I.

INTRODUCTION TO BUSINESS ENVIRONMENT

Introduction:

Business Environment is defined as the total surrounding, which have a direct or indirect bearing
on the functionality of business.

There may be some external factors and other factors which control the business like customers,
competitors, suppliers, government, social, political, legal & technological factors.

There are some external factors like economic factors, social factors, political, legal, demographic
& technical factors which may be uncontrolled in nature & effect the functioning of the business.

Concept of Business Environment:

As all the living organisms including human beings live within an environment. It includes family,
friends, neighbors and also manmade furniture’s, buildings, roads.

So as any individual do not live in vacuum means isolation, business also does not work in
isolation.

Business function within the relevant environment. To be a successful business, business persons
should recognize different elements in environment and also has to adopt, manage & influence
them. A successful business has to identify appraise & respond to the various opportunities &
threats in its environment.

For example changes in the govt. policies, changes in technology ex. Computer replaced
typewriter, color TV replaced black & white.

Business gets resources from environment & supplies its goods and services to the environment.

Definitions:

A/c to B.O. Wheeler, “B.E is defined as the total of all things internal and external to the firm and
industry which effect organization and its operations”.

A/c to A.M. Weimer, “B.E is enclosed of climate, set of conditions like economic, social, political
etc. in which business operations are conducted”.

There are different levels of environmental forces like

i. close & internal forces

ii. external forces

External forces are related to i) regional level ii) national level iii) international level

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It is very important to analyze business environment to survive & to get success in the business.
Business environment changes from place to place, region to region & country to country.

Importance:

1. Identify firm’s strength & weakness: Through technology & global development, Business
Environment helps to identify the strengths and weaknesses of the firm.

2. Giving direction for growth: Business Environment will help to lead to identify the areas that
provoke the growth of the firm & expansion of business activities.

3. Continuous Learning: It helps the manager to motivate, to update their knowledge,

understandings & skills to meet the changes in the environment.

4. Image Building: It help to build up the image by showing their work.

5. Meeting Competition: It helps the firms to analyze the competitors, strategies and make the firm
to formulate their own strategies.

Components or Elements of Business Environment:

There are 2 Components

1. Internal Components

2. External Components

1. Internal Components: All the factors or Conditions those are available within the environment
of an organization. It can also be called as Controlled factors. The internal elements or factors are:

i. Employees: Business hires employees as per their skills, experience, knowledge, attitude etc. The
businesses have control over all the employees, allot different tasks and also handle all the
Conflicts.

ii. Shareholders: Management deals with many Shareholders. they have voting rights, right of
ownership on the management. They are also called as Board of Directors and they play a major
role in the formation of policies, objectives and strategies.

iii. Organization structure: Arrangement of various facilities, relationship among various

departments, responsibilities, authority and communication are the major factors of organizational
structure.

iv. Organization Culture: Set of values that help the members or employees to understand about
how the organization works and its directions.

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2. External Components: All the factors and conditions that cannot be controlled by the business
is called external environment. It is located outside the organization. It is also called as
uncontrolled environment or factors. It shows a major effect on organizational performance.

External environment is divided into Micro and Macro Environmental factors.

Micro Environment: Micro Environment or Task Environment comprises of different factors that
influence the functioning of an organization. The factors are:

1. Suppliers: A Business enterprise requires a no. of suppliers who supply raw materials &
components of the company.

2. Customers: They are highly influential as they are central point of every business and the success
of business largely depends on the need, desire, tastes of the customers.

3. Market Intermediaries: Every Business enterprise is assisted by market intermediaries, agents,

brokers who help the company to find consumers.

4. Competitors: Activities of business adjust a/c to the actions of competitors, upcoming profit or
revenue will only be decided when this factor is in control.

Macro Environment: Macro Environment has major external & uncontrollable factors that
influence an organizations decision making and its performance. These factors include:

1. Economic Environment: It indicates the conditions of economy in which business organization

operates. It includes national income, production, savings, investment, price.

2. Political or legal Environment: It is defined as rules & regulations determined by the

government. Business must fulfill demand of the government. There should be non-violation of
rules and regulations of the government.

3. Social Environment: Business must have good environment where a business can be established.
Business also helps in generation of employee opportunities. There should be socio cultural
understanding & application of anti pollution measures.

4. Technological Environment: It defines about the methods available for converting resources into
product or services. It helps to change the level of job, skills & productions. There can be
innovation, development of scientific techniques which encourages production & distribution.

5. Legal Environment: It has great impact on the functioning of the organization as it establishes
code and procedures for various types of business and deals with product counterfeiting, black
markets, consumer deception and tax evasion. In every country there exists specific pieces of
legislations which control & regulate the business activity like:- Indian Trade Market Act 1969,
Essential Commodities Act 1955, Consumer Protection Act 1956.

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6. Natural Environment: Business has broadly two relationships with natural environment. First, the
environment is the source of resources as raw materials & secondly it cause damages in the process
of production.

7. Financial Environment: Business Finance is concerned with making decisions about the
investment in the business. It includes bond markets, stock markets, real estate markets etc. These
markets play an important role in raising finance for the companies.

8. Global Environment: It includes rules, regulations, of W.T.O, I.M.F, SAARC, G20 & other
international bodies which effect the business organization operating their business in any country.

Introduction and Meaning of Industrial Policy:

The extent and pattern of industrialization in a country is highly influenced by its industrial policy.
Industrial policy is a comprehensive concept. It is a package of policy measures which covers
various issues connected with different industrial undertakings of the country. Industrial policy
covers all these procedures, principles, policies, rules and regulations which control such industrial
enterprises and shape the pattern of Industrialization. It consists of fiscal policy, monetary policy,
tariffs policy, labor policy and Government's attitude not only towards external assistance but
towards the public and private sectors also.

World Bank (1992) "Government efforts to alter Industrial structure to promote, productivity based
growth."

Before independence there was no proper policy determining industrial development of the
country. It was only after India attained independence in 1947 that an effort was made to begin the
era of planned industrial development. It is in this background that we have to study the evolution
of Industrial Policy in India and see how far it has worked as a tool in realizing the goal of planned
development.

Industrial policy lays down rules and procedures that would govern the growth and pattern of
industrial activity. The industrial policy is neither fixed nor inflexible. It is amended, modified and
redrafted according to requirements and perspectives of developments.

Objectives:

The major objectives of industrial policy are

(i) Industrial Development: The industrial policy aims at increasing the tempo of industrial
development. It seeks to create a favorable investment climate for the private sector as well as
mobilize resources for the investment in public sector. In its-way the government seeks to promote
rapid industrial development in the country.

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(ii) Balanced industrial Structure: The industrial policy is framed the prevailing lopsided
industrial structure. Before Independence, India had some fairly developed consumer goods
industries. But the capital goods sector was not developed at all and basic and heavy industries
were by and large absent. So the Industrial policy had to be framed in such a manner that these
imbalances in the industrial structure are corrected. Thus by laying emphasis on heavy industries
and development of capital goods sector. Industrial policy seeks to bring a balance in Industrial
structure.

(iii) Prevention of Concentration of Economic Power: The industrial policy seeks to provide a
framework of rules, regulations and reservation of spheres of activity for the public and the private
sectors. This is aimed at reducing-the monopolistic tendencies and preventing concentration of
economic power In the hands of a few big industrial houses

(iv) Balanced Regional Growth: Industrial policy also alms at correcting regional imbalances in
Industrial development. It is quite well-known that some regions in the country are industrially
quite advanced e.g., Maharashtra and Gujarat while others are industrially backward, like Bihar,
Orissa. It is the task of industrial policy to work out programmes and policies which lead to
industrial development or industrial growth.

The Industrial policy of 1948, which was the first Industrial policy statement of the Government of
India, was changed In 1956 in a public sector dominated Industrial development policy that
remained In force till 1991 with some minor modifications and amendments in 1977 and 1980. In
1991, far reaching changes were made in the 1956 Industrial policy. The new Industrial Policy of
July 1991 heralded the framework for Industrial development at present.

Industrial Policy Resolution, 1948

The first Prime Minister of India, Sh. Jawaharlal Nehru declared the industrial policy of the
Government of India on April 6, 1948. The Industrial Policy Resolution of 1948 aimed at
acceleration of the industrial development of the country. The resolution contemplated a mixed
economy which included both the public sector as well as the private sector in the Industrial front.
This policy divided the Indian industries into four broad categories

(a)In the first category the Industries were to be the exclusive monopoly of the Central
Government. This category Included the manufacture of arms and ammunition, the production and
control of atomic energy and the ownership and management of railway transport

(b) The second category covered coal iron and steel, aircraft manufacture, ship building,
manufacture of telephone, telegraphs and wireless apparatus etc. The State would have the
exclusive right in setting up new undertakings Included in this category; however existing units of
such industries would continue to be run by the private Industrial undertakings.

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(c) The third category consisted of private Industries of basic Importance that Central Government
felt it necessary to regulate but ownership of these industries was left in private hands. Such
Industries were salt, automobiles, tractors, electric engineering, heavy machinery, machine tools,
heavy chemicals, fertilizers, non-ferrous metals paper, Cement, newsprint, air and sea transport etc.

(d) The fourth category comprised of the remainder of the industrial field which was kept open to
private sector Including both Individual as well as cooperative. The State control over these
Industries would be of a general nature only.

Some other elements of this policy resolution were as follows:

(i) Cottage and Small Scale Industries. The Industrial Policy Resolution of 1948, laid special
emphasis on the development of cottage and small scale industries. These industries held an
important position In the national economy.

(ii) Role of Foreign Capital. The Resolution recognized the need for security and participation of
foreign capital and enterprise especially in respect of Industrial technique and knowledge for
enhancing the pace of industrialization in the country. The Government also accepted in view of the
national Interest that the investment of foreign capital will be put under complete regulation and
major control will remain in Indian hands.

(iii) Mixed Economy. The policy was to lay down the foundation of mixed economy with the
participation of both public and private sector for accelerating the pace of industrial development in
the country

(iv) Others. Proper steps were also taken in this policy to design a suitable tariff policy, taxation
policy and also for maintaining sound Industrial relations between labor and management.

Industrial Policy Resolution, 1956

Since the adoption of 1948 Resolution, a number of significant developments had taken place in
India. Among these developments, the more Important were:

(i) New constitution of India which guaranteed certain Fundamental rights and provided for
Directive Principles of State Policy.

(ii) Completion of the First Five Year Plan and the commencement of the Second Plan.

(iii) Acceptance by the Parliament of the Socialist pattern of society as the objective of social and
economic policy.

These important developments necessitated a fresh statement of Industrial policy. A second

Industrial Policy Resolution was adopted in April, 1956, replacing the Resolution of 1948. The

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Industrial Policy Resolution, 1956 (IPR, 1956) was known as the Economic Constitution of India.
The Resolution had the following objectives:

(i) The development of heavy and machine making Industries.

(ii) The expansion of the public sector.

(iii) The establishment of a large and growing cooperative sector and

(iv) Encouragement to the diffusion of ownership and management of the private sector

Main Features

Important provisions of the Resolution of 1956 were as follows:

I. New Classification of Industries. The most distinguishing feature of IPR 1956 was the
classification of the entire industrial sector into three schedules as follows

(a) Schedule A. Schedule A consisted of 17 Industries and the future development of these
industries was to be the exclusive responsibility of the state. The industries that had been put under
this category are of basic and strategic importance requiring enormous amount of capital for their
development

(b) Schedule B. In the second category, there were 12 industries which were progressively state
owned and in which the slate would generally take the initiative in establishing these new
undertakings. At the same time, private enterprises would be expected to supplement the efforts of
the State In this field.

(c) Schedule C. All remaining industries come under the third category. The future development of
these industries had been left to the initiative and enterprise of the private sector.

2. No Water Tight Compartmentation. In spite of the clear cut scheduling of industries, these
categories were not water tight compartments and room for exceptions was there. In appropriate
cases, private units might produce-an item in schedule A for meeting the industry's own
requirements or as by products. Further, heavy industries in the public sector higher components
from the private sector while private sector in turn would rely for many of its needs on public
sector. Moreover, the state reserved the right to enter schedule C, when the needs of planning
required or for other important reasons. Therefore, the public and private sector were expected to
operate closely together in spite of the fact that public sector was the major partner.

3. Fair and Non Discriminatory Treatment for the Private Sector. In order that the private
sector may feel confident and function efficiently the state would ensure Infrastructural facilities
like power, transport and other services to this sector. The state may also grant financial assistance
to the private sector especially when the amount involved is substantial. The Stale would continue

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to provide fair and non discriminatory treatment to both public and private enterprises, when both
exist side by side in a particular industry

4. Encouraging Cottage and Small Scale Industries. The state would continue to support village
cottage and small scale industries by restricting the volume of production in the large scale
industrial units by differential taxation or by direct subsidies. The state would try to improve and
modernize the techniques of production of this sector with the help of the measures designed to
improve the competitive strength of the small scale producers. The Government also thought of
giving incentives, facilities of raw materials, marketing facilities, cheap electricity etc.

5. Removing Regional Disparities. The Resolution supported the idea of balanced and
coordinated-development of the industrial sector in each region for attaining higher standards of
living. To achieve this aim, transport, power supply and other facilities were to be made available
to the backward sectors.

6. Labor Welfare. The Resolution stressed that in a-5ocialist democracy the importance of labor
must be recognized and labor must be given a share in management in the form of participation and
Joint Consultations. The Resolution stressed the need for improving the living and working
conditions of workers and also to raise their standards of efficiency. Some laws governing
Industrial relations have also been enacted and public sector enterprises had been asked to set an
example in this regard.

7. Technical and Managerial Personnel. The Resolution of 1956 stressed the need for technical
and managerial personnel in the public sector units and for the development of cottage and small
scale Units. For imparting training at the supervisory level and for organizing apprenticeship
trainings on a large scale, technical staff cells were to be opened in public sector. Training in
management and administration was also emphasized.

8. Decentralization of Power. In this Resolution, emphasis was placed on the importance of

decentralization of the management of the Public enterprises in their Working. Public enterprises
were to be given maximum freedom and their success was to be determined on the basis of total
performance.

9. Attitude towards Foreign Capital. While recognizing the need for foreign capital in the
industrialization of the economy, the Government insisted upon the progressive Indianisation of
foreign concerns. Thus, the Resolution maintained the same attitude as incorporated in our
Industrial Policy 1948.

This Policy Resolution of 1956 resulted in the rapid expansion of the Public sector in basic and
heavy Industries of the country.

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NEW INDUSTRIAL POLICY (1991)

The New Industrial Policy has been in operation since July 24, 1991. Some amendments have been
made in this policy since then. The new policy is a big departure from the old policy, as it is in use
with the liberalization move Introduced during the eighties. This policy has radically liberalized the
industrial policy itself. The main objectives of the industrial policy are as follows

Objectives

(i) The main objective of the new Industrial Policy is to unshackle the Indian Economy from the
Cobwebs of unnecessary bureaucratic controls.

(ii) To build on the gains already experienced and to correct the distortions or weaknesses involved
in the system.

(iii) To introduce liberalization with a view to integrate the Indian Economy with the world
economy so that India grows as part of the world economy and not in Isolation

(iv) To abolish restrictions on direct foreign Investment.

(v) To free the domestic entrepreneurs from the restrictions of the MRTP Act

(vi) To maintain a sustained growth in productivity and employment.

(vii) To achieve international competitiveness.

(viii) To make provision for reducing the-load of public sector enterprises showing cither low rate
of return or incurring losses over the years.

(ix) To utilize fully the Indigenous capabilities of entrepreneurs

(x) To foster Research and Development efforts for the development of Indigenous technologies.

(xi) To assign the right areas for the public sector undertakings

(xii) To ensure welfare of the workers and also to provide skills and facilities to the workers to
enable them to deal with the Inevitabilities of technological changes.

(xiii) As for the external sector while the policy continues to pursue the goal of self reliance. It
places greater emphasis on building up of our ability to pay for our imports through our own
foreign exchange earnings.

To fulfill the above objectives the Government introduced a series of initiatives in the New
Industrial policy in the following areas

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1. Abolition of Industrial Licensing

In order to free the Indian Industry from the shackles of control, the new Industrial policy has
abolished the system of Industrial licensing for all industrial undertakings. Irrespective of the level
of investment, except 18 specified Industries which will continue to be the subject of compulsory
licensing for reasons relating to security and strategic concerns, social reasons, problems related to
safety and overriding environmental issues manufacture of products of hazardous nature and
articles of elicit assumption. With the passage of time this has been reduced to 14 then to 9 and
later to 8. This exemption from licensing will apply to all substantial expansions of existing units.

The compulsory licensing provisions would not apply in respect of the small scale units taking up
the manufacture of any of the above exclusive manufacture in the small scale sector.

items reserved for

2. Public Sector Policy

The public sector enterprises had shown a very low rate of return on capital invested, in spite of the
huge investments. Quite a good number of public enterprises are incurring huge amounts of losses
regularly. All this inhibited the ability of these units to regenerate themselves in terms of new
Investments as well as in technology development. Many of the public enterprises became a burden
on the Government rather than being an asset. In order to save the situation. it was required that the
Government should restructure the potentially viable units. The new industrial policy has redefined
the role of the public sector. The number of industries reserved for public sector has been reduced
from 17 to 8. This was further reduced to 6. These six industries are defense products, atomic
energy, coal and lignite, mineral oils, railway Transport and minerals specified the schedule to the
Atomic Energy order 1953. The new industrial policy also states the following

(i) The Government will raise the strength of those public sector units included in the list of
reserved industries In the priority group of those earning reasonable profits.

(ii) The Government will make review of the existing public sector enterprises, Industries earning
higher profits will be provided with much higher degree of management autonomy through the
system of MOU.

(iii) A Private sector participation will be invited to raise the competitive capacity of these
industries.

(iv) Sick units will now be referred to, the Board of Industrial Finance and Reconstruction (BIFR)
for getting advice about its rehabilitation and reconstruction.

(v) The Government should disinvest the equity shares of selected public units for bringing market
discipline In their performance.

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Accordingly, a part of the shares of the PSES Is now being offered for sale to mutual funds,
financial institutions, general public and workers.

3. MRTP Act

The restriction on the functioning of Monopolies, embodied In the MRTP Act in Operations since
1970, have also been removed. Instead emphasis tackling the undesirable monopolistic activities. In
terms of the position so far The companies with assets of 100 crores or more were required to seek
government's Prior approval In respect of a number of their activities. The new Industrial policy
does away with the concept of asset limit itself. This eliminates the requirement of prior approval
of central government for expansion, establishment of new undertakings, mergers etc. The
companies have, thus, been saved from the time consuming Procedures, involving heavy costs in
seeking and getting approvals for their approvals.

The emphasis has now shifted to taking appropriate action against monopolistic restrictive and
unfair trade practices on the part of monopolies. The new policy also provides for the strengthening
of the MRTP Commission so that it can undertake more effectively the investigations of
malpractices on its own or on complaints received from industrial consumers or other classes of
consumers.

4. Foreign Investment

From the very beginning prior approval of the Government was necessary for any foreign
investment or foreign-technology agreements, which led to unnecessary delays and hampered the
decision making in business. The new Industrial policy has made the following liberal provisions to
make the entry of foreign investors easy into the industrial scene of the country

(i) In order to invite foreign investment in high priority industries, requiring large investments and
advanced technology, it has been decided to provide automatic approval for direct foreign
investment up to 51% foreign equity in such industries. The majority ownership will enable
foreigners to control the working of the enterprises in which they invest. This will make it attractive
for foreign companies to invest in India.

(ii) Apart from foreign direct Investment, the government will also encourage foreign trading
companies to assist Indian exporters in export activities. This will help in the promotion of exports
of Indian products In the world markets.

(iii) Besides this, to get an access to the world markets as also to attract foreign Investments and
advanced technology, the government is to appoint a Special board to negotiate with the world's
largest Industrial manufacturing and marketing firms.

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5. Foreign Technology

The new Industrial policy has also made the entry of foreign technology very easy. There is a
provision that allows automatic approval for technology agreements related to high priority
industries. Similar facilities will also be available for other industries, if such agreements do not
require the expenditure of free foreign exchange. Further, it is also provided that no prior clearance
will be required for the hiring of foreign technicians and foreign testing of indigenously developed
technologies. With no Interference by the Government the Indian businessmen will be able to
develop relationships on a continuing basis with the suppliers of foreign technology and will be
able to make their decision on the basis of Commercial considerations. It is also hoped that Indian
businessmen will devote larger funds to research and development to absorb foreign technologies.

6. Liberalization of Location Policy

Another feature of the new Industrial policy, which is very significant for the economy is the
liberalization of the location policy The provisions In this respect are to ensure the decentralization
of industrial activities geographically

The new policy mentioned that in location other than cities of more than 1 million population, no
Industrial approvals from the centre will be required except for industries subject to compulsory
licensing. In cities with more than million population, Industries, other than those of non-polluting
in nature, will be located outside 25 kms of the periphery, except in the prior designated industrial
areas. The thrust of the policy is to shift away the industries from big congested cities to the rural
and backward areas. Moreover, it was decided That to implement the location policy, both the legal
measures and Incentives will be used. It is also intended to so design investments in infrastructure
development that the areas which are lagging in Industries are helped. The new Industrial policy
also favors the expansion of agro-based Industries near the farming areas. In the sphere of small
and rural Industries, a number of provisions have been made to ensure their development in small
towns and villages.

7. Abolition of Phased Manufacturing Programmes.

The old industrial policy had enforced the phased manufacturing programmes In order to increase
the pace of indigenization. The new industrial policy has totally abolished such programmes
because due to substantial reforms of trade policy and devaluation of rupee there is no need to
enforce such programmes.

8. Convertibility Clause

From the very beginning, a large part of industrial investment was financed by loans from Banks
and financial institutions, who had the option to convert 20% of their loans into equity. In all cases
where the aggregate financial assistance from the all India banks and financial institutions exceeded
5 crores. This gave the financial institutions scope for acquiring considerable equity holding in such
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units and this was an unwarranted threat to the industrialists. The new industrial policy has
removed this system and henceforth, financial Institutions will not impose this mandatory
convertibility clause.

POLICY FOR THE SMALL SCALE SECTOR

A new policy for the small enterprises was announced by the government on 6th August 1991. The
main Features of this supplementary policy are as follows:

(i) The Government raised the investment limit for tiny enterprises to 5-lakhs from the present 2
lakhs. The Government also announced an Increase in the investment limit in plant and machinery
of small scale Industry to 60 lakhs and ancillary and export oriented industry to75lakh each.

(ii) De-regulation, debureaucratisation and simplification of Statutes, regulations and procedures.

(iii) Inclusions of industry related services and business enterprises Irrespective of their location, as
small-scale industries.

(iv) A single window loan scheme was to be announced which will cover projects up to 20 lakhs.

(v) Special monetary agency will be set up for meeting the credit needs of the Small Scale
industries.

(vi) A technology development cell will be set up in the Small Industries development
organization.

(vii) An Export development centre will be set up in the small industries development
organizations.

(vii) Mass Consumption items will be marked under common brand names.

(ix) Greater Incentives are to be given to handloom and handicraft sector.

(x) Equity Participation by larger and medium sized industrial undertakings will be allowed in the
small scale sector.

(xi) An Integrated Infrastructural Development Scheme will be introduced for small scale
industries.

(xii) Small scale industries products will be marketed through cooperative/ public sector
institutions, other specialized professional/marketing agencies.

(xiii) Suitable legislation will be introduced to ensure prompt payment of small Industries bills.

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NEW ECONOMIC POLICIES: LIBERALIZATION, PRIVATIZATION,
GLOBALIZATION

NEW ECONOMIC POLICY

In 1990s the govt. of India in order to come out of the economic crisis decided to deviate from its
previous economic policies and learn towards Privatization. In July 1991 when the devaluation of
Indian currency took place the govt started announcing its new economic policies one after another.
The economic element was to orient the Indian system towards the world market it is in this context
the govt. launched its new economic policy which consisted of three important features:-

Liberalization, Privatization and Globalization

Economic environment is also called business environment and are used interchangeably. In
order to solve the economic problem of our country, the government has taken several steps
including control by the State of certain industries, central planning and reduced importance of the
private sector.

Liberalization of the economy means to free it from direct or physical control imposed by the
govt. economic reforms were based on the assumption that forces could guide the economy in a
more effective manner than govt.

Main objectives of New –Economic Policy – 1991

The main objectives behind the launching of the new –economic policy (NEP) in 1991 by the union
finance minister Dr. Manmohansingh, could be stated as follows:

 The main objective was to plunge Indian economy in to the arena of ‘Globalization and to
give it a new thrust on market orientation.

 The NEP intended to bring down the rate of inflation and to remove imbalances in payment.

 It intended to move towards higher economic growth rate and to build sufficient foreign
exchange reserves.

 It wanted to achieve economic stabilization and to convert the economic in to a market

economy by removing all kinds of unnecessary restrictions.

 It wanted to permit the international flow of goods, services, capital, human resources and
technology, without many restrictions.

Beginning with mid-1991, the govt. has made some radical changes in its policies bearing on trade,
foreign investment exchange rate, industry, fiscal of fairs etc…The various elements, when put
together, constitute an economic policy which marks a big departure from what has gone before.
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LIBERALIZATION

The term “liberalization” in this context implies economic liberalization. “Economic liberalization”
constitutes one of the basic elements of the new Economic policy (NEP) which the Indian
Government launched in the middle of the year 1991. The other important aspects of the policy are
–Privatization of the public sector, Globalization and market friendly state.

The main trust of the New economic policy is “liberalization”. The essence of this policy is that
greater freedom is to be given to the entrepreneur of any industry, trade or business and that
governmental control on the same is reduced to the minimum.

The main purpose of the process to economic liberalization is to set business free and to run on
commercial lines. govt. restrictions will hinder economic and commercial activities and flow of
goods and services must be removed. The liberalization intends to liberalization commerce and
business and trade from the obstacles.

The concept of Liberalization:

The economic policy reform in the developing world has been seen as necessary consequence of a
changed world economic system. The key feature of the changed world economy is the clement of
the heightened economic Globalization which provides new external challenges as well as
opportunities for development.

MAIN FEATURES OF THE POLICY OF LIBERA LISATION:

Following are main features of liberalization.

 Decreased Government control and freedom to private Enterprises.

 Capital Markets opened for private Entrepreneurs

 Simplification of Licensing policy

 Opportunity to purchase foreign exchange at market prices

 Right To Take Independent Decisions Regarding The Market

 Better opportunity for completion

 Widened Liberty in the Realm of Business and Trade

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Brief Evaluation of Liberalization:

From the Indian point of view, it is very difficult to say at this stage when the process of economic
liberalization taken up by the govt. of India in 1990’s has really brought big economic gains to
India gains to India. The process has no doubt brought some benefits through suffers from some
deficiencies.

The Gains

The liberalization process has helped the free movement of goods and services it helped for better
industrial performances. Industrial organizations have now become more efficient and market
responsive. Country’s exports are increasing.

The Deficiencies

Liberalization process has its deficiencies also. The economic reforms including liberalization were
introduced all on a sudden and proper background was not created to take their full advantage and
to face their consequences.

PRIVATIZATION

Privatization is a managerial approach that has attracted the interest of many categories of people,
politicians, government employee, private sector and public on the whole. In India Privatization has
been accepted with a lot of resistance and has been slow down initially during the inception period
of economic Liberalization in the country. Privatization is also one of the aspects of the new
economic policy which came to take shape in the decade 1990. Meaning of Privatization is that in
the economic field much broader role is to be agencies and the role of the public sector activities is
to be limited.

Privatization refers to any process had reduces the involvement of the state, public sector in
economic activities of a nation. i.e.

 Decentralization the transfer of the ownership of productive assets to the private sector.

 Entry of private sector industries into the areas exclusive reserved for the state sector or
which are considered exclusive monopolies of state.

 Limiting the scope of the public sector or no more diversification of existing public sector
understandings.

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DEFINITION OF PRIVATIZATION:

 Steve H. Hanke refers to Privatization as “the process whereby the public operations are
transferred to the private sector”.

 Barbara Lee and John Nellis define the concept in this manner: “Privatization is the general
process of involving the private sector in the ownership or operation of a state owned
enterprise. Thus the term refers to private purchase of all or part of a company. It cover
“contractedly out” and the Privatization of management through management contracts
leases or franchise arrangements.”

MAIN OBJECTIVEOF PRIVATIZATION

1. The process of Privatization has been with the main intention of improving industrial
efficiency and to facilitate the inflow of foreign investments.

2. It also wants to make the public sector undertakings strong able efficient companies. It
recommends a change in the role of the government from that of the “owner manager “to
that of a mere “controller” or “regular”.

3. It also intends to ensure efficient utilization of all types of resources including human
resources.

4. Privatization insists on the government to concentrate on the area such as education

administration and infrastructure and to give up the responsibility of looking after business
and running industries. It is expected to strengthen the capital market by following
appropriate trade policies.

ADVANTAGES OF PRIVATIZATION

Efficiency, Absences of political interference, Quality service, Systematic marketing Use of

freedom technology, Accountability, Innovation, Research and development, Infrastructure.

ARGUMENTS IN FAVOUR OF PRIVATIZATION

 Privatization is Necessary to Revitalize the State Owned Enterprises

 Privatization is Necessary to Face Global Competition

 Privatization is Needed to Create More Employment Opportunities in Future

 Helpful for Mobilizing and Investing Resources

 Recognition of Talents and Good Performance of work

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ARGUMENT AGAINST PRIVATIZATION

 Profitability Alone Should Not Become difficult to Measure Efficiency

 Role of Public Sector Undertaking From the socio-Economic Angle Also Cannot be ignored

 Protection of the Interests of the Weaker Section

 Price –fixing Policy Here is Not Profit- Oriented

 Argument that the Private Sector Is More Efficient than the Public Sector is Not Right

GLOBALIZATION

Globalization represents one of the aspects of the new economic policy lunched in the decades of
1980 and 1990s. The new economic policy has also made the economy out worldly oriented such
that its activities are now to be governed both by domestic market and the world market. The
general usages of the terms Globalization can be follows,

 Interaction and interdependence among countries

 Integration of world economy

 Deterritorisation

The tem Globalization was first coined in 1980s. But even before this there were interaction among
nations. But in the modern days Globalization has launched all spheres of life such as economy,
education, technology, cultural phenomenon, social aspects etc……the term global village is also
frequently used to high light the significance of the Globalization. “Globalization of production
refers to the integration of economic activities by units of private capital.

In simple words” Globalization is refers to a process of increasing economic integration and

growing economic interdependence between countries in the world economy”

The word Globalization is now used to sum contemporary world order. But the influence of the
Globalization of directly visible in the economic field and hence the term is very often taken to
meet economic Globalization of market. The Globalization defined as the process whereby there
are social, cultural, technological, exchange across the border.

STEPS IN GLOBALIZATION

 Need for corporate sector to go global: The Indian corporate sector has to take lead and
initiative in bringing about the Globalization of the economy. To go global a corporate must
be conscious.
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  Needs to promote competitiveness of Indian producers: to succeed in global market,
competitiveness of Indian producers has to be improved.

 Need to adopt new strategies; the changes realities of the global environment detect that the
Indian firms must in order to survive.

 Need to create favourable environment; world class companies need to undergo a change.

 Need to set up new institutions

 Need for a rules and regulations: if we want make our companies world – class we also need
rule and regulations that are in leave with global corporate and financial norms.

INDIA’S PERSPECTIVESON GLOBALAISATION

The concept of Globalization to describe a variety of changing economical, political, and cultural
process. The development of Globalization is in India as which traditionally had a developed pre
industrial base trade and market, the market and trade relation continue to be located in local
cultural even today.

ADVANTAGES OF GLOBALAISATION

 Better and faster industrialization: the flow of industrial units from developed countries to
developing countries gives speed of industries helping global industrialization. Helps over all
balanced development.

 Flow of capital: moves from to surplus countries to the needy in globalization. Investors get
advantage of better returns for his capital.

 Speed of production facilities throughout the world: the production units give cost
competitive and wider availability and manufactured gods.

 Flow of technology: the advanced level of technology flow from developed country to less
developed countries.

 Increase in conception: due to technology and the spared up gradation the demand increases
for manufactured good

 Attitude: thinking globally is major plus point in globalization

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Disadvantages of Globalization

o Globalization discourages domestic industry and business: with sophistication in

technologies and large scale production felicities of other countries domestic trade and
industries is hit.

o Problem on the labour front: the process of Globalization needs to job lay offs and
exploitation of human recourses. This is especially applicable to under developed
countries.

o Widening rich and poor divide: the un employment and decline of in income level in
lower strata of society widen the gap between the rich and poor more and more.

o Transfer of national recourses: the developed countries tend to establish factories in

under developed countries may lead to commercial exploitation.

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