions would not apply in respect of small scale units taking up the manufacture of any of the above items reserved for exclusive manufacture in small scale sector. on the other hand distinguishes Small Scale industries on the basis of annual turnover of the units (upto a maximum limit of Rs 30 million). In the case of cities with population of more than a million (as per the 1991Census). Undertaking:. Relaration in the a foresaid locational restriction is possible if an industrial license in obtained as per the notified procedure.is a unit treated as tiny enterprise where investment in Plant & Machinery does not exceed Rs 0. This combined investment of all the units set up by the same Proprietor/ partner should not exceed the total investment limit fixed for an SSI. The definition of SSI is linked to the question of Ownership. gen powder & matches. (2) Ancillary Industrial Under taking:. (3) Tinny Enterprise:. excluding land and building are called SSSBES. irrespective of cocation of the unit. However. The ancillary undertaking has to supply or render or propose to supply or render not less than 50% of its production or services as the case may be. in 1999 the government decided to lower the investment ceiling from Rs 30 million to Rs 10 million). however. EOU (Export Oriented Units)A unit with an obligation to export at least 30% of its annual production at the having investment ceiling in fixed assets-plant & Machinery up to 10 million is regarded as an EOU.5 Lakkhs in 1966 and Rs 30 million in 1997).5 million. 5) Hazardous chemicals 6) Drugs & Pharmaceuticals.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU 4) Industrial explosives including safety fuses. (1) S. to one or more other industrial undertaking.

Khadi. (9) As Khadi & village industries do not use or use only very little electric power or oil. Village and small industries assume special significance because of its high employment potential. agriculture provides only seasonal employment opportunities during the off-season and help many household’s mitigate their problem during off-season. They are thus. (4) Because of low capital-output ratio and low gestation period they promote non-inflationary growth. (2) Another major advantage is their ability provide employment in the off-season. very great. (5) Khadi & Village industries have been found to be of particular help to the weaker sections of the society.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU (1) In an economy. they do not cause energy crisis & foreign exchange crises. (6) These industries can develop in almost all areas including backward. but has significantly reduced it recently. (7) They help increases the pace of veiral development through its inputs & output linkages with the other sectors of rural economy. scheduled tribes. (8) The small industries have acquired more attention in recent years due to very less ecological problems they create. To a large number of people. Over the gears there had been an increase in number of items so reserved. (3) Marketing Assistance:Including export promotion assistance are provided by institutions. Characterized by abundant labour supply and the concomitant Labour force. like India. women & other weaker sections of Society in this sector is significant. The participation of scheduled castes. Such as NSIC Small Industries Development organization (SIDO). kvic etc. compared to large industries. hilly and in accessible areas. (10) The fact that the village and small industries account for about one-third of our total export earning shows how important they are to the Indian economy constrained by shortage of foreign exchange. tribal. Measures:(1) Reservation of Products:Protection has been provided to the small-scale units by the reservation of items for exclusive production in small scale sector. (2) Machinery on Hire Purchase:The National small Industries Corporation (NSIC) arrange supply of machines on hire purchase to small scale units. (3) Some to these industries provide employment opportunities within the household premises and some other near the place of residence the locational advantage of these industries are thus. helpful in activities and thereby reducing the regional economic imbalance. (4) Supply of Raw Materials:- .

Hence. (8) Lack of Standardisation:- . (2) Problem of Finance:These industries do not get adequate loan facilities. (5) Training:. to the small scale units. It is due to high cost of raw material industries fail to compete with large industries. So their goods are not so popular. (4) Problem of Marketing:These Industries have to face lot of difficulties in selling their goods at fair price & in sufficient quantity for example:(a) because of high cost of Production. Finished products of large industries are relatively cheap and of good quantity. Problems of Small-Scale Sector (1) Problem of Raw Material & Power:These industries do not get raw material in adequate quantity. financial institutions and commercial banks. particularly of scarce items. They get very little financial accommodation from commercial banks and industrial cooperative societies. (c) These industries can ill afford to bear advertisement and publicity cost. (b) outward appearance of the finished product is not so appealing. (6) Competition with Large scale industries:One of the main problems of these industries is that they have to face competition of large-scale industries. (5) High Cost of Production:Costs of Production are very high in these industries. Whatever raw material they get is poor in quality and high in price. The result is fall in the quantity of output & goods produced are of inferior quality. Technical Consultancy Organisations (TCOs). (3) Old methods of Production:Old tools & equipments like oil expellers and handlooms.Training for existing & potential entrepreneurs and others associated with the working of small units are offered by Entrepreneurship Development Institute of India (EDII). their cost of Production goes up & the price of finished products also rises. So they largely depend on money-lenders for finance. etc.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Arrangements have also been made for the supply of raw materials. as they cannot offer good security because of poverty. Such goods have little demand. price of finished product increases very high. It increases the cost of production & goods produced are of inferior quality. (7) More Taxes:Goods produced by the industries are heavily taxed by local authorities. are still in use.

ship-building. therefore. Schedule A to the Resolution enumerated 17 industries. generally take the initiative in establishing new units.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU There is no standardization of finished products. workers do not get remunerative prices of their goods. 5) To promote balanced regional development. Objectives:1) To help in rapid economic growth & industrialisation of country & create the necessary infrastructure for economic development. even before the commencement of planning & adoption of goal of socialistic pattern of society. The Industrial Policy Resolution of 1956 enlarged the role of Public sector. contained a list of 12 industries which would be progressively state-owned and in which the state would. managed and controlled by the state. about 25% small industries are sick. It was resolved further that in another six industries the State alone would set up new undertakings.500 crore) spread over 238 units at the commencement of the 9th Plan (1997). iron & steel. telegraph and wireless apparatus. For want of classification. save & earn foreign exchange for the economy. The Industrial Policy Resolution of 1948 made it very clear that the manufacture of arms. Growth and Performance of Public Enterprises:These had been a phenomenal growth of the Public since the commencement of Planning. Schedule B to the Industrial policy Resolution 1956. 2) To earn return on investment & thus generate resources for development. excluding radio receiving sets and mineral oils. the future development of which would be the exclusive right of the state. and ammunition. the production & control of atomic energy and the ownership and management of railway transport would be exclusive monopoly of central government. 6) To assist the development of small-scale & ancillary industries. These six industries were: coal. Growth of Public Sector Public enterprises refers to that industrial institution which is owned. Investment in industrial undertaking by central government increased from Rs 29 crores in 5 units at the commencement of First 5 Year Plan (1951) to Rs 118492 crore at the commencement of Eighth Plan (1992) in 237 units. . (9) Sick Units:In India. 4) To create employment opportunities. At the end of 1998-99. it was about Rs 273700 crore in 235 units. The four decades since the commencement of Planning witnessed a substantial growth and expansion of Public sector in India. 3) To promote redistribution of income & wealth. The sick units are running under loss. 7) To promote import substitution. It further increased to over 2 lakh crore (Rs 201. aircraft manufacture. the Public sector was assigned an important role in industrialisation & economic development of the country. In fact. manufacture of telephone.

One of important way of Privatisation is divestiture or privatization of ownership. Franchising. causing problems in Labour relations with in public sector. In effectiveness in provision of goods and services. this entails selling stock to public. But there is scope for compition in contracting & long term contracts tends to encourage . the governments undertake programmes for shifting public sector into private sector:(1) Economic inefficiency in production activities of public sector. Privatisation:Meaning:.is common in utilities and urban transport. steel and machine tools and them sold them to the Private sector once their profitability was established. Crore) 29 81 953 3902 6237 18225 42811 118492 201500 273700 Total Number of Enterprises 5 21 48 85 122 186 221 237 238 235 There were also about 100 state level public enterprises (SLPES) with an estimated investment of about Rs 50. Government may contract out services they have planned & specified to other organizations that produce & deliver them. Another dimension of privatization is opening up of an industry that has been reserved for Public sector to Private sector. Ways of Privatization:In Britain. coal. through Sale of equity. Major Part of the Central Public Sector investment was in the steel. using funds raised to pioneer other instruies. such as failure to meet intended objectives. with high cost of production and costly delays in delivery of goods purchased. (2). In Republic of korea. minerals & metals power & petroleum sectors. the government pioneered the establishment of basic industries such as oil refining. Contracting is common in public works. In countries where there are well functioning capital markets. Due to following problems given below. defence and many specialised services. Another way of Privatisation is contracting. it also means withdrawal of state from an industry or sector partially or fully.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Growth of Public Enterprises At the commencement of Ist Plan (1-4-1951) 2nd Plan (1-4-1956 3rd Plan (1-4-1961) 4th Plan (1-4-1969) 5th Plan (1-4-1974) 6th Plan (1-4-1980) 7th Plan (1-4-1985) 8th Plan (1-4-1992) 9th Plan (1-4-1997 Ason 31st March 1999 Investment (Rs.Privatisation means transfer of ownership or management of an enterprise from public sector to private Sector. and political interference in the management of enterprises. inefficiency in government and adverse effect on whole economy.000 crores.authorizing the delivery of certain services in designated geographical areas. the staff of Privatized company have a priority in buying shares and are entitled to a discount. (3) Rapid expansion of bureaucracy.

2) Any alternative institutional arrangements chosen should not stifle competition among suppliers. 7) It may also encourage enter preneurship. 3) It help the state to trm size of administrative machinery. Failure of Privatisation:(1) Lack of Proper Strategy:- . 6) It may result in better management of the enterprise. Obstacles:As the World Bank points out. 2) Privatisation of SOES enables the government to nop up funds. Conditions for success of Privatisation:1) Privatization cannot be sustained unless the political leadership is committed to it and unless it reflects a shift in preferences of public arising out of dissatisfaction with performance of other alternatives. government confront Several obstacles like those mentioned below. Benefits of Privatisation:1) It reduces fiscal burden of the state by relieving it of the losses of SOES and reducing size of bureaucracy. (2) Relatively underveloped capital market sometimes make it difficult for governments to float shares and for individual buyers to finance large purchases. 5) It helps accelerate the pace of economic development as it attracts more resources from Private sector for development. (1) Government usually want to sell the least profitable enterprises. using leases and management contracts. 3) The third. 6) Privately Provided services should be less susceptible to fraud than government services if they are to be effective. those that the private sector is not willing to buy at a price acceptable to the government. since they will then shop more wisely for different services. 4) Public services to be provided by private sector must be specific or have measurable outcome. 4) It enables the government to concentrate more on essential state functions. related.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU monopolistic behaviour by private supplier Privatization may also take the form of privatisation of management. when they decide to divest SOE’s. 5) Consumers should be able to link benefits they receive from a service to the costs they pay for it. Government of India’s Budget for 2000-01 proposed to raise Rs 10.000 crore during the year through Privatisation. 8) It may increases the number of workers & common man who are shareholders. condition is freedom of entry to provide goods and services.

& E.I. it causes wastage of national resources and social unrest. failure to pay timely installment of capital and interest on loans taken from financial institutions & through public deposits. it could even worsen the situation. extent of divestment. an industrial unit is regarded as sick if it has incurred cash loss for one year and in judgement of the bank. This is no easy task. contributions. it is likely to continue to incur cash loss in two following years and it has imbalance in its financial structure such as current ratio being less than 1:1 and worsening debt-equity ratio. market capitalisation and industry prospects are goods. low capacity utilisation & frequent industrial disputes. Industrial Sickness Industrial sickness is a matter of serious national concern because besides affecting the owners. Causes of Sickness (A) Born Sick:- . increases in inventories with a large number of slow or nonmoving items. the methods of Privatisation. high rate of rejection of goods manufactured.F. Common symptoms of industrial sickness include failure to pay statutory liabilities like P. (6) Wrong Timing:Many Privatisations schemes could not get a good price because of wrong timing.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Regarding industries to be privatized. defines a Sick Industrial Company as an industrial company (being a company registered for not less than 5 years) which has at the and of any financial years accumulated losses equal to or exceeding its entire not worth. (2) Ambiguity of Objectives:The real objective of Privatisation is another problem. A good Price can be obtained if Privatisation is done when performance. In terms of definition evolved by RBI. (5) Problems of Cultural changes:Improvement of Performance of an enterprise after the privatization will depend on bringing about a change in work culture and total enterprise culture.S. (4) Monopoly Elements:Privatisation may not produce much beneficial effects. employees creditors and suppliers. what is priority list? (3) Poor Financial Strategies:Many Privatizations are carried out without a good financial strategy. selection of buyer/investor etc. It is pointed out the Maruti could have got a good price had it been privatised when goings were good. Is it for making enterprise competitive? If these are multiple objectives. The sick Industrial Companies (Special Provision) Act 1985as amended in 1993.

Diversion of resources to start new units or to acquire interest in other concerns with out regard to capability of the unit to provide such funds sometimes lands the unit in trouble. (ii) Unwarranted expansion and diversion of resources may also result in sickness. (iv) Failure to modernize the productive apparatus. lockout etc may rain the health of a unit to survive. (C) External Causes:Are beyond the control of an industrial unit. vi) Wrong assessment of market potential or faculty demand forecasting. liquidity problems. iv) Technological factors like selection of obsolete or improper technology or technology becoming outdated due to innovations while the project is being executed. Like in Production cost etc. sub-standard machinery. change the product mix & other elements of the marketing mix to suit the changing environment is a very important cause of industrial sickness. v) Sickness may arise from locational problems. (iii) Poor inventory management in respect of finished goods as well as inputs may land a unit in trouble. iii) Time & cost overruns sometimes prove to be very disastrous. wrong selection of project. strikes. Such delays cause cost escalations leading to capital shortage. neglect & internal squabbles to delinquency & dishonesty is import causes of industrial sickness. change in market conditions etc.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Industrial units born sick are those which are destined for disaster right from their conception due to various causes. may give birth to sick units. are very common. inefficiency. (v) Poor labour management relationship& associated poor worker morale& low productivity. Some concerns tend to expand beyond the resources including managerial capability. Particularly in case of large projects. Some of external causes are the following:(i) Energy crises arising out of power cuts or shortage of coal & oil have been a serious problem for many industrial units in India. . According to Tiwari Committee it was found that 65% of large sick units were affected by this problem. B) Achieved Sickness:Industries which achieve sickness are those which fail after becoming operational due to internal causes. faulty project planning etc. wrong collaboration etc. delay in project commissioning due to delay in supply of equipments etc. Such internal causes which are common are the following:(i) Bad management which covers a wide range from inexperience. ii) Lack of funds and faulty financial management may also cause birth of sick units. may also cause birth of sick units. also cause sickness. lack of Professional expertise. Any one or more of the following factors may cause birth of sick units:i) Lack of experience of promoters.

In accordance with the Provisions of the Act. The MRTP Act. . Such trade practices may tend to obstruct the flow of production or to bring about manipulation of prices or condition of delivery etc. The MRTP Act. the effect of unreasonably preventing or lessening competition in the production. actual or probable of restricting. one of the Most. Act may be enacted and MRTP Act may be repeated. large companies have been freed from MRTPA requirement of prior permission of the government for substantial expansion of existing undertaking. The main objectives of MRTP Act 1969 were(1) Prevention of concentration of economic power to common detriment. (iii) Infrastructural problems like transport bottlenecks also sometimes cause serious problems. In other words. or is likely to have. changes in import conditions etc.is a trade practice which has the effect. (iv) It is a general complaint of the industrial circles that the credit squeeze very advessly affects the industrial sector. limiting technical development and capital investment to the common detriment or allowing quality of goods or services to deteriorate. eatables wing new undertakings and MEAs. The MRTP Commission was vested with Power to inquire into restrictive. An Unfair trade Practice:. lessening or destroying competition. recommended that a new competition. use or supply of any goods or the provision of any services.is a trade practice which has. (2) Control of Monopolistic. Thus there are many external and internal factors which can cause industrial sickness. MRTP Act The Principal low in India to deal with competition was Monopolistic and Restrictive Trade Practices Act. monopolistic and unfair trade practices. Thus. The Government has accepted their recommendation. A Restrictive Trade Practice:. restrictive & unfair trade practices that are. adopts one or more unfair trade practices (like misleading advertisements) & thereby causes loss or injury to the consumers of such goods or services.is a trade practice which. the Government of India had set up a Commission known as the Monopolistie & Restrictive Trade Practices Commision. restrictive and unfair trade practices which are pre judical to public interest. controversial piece of legislation in India. was a very controversial piece of legislation. has thus become a document of historical value. 1969. In many cases. poor agricultural output due to natural reasons. supply or distribution of any goods or services. Monopolistic Trade Practice:. The high level committee on Competition Policy and law. or are likely to be prejudicial to the public interest. The MRTP Act empowered the central Government to control and Prohibit those monopolistic. sickness is caused by a combination of factors. The main thrust of the MRTP Act now is the achievement of Prevention of Monopolistic. to the common detriment.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU (ii) In a number of cases the units are not able to achieve optimum capacity due to shortage of raw materials due to production set-backs in supply industries. brought into force form Ist June 1970. According to the Tiwari Committee 24% of the large sick units were affected by shortage of working capital liquidity constraints. for the purpose of promoting the sale. appointed by Government of India. the ‘M’ las almost been knocked out of MRTP Act. whether by eliminating or restricting competition or otherwise. The salient features of this Act is given her because of the importance with which it reined the industrial sector of the country. restrictive and unfair trade practices.

(3) The expeditions enforcement of the measures so determined and for matters connected therewith or incidental thereto. it could imitate proceedings with the High Court. (3) The amalgamation of the sick industrial company with any other company. spending the scarce foreign exchange. if the accumulated losses of an industrial company as at the end of any financial year had resulted in the erosion of 50% or more of its peak net worth during the immediately preceding 4 financial year. The objectives of the (SICA) were: (1) The timely detection of sick and Potentially sick companies owning industrial undertaking. We had a very inepti situation of not allowing Indian companies to grow by capacity expansion. According to the SICA amended in 1993. 1985. SICA – Sick Industrial Companies Act. The scheme could provide for any one or more of the following measures:(1) The Financial reconstruction of the company. The SICA required the Board of Director of a sick industrial company to make a reference to the BIFR for determination of the measures to be adopted with respect to the company. blunted Indian Companies ability to grow. The MRTP Act. An important price of legislation dealing with industrial sickness was the Sick Industrial Companies (Special Provisions) Act. An industrial company was regarded as potentially sick. or any other company with the sick industrial company. establishment of new units or by M&A an because of short supply importing goods produced by foreign multinationals which were far larger in size than the Indian biggies. consolidate and improve competitiveness. Where the BIFR was of the opinion that the sick industrial company was not likely to make its net worth exceed its accumulated losses within a reasonable time and that it was not likely to become viable in future & that it was just and equitable that the company should be wound up. (4) The sale or lease of apart or whole of industrial undertaking of sick industrial company. Under the Central Government established a Board for Industrial and Financial Reconstruction to exercise the jurisdiction and powers and discharge the function and duties conferred or imposed on the Board by the Act. This had had a very dampening effect on their global competitiveness. remedial and other measures which need to be taken with respect to such companies. The BIFR could dried any operating agency like the financial institution to prepare the scheme for revival of the sick unit. besides adversely affecting economic growth. (2) The Proper management of the sick industrial company by change in or takeover of management of sick industrial company.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU The Act also empowered the commission to make any undertaking or person to pay compensation to the party who suffered a loss or damage as a result of unfair trade practice carried on by undertaking or person. for . ameliorative. Criticism:Because of its defeating Provisions. (2) The speedy determination by a board of experts of the Preventive. a sick industrial company meant and industrial company registered for not less than 5 year) which had at the end of any financial year accumulated losses equal to or exceeding its entire net worth.

(1) General Strike:Means a strike by numbers of all or most of unions in a region or an industry. It means quitting work by a group of workers for the purpose of bringing pressure on their employers to accept their demands. organized from of industrial unrest includes strikes. When it is unorganized it is manifested inform of low morale. Forms:(a) Strikesis a very powerful weapons to get its demand accepted by a trade union. (a) Economic Strike:Under this type of strike. Industrial unrest may take either unorganized or organized from. (3) Slow Down Strike:Employers remain on their jobs under this type of strike. gheraos. (b) Sympathetic Strike:When members of a Union collectively stop work to support or express their sympathy with the members of other union who are on strike. (2) Sit Down Strike:When workers do not leave their place of work but cases work. bonus & other benefits. It is an act on the part of the employers to close down the place of work until workers agree to resume work on terms & conditions specified by employers. Gherao:- . they are said to be on sit down or stay in strike. low productivity. members of trade Union stop work to enforce their economic demands such as increase in wages. frustration etc. There are may types of strikes. boycotts etc. Lock-Out:Is declared by employers to put pressure on their workers. which is connected with the employment or non-employment or terms of employment or with the conditions of labour of any person. Industrial dispute means any dispute or difference between employers & employers or between employers and workmen or between workmen and workmen. They do not stop work but restrict rate of output in an organized manners.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Industrial Disputes “ According to Sec 2 of Industrial Disputes Act 1947. demonstration.” Industrial disputes are symptoms of industrial unrest. If may be strike of all workers in a particular region to force demands common to all workers.

Capacity to take large single party expouce. regulation of stock exchanges and the role of SEBI. challenges facing public sector banks. capital market. Long-standing business relationships with all major industrial house. IFCI. In 1976. Subsidiary Organisations:IDBI has set up a host of Subsidiaries and associates with a view to expand the functional reach of IDBI Group & take advantage of opportunities in a liberalised market economy. Proven core competence in project financing. advisory & risk management-through an integrated group structure.” According to IDBI sources. subject to the holding to GOI not falling below 51% of issued capital. experienced professionals. banking sector reforms. Large balance sheet & sound financials. Lean organization with a sizeable pool of qualified. its strengths lie 1) 2) 3) 4) 5) 6) 7) 8) 9) Diversified portfolw across different industries. Fairly good retail network with a large investor base. ICICI). the Industrial Development Bank of India Act. inter alia. Unit-III Development banks for corporate Sector (IDBI.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Denotes a collective action initiated by a group of workers under which members of management of an industrial establishment are prohibited from leaving their business or residential promises by workers who block their through human barricade. According to Bank’s Corporate Mission “IDBI Steategic objective is to position itself as India’s Prenier wholesale bank through a full range of wholesale products-lending. Sizeable stock of cost-effective. SIDBI:- . the ownership of IDBI was transferred to the Government of India (GOI) The IDBI Act was amended in October 1994. IDBI was initially established as a wholly-owned subsidiary of Reserve Bank of India. to. Capacity to leverage.trends pattern and policy. permit IDBI to raise equity from the public. regions and sectors. 1964. problem of non performing assets in Indian Banks INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI) The Industrial Development bank of India (IDBI) was established in 1964 by the Indian government under an act of the Indian Parliament. growth and changing structure of non bank financial institutions. long term funds.

enabling. ITSL:. The SIDBI Act was amended in March 2000.Consequent upon opening up of commercial banking to the Private Sector. IFCI was corporatised in 1993 as a part of financial sector reforms and an initial public offer was made in the same year. IDBI Capital Market Services limited (IDBI Capital) was set up in 1993 to provide a range of capital market related services.To take advantage of the emerging business prospects of the IT sector. IDBI setup IDBI In tech limited (INTECH) in March 2000 to undertake IT-related activities.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU To give focused attention to the needs of small scale industry. INTECH:. IFCI (Industrial Finance Corporation of Indian) The Industrial Finance Corporation of India was established in 1948 under the IFCI Act. Products:The important products (schemes of assistance) of IDBI are the following:(1) Project Finance:The objective of this product is to provide long term finance for new projects and expansion diversification and modernization of existing projects. having been in commercial operation for 5 years & making Profit consistently for last 3 years. IDBI Bank:. Rupee & foreign currency loans are available under this scheme. Principal Activities:- . with the object of making medium & long term credit more readily available to industrial concerns in India.The new company would be technology driven to provide safety. These include. IDBI Capital:A stock broking company. (2) Corporate Loan:This Product has been designed to provide for capital expenditure and long-term working capital to financially sound companies with net worth of not less than Rs 10 crore. IDBI Bank limited on 1994. It also acts as a portfolio manager & manages the investment portfolios of several Provident & Pension funds. the transfer of IDBI shareholding to a maximum 51% from IDBI. IDBI had set up the Small Industries Development Bank of India (SIDBI) in 1990 as a wholly owned subsidiary. (4) Services:. IDBI Set up a Commercial bank. among other things. merchant banking.IDBI also provide some very important services to promote & develop industries.Financially-sound companies are eligible for financial lease facility for purchase of equipment on lease basis. IDBI capital markets public issues of seclinties through its network of agents. (3) Equipment lease:. However. Consequently upon the initial public offering of the equity share in February 1999. debentures trusteeship & foreign exchange services. It commenced operation as a primary Dealer in November 1999. up to date information & professional services to the subscribers and issuers of debentures. IDBI now holds 57.14% of the equity of IDBI Bank limited. sale & lease back transactions are normally excluded from this facility.

Working capital term loans. the promoters were unable to raise such resources as planned which led to time and cost overruns and a number of projects remaining incomplete. (b) Expansion/Diversification schemes. Financial assistance is provided by way of medium/ long term credit fo:(a) Setting up new projects. they lowered credit ratings. short term loans. (2) IFCI’s loans portfolio was heavily weighted towards traditional commodity sectors such as iron & steel. textiles.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU IFCI’s Financial operations principally include Comprehensive corporate advisory services. plastics etc. Project Financing. thus completing the cycle of downward spiral. Equipment leasing. (c) Modernisation / Balancing schemes of existing projects. Project financing:Is the core of IFCI. (3) Unlike other financial institutions. Leasing and hire purchase concerns. resulting in loans becoming non-performing. However. affected other DFIs & banks as well. Suggestions for Improvements:- . Suppliers / buyer’s credit. due to prolonged. (4) As credit rating agencies started taking note of IFCI’s deteriorating loan book quality. recessionary conditions in late 90’s. IFCI has not diversified in to other type of businesses. (6) In this context. Financial Services and Problems The Committee has looked into the major factors which have led to the sudden & sharp down turn in IFCI’s performance after 1997-98 and is of view that the following are the main contributory factors:(1) In many cases. depressed conditions. This in turn affected IFCI’s Standing in the debt market. depressed conditions in capital market etc. Corporate loans. Financial Services:IFCI provides assistance tailor-made to meet specific needs of corporates through various specially designed schemes:(a) (b) (c) (d) (e) (f) Equipment finance. the Committee would like to observe that some of factors referred to above such as impact of trade policy liberisation & tariff reduction. sugar. in capital market & the industrial recession in aftermath of South East Asian crises of 1997. making resources raising increasing difficult (5) Constraints in resource raising in turn led to cutbacks in disbursements & new business with an inevitable impact of on earnings. which were significantly move exposed to demand recession & price flictuations. financial plan for the projects included raising equity from capital market or from internal generation of group companies. Equipment credit.

3. 7. ICICI Bank The Industrial Credit and Investment Corporation of India Limited (ICIC). provision of technical will not help to bring about entrepreneurial development. There s a growing basket of newer forms of corporate finance business. the committee has made the following recommendations. 2. IFCI should endeavour to reduce the proportion of project finance in their books and diversify into post project and short-term financing business. What is the function of development bank? Explain the leading policies and Criteria of the IDBI. IFCI Should transform itself into a fully licessed term credit Bank over a period of time. The concept of development banking is based on the assumption that mere provision of finance will not help to bring about entrepreneurial development. the Government of India and representatives of Private Industry on January 5. undertaking the preparation of project reports. Diversifications:1) ICICI Venture Funds Management Company Limited: Q 5. 1955 to encourage and assist industrial development and investment in India. was founded by World Bank. IFCI need not enter the retail financial market for the present. 1. as well as enter fee-based services. which was merged with the ICICI Bank in 2001. undertaking the preparation of project reports. expansion & modernization of Industrial enterprise. Lease Finance. IFCI needs to develop quickly a range of new products and services before transformation into a bank. 4. A new culture has established within the organisation that encourages aggressive business development with adequate risk monitering and control. (3) Encouraging & Promoting industrial investment and expansion of investment markets. Ans.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU According to the analysis and obsewations. Successful entrepreneurial banking should include the discovery of investment projects. IFCI should consider building up a portfolio of selected highly-rated corporate bonds with appropriate maturities. 5. IFCI functions as a government entity than a vibrant business organization. IFCI should activate its treasury operations and view it as an important profit centre. Over the Year. A comprehensive range of financial and advisory services. (2) Encouraging and Promoting the participation of Private capital. Objectives & functions (1) Providing assistance in the creation. ICICI’s principal business activities include:(1) (2) (3) (4) Medium.term and long-term project financing for the infrastructure and manufacturing sectors: Corporate finance to meet the treasury requirements of Indian Companies. ICICI has evolved into a diversified financial institution. 8. provision of technical advice and management services . both internal and external in such enterprise. Successful entrepreneurial banking should include the discovery of investment projects. 6. Changes its approach in tune with the industrial climate and encourages new industrial projects to bring about speedier economic growth.A Development Bank is a multipurpose institution which shares entrepreneurial Risk.

(IFCI) Industrial credit and Investment Corporation of India (ICICI) Industrial Development Bank of India (IDBI) Small Industrial Development Bank of India (SIDBI) Exim bank (Export and Import bank) IDBI (Industrial Development Bank of India) was established as a wholly owned subsidiary of RBI in year 1964. It is now independent public ector financial institution whose ownership vets in the Government of India. The bank can guarantee the loans and advances raised by the industrial concerns from the scheduled banks. The last tow forms facilitate the raising of funds from other sources. it also sudscribes to their shares and debentures thereby giving then strong financial support. agriculture etc) The factors which led to the growth of development banks are the inability of the normal institutional structure to keep pace with the requirement of funds and entrepreneurship of the growing industrial sector. viz. Assistance to small scale industries and Special assistance by way of soft loan scheme . IFCI and other notified sources. It can also underwrite the shares and debentures issued by the industrial concern. 1) 2) 3) 4) 5) Industrial fiancé corporation of India Ltd. The distinguishing role of development banks is the promotion of economic development by way of providing investment and enterprise in their chosen spheres (manufacturing. small industrial units etc. in year 1976. Direct Assistance: The industrial development bank of India provides direct assistance to industrial units in the form of loans and advances.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU and finally assisting the management of industrial units. The important development banks are the following. Besides. Indirect Financial Assistance: The promotional activities of the Industrial Development bank of India include I) II) III) special assistance for industrial development in the backward areas. Indirect assistance through refinancing of the loans and advances given by other financial institution. Promotional activities in respect of industrialisation of backward areas. i) ii) iii) direct assistance to industrial units in the form of loans and advances. They are different from commercial banks in three ways: i) They do not seek or accept deposits from the public ii) They specialise in providing medium and long-term finance (commercial banks specialise in proving short term finance) iii) Their functions are confined to providing long-term finance. However. The functions of the IDBI can be broadly grouped into three categories. the IDBI was made an autonomous institution and was thus delinked from the RBI. Development banks provide financial assistance to industry in the following forms: term loans and advances subscription to share and debentures Underwriting of new issues Guarantees for term loans and deferred payments iii) iv) The first two forms place funds directly in the hands of companies as subscription to shares and debentures.

Financial sector (which includes banking sector) reforms thus constitutes and important component of the programme of stabilization and structural reforms. . 4) Number of interest rates slabs on banks advances were reduced from about 20 in 1989-90 to 2 in the financial year 1994-95. which have dominated banking in India since nationalisation was to extend the reach of banking and financial services to all parts of the country and to all sections of society. Hence. These banks should be financially viable and should avoid concentration of credit and crossholding with industrial groups. 5) The RBI has announced guidelines for setting up banks in the private sector. 2 crores and has a longer repayment period. Further. The cash reserve ratio. 8) Agreement between the RBI and public sector banks has been made to improve the management and the quality of the performance of the latter. It also aimed at widening the net of resources mobilization. an act was passed in 1993 under which special recovery of loan areas. The experience of successful developing countries indicates that repaid growth requires a sustained effort at mobilising savings and resources and deploying them in ways. It has thus been brought down to 10 percent. While there are significant achievement. they have been revised and made effective from the bank accountanting year 1991-92. This includes management information system and the internal audit and control mechanism. For instance. is being no longer depended upon to combat inflation. This concession assistance is available upto an account of Rs. opening of specialized branches. the quality of customer service has not kept pace with modern standards and changing expectations. capital adequacy with the treasury operations. they have been accompanied by serous shortcoming as well. The effective statutory liquidity ratio has been lowered down to 25 percent. 9) The quickness for determining the maximum permissible bank finance have been made more flexible banks now have greater freedom in determining the working capital needs of the borrowers and responding to local requirements in an appropriate manner. Hence. 3) Commercial banks attaining capital adequacy norms and prudential accounting standards have been given freedom to set up new branches without the approval of the reserve bank of India. The major reform measures undertaken during the past few years are as follows: 1) The government has over the past eight years brought down both statutory liquidity ratio and cash reserve ratio in a phased manner. income recognition.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU With a view to promoting the industrial development of the backward areas the IDBI provides confessional finance assistance to the small and medium projects in these areas. . Banks can also rationalize their existing branch network by relocating branches. setting up controlling offices etc. 2) The earlier formats of the balance sheet and profit loss account did not reflect the true financial position of the banks. 6 Give an overview of banking sector reforms in India. How have these reforms affected the performance of public sector bank? Ans. they will have to observe priority sector lending targets as applicable to other banks. This attempt to unify interest rate structure aims at reducing the degree of cross-subsidy in the banking system. assets classification. 6) The supervisory system of the RBI was strengthened with the establishing of a new board for financial supervision under the chairmanship of Deputy Governor of RBI. which encourage efficient production. 7) Recovery of debts by banks and other financial institutions in the past has been unsatisfactory. The Board will ensure implementation of the regulations with respect to credit management. A large part of the addenda for reforms of the financial system relates to the problems facing the public sector commercial banks. which is only effective instrument of monetary control in India.

Ready delivery contract can be made in respect of all securities where as forward delivery contracts are confined to those securities which are placed of the forward list. Organisation of Stock Exchange in IndiaThere are 23 stock exchange functioning in India including the Over.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Stock Exchange Stock Exchange is a market in which securities are brought and sold and it s an essential component of a developed capital market. According to this Act. The important differences between these 2 dealings are the following:Ready delivery contracts also known as cash trading or cash transactions. Stock Exchange means anybody of individuals. regulating or controlling the business of beinging selling or dealing in securities. (ii) Government Securities. (iii) Rights or interest in securities. Investment transactions are made with the intention of earnings a return on the securities by holdings them more or less permanently whereas speculative transactions are made with the intention of making gains by disposing of the securities at favourable prices. It provides necessary nobility of to capital & directs the flow of capital into profitable and successful enterprises. Dealing on Stock Exchange Stock exchange dealings in India are regulated by the Securities Contracts (Regulation) Act and the Securities and Exchange Board of India (SEBI). 1956. whether incorporated or not. The Counter Exchange of India (OTCEI) and National Stock Exchange (NSE). As against these the forward delivery contracts are discharged on fixed settlement days. stock or other marketable securities of a like nature n or of any incorporated company or body corporate. Scrips. Stocks bonds. are to be settled either on the same date or within a short period that may extend at best up to seven days. . On the trading floor of stock Exchange. Speculation on the Stock Exchange:Stock Exchange transactions are made ether for the purpose of investment or for speculation. There are 2 important types of trading on the stock exchange namely Ready Delivery contract and Forward Delivery Contract. According to Securities Contracts (Regulation) Act. It may be defined as the place or market where securities of joint stock companies & of government or semi-government bodies are dealtion. securities include (i) Shares. debentures. constituted for the purpose of assisting. dealings are permitted only n the listed securities through the members or their authorized clerks during fixed working hours.

4) Power to make or amend bye-laws or roles for stock exchanges. The policy of the Government is that there shall be only one stock exchange in one area. In pursuance of this policy. With about 10. In pursuance of this policy. The rules & bye-laws of the stock exchange shall be in conformity with such conditions as may be prescribed by the Government. (2) To promote healthy & orderly development of stock market in India. The Securities Contracts (Regulation) Act empowers the Government also to withdraw the recognition granted to a stock exchange. where more than one stock exchange in one area. Main Provisions:1) The grant of recognition or withdrawal of recognition to any stock exchange. 6) Power to suspend business of stock exchanges. the Tokyo Stock Exchange was founded only n 1878. (4) To protect the interest of investors. come into force on February 20. 8) Regulation of listing of securities. 1956. (5) To provide for reasonable uniformity of the bye laws & rules of the different stock exchange in India. only those stock exchange which are recognized by the government can function in the country.: . India holds the unique distinction of having the largest number of listed companies in the world.000 listed companies. 3) Power to direct the stock exchanges to make or amend roles and bye-laws in certain cases. Securities Contracts (Regulation) Act:The Securities Contracts (Regulation) Act. 7) Power to supersede governing body of any stock exchange on account of specific reasons. Since the coming into effect of the Securities Contracts Act. Recognition to Stock Exchanges.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU The Bombay Stock Exchange. Objectives:(1) To empower the Central Government to regulate the dealings n and functioning of the stock exchange in India. where more than one stock exchange was given recognition and active members of the non-recognized stock exchanges were admitted. (3) To prevent unhealthy speculation & other undesirable activities on the stock exchange. in the interest of trade or in public interests. Each stock exchange is managed by an Executive Committee/ Governing Body to which the Government is empowered to nominate not more than 3 members. Exacted in 1956. which was established n 1875 is the oldest one in Asia. 2) Approval of the bye-laws and rules of stock exchanges. 5) Monitoring the activities & functioning of the stock exchanges by calling for periodic returns & specific information as and when required and by conducting inquiry into certain matters when the situation so warrants. Regulation of Stock Exchange:In India the Development of the stock market is directed and the dealings on the stock exchange are regulated by the Central Government in accordance with the Securities Contracts (Regulation) Act 1956 (SCRA) and Securities and Exchange Board of India (SEBI) established by the Central Government. 1957.

The SEBI is also authorised to call upon any recognized stock exchange or any members of such exchange to furnish any information or explanation relating to the affairs of the stock exchange or the members in relation to the stock exchange. every recognized stock exchange. Shall furnish to the SEBI such periodical returns relating to its affairs as may be prescribed. Power to supersede Governing Body:It the Central Government has sufficient reasons to think that the governing body of any stock exchange should be superseded. Management:Section 4 of the Act lays down the constitution of the management of SEBI. under certain circumstances. 2 other members to be appointed by the Central Government. who shall be professionals & interalia have experience or special knowledge relating to securitia market. Further. Power to obtain Information & to Conduct Inquiry:Every recognized stock exchange shall furnish the Central Government with a copy of the annual report containing all the particulars prescribed. it may do so after serving a written notice on the governing body & giving the body an opportunity to be heard in this matter. A Recognised Stock exchange shall have effect until they have been approved by the Central Government and published by that Government in the official Gazettee. The period of suspension may be extended from time to time but after the governing body has been given an opportunity of being heard in the matter. two members from amongst the officials of the Ministeries of the Central Government dealing with finance and law. The Board of members of SEBI shall consist of a chairman. Power of Recognized Stock Exchange to Make Rules Restricting Voting Rights Etc. Objectives:- . SEBI (Securities and Exchange Board of India) The SEBI was constituted in 1988 by a resolution of Government of India & it was made a Statutory body by the Securities and Exchange Board of India Act 1992. one member from amongst the officials of Reserve Bank of India. These Powers are exercisable by the SEBI also. Power to Suspend Business of Stock Exchange:The SCRA empowers the Central Government to suspend the business of any stock exchange.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Any stock exchanges which is desirous of being recognized may apply to the Central Government in the prescribed manner with the required particulars and a copy of the bye-laws of the stock exchange and the rules relating to the constitution of the stock exchange. The Act lays down that the Central Government Shall not refuse grant of recognition to a stock exchange without giving it an opportunity to be heard & that the reasons for the refusal shall be communicated to the stock exchange in writing. for a period not exceeding 7 days in the interest of trade or public interest.

World Bank and WTO. Calling far information from. Customer orientation. NBFCs are of various types such as loan companies (LCs). NBFC sector is characterized by a large number of privately owned. Unit-IV Trend and pattern of India’s foreign trade and balance of payments. hire-Purchase etc. Foreign trade Regulation of Foreign trade:Control of foreign trade in India dates back to the early year of Second World War. and equipment leasing companies are defined on the basis of the principal activity of their business. Regulating substantial acquisition of shares and take-over of companies. including mutual funds. the securities market for matters. globalisation trends in Indian economy. (Subsequently repeated) and Securities Contracts (Regulations) Act. Although NBFCs in India have existed for a long time. Promoting and regulating self-regulatory organizations. Levying fees or other charges for carrying out the purposes of section 11 of the Act. they face competition from banks & financial institutions. conducting enquiries and audits of the stock exchange & intermediaries & self-regulatory organizations in the securities market. Conducting research for the above purpose. Promoting & regulating self-regulatory organizations. Import Control was introduced in 1940 as a war time measure under the Defence of India Rules with the . here purchase finance companies (HPFCS). equipment leasing companies (ELCs) mutual benefit financial companies (MBFCs) also known as NIdhis. concentration in the main financial centres & attractive rates of return offered by them are some of the reason for their rapid growth. they shot into prominevce in the second half of the 80’s & in the Ist half of the 70’s as deposits raised by them grew rapidly. Promoting investor education & training of interdiaries in securities market. connected there with or incidental there with. Powers and Functions:These measures provide for:(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Regulating the business in stock exchange & any other securities market. Investments. 1947.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU To Protect the Interest of investors in securities & to promote the developments of and to regulate. Performing such functions & exercising such power under the provision of the capital issues (control) Act. Performing such other functions as may be presented by the government. Non-Banking Financial Institutions NBFC’s are financial intermediaries engaged primarily in the business of accepting deposits and making loans and advances. decentralized and relatively small sized financial intermediaries. policy towards foreign direct investment. 1956 as may be delegated to it by the Central Government.IMF. undertaking inspection. NBCs are a heterogenouslot. latest EXIM policy-main features. Prohibiting fraudulent & on fair trade practices in securities market. India’s policy commitments to multilateral institutions. role of MNCs. Primarily engaged in the area of retail banking. leasing. investment companies (ICs). Promoting investors education & training of interdiaries in securities market. Registered and regulating the working of collective investment schemes. Prohibiting insider trading in securities.

was Promulgated to continue the import trade Control. The major concern of government in the past was restriction of imports with a view to controlling the trade deficit & protection of domestic industries against foreign competition. the orders and rules made under this Act and the expert and import policy. The foreign trade Act 1992 This Act which replaced the Imports and Exports (Control) Act 1947 come into force on 19th June 1992. The DGFT Shall advise Central government in formulation of export & import policy & shall to be responsible for carrying out that policy. (2) Prohibition & Restriction:The Act also empowers the Central government to make provision for prohibiting. 1947. Initially.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU Primary objective of conserving the foreign exchange resources and restricting physical import so as to reduce the pressure on the limited available shipping space. After the end of the war. the import of only 68 commodities. Defence of India Rules Lapsed and hence in September 1946. this Act gave the government enormous powers of control over foreign trade of India. mainly consumer goods. very high import duties & foreign exchange restrictions. of a director General of foreign Trade for the purpose of this Act. with the increasing pressure on the foreign exchange resources. from time to time. The foreign trade policy was characterised by overtone of regativism. was replaced by foreign Trade (Development & Regulation Act). Imports were. were brought under control. This was ultimately replaced by Imports and Experts (control) Act 1947. restricting or otherwise regulating the import or export of goods as and when required. No export or import shall be made by any person except in accordance with the provisions of this Act. Subsequently. (4) Director General of Foreign Trade:The Act provides for the appointment by Central Government. Objectives:Is to provide for development & regulation of foreign trade by facilitating imports into and augmenting exports from India and for matters connected there with or incidental thereto. which come into force with effect from 25th March 1947. 1992. import control was extended to other commodities as well. import licensing. The imports and Exports (Control) Act. therefore very much restricted by Prohibition of imports of many items. (3) Exem Policy:The Act lays down that the Central Government may. formulate & announce export and import policy & policy & may also amend that policy. Main Provisions:(1) Development & Regulation:The FTDRA empowers central govt to make provision for development & regulation of foreign trade by facilitating imports & increasing exports. (5) Importer-Exporter Code Number:- .

repatriation of capital etc as well as inward remittances were subject to strigent laws like the foreign Exchange Regulations Act (FERA).:. Inspection & Seizure Any person authorized by Central govt may search. (5) Payment of dividends aboard. Foreign Investment in India. after giving licence holder a reasonable opportunity of being heard. (6) Corporate taxation was high and tax laws & procedure were Complex. Government Policy. The flow of direct foreign investment to India has been comparatively limited because of the type of industrial development strategy and the very cautions foreign investment policy followed by the nation. Only foreign technical collaboration may be permitted. (2) When the public sector enterprises needed foreign technology or investment. (6) Issue and Suspension/ Cancellation of licence:The Director General or any other officer authorised under this Act is empowered to suspend or cancel a licence issued for export or import of good in accordance with this Act for good & sufficient reasons.t. (4) Foreign equity participation was normally subject to celeing or 40%. Those factors either limited the scope of or discouraged the foreign investment in India. (3) Government policy towards foreign capital was very selective. The FERA empowered the Reserve Bank of India to regulate or exercise direct control over the activities of foreign companies and foreign nationals in India. No foreign collaboration either financial or technical was considered necessary. . inspect & seize such goods. there was a marked preference for the foreign government sources. The government had issued list of industries where: (i) (ii) (iii) Foreign investment may be permitted.India was following a very restrictive policy towards foreign capital and Technology. Foreign collaboration was permitted only in fields of high priority and in also where the import of foreign technology was considered necessary. (1) The public sector was assigned a monopoly or dominant position in the most important industries and therefore. This type of participation had to be justified w. 1973. both domestic and foreign. the scope of private investment.r. Foreign investment was normally permitted only in high technology industries in priority areas and is export-oriented industries. was limited. The Foreign Exchange Regulation Act (FERA) served as a too for implementing the national policy on foreign private investment in India. Foreign share capital was to be by way of cash without being liked to wed Imports of machinery and equipment or to payments for trademark brandnames etc. Import of technology was considered on merits if substantial exports were guaranted over a powered of 5 to 10 years and if there were reasonable proposals for such exports. These discouraged foreign investment. Direct foreign investment (private) in India was adversely affected by the following factors. (7) Search.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU The Act lays down that no person shall make any import or export except under an ImporterExporter Code (IEC) Number granted by the DGFT or officer authorised by him in his behalf. documents which are imported and suspected. although exceptions were allowed on merit. factors like nature of Technology involved. The government policy on foreign equity participation was selective.

(2) In all other cases. non-residents. by and large. to the home market. which observes that while freeing the Indian economy from official controls. . In Feburary 2000. in which FDI does not exceed 51%. opening branches or other places of business in India acquiring any business undertaking in India and purchasing shares of India companies. government took a major decision to place all items under the automatic route for FDI/NRI/OCB (Overseas Corporate Bodies) Investment except for a small negative list which include: (1) Automatic Approval by RBI is available for any proposal with lumpsum payment not exceeding us $2 million and royaltly of upto 5% on domestic sales & eight percent on exports. and also through the move rapid and widespread diffusion of technology. They had to obtain permission from the RBI for carrying on in India any activity of a trading. Salient features of initiatives under new policy includes the following:The automatic route has subsequently been expanded very significantly & now there are different categories of industries on the basis of the celing of foreign equity participation. The New Policy:The industrial policy statement of July 24. in which FDI does not exceed 74%. foreign equity participation was restricted to 40% and foreign investment and technology agreements needed prior approval. Indian firms confined themselves. The trading. been a change. in which upto 100% foreign equity is permitted. commercial and industrial activities in India of persons resident abroad.” India’s economic integration with the rest of the world was very limited because of the rest of the world was very limited because of the restrictive economic policies followed until 1991. in which FDI does not exceed 50%. Foreign Investment by Indian firms was very insignificant. foreign citizens in India and foreign companies were regulated by The FERA. commercial and industrial nature. The new policy also made the import of capital goods automatic provided the foreign exchange requirement for such import is ensured through foreign equity. Globalization has in fact become a buzz word with the Indian firms now and many are expanding their overseas business by different strategies.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU According to FERA. opportunities for promoting foreign investment in India should also be fully exploited has liberalized and Indian policy towards foreign investment & technology. however. there has. In pre-liberalisation era. the Project Approval Board (PAB) considers the proposals and makes recommendations to the Industry Ministry regarding approval. (1) (2) (3) (4) (5) Industries Industries Industries Industries Industries in which FDI does not exceed 26%. New policy has allowed majority foreign equity with automatic approval in a large no of industries. foreign citizens resident in India and foreign companies required the permission of the RBI to accept appointment as agents or technical management advisers in India. Globalisation Globalisation as “ The growing economic interdeperdence of countries world wide through increasing volume & variety of cross border transactions is goods and services and of international capital flows. 1991. With the new economic policy ushered in 1991.

in many cases Indian firms are not able to complete with the giants of other countries. (8) Supply problems:Due to various reasons like low production capacity. tend to reduce the international competitveness of the Indian business. Even when the quality is good. the poor quality image India has become a handicap. One pre requisite for success in globalization is swift and efficient action. etc. Technological modernization is resisted due to fear of unemployment. (4) Obsolescene:. Even after the much publicized liberlisation. (3) Poor Infrastructure:Infrastructure in India is generally inadequate & inefficient & therefore very costly. power. Even the largest of Indian companies are small compared to the multinational giants.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU This section takes a look at the hardles to and prospects for globalization of Indian business and the different globalization strategies. mode & style of operations etc. This is a serious problem affecting the growth as well as competitiveness. Indian companies in many instances are not able to accept large orders or to keep up delivery schedules. they do not present a very conducive situation. shortage of raw material and infrastructures like power and port facilities. Because of this labour productivity is low and this is some cases more than offsets the advantages of cheap labour. (7) Small Size:Due to various reasons like low level of resources. The extent of excess labour employed by Indian Industry is alarming. The important problems are the following:(1) Government Policy and Procedures:in India are among the most complex. Obstacles to Globalisation:The Indian business suffers from a number of disadvantages in respect of globalization of business. . vationalisation & efficiency improvement. the quality of many Indian product is poor is poor. (2) High Cast:of many vital inputs and other factors like raw material and intermediates.The Technology employed. (6) Poor Quality Image:Due to various reasons. (5) Resistance to change:There are several socio-political factors which resist change & this comes in a way of modernization. Government policy and bureaucratic culture in India in this respect are not that encouraging. obsolete & these seriously affect the competitiveness. confusing and difficult in the world. are in general.

etc. The delicensing of industries. experience. (3) Growing Enterpreneurship:Many of the established industries are planning to go international in a big way. ideas etc. removal of restrictions on growth.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU (9) Lack of Experiences:The general lack of experience in managing international business is another important problem. he growing competition from the developing country firms is a serious challenge to India’s international business. (2) Wide Base:India has a very broad resources and industrial base which can support a variety of business. Added to this is the considerable growth of new and dynamic entrepreneurs who could make a significant contribution to the globalization of India business. opening up of industries earlier reserved for the public sector. (7) Economic liberalization :in India is an encouraging factor of globalization. could courage globalization of Indian business . there is abundant supply of labour and cheap labour has particular attraction for several industries. is an asset which can contribute to the globalization of Indian business. there are also a number of favourable factors for globalization of Indian Business. (1) Human Resources:In India. import liberalizations. The contribution of the overseas Chinese to the recent impressive industrial development of china may not be noted here. (10) Growing Competition:The Competition is growing not only from the firms in the developed countries but also from the developing country firms. (5) Expanding Markets :The growing population and disposable income and the resultant expanding internal market provides enormous business opportunities. Indeed. (4) Growing Domestic Market:The growing domestic market enables the Indian companies to consolidate their position and to gain more strength to make foray into the foreign market or to expand their foreign business. Factors Favouring Globalisation:Although India has several handicaps. skill. Further liberalization in other countries increases the foreign business opportunities for Indian business. (6) NRI’s :The large number of non-resident Indians who ave resourceful in terms of capital. .

Role of MNC’s According to an ILO repot. 7) The enormous resources of multinational enterprises enable them to have very efficient research & development systems. Demerits:1) MNC’s may destroy competition & acquire monopoly powers. 4) The MNCs enable that host countries to increases their exports & decreases their import requirements. (host countries). Domivance of MNC’s Through liberlisation there has been expansion & growth of MNC’s. The MNC’s are estimated to employ directly. 2). at home and abroad around 73 billion people. provide many Indian Companies to look to foreign markets seriously to improve their competitiveness position & to increases the business. the MNC’s may encourage & assist domestic suppliers. the US footwear company Nike currently employes 9000 people. 3) They also kind a managerial revolution in host countries through professional management and employment of highly sophisticated management techniques. especially to developing countries. 9) MNC’s help to increase competition & break domestic monopolies. Merits of MNC’s The important arguments in favour of MNC’s are given below:MNC’s help the host countries in following ways:1) MNC’s help to increases the investment level & thereby the income & employment in host country.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU (8) Competition:The growing competition. while nearly 75.000 people are employed by its independent sub-contractors located in different countries. “the essential nature of multinational enterprises lies in the fact that its managerial headquarters are located in one country (home country) while enterprises carries out operations in number of other countries as well. 5) They work to equalize cost of factors of production around the world. 8) MNC’s also stimulate domestic enterprise because to support their own operations. Thus. 6) MNC’s provide and efficient means of integrating national economies. both from with the country and abread. The GDP has increased from about 5% in beginning of 1980’s to nearly 7% at end of 1990’s. they make a commendable contribution to inventions & innovations. For example. . The transnational corporations have become vehicles for the transfer technology.

INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU 2) The transfer pricing enables MNC’s to avoid taxes by manipulating prices on intra-company transactions. quantitative restrictions & other regulatory and discretionary controls have been eliminated. Multinationals in India Comparatively very little foreign investment has taken place in India due to several reasons. ignoring national priobities. Coca Cola and IBM. Exim Policy 2002-2007 Features/Proposals are given below:1) The Mission:The main aim of this policy is to increase exports from 0. products of dairy. EXPORT-IMPORT POLICY [EXIM POLICY] This Policy was announced under foreign Trade 1992 on 31 March. it is asserted. the imported technologies are not adopted to (a) Consumption needs (b) size of domestic markets (c) resource availabilities (d) stage of development of many of developing countries. the net effect in foreign exchange reserves could be favourable even if there is net foreign exchange outflow of company. It is not a right approach to estimate the net impact of multinationals on foreign exchange reserves by taking net foreign exchange outflow or inflow. This implies that total exports will nearly double from $46 billion to over $ 80 billion achieving a compound annual growth rate of (CAGR) of 11. In general. however been allowed to continue in those sectors. Such as processed fruits. some multinationals.67% to 1% over this period. Licensing. 2) Agricultural Exports:Agri Export Zones scheme are proposed to be supported with development of necessary infrastructure. Packaging. rice etc. 5) MNCs technology is designed for world-wide Profit maximization. 3) Through their power and flexibility . wheat. flow of credit & other facilities for promoting agro exports. An important feature of Exim Policy sence 1992 is freedom. Firms which had been established non-priority areas prior to implementation of this policy have.9% in dollar terms. not the development needs of poor countries. MNC’s can evade national economic autonomy & control. even left India in late 1970s as the government conditions were unacceptable to them. and their activities may be inimical to national income interests of particular countries. A Common criticism against MNC’s is that they tend to invest in low priority & high profit sectors in developing countries. However high technology and heavy investment sectors of national importance & export sectors. If a multinational is operating in an import substitution industry. and quantitative restrictions is respect of exportof a number of agricultural products to Russia were removed. vegetables. 3) SEZ :- . 4) MNCs retard growth of employment in home country.

removal of quantitative restrictions on exports. Costs:The new policy contains several initiatives to immunize export sector against disadvantages arising from sate of infrastructure. 8) Condusion :The new policy has improve export infrastructure & export production. 3) To Promote exchange stability to maintain orderly exchange arrangements among the members and to avoid competitive exchange depreciation. Initially an amount of Rs 5 crore has been earmarked for promoting cottage sector exports coming under KVIC. UNIT-D Ques 7 Explain India’s Policy commitment towards: (a) IMF and (b) WTO Ans (a) The International monetary fund (IMF) is an international monetary institution established by 44 nations under the Bretton Woods Agreement of July 1944. 2) To facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of productive resources of all members as primary objective of economic policy. power tariffs. interestrate. The simplification of Exem policy schemes being announced in new policy will more effectively rebate all indirect taxes on imports. and freedom to make overseas investment and carry out commodity hedging. Panipat for wollen blankets to be eligible for following benefits. 6) Reduction in Transaction Time. Common Service Providers in these areas shall be entitled for facility of EPCS Scheme. 5) Special Focus on cottage Sector and Handicrafts:The following facilities will be made available to them. The Units in handicrafts sectors can also access funds from Market Access Initiative (MAI) Scheme for activities including development of website for virtual exhibition. . 80% of total funds would be allotted to states based on above criteria and remaining 20% will be utilized by the center for various infrastructure activities that act across State boundaries etc. 4) Towns of Export Excellence:A number of Industrial Cluster-towns are exporting a substantial portion of their products which are world class. etc. A beginning is being made to consider industrial cluster-townssuch as Tirupur for hosiery. 7) Assistance to States for Infrastructural Development for Exports:During 2000 Government had announced a Scheme for participation of states in export endeavour. The objectives of the funds stated in Articlel of the fund Agreement are as follows: 1) To promote international monetary cooperation through a permanent institutions which provides the machinery for consultation and collaboration or international monetary problems.INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU The Current Exim Policy offer several fiscal incentives to units in the SEZ’s other proposals include exemption to SEZ units from External Commercial Borrowings restrictions. procedural simplication etc.

INDIAN BUSINESS ENVIRONMENT NOTES MBA 2ND SEM MDU 4) To assist in the establishment of a multilateral systems of payment in respect of current transactions between members and the elimination of foreign exchange restrictions. shorten the duration and lesson the degree of disequalibrium in the international balance of payments of members.01 million from 1 July 1978 to 21 February 1981 under the IMF Trust fund in 1979. However.6 billion or Rs.79 billion a the first credit tranche of a stand by arrangement for three months. 6) In accordance with the above. On 31 October. India is on of the founder member of IMF. . India borrowed $ 100 Million twice to tide over its balance of payment difficulties. 5) To give confidence to members by making the fund’s resources temporarily available to them under adequate safeguards. Assuming that India’s market share in the world export improves from 0. 1995 and India has become a founder member of the WTO. The GATT secretariat further projects that the largest increases will be n the areas of clothing. But the WHO is a properly established permanent world trade organization. 5. It signed the fund agreement of 27 th. 30 The World bank and the GATT secretariat have estimated that the income effects of the implementation of the Uruguay package will add between 213 and 274 billion U. Between 1947 to 1955.220 crores under extended fund facility. forestry and fishery products and processed food and beverages. After April 1984.S. Dollars annually to world income. According to Government of India. A generous estimate will range from 3. the fund is guided in all policies and decisions by the purposes set forth in the above article. agriculture. it is logical to believe that India will obtain large gains in these sectors.7 billion dollars extra exports per year. After May 1970 the quota stands at 13 th place. the IMF approved a stand by credit of $ 2. The WTO agreement came into force from January 1. India’s quota in the fund was the fifth.2 billion to be disbursed to India n 8 branches over a solve world trade problems. ratifying the WTO Agreement on Dec. the government believes that the trade gain may conservatively be placed at 2. It has a legal status and enjoys privileges and immunities on the same footing as the IMF and the World Bank. India entered into agreements with the IMF for a loan of $5. in absolute terms.05 in January 1993. December 1945. India’s quota stood at SDR 3. it approached the IMF under compensatory and contingency Financing Facility (CCFF) to get $0. since our country’s existing and potential export competitiveness lies in these products group. It also received SDR 529. 104 members signed an agreement for the setting up to the WTO. (2) All agreements and arrangements concluded under the GATT and (3) The complete results of the Uruguay round. India has been one of the major beneficiaries of the fund assistance. In January 1991. It includes: (1) The GATT as modified by the Uruguay Round.5 percent to percent and that we are able to take advantage of the opportunities thus created.7 to 7 billion US Dollars per year. India did not take any resources of IMF till December 1990. Till 1970.

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