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Topic 01

HISTORY
AND
DEVELOPMENT
OF
INDIAN BUSINESS
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BUSINESS

CHARACTERISTICS OF INDIAN
SOCIETY
EMERGENCE OF FAMILY BUSINESS

Society segmented on the basis of Vocation


Joint Family System
Cohesiveness of both Family and Business
Male dominated society
Emergence of Society empowered business models
Hindu Divided Family
Partnership
Abundance of Natural Resources

FACTORS FAVOURING TRADE AND


COMMERCE (BUSINESS)

India was famed for her fabulous wealth - right from


ancient times till the establishment of the British
Empire
Growth and urbanisation of towns in various parts of
the country
Establishment of a sound currency system based on the
silver tanka and the copper dirham - economy of the
towns flourished
Cotton and Textiles - formed one of the chief items of export
(Kerala, Madras, Gujarat, Bengal, Maharashtra)
Furniture modelled on European design with expensive
carvings and inlays (Sindh, Gujarat and the Deccan)
Diamond, Cut stones, ivory, pearl and tortoise shells South
India
Most superior quality Rice and Sugar MP, Punjab, Delhi
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EMERGENCE OF FAMILY BUSINESS AND


PARTNERSHIP BUSINESS MODELS

Joint Family (HUF) and Partnership emergence of


the most ideal Business Models
Merchant community of the country was a
prosperous lot
Members of the nobility and the royalty took an
interest in trading activities.
They set up their own manufacturing centres
wherein local artisans were employed
Indias exports far exceeded her imports both in the
number of items as well as in volume
Traders started settling in Coastal cities
Shipbuilding industry flourished in the coastal
towns.
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CONTRIBUTION OF EAST INDIA REGIME


TO DOMESTIC BUSINESS

Rise of the British East India Company in the mid


18thcentury dealt a fatal blow to the prosperity of
the country
The Company established its supremacy in Bengal,
prevented merchants from coming to the eastern
provinces for trading purposes.
o The export of Indian textiles to England was
totally banned
o Company increasingly monopolised the foreign
trade in India thereby reducing the mercantile
community to bankruptcy
o Export of Cotton and Import of Finished Cotton
products monopolised by East India Company
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EMERGENCE OF COMPANY MODEL OF


BUSINESS - IMPACT OF WORLD WARS
With threat of World War looming large England
stopped exporting to India
Opened a gateway for Large Partnership Houses from
India
Partnership Business Model deficient no outside
funding possible
During early 19th Century Large Indian Trading Houses
started converting their Partnership business into
Company
Swadeshi Movement acted as catalyst
Indian Houses promoted Cotton Mills and other
traditional products
Promoted Banks (Indian) to fund their business
Promoted Insurance Companies (generally non life)

WORLD WAR AND CONTROL REGIME


(DEVELOPED AND DEVELOPING
ECONOMY)
Developed countries actively participated in WW
Developing countries suffered due to WW
With prominent Business leaders actively participating
in Freedom movement of India, England apprehended
threat
Shift to Control Regime - enacted Defence of India
Rules 1939
o Licensing mandatory for Banking
o Controller of Capital Issues Act
o Foreign Exchange Control Act
o Indian Industry brought under Controller Regime

BUSINESS
ENVIRONMENT
POST INDEPENDENCE

MIXED AND PLANNED ECONOMY


GOVERNMENT'S REGULATORY ROLE

Every economy has traces of State regulation over


industrial growth and development
In capitalist economies State control minimal
In Socialist economies State regulation absolute

Independent India adopted Mixed economy a middle


path, characterized by PSU as well as Private Sector;
Public sector holding commanding heights
Licensing other forms of regulation prominent feature of
mixed economy
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INDEPENDENT INDIA ADOPTS


MIXED ECONOMY
Independent India got
o 91 % of total Industrial units
o 93% of total workers employed
o 97% of total value of mineral production
Lost
o very significant market in general
o almost entire supply of Jute and Cotton
Govt. efforts to improve industrial relations
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On 7th April 1948 Parliament adopted Industrial Policy


Resolution laying down- broad objectives of Government
policy towards industrialization
Resolution stressed need of `Mixed Economy` - middle
course between nationalisation of private enterprise and
free enterprise
In1950 Constitution adopted, Planning Commission set
up India ushered into an era of Planned Economic
Development building dominant Public Sector and also
encouraging and regulating Private Sector in line with
Constitution and Plans
Controlled Regime continued under garb of Public
Welfare State concept

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ASPECTS OF GOVERNMENT`S ROLE


Government pervasive role in Indian economy as :i.
Regulator of business
ii.
Promoter of business
iii.
Entrepreneur
iv.
Planner
Not really separate compartments but interestedly
connected
Ex PFI and Nationalised Banks are both
promotional and regulatory agencies
Revival of Sick industries convergence of
regulatory, promotional and entrepreneurial role of
Govt.
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(i) AS REGULATIOR
i. Regulation of private industrial development per
planned priorities (EMERGENCE OF LICENCE RAJ)
ii. Channelisation of investment into priority industries
iii. Avoidance of concentration of Ownership and
Control (enabling laws passed)
iv. Prevention of location concentration-to encourage
dispersal of industries
v. Promote Small scale and Cottage industries and
reduction of undue competition
vi. Optimum utilization of scarce FE resources
vii.Enabling Govt. to takeover companies detrimental
to industry or Public interest
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(ii) PROMOTIONAL ROLE


i.

Providing finance for industry


o
o
o
o

Promoted Development Financial Institutions at Centre


and State Levels
Promoted IITs in collaboration with developed countries
Promoted ITIs for development of knowledge in various
trades related to Industry
Promoted Higher Education Centres Universities, IIMs,
AIMS etc

ii. Granting incentives


iii. Creating infrastructure facilities for industrial
growth and investment

State Govt. also directly and intimately involved


in promotional process
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(iii) ENTREPRENEURIAL ROLE


Exclusive responsibility of Govt. (Schedule A -17
items [Ex Arms, Atomic Energy, Iron & Steel, Coal,
Railways, Electricity, Oils, Mining, Telephones, Heavy
industries)
Progressively State owned/New undertaking to be
State owned [Schedule B 12 items [Ex Aluminum,
Machine Tools, Antibiotics, Fertilizers, Road
Transport) Private enterprise expected to supplement
efforts of Govt.
Govt. to establish any industry in public interest private sector progress unsatisfactory
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(IV) AS PLANNER
Central Govt. indicates various priorities in the Five
year Plans and also sectoral allocation of resources
Development of Cottage and Small scale industries
Since 1952, Development Councils set up for 10
industries - Heavy Chemicals, Combustion Engines
& Pumps, Bicycles, Sugar, Heavy Electrical
Industries, Light Electrical Industries, Drugs and
Pharmaceuticals, Artificial Silk and Woollen
Manufactures.
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INDUSTRIAL PRIORITIES
Increase production -Iron, Steel, Heavy chemicals,
Fertilizers, Heavy Engineering Machine building
industries;
Expansion of capacity - developmental
commodities, producer goods i.e. aluminum,
cement, chemical pulp, dyestuffs, essential drugs;
Modernisation and re-equipment of existing
important national industries - jute, cotton
textiles, sugar;
Fuller utilisation of existing installed capacity in
industries;
Expansion of capacity - consumer goods
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ADOPTION OF LPG
AND
INTEGRATION OF INDIAN ECONOMY
WITH WORLD
In 1984 Rajiv Gandhi liberalised Industrial Policyo increased industrial output; boom in Capital Market,
laws deficient, fly-by-night operators ran away with
Public funds
o Investors started shying away from market,

Economic crisis in 1991 and Harshad Mehta scam


World Bank and IMF advised Policy Reforms
Narshimam Committee (1991) recommends LPG
Shift to Regulated Economy (from Controlled Economy)
Licdence Raj to go
India adopts the recommendations and adopts LPG in
1992
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HOME
READING

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CONSTITUTIONAL FRAMEWORK
EMPOWERMENT TO STATE

Constitution supports or restricts government in


economic activities

US Constitution has in-built prejudice in favour of


laissez-faire
Constitution of India based on the concept of `Welfare
State`
Constitution of India guarantees Fundamental Rights,
enumerates Directive Principles of State Policy
Parliament accepted socialist pattern of society as
objective of Social and Economic policy

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PREAMBLE
WE, THE PEOPLE OF INDIA, having solemnly resolved
to constitute India into a
SOVEREIGN SOCIALIST SECULAR DEMOCRATIC
REPUBLIC and
to secure to all its citizens:
JUSTICE, social, economic and political;
LIBERTY of thought, expression, belief, faith and
worship;
EQUALITY of status and of opportunity;
and to promote among them all
FRATERNITY assuring the dignity of the individual
and the unity and integrity of the Nation;

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PART IV
DIRECTIVE PRINCIPLES OF STATE POLICY
38. (1) ...
(2) The State shall, in particular, strive
to minimise the inequalities in income, and
endeavour to eliminate inequalities in
status, facilities and opportunities,
not only amongst individuals but also amongst
groups of people residing in different areas or
engaged in different vocations.
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39. The State shall, in particular, direct its policy


towards securing
(a) that the citizens, men and women equally, have
the right to an adequate means of livelihood;
(b) that the ownership and control of the material
resources of the community are so distributed as best
to subserve the common good;
(c) that the operation of the economic system does
not result in the concentration of wealth and means of
production to the common detriment;
(d) that there is equal pay for equal work for both
men and women;
(e) .
(f) ..

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43A. The State shall take steps, by suitable


legislation or in any other way,
to secure the participation of workers in the
management of undertakings,
establishments or
other organisations engaged in any industry

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SEVENTH SCHEDULE (Article 246)


List IUnion List
7. Industries declared by Parliament by law
to be necessary for the purpose of defence or
for the prosecution of war.
41. Trade and commerce with foreign
countries;
42. Inter-State trade and commerce.
43. Incorporation, regulation and winding up
of trading corporations, .
45. Banking
46. Bills of exchange, cheques, promissory
notes and other like instruments.

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47. Insurance.
48. Stock exchanges and futures markets.
49. Patents, inventions and designs; copyright;
trade-marks and merchandise marks.
50. Establishment of standards of weight and
measure
51. Establishment of standards of quality for
goods to be exported out of India or
transported from one State to another.
52. Industries, the control of which by the
Union is declared by Parliament by law to be
expedient in the public interest.
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53. Regulation and development of oilfields


and mineral oil resources; petroleum and
petroleum products; other liquids and
substances .
54. Regulation of mines and mineral
development
55. Regulation of labour and safety in mines
and oilfields.
61. Industrial disputes concerning Union
employees ..
82. Taxes on income other than agricultural
income.
83. Duties of customs including export duties28.

List IIState List


24. Industries subject to the provisions of
entries 7 and 52 of List I.
25. Gas and gas-works.
26. Trade and commerce within the State ..
27. Production, supply and distribution of
goods
28. Markets and fairs
49. Taxes on lands and buildings
50. Taxes on mineral rights
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20.
21.
22.
23.
24.
25.
26.

List IIIConcurrent List


Economic and social planning
Commercial and industrial monopolies,
combines and trusts.
Trade unions; industrial and labour
disputes.
Social security and social insurance;
employment and unemployment.
Welfare of labour ..
Education
Legal, medical and other professions
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PART III
FUNDAMENTAL RIGHTS
Right to Equality
14. The State shall not deny to any person
equality before the law or the equal
protection of the laws within the territory of
India.
19. (1) All citizens shall have the right
(a) to freedom of speech and expression; .
(c) to form associations or unions;
(d) to move freely throughout the territory of
India;.; and
(g) to practise any profession, or to carry on any
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occupation, trade or business..

CONSTITUTIONAL FRAMEWORK
CHAPTER IV.RIGHT TO PROPERTY

300A. No person shall be deprived of his property save


by authority of law.
PART XIII
TRADE, COMMERCE AND INTERCOURSE
WITHIN THE TERRITORY OF INDIA
301. ., trade, commerce and intercourse
throughout the territory of India shall be free.
302. Parliament may by law impose such
restrictions on the freedom of trade, commerce
or intercourse between one State and another
in the public interest
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