3 Marks:

1. Define Contract?
Ans: A contract is a legally binding agreement that recognises and governs the
rights and duties of the parties to the agreement. A contract is legally
enforceable because it meets the requirements and approval of the law. An
agreement typically involves the exchange of goods, services, money, or
promises of any of those.

2. Define Agency?
Ans: Agency refers to an agreement, explicitly stated or implied by which one
party, called the principal, entrusts the management of a business to another
party, called the agent, to carry out transactions on his account or in his name,
and the agent agrees to carry out the business and render an account of his
proceedings.

3.Define Company?
Ans: A Company is a voluntary association of persons formed for some
common purpose with capital divisible into parts known as shares the common
stock so contributed is denoted in money and is the capital of the company.

4.List out Qualifications of directors.

Ans: Sound Minded.
Share Qualification.
Solvent Person.
Follow Legal Formalities.

5. What is Tertiary sector?

Ans: The sector of the economy that principally provides goods and services to
consumers using goods produced by the other sectors.

6. What is Prospectus?
Ans: A legal document offering a company's shares for sale, and giving details
about the company and its activities. An investor should carefully read the
fund's prospectus before buying shares in an exchange.

7. What do you mean by Meetings?

Ans: A group of people who come together to solve a problem in a company
and get a multiple solution from their employees or board members.

8. Define oppression and mismanagement?

Ans: A situation in which people are governed in an unfair and cruel way and
prevented from having opportunities and freedom every human being has the
right to freedom from oppression.
The process of organizing or controlling something badly mismanagement
of the economy/economic mismanagement
allegations of fraud and mismanagement.

9. Whom we call contributories? What are its types?

Ans: Contributories are person who are liable to contribute to the assets of a
company in the event of its being wound up. The concept of contributory arises
only at the time of winding up of a company.
Types of Contributories:
(a) Past and Present Members.
(b) Legal Representatives of a Deceased Member.
(c) The Official Assignee or Receiver of a Contributory.
(d) Liquidator of a Body Corporate.
(e) Directors/Managers whose Liabilities are unlimited.

10. What are the phases business cycle?

Ans: 1. Expansion.
2. Peak.
3. Recession.
4. Trough.
5. Recovery.

11. What are CLR and SLR?

Ans:

12. What do you mean by Globalisation?

Ans: Globalization is the spread of products, technology, information, and jobs
across national borders and cultures. In economic terms, it describes an
interdependence of nations around the globe fostered through free trade.

13. What is deficit financing?

Ans: Deficit financing in advanced countries is used to mean an excess of
expenditure over revenue the gap being covered by borrowing from the public
by the sale of bonds and by creating new money.
14. What is a Disinvestment?
Ans: Disinvestment means to sell off certain assets such as a manufacturing
plant, a division or subsidiary, or product line. Disinvestment is sometimes
described as the opposite of capital expenditures.

15. Define Privatization?

Ans: The transfer of ownership, property or business from the government to
the private sector is termed privatization. The government ceases to be the
owner of the entity or business.

16. What is EXIM policy?

Ans: EXIM Policy is the export import policy of the government that is
announced every five years. This policy consists of general provisions regarding
exports and imports, promotional measures, duty exemption schemes, export
promotion schemes, special economic zone programs and other details for
different sectors.

17. Define GDP.

Ans: Gross Domestic Product (GDP) is the total monetary or market value of
all the finished goods and services produced within a country's borders in a
specific time period. As a broad measure of overall domestic production, it
functions as a comprehensive scorecard of the country’s economic health.

18. What is Quasi contract?

Ans: A Quasi contract is not a contract, a quasi contract is created by law. If
resembles a contract in that a legal obligation is imposed on a party who is
required to perform it.

7 Marks
1. What are the essientisls elements of valid contract?
Ans: Essential elements of a valid contract are:
1. There must be an Agreement. This involves both Offer and Acceptance.
2. The Parties must intend to create Legal Relationship.
3. An Agreement to be enforceable by law.
4. The parties must be capable of entering into a agreement as regards age and
understanding.
5. The Consent of the parties must be free and genuine.
6. The agreement must not have been not declared as void.
7. The terms of a agreement must be certain and capable of performance.
8. Legal formalities all the statuary requirements must be fulfilled.

2. Explain the characteristics/ features of a company.

Ans: Features of a company are:
1. Incorporated Association: A company must be incorporated or registered
under the Companies Act. Minimum number required for the purpose is 7 in
case of a public company, and 2, in case of a private company. As per Section
11, an association of more than 10 persons, in case of banking business, and 20
in case of any other business, if not registered as a company under the
Companies Act, or under any other law for the time being in force, becomes an
illegal association.
2. Artificial Person: A company is created with the sanction of law and is not
itself a human being, it is, therefore, called artificial; and since it is clothed with
certain rights and obligations, it is called a person. A
company is accordingly an artificial person.
3. Separate Legal Entity: Unlike partnership, company is distinct from the
persons who constitute it. Says that on registration, the association of persons
becomes a body corporate by the name contained in the Memorandum.
4. Limited Liability: The company being a separate person, its members are not
as such liable for its debts. Hence, in the case of a company limited by shares,
the liability of members is limited to the nominal value of shares held by them.
In case of Corporate Incorporation and Management Definition of company,
characteristics, types of company, lifting of corporate veil
(i) Incorporation of company
(ii) Memorandum and Articles of Association
(iii) Doctrine of Ultra Vires
(iv) Doctrine of Indoor Management and constructive notices Management
5. Separate Property: Shareholders are not, in the eyes of the law, part owners of
the undertaking. In India, this principle of separate property was best laid down
by the Supreme Court in Bacha F.Guzdar V. The Commissioner of Income Tax,
Bombay. The Supreme Court held that a shareholder is not the part
owner of the company or its property, he is only given certain rights by law,
e.g., to vote or attend meetings, so receive dividends.
6. Transferability of Shares: Since business is separate from its members in a
company form of organization, it facilitates the transfer of members’ interests.
The shares of a company are transferable in the manner provided in the Articles
of the company. However, in a private company, certain restrictions are placed
on such transfer of shares but the right to transfer is not taken away absolutely.
7. Perpetual Existence: A company being an artificial person cannot be
incapacitated by illness and it does not have an allotted span of life. The death,
insolvency or retirement of its members leaves the company unaffected.
Members may come and go but the company can go for ever.
8. Common Seal: A company being an artificial person is not bestowed with a
body of natural being. Therefore, it has to work through its directors, officers
and other employees. But it can be held bound by only those documents which
bear its signatures. Common seal is the official signature of a company.
9. Capacity to sue: Another fall-out of separate legal entity is that the company,
if aggrieved by some wrong done to it may sue or be sued in its own name.

3. Discuss the provisions of companies act in holding an AGM of a Company.

Ans: As per Section 96 of the Companies Act, 2013:
(1) Every company other than a One Person Company shall in each year hold
in addition to any other meetings, a general meeting as its annual general
meeting and shall specify the meeting as such in the notices calling it, and not
more than fifteen months shall elapse between the date of one annual general
meeting of a company and that of the next:
Provided that in case of the first annual general meeting, it shall be held within a
period of nine months from the date of closing of the first financial year of the
company and in any other case, within a period of six months, from the date of
closing of the financial year.
Provided further that if a company holds its first annual general meeting as
aforesaid, it shall not be necessary for the company to hold any annual general
meeting in the year of its incorporation.
Provided also that the Registrar may, for any special reason, extend the time
within which any annual general meeting, other than the first annual general
meeting, shall be held, by a period not exceeding three months.
(2)Every annual general meeting shall be called during business hours, that is,
between 9 a.m. and 6 p.m. on any day that is not a National Holiday and shall
be held either at the registered office of the company or at some other place
within the city, town or village in which the registered office of the company is
situate.
Provided that annual general meeting of an unlisted company may be held at
any place in India if consent is given in writing or by electronic mode by all the
members in advance.

Provided further that the Central Government may exempt any company from
the provisions of this sub-section subject to such conditions as it may impose.
Explanation for the purposes of this sub-section, “National Holiday” means and
includes a day declared as National Holiday by the Central Government.
4. “All contracts are agreement but all agreement is not a contract”, explain.
Ans: A contract is a legally binding agreement that recognises and governs the
rights and duties of the parties to the agreement. A contract is legally
enforceable because it meets the requirements and approval of the law. An
agreement typically involves the exchange of goods, services, money, or
promises of any of those.
The situation in which people have the same opinion, or in which they
approve of or accept something. A decision or arrangement, often formal and
written, between two or more groups or people.
Contracts may follow a structure that can include:
 Details of the parties to the contract, including any sub-contracting
arrangements.
 Duration or period of the contract.
 Definitions of key terms used within the contract.
 A description of the goods and/or services that your business will receive
or provide, including key deliverables.
 Payment details and dates, including whether interest will be applied to
late payments.
 Key dates and milestones.
 Required insurance and indemnity provisions.
 Guarantee provisions, including director’s guarantees.
 Damages or penalty provisions.
 Renegotiation or renewal options.
 Complaints and dispute resolution process.
 Termination conditions.
 Special conditions.

5. Differentiate between public company and private company.

Points Public Company Private Company
Minimum Paid- Public Company must have a Private Company must have a
up capital minimum paid-up capital of minimum paid-up capital of
Rs.5,00,000 Rs.1,00,000
Minimum Public Company requires at Minimum number of members
numbers of least 7 members. required to form a private
members company is 2.
Maximum There is no restriction of Maximum number of members
numbers of maximum number of in a Private Company is
members members in a Public restricted to 50.
Company.
Transferability there is no restriction on the There is complete restriction
of shares transferability of the shares on the transferability of the
of a Public Company. shares of a Private Company
Numbers of Public Company must have Private Company may have 2
directors at least 3 directors. directors to manage the affairs
of the company
Qualification of Directors of a Public The Directors of a Private
shares Company are required to Company need not sign an
sign an undertaking to undertaking to acquire the
acquire the qualification qualification shares
shares of the public
Company.
Commencement Public Company cannot start A Private Company can
of business its business until a commence its business
Certificate to immediately after its
commencement of business incorporation
is issued to it.
Share warrants Public Company can issue Private Company cannot issue
Share Warrants against its Share Warrants against its fully
fully paid up shares. paid shares
Managerial Total managerial There is no restrictions apply
Remuneration remuneration in the case of a on a Private Company.
Public Company cannot
exceed 11% of the net profits
Quorum The quorum in the case of a The quorum in the case of a
Public Company is 5 Private Company is 2 members
members present personally present personally
6. Differentiate between monetary policy and fiscal policy.
Points Monetary Policy Fiscal Policy
Meaning Monetary policy is the tool for Fiscal policy helps to control
the central bank through which the spending and revenue
the movement and the flow of collection of the government to
money in the economy is influence the economy at large.
controlled.
 Controlled Central bank of the country.
Complexity Comparatively more complex.
Nature Monetary policy doesn’t
change as a particular period, it
changes based on economy
changes.
Focus Focus on a monetary policy is
to maintain the economic
stability of a country.
Works on Monetary policy works on the
flow of the money in the
economy and the credit control.
Political Doesn’t have any political
influence influence.
Tools Cash revenue ratio, repo rate,
interest rate, etc
Ministry of finance of the
country.
Comparatively less complex.
Fiscal policy changes every
year reviewing the previous
year results.
Focus on Fiscal policy is to
ensure the development and the
growth of an economy.
Fiscal policy works on
government’s spending and
government’s collection.
It has a political influence.
Tax rates, Demonetisation, etc.

7. Explain the effect of Globalization.

Ans:

Effect of
Globalization

Positive Negative
effect effect

Positive Effect:
1. Global Market: Most successful emerging markets in developed countries
are a result of privatization of state-owned industries. In order for these
industries to increase consumer demand many of them are attempting to
expand and extend their value chain to an international level.
2. Cross-cultural management: Globalization tend to be the realm of elite
because in many parts of the world they are the only people who are
 affluent enough to buy many of the products available in the global
marketplace. Today Western culture and patterns of behaviour and
language are staples of international business.
3. Foreign trade: Globalization has created and expanded foreign trade in
the world. Things that were only found in developed countries can now
be found in other countries across the world. People can now get
whatever they want and from any country. Through these developed
countries can export their goods to other countries.
4. Resource Imperative: Developed countries need natural and human
resources of the developing countries while developing countries need
capital, technology and brainpower of the wealthier countries. Developed
countries’ economies are increasingly dependent on the natural and
human resources of the developing nations.
5. Foreign Investment: One of the most visible positive effects of
globalization in India is the flow of foreign capital. A lot of companies
have directly invested in India, by starting production units in India, but
what we also need to see is the amount of Foreign Investment Inflow that
flows into the developing countries.
6. Competition: One of the most visible positive effects of globalization is
the improved quality of products due to globe competition. Customer
service and the ‘customer is the king’ approaches to production have led
to improved quality of products and services.
Negative Effect:
1. Jobs insecurity: In developed countries people have jobs insecurity.
People are losing their jobs. Developed nations have outsourced
manufacturing and white collar jobs. That means less jobs for their
people. This is because the manufacturing work is outsourced to countries
where the costs of manufacturing goods and wages are lower than in their
countries.
2. Fluctuation in prices: Globalization has led to fluctuation in price. Due to
increase in competition, developed countries are forced to lower down
their prices for their products, this is because other countries like China
produce goods at a lower cost that makes goods to be cheaper than the
ones produced in developed countries.

8. Write a note on India’s foreign trade policy.

Ans: Trade policy refers to the complete frame work of laws, regulations,
international agreement and negotiating stances adopted by a government to
achieve legally binding market access for domestic firms.
The government has set long-term vision of making India a major player in the
world trade.
Foreign trade policy provides the basic policy framework of translating this
vision into specific strategies, goals and targets.
 The foreign trade of India is guided by the Export-Import policy of the
government of India and it is regulated by the Foreign trade Act, 1992.
 The Foreign trade policy contain various decision taken by the
government in the sphere of foreign trade, with respect to imports and
exports from the country and more.
 It is the set of guidelines and instructions established by DGFT
(Directorate general of foreign trade) in matter related to the import and
exports of goods in India.
 The present foreign trade policy is for the period of 5 years from 2015 to
2020.
 The union commerce ministry, government of India announces the
integrated foreign trade policy in every 5 years. This is updated every 31st
March with some modifications and new schemes.
 The foreign trade policy which was announced on April 1,2015 is an
integrated policy for the period 2015-2020.
 Foreign trade policy provides a frame work for increasing exports goods
and services as well as generation of employment and increasing value
addition in the country, in line with ‘Make in India’ programme.
 Simplification of the application procedure for availing various benefits.

9. What is a PSU? What problems do Indian PSUs face?

Ans: PSU is Public Sector Undertaking. Public Sector Undertakings (PSUs) are
government-owned corporations in India in which the majority of the company
equity is owned by the central government or the state government or partly by
the central government and partly by the state government.
Problems of Indian PSU are:
1. Overhang of bad debt: They have lent to corporates who had already over
borrowed. Part of this was because the government nudged them to in
order to kick start the economy.
2. High Wage costs: PSU Bank salaries are low at CEO and top
management level. But probationary officers salaries are lower than what
`executives' at new private banks get. The second cause of high cost is the
index-linked pension that the bank pays retired employees.
3. Lack of corporate Governance: Promotions in banks have typically been
seniority based. This meant many people are in senior positions over
others. Government has also been choosing from small pool of people.
 4. Technology challenges: PSU banks have made huge investments in
branch infrastructure. But banking is slowly moving to mobile apps and
online. PSU banks have not formed a strategy on redeploying people.
5. Capital: The largest investors in India are foreign institutional investors.
Both HDFC Bank and ICICI Bank have more than 70% foreign investors.
Public sector banks have to compulsorily be owned by the government
this means that they can raise capital largely from Indian shareholders.
6. HR Policies: Private banks reward successful employees through
individual incentives esops etc. Public sector banks because of their wage
agreements with the employee unions cannot discriminate while
compensating employees.
7. Poor returns: Majority of the public enterprises in India are incurring loss.
In some of them the profits earned do not yield a reasonable return on
huge investment. Lack of effective financial controls, wasteful
expenditure and dogmatic pricing policy result in losses.
8. Inefficient management: Due to excessive centralization of authority and
lack of motivation public enterprises are managed inefficiently. High
level posts are often occupied by persons lacking necessary expertise but
enjoying political support.
9. Labour problems: In the absence of proper manpower planning public
enterprises suffer from over-staffing. Jobs are created to fulfil
employment goals of the Government.

10. Highlight the salient features of recent Indian Budget.

Ans: The features of Indian Budget are:
Direct Taxation (Income Tax)
The government has proposed a new income tax regime under Section
115BAC that comprises a significant change in the tax slabs rates. Taxpayers
have been provided with an option whether they want to pay taxes according to
the new regime or if they want to continue paying taxes according to the
existing regime.
Income Tax Slab Tax Rates As Per New Regime

₹0 - ₹2,50,000 Nil

₹2,50,001 - ₹ 5,00,000 5%

₹5,00,001 - ₹ 7,50,000 ₹12500 + 10% of total income exceeding

 Income Tax Slab Tax Rates As Per New Regime

₹5,00,000

₹7,50,001 - ₹ ₹37500 + 15% of total income exceeding

10,00,000 ₹7,50,000

₹10,00,001 - ₹75000 + 20% of total income exceeding

₹12,50,000 ₹10,00,000

₹12,50,001 - ₹125000 + 25% of total income exceeding

₹15,00,000 ₹12,50,000

₹187500 + 30% of total income exceeding

Above ₹ 15,00,000
₹15,00,000

Indirect Taxation (GST)

The person involved/benefited out of fake ITC shall also be liable for a
penalty of 100% of the tax involved. Composition scheme restricted to
taxpayers making the inter-state supply of service, supplies not leviable to GST
and supplies through e-commerce operator where TCS is deductible. The date
of the debit note will be standalone considered for availing input tax credit,
delinked from the date of invoice.
MSMEs
Amendments will be made to Factor Regulation Act, 2011.
Amendments to be made to enable NBFCs to extend invoice financing to
MSMEs. Provision of subordinated debt for MSMEs by Banks which is
guaranteed by Credit Guarantee Trust. The debt will count as quasi-equity.
App-based financing loans will be introduced for MSMEs App-based invoice
financing loans product to be launched, to obviate the problem of delayed
payments and cash flow mismatches for MSMEs.
Public sector banks (PSBs):
Robust mechanism is in place to monitor and ensure health of all
scheduled commercial banks and depositors’ money is absolutely safe.

Agriculture:
The government aims to double farmers’ income by 2022. Help 15 lakh
farmers solarise their grid-connected pump sets. “KisanRail” and
“KrishiUdaan” for seamless transport of perishable farm goods. Increasing
coverage of artificial insemination to 70%. Raise fishery exports to Rs 1 lakh
crore by 2024-25.
Education:
About 150 higher educational institutions will start apprenticeship
embedded courses. Special bridge courses to improve skill sets of those seeking
employment abroad. Ind-SAT to be conducted in Africa and Asia under study in
India programme. Allocation of Rs 99,300 crore for the educational sector in
2020-21. Allocation of Rs 3,000 crore for skill development.
Financial sector:
Deposit Insurance Coverage to increase from Rs 1 lakh to Rs 5 lakh per
depositor. Eligibility limit for NBFCs for debt recovery under SARFAESI Act
proposed to be reduced to asset size of Rs 100 crore or loan size of Rs 50 lakh.
Separation of NPS Trust for government employees from PFRDAI. Proposal to
sell balance holding of government in IDBI Bank.
Water, Wellness, and Sanitation Goals:
More than 20, 000 empanelled hospitals under PM Jan Arogya Yojana
“TB Harega Desh Jeetega” campaign launched to end TB by 2025. Expansion
of Jan AushadhiKendra Scheme to all districts by 2024. Focus on liquid and
greywater management along with waste management.

11. Explain the components of industrial policy 1991.

Ans: Components or features of industrial policy 1991 are:
 Government Monopoly: The number of industries reserved for public
sector was reduced from 17 (as per 1956 policy) to only 8 industries viz.
Arms and Ammunition, Atomic minerals.
 Industrial Licensing Policy: This policy abolished the Industrial licensing
for all industries except for a short list of 18 industries. This list of 18
industries was further pruned in 1999 whereby the number reduced to six
industries viz. drugs and pharmaceuticals, hazardous chemicals.
 Foreign Investment and Capital: This was the first Industrial policy in
which foreign companies were allowed to have majority stake in India. In
47 high priority industries, up to 51% FDI was allowed. For export
trading houses, FDI up to 74% was allowed.
 Foreign Technology Agreements: Automatic permission was given for
foreign technology agreements in high priority industries up to a lump
sum payment of Rs. 1 crore, 5% royalty for domestic sales and 8% for
exports, subject to total payment of 8% of sales over a 10year period from
date of agreement or 7 years from commencement of production.
 Review in Public Sector Investments: A promise was made to review the
portfolio of public sector investments with a view to focus the public
 sector on strategic, high-tech and essential infrastructure. This indicated a
disinvestment of the public sector.
 Amendments to MRTP Act: The MRTP Act will be amended to remove
the threshold limits of assets in respect of MRTP companies and
dominant undertakings. This eliminates the requirement of prior approval
of Central Government for establishment of new undertakings.
 Definition of Tiny Sector: The definition of Tiny Unit was changed as a
unit having an investment limit of Less than Rs. 5 Lakh.
 National Renewal Fund to provide safety net for labourers: The
Government announced to establish a National Renewal Fund (NRF) to
provide a social safety net to the labour. This fund was established in
1992 and two schemes were brought under this- first Voluntary
Retirement Scheme (CRS) and another re-training scheme for rationalised
workers in organised sector.

12. Write the ways to appoint director of a company.

Ans: The ways to appoint director of a company are:
 Obtain Consent of Proposed Director: Proposed Director Should give
his consent to act as Director in the Company as per Form DIR-2 , this
is very important document and company must obtain form DIR-2
form before proposing him Director of the Company.
 Digital Signature of Proposed Director: If proposed Director does not
have Digital Signature, he must obtain Digital Signature from
Certifying Authority in India.
 Obtain Director Identification Number (DIN): If the proposed Director
does not have DIN , he should let the company know that he does not
have, and than the Company in which he is about to be appointed as
Director is required to pass Board Resolution for proposing him to be
Appointed as Director of the Company.
 Issue of Notice of General Meeting: The Director in the Company are
appointed in the General Meeting , the Company should issue notice
to all the Shareholders of the Company for holding Extra Ordinary
General Meeting of the Company, Please note that Notice of General
Meeting should be issued in accordance with provisions of Companies
Act.
 Hold Extra Ordinary General Meeting of the Company: Once the
Notice of EGM is issued to the shareholders, now on the meeting date
and time, hold the meeting and Pass the Necessary Resolution for
Appointment of Director as Company.
  Issue Letter of Appointment: Now issue letter of appointment to the
Director of the Company mentioning terms and conditions of
appointment and salary to be payable to the Director.
 File form DIR-12 to ROC: Once all the above steps are completed the
Company should file Form DIR-12 to ROC within 30 days form the
date of appointment of Director , It is always advisable to File the
Form DIR-12 within next day of appointment, so as to avoid late filing
and Additional Fee.
 Making Necessary entries in Register of Directors: Company should
make necessary entries in the Register of Director and Key
Managerial Personals.
 File Necessary Amendment Application to GST, Tax Authorities
Other regulators: The Company is required to make necessary
application for Changes in Directors details in GSTN and Other
Certificates, wherever applicable.

13. Write a elaborated note on Strat up India.

Ans: Entrepreneurship is growing at a rapid pace in India. According to some
reports, India is presently the world’s third-biggest technology startup centre;
and nearly 17 lakh companies were registered in the country in 2018.
Startup India Scheme:
Startup India Scheme is an initiative of the Indian government, the essential
target of which is the advancement of new businesses, that is, startups,
employment, and prosperity. It was propelled on 16 January 2016 by our current
Prime Minister in New Delhi. Under this scheme, new companies in India can
profit from administrative and tax cuts, capital increases tax exception, and also
access to government investment provided that they satisfy certain criteria.
A self-accreditation agreement system is likewise set up concerning the key
labour and condition laws, whereby there will be no investigations for the initial
three to five years of the commencement of the enterprise.
Other advantages comprise a decrease in patent registration amount by 80
percent and trademarks documenting expenses by 50 percent, also free legal
help; less complex entry and exit rules; security of intellectual property rights
(IPR); and amenities to advance entrepreneurship among women and
communities belonging to SC/ST group.
Highlights of the scheme:
 New-entrants are fixed duty time-off for three years.
 The government has given a subsidy of Rs.2500 crore for startup
companies, just as a credit ensure a reserve of Rs.500 crore rupees.
 The requirement to be eligible for Startup Registration
  The organization to be created must be a private limited company or a
constrained risk joint venture.
 It ought to be a new firm or not established before more than five years,
and the complete turnover of the organization ought to be not surpassing
25 crores.
 The organisations ought to have acquired the endorsement from the
Department of Industrial Policy and Promotion (DIPP).

10 Marks:
1. What are the modes of termination of an agency?
Ans: If the trust between the agent and the principal has broken down, it is not
reasonable to allow the principal to remain at risk in any transactions that the
agent might conclude during a period of notice.

Termination
of Agency

By the Act of By operation

Parties of Law

Revocation Ravocation
Agreement by the
by the Agent
Principal

By Agreement:
On the basis that agency relationship is created by agreement between the
principal and the agent, such a relationship can also be brought to an end by
mutual agreement between the parties, either in writing or orally.
Termination by agreement may also occur if the agency relationship is
terminated pursuant to the provisions of the agreement itself. The following
situations may arise in this context:
If the agreement provides for the appointment of the agent for a specified period
of time, the agency will come to an end automatically when that period of time
expires. If the agreement provides for the agency to terminate upon the
occurrence of a specified event, the agency will come to an end upon the
happening of the specified event.
By the Act of Parties
An agency may be terminated by the acts of either the principal or the agent as
illustrated below:-
Performance by the agent
If an agent is appointed to accomplish a particular task or for a specific purpose,
when the task is accomplished by the agent or the specific purpose is attained,
the agency will terminate.
Revocation by the principal:
The authority of an agent may be revoked at any time by the principal. However
unilateral revocation otherwise than in accordance with the provisions of the
agency agreement may render the principal liable to the agent for the breach of
an agency agreement. Any word or conduct of the principal inconsistent with
the continued exercise of the authority by the agent may operate as a revocation
of the agency. Revocation’s of the agent’s power by the principal may not
automatically discharge the principal from liability to a third party who is
entitled to rely from liability to a third party who is entitled to rely from liability
to a third party who is entitled to rely from liability to a third party who is
entitled to rely on the apparent authority of the agent on grounds of
representation by the principal of previous course of dealing with the agent’s
before notice of revocation is given to the third party. Therefore notice of
revocation of an agent’s power should be given to the third party as soon as
possible.
Renunciation by agent:
An agent is entitled to renounce his power by refusing to act or by notifying the
principal that he will not act for the principal. Unilateral termination of the
agency by the agent before he has fulfilled the obligations to the
principal under the agency agreement will render the agent liable
to the principal.
2. “MOA is a Charter of a company”. Explain this statement.
Ans: An important step in the formation of a company is to prepare a document
called memorandum of association. It is the charter of the company and is very
important document as it contains the basic conditions on which the company is
incorporated.
The Memorandum contains the name, registered office, main and other objects
of the company, liability of the members and the authorized capital of the
company. The main purpose of the memorandum is to limit the scope of
activities and powers of the company. Thus, any act outside the memorandum is
ultra vires the company. Such an act is not enforceable and directors involve
personal liability for it.
Requirements with respect to Memorandum:
(1) The memorandum of every company shall state -
the name of the company with "Limited" as the last word of the name in the
case of a public limited company, and with "Private Limited" as the last words
of the name in the case of a private limited company, the State in which the
registered office of the company is to be situated, in the case of a company in
existence immediately before the commencement of the Companies Act, 1965,
the objects of the company, in the case of a company formed after such
commencement, the main objects of the company to be pursued by the company
on its incorporation and objects incidental or ancillary to the attainment of the
main objects, other objects of the company not included in sub-clause
(i) in the case of companies (other than trading corporations), with objects not
confined to one State, the States to whose territories the objects extend.
The memorandum of a company limited by shares or by guarantee shall also
state that the liability of its members is limited. The memorandum of a company
limited by guarantee shall also state that each member undertakes to contribute
to the assets of the company in the event of its being wound up while he is a
member or within one year after he ceases to be a member, for payment of the
debts and liabilities of the company, or of such debts and liabilities of the
company as may have been contracted before he ceases to be a member, as the
case may be, and of the costs, charges and expenses of winding up, and for
adjustment of the rights of the contributories among themselves, such amount as
may be required, not exceeding a specified amount.
In the case of a company having a share capital - unless the company is an
unlimited company, the memorandum shall also state the amount of share
capital with which the company is to be registered and the division thereof into
shares of a fixed amount, no subscriber of the memorandum shall take less than
one share; and each subscriber of the memorandum shall write opposite to his
name the number of shares he takes.
3. Define resolution. Mention the various types of resolution.
Ans: Resolution refers to the bit depth of a digital recording, or the number of
information bits stored in the sample. This also correlates directly to the
recording's quality. For printers, resolution points to the dots per inch (DPI) of
the material the printer produces, which also indicates how small and fine the
dots are.

Types of
Resolution

Ordinary Special Written

resolution Resolution Resolution
Ordinary resolutions:
In business or commercial law in certain common law jurisdictions, an ordinary
resolution is a resolution passed by the shareholders of a company by a simple
or bare majority (for example more than 50% of the vote) either at a convened
meeting of shareholders or by circulating a resolution for signature. A special
resolution by comparison requires a greater vote threshold, which varies in
different jurisdictions.
An ordinary resolution is the most common method by which a corporate entity
conducts its business or the board of directors seeks shareholder approval of its
actions. The prevailing legislation applying to companies in the relevant
jurisdiction will usually prescribe certain activities which must be approved by
special resolution or alternatively which cannot be approved by ordinary
resolution (for example altering the company's constitutional documents,
reducing the share capital or dissolving the company). In addition, in certain
circumstances a company may wish to amend its constitution to increase the
threshold to provide that a special resolution needs to be passed prior to the
company engaging in other matters which may ordinarily approved by simple
majority, purely as a matter of internal organisational control.
Special Resolution:
A special resolution is a resolution of the company’s shareholders which
requires at least 75% of the votes cast by shareholders in favour of it in order to
pass. Where no special resolution is required, an ordinary resolution may be
passed by shareholders with a simple majority more than 50% of the votes cast.
The special resolution regime helps to protect minority shareholders against
important decisions being taken without proper consideration and, to the extent
possible, consensus. In areas covered by a special resolution, a shareholder or
group of shareholders together holding 25% of the shares can effectively oppose
a resolution. The need for a special resolution may help good decision-making,
ensuring important changes are better considered and an effort made to gain
wider support than a simple majority. Of course, the special resolution regime
can also work to a company’s disadvantage – when a required transaction is
blocked by an intransigent minority.
Written Resolution:
Written resolution refers to a resolution passed outside a general meeting by
members of a private company. Such a resolution can be passed as an ordinary
resolution or as a special resolution. Usually, a written resolution does not
dismiss a director or auditor of the company. A written resolution is legally
valid, as it carries the signatures of all members who are entitled to vote. Used
when a general meeting is not required to pass an ordinary resolution or special
resolution. Any written ordinary resolution must be passed by a simple majority
of shareholders’ votes; written special resolutions require a 75% majority vote.
Shareholders must sign a written resolution to cast their votes.

4. Briefly explain the different modes of winding up of company?

Ans: A Company is a voluntary association of persons formed for some
common purpose with capital divisible into parts known as shares. The common
stock so contributed is denoted in money and is the capital of the company. The
persons who contribute it, or to whom it belongs, are members.
Voluntry winding
up

Complusory
winding up
Types of Winding
of Company
Liquidation by
Court

Cancelling of
Court
1. Voluntary Winding up: Voluntary liquidation starts from special
resolution adopted by the company in its general meetings. As per
Section 126(1) of the Companies Act of Nepal the, shareholders of the
company may liquidate the company either by adopting the special
 resolution in general meetings or subject to the provisions contained in
MoA and AOA and consensus Agreement.
As per subsection 2 of section 126, the requirements or procedures of
voluntary liquidation are as follows:
o If the company is able to pay its debts or other liabilities.
o There must be solvent company.
o There must be declaration in writing of directors to pay the debts
and liabilities.
2. Compulsory winding up: If any company is declared the insolvent at that
situation, such company must be liquidated or wound-up.
o that is the situation of compulsory winding up or liquidation.
o such liquidation is executed only by the court’s order
o Though company law of Nepal recognizes and regularized the
compulsory liquidation, the proceedings of compulsory liquidation
have been mentioned in detail in Insolvency Act 2063. No
procedure under Insolvency Act is started without the permission
of court. Court means commercial bench by notification in Nepal
Gazette.
3. Liquidation by Court’s Order: Sec 139(4) (f) of the Companies Act 2063.
If company is carried on or is likely to be carried on as to be prejudicial to
rights and interest of any shareholders of the company, shareholder may
apply before the court for appropriate order as remedy. At this situation,
If court for liquidating the company.
4. Dissolution by cancellation of registration or deregistration: the company
registrar office may cancel the registration of company on the following
grounds.
Section 136 of the companies Act 2063.
o In a situation of failure to commence the business.
o In a situation of default in submitting the report, for three
consecutive financial years
o If he company registrar office has a reasonable ground to believe
that company is not carrying on its business or the company is not
in operation.

5. What are different modes of creation of agency?

Ans: Agency is the relationship which subsists between the principal and agent,
Where the agent has been authorized to act for the principal or represent him in
dealing with others 3rd party.
Different types of creation of Agency are:
1. By Expressed Agreement: When both the principal and agent agreed to
the agency relationship through a written or oral agreement.
Example- A asked B to purchase and supplies on my behalf, and B agreed
to do so. All agency agreements are created through the intent of the
parties, and we clearly intend to act in an agency relationship.
2. By Implied Agreement: Implied Agency arises from the conduct,
Situation or Relationship of the parties. It may be inferred from the
circumstances of the case and things spoken or written or the ordinary
course of dealing.
Example:- A and P are brothers. A lives in Delhi while P lives in Meerut.
A with the knowledge of P leases P’s land in Delhi. He realises the rent
and remits it to P. A is the agent of P though not expressly appointed as
such.
o by Estoppel: When the law creates an agency relationship by
circumstance, it is called agency by estoppel, also known as
apparent authority. When the law creates an agency relationship by
circumstance.
Example :-A tells T within the hearing of P that he is P’s agent .P
does not object to this statement of A . Later T supplies sum goods
to A, who pretends to act as an agent of P. P is liable to pay the
price to T.
o by holding out: A prior positive or affirmative act on the part of the
principal is required to establish agency.
Example:- A sends his M to buy goods from B on credit. B gives
the goods to M and A pays for them. Later on M, without A’s
asking for it, buys goods from B on A’s credit and runs away. A
would be liable to pay for the goods, A held out that M was his
agent also and as such he would be liable for the purchases made
by his servant.
o By necessity: By circumstances the law confers an authority on a
person to act as an agent for the benefit of another, there being no
opportunity of communicating with that other. A type of
relationship whereby one party can make essential decisions for
another party. Agency by necessity is recognized in the courts and
typically applies when one party is unable to make.
3. By Ratification: A person may become another’s agent after having done
some work for the latter, if the latter ratifies the act. When a person
adopts or accepts an act done on his behalf but without his authority he is
said to have ratified it.
6. Explain the features of Indian Economy.
Ans: The economy of India is characterised as a developing market economy. It
is the world's fifth-largest economy by nominal GDP and the third-largest by
purchasing power parity (PPP). According to the IMF, on a per capita income
basis, India ranked 139th by GDP (nominal) and 118th by GDP (PPP) in 2018.
Features of Indian Economy:
 Low per capita Income: India’s per capita income is very less as compare
to developed countries. As per the estimates of the Central Statistics
Office (CSO), the per capita net national income of the country at current
prices for the year 2015-16 is estimated to attain the level of Rs. 93231/-.
The per capita net national income at constant prices (2011-12) for the
year 2015-16 is estimated to attain the level of Rs. 77, 431/-.
 Agriculture based economy: Agriculture and allied sectors provide
around 14.2% of Indian GDP while 53% of total Indian population is
based on the agriculture sector.
 Over population: in every decade Indian population get increased by
about 20%. During the 2001-11 population increased by 17.6%. Currently
India is adding the total population of Australia every year. India is the
possessor of around 17.5% population of the whole world.
 Income disparities: a report released by Credit Suisse revealed that the
richest 1% Indians owned 53% of the country’s wealth, while the share of
the top 10% was 76.30%. To put it differently, in a manner that conveys
the political economy of this stunning statistic, 90% of India owns less
than a quarter of the country’s wealth.
 Lack of capital formation: Rate of capital formation is low because of
lower level of income. Gross domestic capital formation was 23.3% in
1993-94 increased upto the level as 38.1% in 2007-08 but declined upto
34.8% in 2012-13.
 Backwardness of infrastructure development: As per an recent study,
25% of Indian families don’t have reach of electricity and 97 million
peoples don’t have reach of safe drinking water and 840 million people in
India don't have sanitation services. India needs 100 million dollar for
infrastructural development upto 2025.
 Market imperfection: Indian economy doesn’t have good mobility from
one place to other which hinders the optimum utilization of resources.
These market imperfections create the fluctuations in the price of
commodities every year.
  Economy is Trapped in the Vicious Circle of Poverty: Prof. Ragner
Nurkes says that ‘a country is poor because it is poor’. It means poor
countries are trapped in the vicious circle of poverty.
 Use of Outdated Technology: It is very clear that Indian production
technique is more labour oriented in nature. So it increases the cost of
production of the products made in these countries.
 Traditional Set Up of Society: Indian societies are trapped in the menace
like casteism, communalist, male dominated society, superstitions, lack
of entrepreneurship, and ‘chalta hai attitude’ of the peoples. These all
factors hindered the growth of the country as a whole.

7. Make a SWOT analysis of Indian Economy.

Ans: The economy of India is characterised as a developing market economy. It
is the world's fifth-largest economy by nominal GDP and the third-largest by
purchasing power parity (PPP). According to the IMF, on a per capita income
basis, India ranked 139th by GDP (nominal) and 118th by GDP (PPP) in 2018.
SWOT Analysis of Indian economy:
Strengths of India.
 Vast Industrial Presence in both Public and Private Sectors
 Huge demand for Domestic Industrial goods.
 Avail of Low-cost, Skilled Human Resources.
 Proactive government continued thrust on reforms- Further liberalization
under process.
 Increasing investment in real assets (Capacity Expanding), Inflow of
FDI(Foreign Direct Investment) across Industrial sector.
 Abundance of natural resources.
Weaknesses of India
 Presence of Vast Industrial sickness
 Outdated labor laws, and presence of too many political labour and trade
union.
 Nascent Regulatory systems to check misuse of market power by firms.
 Dependency of Subsidies (SSI – Small scale industries)
 Inadequate and poor quality infrastructure cost and time delays.
 Low productivity.
 Poor infrastructure facility.
Opportunities in India.
 Growing Competition of Indian industry due to focus on efficient and
quality.
 Vast export marked to explore.
  Growing recognition of “Made in India” brand in global market
 Major growth through outscoring opportunities
 Presence of Deming award winning firms (Focus on quality)
 Growing number of overseas investment and acquisition by Indian Firms.
 Investment in R&D, engineering design.
 Huge foreign exchange earnings profit in IT sector.
Threats to India
 Heavy competition in manufacturing field from china.
 Power crises and the virtuous growth cycling manufacturing sector.
 Large informal sector, Poor working condition and low wages.
 Inclusion of social (Labor) issues in trade dialogues could happens
exports (e.g., Child labor)
 High corruption and inadequate environmental safety norms could affect
sustainability.
 Growing import bills.
 High fiscal deficit.

8. Explain the phases of business cycle.

Ans: A business cycle can be defined as wavelike fluctuations of business
activity characterized by the recurring phases of expansion and contraction in
periods varying from three to four years.
Phases of business cycle:

1. Expansion:
The line of cycle that moves above the steady growth line represents the
expansion phase of a business cycle. In the expansion phase, there is an
increase in various economic factors, such as production, employment,
output, wages, profits, demand and supply of products, and sales. In
 addition, in the expansion phase, the prices of factor of production and
output increases simultaneously. In this phase, debtors are generally in
good financial condition to repay their debts; therefore, creditors lend
money at higher interest rates. This leads to an increase in the flow of
money. In expansion phase, due to increase in investment opportunities,
idle funds of organizations or individuals are utilized for various
investment purposes.
2. Peak:
The growth in the expansion phase eventually slows down and reaches to
its peak. This phase is known as peak phase. In other words, peak phase
refers to the phase in which the increase in growth rate of business cycle
achieves its maximum limit. In peak phase, the economic factors, such as
production, profit, sales, and employment, are higher, but do not increase
further. In peak phase, there is a gradual decrease in the demand of
various products due to increase in the prices of input. The increase in the
prices of input leads to an increase in the prices of final products, while
the income of individuals remains constant. This also leads consumers to
restructure their monthly budget.
3. Recession:
As discussed earlier, in peak phase, there is a gradual decrease in the
demand of various products due to increase in the prices of input. When
the decline in the demand of products becomes rapid and steady, the
recession phase takes place. In recession phase, all the economic factors,
such as production, prices, saving and investment, starts decreasing.
Generally, producers are unaware of decrease in the demand of products
and they continue to produce goods and services. In such a case, the
supply of products exceeds the demand.
4. Trough:
During the trough phase, the economic activities of a country decline
below the normal level. In this phase, the growth rate of an economy
becomes negative. In addition, in trough phase, there is a rapid decline in
national income and expenditure. In this phase, it becomes difficult for
debtors to pay off their debts. As a result, the rate of interest decreases;
therefore, banks do not prefer to lend money. Consequently, banks face
the situation of increase in their cash balances.
5. Recovery:
As discussed above, in trough phase, an economy reaches to the lowest
level of shrinking. This lowest level is the limit to which an economy
shrinks. Once the economy touches the lowest level, it happens to be the
end of negativism and beginning of positivism. This leads to reversal of
 the process of business cycle. As a result, individuals and organizations
start developing a positive attitude toward the various economic factors,
such as investment, employment, and production. This process of reversal
starts from the labour market.

9. Explain the macro environment of a business.

Ans: A macro environment is the condition that exists in the economy as a
whole, rather than in a particular sector or region. In general, the macro
environment includes trends in the gross domestic product (GDP), inflation,
employment, spending, and monetary and fiscal policy. The macro-environment
is closely linked to the general business cycle as opposed to the performance of
an individual business sector.
The macro-environment can also directly affect consumers’ ability and
willingness to spend. Luxury goods industries and big-ticket consumer goods
can be highly impacted by fluctuations in consumer spending. Consumers’
reactions to the broad macro-environment are closely monitored by businesses
and economists as a gauge for an economy’s health.
Factors of the Macro Environment:
Analyzing the macro environment is an important part of strategic management.
Some of the key factors composing the macro environment include the
following:
Gross Domestic Product:
GDP is a measure of a country’s output and production of goods and services.
The Bureau of Economic Analysis releases a quarterly report on GDP growth
that provides a broad overview of the output of goods and services across all
sectors. An especially influential aspect of GDP is corporate profits for the
economy, which is another measure of an economy’s comprehensive
productivity.
Inflation:
Inflation is a key factor watched by economists, investors, and consumers. It
affects the purchasing power of the US dollar and is closely watched by the
Federal Reserve. The target rate for annual inflation from the Federal Reserve is
2%. Inflation higher than 2% significantly diminishes the purchasing power of
the dollar, making each unit less valuable as inflation rises.

Employment:
Employment levels in the United States are measured by the Bureau of Labor
Statistics, which releases a monthly report on business payrolls and the status of
the unemployment rate. The Federal Reserve also seeks to regulate employment
levels through monetary policy stimulus and credit measures. These policies can
ease borrowing rates for businesses to help improve capital spending and
business growth, resulting in employment growth.
Consumer Spending:
Consumer spending makes up around ⅔ of GDP and is widely considered to be
an important indicator of macroeconomic performance. Slow growth or decline
in consumer spending suggests a decline in aggregate demand, which
economists consider to be a symptom or even a cause of macroeconomic
downturns and recessions.
Monetary Policy:
The Federal Reserve’s monetary policy initiatives are a key factor influencing
the macro environment in the United States. Monetary policy measures are
typically centered around interest rates and access to credit. Federal interest rate
limits are one of the main levers of the Federal Reserve’s monetary policy tools.
The Federal Reserve sets a federal funds rate for which federal banks borrow
from each other, and this rate is used as a base rate for all credit rates in the
broader market. The tightening of monetary policy indicates rates are rising,
making borrowing more difficult.
Fiscal Policy:
Fiscal policy refers to government policy around taxing, borrowing, and
spending. High tax rates can reduce individual and business incentives to work,
invest, and save. The size of a government’s annual deficits and total debt can
influence market expectations regarding future tax rates, inflation, and overall
macroeconomic stability.

10. Elaborate the functions of RBI.

Ans: The Reserve Bank of India (RBI) is India's central bank, which controls
the issue and supply of the Indian rupee. RBI is the regulator of entire Banking
in India. RBI plays an important part in the Development Strategy of the
Government of India. RBI regulates commercial banks and non-banking finance
companies working in India. It serves as the leader of the banking system and
the money market. It regulates money supply and credit in the country. The RBI
carries out India's monetary policy and exercises supervision and control over
banks and non-banking finance companies in India. RBI was set up in 1935
under the Reserve Bank of India Act,1934.

Functions of RBI:
1. Issue of Bank Notes: The Reserve Bank of India has the sole right to
issue currency notes except one rupee notes which are issued by the
Ministry of Finance. Currency notes issued by the Reserve Bank are
declared unlimited legal tender throughout the country. This
 concentration of notes issue function with the Reserve Bank has a number
of advantages: (i) it brings uniformity in notes issue; (ii) it makes possible
effective state supervision; (iii) it is easier to control and regulate credit in
accordance with the requirements in the economy; and (iv) it keeps faith
of the public in the paper currency.
2. Banker to Government:
As banker to the government the Reserve Bank manages the banking
needs of the government. It has to-maintain and operate the government’s
deposit accounts. It collects receipts of funds and makes payments on
behalf of the government. It represents the Government of India as the
member of the IMF and the World Bank.
3. Custodian of Cash Reserves of Commercial Banks:
The commercial banks hold deposits in the Reserve Bank and the latter
has the custody of the cash reserves of the commercial banks.
4. Custodian of Country’s Foreign Currency Reserves:
The Reserve Bank has the custody of the country’s reserves of
international currency, and this enables the Reserve Bank to deal with
crisis connected with adverse balance of payments position.
5. Lender of Last Resort:
The commercial banks approach the Reserve Bank in times of emergency
to tide over financial difficulties, and the Reserve bank comes to their
rescue though it might charge a higher rate of interest.
6. Central Clearance and Accounts Settlement:
Since commercial banks have their surplus cash reserves deposited in the
Reserve Bank, it is easier to deal with each other and settle the claim of
each on the other through book keeping entries in the books of the
Reserve Bank. The clearing of accounts has now become an essential
function of the Reserve Bank.
7. Controller of Credit:
Since credit money forms the most important part of supply of money,
and since the supply of money has important implications for economic
stability, the importance of control of credit becomes obvious. Credit is
controlled by the Reserve Bank in accordance with the economic
priorities of the government.

11. What is privatization? Explain its merit and demerits.

Ans: Privatization can mean different things including moving something from
the public sector into the private sector. It is also sometimes used as a synonym
for deregulation when a heavily regulated private company or industry becomes
less regulated.
Merits of Privatization:
 Improved efficiency: The main argument for privatisation is that private
companies have a profit incentive to cut costs and be more efficient. If
you work for a government run industry managers do not usually share in
any profits. However, a private firm is interested in making a profit, and
so it is more likely to cut costs and be efficient.
 Lack of political interference: It is argued governments make poor
economic managers. They are motivated by political pressures rather than
sound economic and business sense. For example, a state enterprise may
employ surplus workers which is inefficient. The government may be
reluctant to get rid of the workers because of the negative publicity
involved in job losses.
 Short term view
A government many think only in terms of the next election. Therefore,
they may be unwilling to invest in infrastructure improvements which
will benefit the firm in the long term because they are more concerned
about projects that give a benefit before the election. It is easier to cut
public sector investment than frontline services like healthcare.
 Shareholders
It is argued that a private firm has pressure from shareholders to perform
efficiently. If the firm is inefficient then the firm could be subject to a
takeover. A state-owned firm doesn’t have this pressure and so it is easier
for them to be inefficient.
 Increased competition
Often privatisation of state-owned monopolies occurs alongside
deregulation – i.e. policies to allow more firms to enter the industry and
increase the competitiveness of the market. It is this increase in
competition that can be the greatest spur to improvements in efficiency.
For example, there is now more competition in telecoms and distribution
of gas and electricity.
Demerits of Privatization:
 Natural monopoly:
A natural monopoly occurs when the most efficient number of firms in an
industry is one. For example, tap water has very significant fixed costs.
Therefore there is no scope for having competition amongst several firms.
Therefore, in this case, privatisation would just create a private monopoly
which might seek to set higher prices which exploit consumers.
 Public interest:
There are many industries which perform an important public service,
e.g., health care, education and public transport. In these industries, the
 profit motive shouldn’t be the primary objective of firms and the industry.
For example, in the case of health care, it is feared privatising health care
would mean a greater priority is given to profit rather than patient care.
Also, in an industry like health care, arguably we don’t need a profit
motive to improve standards.
 Government loses out on potential dividends:
Many of the privatised companies in the UK are quite profitable. This
means the government misses out on their dividends, instead going to
wealthy shareholders.
 Problem of regulating private monopolies:
Privatisation creates private monopolies, such as the water companies and
rail companies. These need regulating to prevent abuse of monopoly
power. Therefore, there is still need for government regulation, similar to
under state ownership.
 Fragmentation of industries:
In the UK, rail privatisation led to breaking up the rail network into
infrastructure and train operating companies. This led to areas where it
was unclear who had responsibility. For example, the Hatfield rail crash
was blamed on no one taking responsibility for safety. Different rail
companies has increased the complexity of rail tickets.

12. Explain the instruments of monetary policy/credit control tools used by

RBI?
Ans: Monetary policy is a way for the RBI to control the supply of money in
the economy. So these credit policies help control the inflation and in turn help
with the economic growth and development of the country. So now let us take a
look at the various instruments of monetary policy that the RBI has at its
disposal.
 Open Market Operations:
Open Market Operations is when the RBI involves itself directly and
buys or sells short-term securities in the open market. This is a direct and
effective way to increase or decrease the supply of money in the market.
It also has a direct effect on the ongoing rate of interest in the market. On
the other hand, if RBI was purchasing securities from the open market it
would have the opposite effect. The supply of money to the market would
increase. And so, in turn, the rate of interest would go down since the
demand for credit would fall.
 Bank Rate:
One of the most effective instruments of monetary policy is the bank rate.
A bank rate is essentially the rate at which the RBI lends money to
 commercial banks without any security or collateral. It is also the
standard rate at which the RBI will buy or discount bills of exchange and
other such commercial instruments. So now if the RBI were to increase
the bank rate, the commercial banks would also have to increase their
lending rates. And this will help control the supply of money in the
market. And the reverse will obviously increase the supply of money in
the market.
 Variable Reserve Requirement:
There are two components to this instrument of monetary policy, namely
The Cash Reserve Ratio (CLR) and the Statutory Liquidity Ratio (SLR).
Let us understand them both. Cash Reserve Ratio (CRR) is the portion of
deposits with the commercial banks that it has to deposit to the RBI. So
CRR is the percent of deposits the commercial banks have to keep with
the RBI. The RBI will adjust the said percentage to control the supply of
money available with the bank. And accordingly, the loans given by the
bank will either become cheaper or more expensive. The CRR is a great
tool to control inflation.
 Liquidity Adjustment Facility:
The Liquidity Adjustment Facility (LAF) is an indirect instrument for
monetary control. It controls the flow of money through repo rates and
reverse repo rates. The repo rate is actually the rate at which commercial
banks and other institutes obtain short-term loans from the Central Bank.
And the reverse repo rate is the rate at which the RBI parks its funds with
the commercial banks for short time periods. So the RBI constantly
changes these rates to control the flow of money in the market according
to the economic situations.
 Moral Suasion:
This is an informal method of monetary control. The RBI is the Central
Bank of the country and thus enjoys a supervisory position in the banking
system. If there is a need it can urge the banks to exercise credit control at
times to maintain the balance of funds in the market. This method is
actually quite effective since banks tend to follow the policies set by the
RBI.