Business Environment

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Business Environment
MBA (University of Lucknow)
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BUSINESS ENVIRONMENT
NMBA 014
(UNIT 1, 2, 3, 4, & 5)
Sem- 1
Prepared By-
Mr. Gagan Pant

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UNIT I
BUSINESS ENVIRONMENT
What is Business:-
Business may be understood as organized efforts of enterprise,organization to supply consumer with goods
and services for a profit.
What is Environment:-
Environment is the surroundings of external objects, influence or circumstances under which someone or
something exists.
Business Environment:-
It refers to external and Internal factors which have a direct or indirect effect on the activity of a business.
Business environment refers to different forces or surroundings that affect business operations. Such forces
include customers, competitors, suppliers, distributors, industry trends, substitutes, regulations, government
activities, the economy, demographics, and social and cultural factors. Others are innovations and
technological developments.
For example, when there is a change in the government polices, the business has to make the necessary
changes to adapt itself to the new policies.
Similarly, a change in the technology may render the existing products obsolete. Introduction of computer
has replaced the typewriters; the colour television has made the black and white television out of fashion.
Again a change in the fashion or customers’ taste may shift the demand in the market for a particular
product, e.g., the demand for jeans reduced the sale of other traditional wear. All these aspects are external
factors that are beyond the control of the business. So the business units must have to adapt themselves to
these changes in order to survive and succeed in business. Hence, it is very necessary to have a clear
understanding of the concept of business environment and the nature of its various components.
Business environment may be defined as the total surroundings, which have a direct or indirect bearing
on the functioning of business. It may also be defined as the set of external factors, such as economic

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factors, social factors, political and legal factors, demographic factors, and te chnical factors etc., which
are uncontrollable in nature and affects the business decisions of a firm.
Importance of Business Environment
An analysis of business environment helps to identify strength, weakness, opportunities & threats. Analysis is very
necessary for the survival and growth of the business enterprise. The importance of business environment is briefly
explained in an analysis below
(1) Identification of Strength: The analysis of the internal environment helps to identify strength of the firm. For
instance, if the company has good personal policies in respect of promotion, transfer, training, etc than it can
indicates strength of the firm in respect of personal policies. This strength can be identified through the job
satisfaction and performance of the employees. After identifying the strengths the firm must try to consolidate
its strengths by further improvement in its existing plan and policies.
(2) Identification of Weakness: The analysis of the internal environment indicates not only strengths but also the
weakness of the firm. A firm may be strong in certain areas; where as it may be weak in some other areas. The
firm should identify sue weakness so as to correct them as early as possible.
(3) Identification of Opportunities : An analysis of the external environment helps the business firm to identify
the opportunities in the market. The business firm should make every possible effort to grab the opportunities
as and when they come.
(4) Identification of Threats: Business may be subject to threats from competitors and others. Therefore
environmental analysis helps to identify threats from the environment identification of threats at an earlier date
is always beneficial to the firm as it helps to defuse the same.
(5) Exploitation of Business Opportunities: Environment opens new opportunities for the expansion of business
activities. Study of environment is necessary in order to discover and exploit such opportunities fully.
(6) Keeping Business Enterprise Alert: Environment study is needed as it keeps the business unit alert in its
approach and activities. In the absence of environmental changes, the business activities will be dull and
lifeless. The problems & prospects of business can be understood properly through the study of business
environment. This enables an enterprise to face the problems with confidence and secure the maximum
benefits of business opportunities available.
(7)Keeping Business Flexible and Dynamic: Study of business environment is needed for keeping
business flexible and dynamic as per the changes in the environmental forces. This will enable the
development of business organization.
(8) Understanding Future Problems and Prospects: The study of business environment enables to understand
future problems and prospects of business in advance. This enables business organizations to face the
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problems boldly and also take the benefit of favorable situation.
(9)Making Business Socially Acceptable: Environment study enables businessmen to expand the business and
also make it acceptable to different social groups. Business organizations can make positive contribution for
maintaining ecological balance by studying social environment.
(10) Ensures Optimum Utilization of Resources: The study of business environment is needed as it ensures
optimum use of resources available. For this, the study of economic and technological environment is useful.
Such study enables organization to take full benefit of government policies, concessions provided, and
technological developments and so on.
(11) Ensures Survival and Growth: Business environment inform about suitable changes to be affected in
business policies. This helps the business organizations to grow & prosper.
(12) Maintaining adaptability to changes: Business environment guides the business organization about
socio-economic changes & the organization must accordingly adapt these change. This enables the business
organization to survive for a longer period.
COMPONENTS OF BUSINESS ENVIRONMENT
Types of Environment
INTERNAL EXTERNAL
ENVIRONMENT ENVIRONMENT
What Are Internal And External Environments?

If there is anything that is steadfast and unchanging, it is change itself. Change is inevitable, and organizations that
don't accept change and that make adjustments to their business model based on changes are doomed to fail. There
are events or situations that occur that affect the way a business operates, in a positive or negative way. These events
or situations can have either a positive or a negative impact on a business and are called 'environmental factors.'
There are two types of environmental factors: internal environmental factors and external environmental factors.
Internal environmental factors are events that occur within an organization. Generally speaking, internal
environmental factors are easier to control than external environmental factors. Some examples of internal
environmental factors are as follows:
 Management changes
 Employee morale
 Culture changes
 Financial changes and/or issues
External environmental factors are events that take place outside of the organization and are harder to predict and
control. External environmental factors can be more dangerous for an organization given the fact they are
unpredictable, hard to prepare for, and often bewildering. Some examples of external environmental factors are noted
below:
 Changes to the economy
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 Threats from competition
 Political factors
 Government regulations
 The industry itself
Internal Environment-
Internal environment has direct impact on business. Important internal factors which have a bearing on the decisions
of a business firm and which are generally controllable because the company has control over these factors. The
important internal factors are as follows:
1) Culture
It is widely acknowledged fact that any business organization is normally undertaken for profit maximization.
Nonetheless, persons holding top positions in certain modern corporate enterprises have some values which
influence their policies, norms, working language, systems, symbols practices and overall internal environment.
This may be refer as culture of the organization which is the collective behaviour of humans that are part of an
organisation. The extent to which the culture of the organisation is shared by all, leads to an important factor
contributing to success.
2) Vision, mission and objectives
Vision, mission and objectives of the company guide its priorities, philosophy, policies etc.
e.g., Ranbaxy’s mission ‘to become a research based international pharmaceutical company’ led it to enter foreign
markets.
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3) Top management Structure

The composition of the board of directors is very critical factor for the development and performance of company
as they are highest decision-maker authorities, extend of professionalism of management as it may be
professionally managed or family controlled, nominee of financial institutions having large holdings in companies,
the shareholding pattern could have important managerial implications. All these factors are of great importance
from the point of view of the company’s internal environment.
4) Power Structure
The internal power relationship between the board of directors and senior executive officers highly effect the
decision making process of the organisation.
5) Human and Other Resources
The quality of human resources of a company depends largely on competence, commitment, attitude and
motivation, plays an important role in the success of the organisation.
6) Physical Resources and the Technology
The production capacity, technology, R & D work, distribution logistics etc are the factors that influence
functioning and competitiveness of the firm.
7) Company Image and Brand Equity
The image and brand equity of the company matters a lot in raising finance, forming joint ventures and other
alliance, choosing dealers and suppliers etc.
External Environment
External environment refers to external aspects of the surroundings of business enterprise, which have influence on the
functioning of business.
Micro Environment
The micro environment or task environment comprises those forces in the immediate vicinity of an organization that
influence it’s functioning. The micro forces need not necessarily affect all the firms in a particular industry in the same
way. Some of the micro factors may be particular to a firm.
Important Performers in the Micro Environment
The most important performers in the micro environment are as under:

1) Consumers/Customers
Major task of business is to create and sustain customers. Different categories of consumers / Benefits looking for /
Buying Patterns: Individuals, Households, Industries and other commercial establishments. Government and other
institutions .Depending on single customer is too risky
Choice of customer should be done by considering, Relative profitability, Dependability, Stability of demand,
Growth prospectus, Extent of competition
2) Competitors
A firm’s competitors include not only the other firms which market the same or similar product but also all those
who compete for the income of the consumers. Desire competition, Generic competition, Product form competition,
Brand competition. The competition here among these products may be said as desire competition as the primary
task here is to fulfill the desire of the customers.
Who are the competitors?
What is their present strategy and business objectives?
Who are the most aggressive and powerful competitors.
3) Suppliers
Those who supply the inputs (raw materials, equipments and services to the company.
Source/Sources should be Reliable
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Uncertainty regarding the supply or other supply constraints or compel s companies to maintain high inventories
causing cost increases.
Very risky to depend on a single supplier
The purchasing department should “market” itself to suppliers, to obtain favourable treatment during the periods of
shortages.
Organizational decisions about “Outsourcing” or “In-house Production” is very important
4) Marketing Intermediaries
Firms that aid the company in promoting, selling and distributing its goods to final buyers. They are important link
between company and customers.
It includes:
The middlemen and merchants who “help the company find customers or close sales with them” Physical
distribution firms which “assist the company in stocking and moving goods from their origin to their destinations”
Marketing service agencies which “assist the company in targeting and promoting its products to the right markets”
Financial intermediaries which “finance marketing activities and insure business risks” • Vital links between the
company and the final consumers.
5) Publics
Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its interests.
E.g. Media publics, citizens action publics, local publics
Media attack on any company can influence the government decisions affecting the company. Environmental
pollution is an issue often taken up by number of local publics
Publics are not always threat to the business.
Fruitful cooperation between a company and the local publics may be established for the mutual benefit.
NGOs have been protesting against child labour, cruelty against animals, environmental problems,
deindustrialization resulting from imports etc.
Macro Environment
Consists of larger societal forces that affect all the actors in company’s micro environment-namely : Demographic,
Economic ,Political - Legal ,Socio – Cultural, Technological, Natural ,Global. Also known as Societal Environment –
It includes general forces that do not directly touch on short-run activities of the organization but that can, and often
does, influence its long-run decisions.
Economic Environment
The totality of economic factors such employment, income, inflation, interest rates, productivity and wealth that
influence the buying behavior of consumer and institution.
Business organizations carry on its activities, in the market with the objective of profit maximization therefore each
organization is an economic institution. The economic environment consists of economic factors like- Economic
conditions, Economic policies, and Economic systems
for example , the nature of the economy, the stage of development of the economy, economic resources, the level of
income, the distribution of income and assets, a restrictive import policy may greatly help the import competing
industries, while a liberalisation of the import policy may create difficulties for such industries.
Political- Legal Environment
Government actions which effect the operation of a company or business. These actions may be local, regional,
national or international level. Business owners and managers pay close attention to the political environment to gauge
people how govt actions will affect their company.
The economy and political system of a country are dependent on each other. It consists of political stability and
policies of the government.Ideological inclination of political parties, personal interest of politicians, influence of party
forums etc create political environment.
The Legal Environment has a great impact on the functioning of the organisation as it establishes codes and
procedures for various types and aspects of business and deals with deviations or infringement law like bribery,
product counterfeiting, gray markets, black markets, consumer deception and tax evasions.
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E.g.: In India, Advertisement of alcoholic product is prohibited and the packages must carry “injurious to
health” warnings
Socio- Cultural Environment
It consist of some total of a society’s belief, customs, practices and behaviours. It is an artificial construct that can be
contrasted with the natural environment in which we live.
If a business operates in a multi cultural society then the social external environment is even more complicated because
the environment consist is even more complicated due to diverse sub-populations with their unique values, beliefs and
customs.
It means the value attitudes, beliefs and customs of people in a given group or society. Socio-cultural dimensions
complicate the environment in which entrepreneurs have to manage their ventures, which literacy rate, customs,
values, beliefs, lifestyle, demographic features and mobility of population are part of the social environment. It is
important for managers to notice the direction in which the society is moving and formulate progressive policies
according to the changing social scenario.
Ex:- Hindu, Muslim culture.
E.g.: nestle brews a very large variety of instant coffee to satisfy different national tastes, Vicks Vaporub, the
popular pain balm is used as mosquito repellent in some tropical countries.
Technological Environment
The progress of business depends on the level of technology available in a country which gives a massive impetus to
the economic revival. It also indicates the pace of research and development and progress made in introducing modern
technology in production. Technology provides capital intensive, but cost effective alternative to traditional labour
intensive methods. In a competitive business environment technology is the key to development.
E.g. many appliances are designed for 110 V in USA. They should be converted for 240v in India Technological
developments may increase or decrease the demand for some existing products. E.g. voltage stabilizers help increase
in sale of electrical appliances in markets characterised by frequent voltage fluctuations. Introduction of TVs,
Refrigerators, etc. with in-built stabilizers adversely affects the demand for voltage stabilizers.
Natural Environment
Natural environment includes factors such as seasonal variations, climatic differences, soil conditions and natural
terrain.
In consumer markets, the natural environment affects companies because of the differences in the nature of products
bought by consumers due to variations in seasons and climate. For instance, products such as apparel and food get
affected due to these factors.
In difficult terrains like hilly areas, it is difficult and expensive to get products to the customers.
It becomes more expensive to build distribution channels for companies whose target markets are geographically
disperse. This increases the price of the product for the customer.
Soil conditions influences the nature of the agricultural produce in a country. This affects the type of agricultural
implements that must be manufactured and marketed.
No Business organization can survive in drastic conditions. Every business has relationships with natural environment.
1.The environment is the source of raw material.

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2.It causes damage in the process of production. Ex:- Forest, River.
E.g.. In hilly areas with difficult terrain, jeeps may be in a greater demand than cars.
International Environment:-
This environment is for those industries who directly depend on import and export of industries. For example:-
recession in foreign markets.
RECENT POLITICAL ENVIRONMENT

The political environment includes all laws,government agencies,and lobbying groups that influence or
restrict individuals or organizations in the society.
The political environment in an economy is influenced by:

1) Philosophy of political parties
2) Ideology of the party in power
3) Nature of bureaucracy
4) The political stability
5) The foreign policy
In the early 1950s the Congress party adopted socialist pattern of society, this was mainly responsible for the public
sector dominated economy which lasted until the early 1990s.The dramatic changes in the political environment in the
erstwhile USSR and East European countries that gave rise to drastic changes in their economic policies in the late
1980s.And these developments encouraged a revolutionary change in India’s economic policies in 1991.
In 1991 Indian economy faced severe macro-economic imbalances:
1) Huge deficit in the balance of payments
2) Current Account Deficit rose to 3.2% of GDP
3) Foreign currency assets dipped from US Rs.3.4 bn (march 1990) to US Rs.975 mn on July 12,1991
Indian Political System

India is a federal state with its Central Government in New Delhi (Capital of the country). India comprises of 29 States
and 8 Union Territories. The Constitution provides for splitting of the responsibilities between its Executive,
Legislature and the Judiciary.
Executive comprises President, Vice President and the Council of Ministers headed by Prime Minister.
Political Institutions
Union Legislature (Parliament)
Lok Sabha Rajya Sabha

(Lower House) Elected by people (Upper House) Elected by State Legislatures
Parliament responsible for enacting laws in India. Similar structure exists in States where head of Executive is
Governor appointed by President of India.
Council of Ministers headed by Chief Minister, responsible to State Legislature (Legislative Assembly). The powers of
the Centre and the States divided clearly in form of 3 Lists:
1. Union List
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2. State List
3. Concurrent List
The Union and state Governments pass legislation on subjects under Union and State lists respectively. For subjects on
the Concurrent lists both Centre and states can enforce laws.
Prominent Political Parties of India

Bahujan Samaj Party
Bhartiya Janata Party (BJP)
Communist Party of India (CPI)
Communist Party of India (Marxist) or CPI/(M)
Communist Party of India /(Marxist)-Leninist or CPI/ML
Congress (I) Party
Muslim League
Revolutionary Socialist Party (RSP)
Samajwadi Party (SP) etc.
Recent Economic Environment
Changing Face of Indian Economy

The face of the Indian Economy has changed drastically since 1991. Today, the market forces govern pricing.
Key Factors of India’s New Economy

1. India is the largest economy of the world.
2. Attractive destination of global FDI
3. India emerging as global manufacturing hub
4. Labelled as back office of the world
5. Regarded as customized software company of the world
6. Also emerging as Research & Development hub
7. Earning honour in terms of quality.
Economic Policies:
Economic policies formulated and implemented by the government impart business in different ways. The important
economic policies are:
1) Fiscal Policy:
It is a statement of government’s source of income and its expenditure.
2) Monetary Policy:
Determines supply of currency in economic policy.
3) Industrial Policy:
Define the scope and role of different sectors like private, public, joint and co-operative, large, medium, small and
tiny enterprises.
4) Foreign Trade Policy:
It not only influences the business of importers and exporters but almost all businesses. Liberal foreign trade
policy compels the organization to work on its quality control, product and costs to stay in competition.
5) Foreign Exchange Policy:
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RBI influences foreign exchange today. An appreciation in the value of currency adversely affects exports while
devaluation will encourage exports.
6) Foreign Investment and Technology Policy:
It influences foreign investment and technology inflow into the country. FDI (Foreign Direct Investment) provides
opportunities to Indian companies to learn and implement best practices.
Economic Planning In India

A Plan
1) A Plan is a deliberate attempt to spell out how the resources of a country should be put to use.
2) It has some general and specific goals, which are to be achieved within a specific period of time.
3) The general goals of a Plan are growth, modernization, full employment, self-reliance and equity. But all Plans
may not give equal importance to all of them.
Planning without an objective is like driving without any destination. Two sets of objectives for planning, namely the
short-term objectives and the long-term objectives. While the short-term objectives vary from plan to plan, depending
on the immediate problems faced by the economy, the process of planning is inspired by certain long term objectives.
The long-term objectives are:
1) A high rate of growth
2) Economic self-reliance
3) Social justice and
4) Modernization of the economy
5) Economic stability
Economic Planning is to make decision with respect to the use of resources. Economic Planning is a term used to
describe the long term plans of government to co-ordinate and develop the economy. Economic planning in India was
started in 1950 is necessary for economic development and economic growth.
Need For Economic Planning

1) Mess Poverty And Low Per Capita Income
2) High Rate of Growth of Population
3) Low Level of Literacy
4) Backward Technology
5) Social And Economic Problem Created By Partition of Country
Objectives of Economic Planning

1) Economic Growth.
2) Reduction of Economic In Equalities.
3) Balanced Regional Development.
4) Modernization.
5) Reduction Of Unemployment.
Planning commission of India

1) The Planning Commission was set up on 15th March, 1950 by a Resolution passed by the Government of
India.
2) The economy of India is based on planning through its five-year plans, developed, executed and monitored by
the Planning Commission . With the Prime Minister as the ex- officio Chairman, the commission has a
nominated Deputy Chairman, who has rank of a Cabinet minister.
3) Montek Singh Ahluvaliya was the last Deputy Chairman of the Commission.
Objective:-
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a. Assessment of the material, capital and human resources of the country, including technical personnel, and
formulation of proposals for augmenting such of these resources as are found to be deficient ;
b. Formulation of Plan for the most effective and balanced utilisation of the country's resources;
c. Definition of stages in which the Plan should be carried out on a determination of priorities and allocation of
resources for completion of each stage;
d. Determination of the nature of the machinery necessary for the implementation of the Plan in all its aspects;
e. Appraisal from time to time of the progress achieved in the execution of each stage of the Plan
f. Public Cooperation in National Development;
g. Hill Areas Development Programme;
h. Perspective Planning
i. Directorate of Manpower
NATIONAL DEVELOPMENT COUNCIL (NDC)
The National Development Council (NDC) or the Rashtriya Vikas Parishad is the apex body for decision
making and deliberations on development matters in India, presided over by the Prime Minister. It was set up
on 6 August 1952 to strengthen and mobilize the effort and resources of the nation in support of the Plan, to
promote common economic policies in all vital spheres, and to ensure the balanced and rapid development of
all parts of the country. The Council comprises the Prime Minister, the Union Cabinet Ministers,Chief
Ministers of all States or their substitutes, representatives of the Union Territories and the members of
the Planning Commission.
The functions of the Council are:-
1. to prescribe guidelines for the formulation of the National Plan, including the assessment of resources for the
Plan;
2. to consider the National Plan as formulated by the Planning Commission;
3. to make an assessment of the resources that are required for implementing the Plan and to suggest measures
for augmenting them.
4. to consider important questions of social and economic policy affecting national development; and
5. to review the working of the Plan from time to time and to recommend such measures as are necessary for
achieving the aims and targets set out in the National Plan.
6. To recommend measures for achievement of the aims and targets set out in the national Plan.
FORMULATION OF THE PLAN
The preparation of a Five Year Plan is usually spread over a period of 2-3 years.
The era of planned development came in India with the launch of First Five Year Plan on April 1,1951.
Objectives:-
High Rate of Growth(Increase in national income as well as per capita income).
1. Social Justice(is to provide social justice to the common folks and weaker sections of the society).
2. Removal of Poverty.
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3. Full Employment
4. Modernization
1 st Stage:
1) Consideration of general approach to formulation, involving an examination of state of economy, appraisal of past
trends in production, rate of growth.
2) Preliminary discussions submitted by Commission to Central Cabinet and to NDC.
2 nd Stage:
Studies intended to lead to consideration of physical content of the plan.
3 rd Stage:
Planning Commission constitutes groups for each sector, which review the situation in their respective fields and make
assumptions to be made in formulation of the plan and indicate targets of production to be achieved.
4 th Stage:
Commission holds discussions with Union Ministers, State Governments and Union Territories at the highest level
followed by periodic meetings and informal discussions.
5 th Stage:
Presentation of the main features of the plan in form of a draft Plan.
Five Year Plans
The economy of India is based in part on planning through its five year plans which are developed, executed and
monitored by planning commission.
The eleventh plan completed its terms in March 2012 and the twelfth plan is currently underway.
1) First five year plan(1951-1956)

2) Second five year plan (1956-1961)
3) Third five year plan (1961-1966)
4) Fourth five year plan (1969-1974)
5) Fifth five year plan (1974-1979)
6) Sixth five year plan (1980-1985)
7) Seventh five year plan(1985-1990)
8) Eighth five year plan(1992-1997)
9) Ninth five year plan(1997-2002)
10) Tenth five year plan (2002-2007)
11) Eleventh five year plan (2007-2012)
12) Twelfth Five Year Plan (2012–2017)
First Five Year Plan (1951-1956)

The objective was to correct the economic disequilibrium and initiate the process of an all round development.
Importance was given to agriculture and irrigation.
Target growth rate is 2.1% Annual GDP and achieved is 3.6%.
Second five year plan (1956-1961)

It aimed at laying the foundation of industrial progress and at the same time achieve a socialist pattern of society.
Importance was given to the development of public sector.
The optimal allocation of investment between productive sector to maximize long run economic growth.
Hydroelectric power projects and five steel plants started at Bhilai, Durgapur and Rourkela.
Coal Production increases.
Railway lines added in North East.
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Expected growth target is 4.5% and achieved is 4.27%.
Third five year plan (1961-1966)

It gave importance to achievement of balanced regional development.
1.Stress laid down on agriculture sector.
2.But due to Indo-Pak war in 1965 and focus shifted to defence industry and Army.
3.Panchayat Elections started.
Expected growth rate is 5.6% and achieved growth rate is 2.4%
PLAN FAILED
Due to the failure of Third Plan, a plan holiday was declared and three annual plan launched from 1966
to1969.
Fourth five year plan (1969-1974)

It aimed at 2 objectives:
1) Growth with stability
2) It stressed on agriculture and improving production of wheat, it is also shifted the focus towards the Defense
industry.
3) Indira Gandhi Nationalised 14 major Indian Banks.
4) Green Revolution advance agriculture
Again due to Indo-Pak war the expected growth rate declined from 5.6% to 3.3%.
Fifth five year plan (1974-1979)

The objectives were removal of poverty and achievement of economic self reliance
Due to Change of govt. from INC to Janta Party, the new Prime Minister Mr.Morarji Desai rejected the plan.
Now the new govt focused on Indian National Highway System.
Tourism Sector is also expanded.
Expected Growth rate was 4.4% but achieved is just 3.8%.
ROLL ON PLAN FROM (1978-80)
Janta Party rejected the Fifth Five Year Plan and introduced a new Sixth Five Year Plan (1978-80). The plan rejected
by INC in 1980.
Sixth five year plan (1980-1985)
It aimed at giving growth to pace of economic development and strengthening the modernization and technological
self reliance.
Family planning was also expanded in order to prevent overpopulation.
The target growth rate was 5.2% and the actual growth rate was 5.4%
Seventh five year plan(1985-1990)
It laid emphasis on development, equity and social justice through self reliance, efficiency and increased production.
The main objectives of the Seventh Five-Year Plan were to establish growth in areas of increasing economic
productivity, production of food grains, and generating employment.
The Seventh Plan had strived towards socialism and energy production at large. The thrust areas of the Seventh Five -
Year Plan were: social justice, removal of oppression of the weak, using modern technology, agricultural development,
anti-poverty programmes, full supply of food, clothing, and shelter, increasing productivity of small- and large-scale
farmers, and making India an independent economy.Under the Seventh Five-Year Plan, India strove to bring about a
self-sustained economy in the country with valuable contributions from voluntary agencies and the general populace.
The target growth rate was 5.0% and the actual growth rate was 6.01%
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ANNUAL PLAN FROM 1990 TO 1992

The Eighth Plan could not take off in 1990 due to the fast changing political situation at the centre.
Eighth five year plan(1992-1997)

It focused on the generation of adequate employment opportunities, containing population growth and strengthening of
the infrastructure.
It was the beginning of privatisation and liberalization in India.

India became a member of the World Trade Organization on 1 January 1995.
The major objectives included, controlling population growth, poverty reduction, employment generation,
strengthening the infrastructure, institutional building, tourism management, human resource development,
involvement of Panchayati rajs, Nagar Palikas, NGOs, decentralisation and people's participation.
An average annual growth rate of 6.78% against the target 5.6% [6] was achieved.
Ninth five year plan(1997-2002)
It focused on accelerating the rate of economic growth giving priority to agriculture and rural development.
 Population control.
 Generating employment by giving priority to agriculture and rural development.
 Reduction of poverty.
 Ensuring proper availability of food and water for the poor.
 Availability of primary health care facilities and other basic necessities.
 Primary education to all children in the country.
 Empowering the socially disadvantaged classes like Scheduled castes, Scheduled tribes and other backward
classes.
 Developing self-reliance in terms of agriculture.
 Acceleration in the growth rate of the economy with the help of stable prices.
The target growth was 7.1% and the actual growth was 6.8%.
Tenth five year plan (2002-2007)

Attain 8% GDP growth per year.
Reduction of poverty ratio by 5 percentage points by 2007. Providing gainful and high-quality employment at least to
the addition to the labor force Reduction in gender gaps in literacy and wage rates by at least 50%.
Eleventh five year plan (2007-2012)
It aims at putting the economy on a sustainable growth with a growth rate of 10% by the end of plan period. It will
create productive employment faster.
Twelfth Five Year Plan (2012–2017)
Faster, more inclusive and sustainable growth. Inclusiveness is to be achieved through poverty
reduction, promoting group equality and regional balance, reducing inequality, empowering people etc whereas
sustainability includes ensuring environmental sustainability ,development of human capital through improved health,
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education, skill development, nutrition, information technology etc and development of institutional capabilities ,
infrastructure like power telecommunication, roads, transport etc ,
Conclusion
1) Economic Planning help in mobilizing and allocating the resources in desired manner.
2) Objective of economic planning is to reduce inequality, economic growth, balanced regional growth,
modernization.
3) Each five year plan aims at achieving certain target. Five year plan constitute the steps toward the fulfillment of
objectives of economic planning.
Industrial Policy
Industrial policy means rules, regulations, principles, policies, and procedures laid down by government for
regulating, developing and controlling industrial undertakings in the country. It prescribes the respective roles of
the public, private joint and cooperative sectors for the development of industries. It also indicates the role of the large,
medium, and small sector. It incorporates fiscal and monetary policies, tariff policy, labour policy and the government
attitude towards foreign capital, and role to be played by multinational corporations in the development of the
industrial sector.
Objectives of Industrial Policy

1) Accelerating the overall rate of growth through industrialization.
2) Expanding the industrial base in relation to industrialization needs of the country.
3) Generating employment and reducing poverty.
4) Preventing monopolies and concentration of industrial power.
5) Creating competitive conditions and encouraging the growth of entrepreneurship
6) Promoting balanced industrial development.
7) Promoting linkages with others sectors of the economy.
8) Assisting small enterprises
9) Encouraging the growth of industrial research and development
10) Balanced regional development
11) To provide enough protection to Indian industries from Multi-Nationals.
Objectives of New Industrial Policy

1) Attainment of international competitiveness.
2) Development of backward areas.
3) Encouraging competition within Indian industry.
4) Efficient use of productive resources.
5) Full utilization of plant capacities to generate employment.
6) Revival of weak units.
Why NIP 1991?

1) To overcome Reservation of Industries
2) To overcome Entry & Growth Restrictions
3) To overcome Restriction on Foreign Capital & Technology
Features of NIP
1) De-reservation of Public Sector:
The number of industries reserved for public sector was reduced to 8 industries. At present, there are only three
industries reserved for public sector which include. (a) Atomic energy (b) Railways, and (c) specified Minerals.
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2) De-licensing:
The most important features of NIP, 1991 was the abolition of industrial licensing of all industries except six
industries. The six industries are of social and strategic concern. The six industries are: 1. Hazardous Chemicals. 2.
Alcohol 3. Cigarettes 4. Industrial Explosives 5. Defense Products, and 6. Drug and pharmaceuticals.
3) Disinvestment of public sector:
The NIP 1991 permitted disinvestment of public sector units. Disinvestment is a process of selling government
equity in PSUs in favour of private parties. Disinvestments aim at certain objectives. (1) To provide better
customer Service. (2) To make effective use of disinvestment funds. (3) To overcome the problem of political
interference. (4) To enable the government to concentrate on social development.
4) Foreign Investment:
Approval will be given for direct foreign investment up to 51 percent foreign equity in high priority industries.
There shall be no bottlenecks of any kind in this process
5) Foreign Technology Agreements:
Automatic permission will be 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 10 year period from date of agreement or 7 years from commencement of production. No permission will be
necessary for hiring of foreign technicians, foreign testing of indigenously developed technologies.
6) MRTP Act:
Emphasis will be placed on controlling and regulating monopolistic, restrictive and unfair trade practices.
Simultaneously, the newly empowered MRTP Commission will be authorized to initiative investigations on
complaints received from individual consumers or classes of consumers in regard to monopolistic, restrictive and
unfair trade practices.
7) Public Sector Policy:
The priority areas for growth of public enterprises in the future will be the following:
1) Essential infrastructure goods and services.
2) Exploration and exploitation of oil and mineral resources.
3) Technology development and building of manufacturing capabilities in areas which are crucial in the long
term development of the economy and where private sector investment is inadequate.
4) Manufacture of products where strategic considerations predominate such as defense equipment.
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Industrial Policies
Industrial
policy
resolution of
1948
Industrial Industrial
policy policy
resolution of resolution of
1991 1956
Industrial Industrial
policy policy
resolution of resolution of
1980 1973
Industrial
policy
resolution of
1977
Positives & Negatives

Positives:
1) De-licensing of most industries will help entrepreneurs to quickly seize business opportunities.
2) Removal of controls under the MRTP Act will facilitate expansion and growth.
3) There will be greater inflow of foreign capital and technology due to easing of restrictions.
4) Burden on the public sector will be reduced.
Negatives
1) The bureaucracy has a tendency to attempt to defeat measures aimed at deregulations.
2) Foreign investors still regard the policy and procedural system in India confusing. Rather many feel that policy
and development environment in China is superior to India.
3) Distortion in Industrial pattern would occur due to slow pace of investment in few basic and strategic
industries. Absence of a mechanism would slow down the development of backward areas .
Industrial licensing
The Indian government established a licensing system in order to maintain control over industries according to the
industries development and regulation act 1951. A license is a written permission granted to an enterprise by the
government according to which the products mentioned therein can be manufactured by the enterprise. The
license also includes many particulars such as:
1) Name of the product to be produced
2) The place where the factory to be established.
3) Expansion of the enterprise.
4) The limit of the production capacity.
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Objectives of licensing
1) Encouraging small scale industries.
2) Encouraging new entrepreneurs.
3) Regulating the location of the enterprise.
4) Ensuring balanced regional development.
5) Promoting technological advancement.
6) Checking the concentration of economic power.
7) Development and control of industrial investment and production.
Compulsions for licensing

1) Registration of Existing Industrial Units -
Industrial licensing provisions were first designed in industrial development and regulation act, 1951. Existing
industrial units which were existing before enforcement of this act and are covered under industrial licensing will
have to obtain registration under this act.
2) For Setting Up of New Industrial Units:-

If the industrial unit is to be set up in the category of licensed industries, it has to obtain license under Industries
development and regulation act, 1951. While setting up industrial unit, not covered under compulsory licensing, it
has to file a memorandum of information with the department of industries if the value of investment in plant and
machinery of such unit is above Rs.10 crore.
3) For Substantial Expansion:-

Under industrial licensing policy, if any industrial unit which is covered under licensing units wishes to
substantially expand its production capacity then it will have to obtain prior approval under this Act. Substantial
expansion increase in production capacity beyond 25% of existing of licensed capacity.
4) Location of Industrial Units:-

If any industrial unit wants to change its location, then it will have to take the approval of the concerned authority.
An Industrial license is required for the projects which are located in the large cities with a population of more
than 10 lakhs. Only after obtaining approval location can be changed.
5) For Producing Articles Reserved In Small-Scale Industries:-

An industrial undertaking wants to manufacture goods reserved for the small-scale sector it is required to obtain
industrial license. The list of items reserved for small-scale industries is reviewed from time to time. In Oct, 2008,
21 items were reserved for the small –scale sector.
Present position of licensing policy

1) Compulsory licensing:-
According to the New Industrial Policy, 1991, it is necessary to obtain a license only in case of 15 industries which
are engaged in the field of defense-equipments, luxury goods and hazardous commodities. In wake of
liberalization this number has been reduced to5.
The five industries for which licensing are compulsory are:
a)Alcoholic products.
b) Industrial explosives
c)Hazardous explosives
d) Aerospace and defense equipments
e)Tobacco products
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2) Protection to small-scale industries:-

In order to protect the small-scale industries and save them from the large scale industries, the production of
certain products were reserved for the small-scale industries. Only 21 items are reserved for small-scale industries.
3) Industries reserved for public sector:-

Some industries had been reserved for the public sector. These industries could be established in the public sector
and private sector was not granted licenses for the establishments of these industries. Only 3 industries are
reserved for the public sector such as atomic minerals, atomic energy and railways.
4) Definition of Large Industrial houses:-

In the new industrial policy of 1991, the limit on holding assets was completely abolished and there are no
restrictions on the size of large business houses. The new policy lays greater stress on preventing unfair trade
practices rather than on the size of business houses. In 2002, the government abolished MRTP ACT.
5) Licensing for the expansion of production capacity:-

According to the new industrial policy, 1991, no license is required for the expansion of production capacity of
MRTP companies. In the present situation, there is no restriction on the expansion of production capacity except 5
licensed industries.
Criticism of licensing policy

1) Discourages the Entrepreneurs:-
Under Industrial licensing Policy, industries have to obtain license for setting up new unit, change location etc. So
excessive control discourages the entrepreneurs.
2) Conflicting objectives:-
Licensing involves conflicting objectives. Like on one hand government wants to increase industrial production in
the economy. On the other hand government is restricting the activities of industrial units like substantial
expansion, production of new articles etc.
3) Lengthy Procedures:-
For obtaining industrial license the entrepreneurs has to take approval from various government departments. So
all this involves lengthy procedures and many formalities.
4) Corruption while granting licenses:-

Licenses are given to such entrepreneurs who have either political links or who can bribe the corrupt officials.
License is not granted on merit basis. Efficient entrepreneurs are ignored.
5) Poor follow up :-
After granting license, authorities do not check whether the business unit is following the provisions of licensing
or not. So the basic objectives of licensing policy are defeated.
Business Environment (Unit II)
Monetary Policy
Reserve Bank of India states that,
Monetary policy refers to the use of instruments under the control of the central bank to regulate the
availability, cost and use of money and credit. It involves influencing the supply & demand for money. The
target of monetary policy is to achieve low inflation.
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Supply of Money
Low Interest Rate
Higher Investment
Employment
Increase Demand
Inflation
Objectives
1) Maintaining price stability
2) Ensuring adequate flow of credit to the productive Sectors of the economy to support economic growth
3) Rapid economic growth
4) Balance of payment equilibrium
5) Full employment
6) Equal income distribution
Instruments of Monetary Policy

The RBI aims to achieve its objectives of economic growth and control of inflation through various methods. These
methods can be grouped as:
1) General/ quantitative methods
2) Selective/ qualitative methods
Quantitative measures
1) Bank rate
2) Open market operations
3) Cash reserve ratio (CRR)
4) Statutory liquidity ratio (SLR)
Qualitative Measures
1) Rationing of credit
2) Moral Suasion
3) Direct Action
4) Regulation in consumer credit
5) Changes in margin requirements
General/ Quantitative methods

It controls the volume of credit and inflation, indirectly.
1) Bank Rate of Interest
It is the interest rate which is fixed by the RBI to control the lending capacity of Commercial banks. During
Inflation , RBI increases the bank rate of interest due to which borrowing power of commercial banks reduces
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which thereby reduces the supply of money or credit in the economy .When Money supply Reduces it reduces the
purchasing power and thereby curtailing Consumption and lowering Prices.
2) Cash Reserve Ratio
CRR, or cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with
the RBI. During Inflation RBI increases the CRR due to which commercial banks have to keep a greater portion
of their deposits with the RBI.
This serves two purposes:
a) It ensures that a portion of bank deposits is totally risk-free
b) It enables that RBI control liquidity in the system, and thereby, inflation.
3) Statutory Liquidity Ratio
Banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity
ratio (SLR) requirements. If SLR increases the lending capacity of commercial banks decreases thereby regulating
the supply of money in the economy.
4) Open market Operations
It refers to the buying and selling of Govt. securities in the open market. During inflation RBI sells securities in the
open market which leads to transfer of money to RBI.Thus money supply is controlled in the economy.
Selective/ qualitative methods

The RBI directs commercial banks to meet their social obligations through selective/ qualitative measures. These
measures control the distribution and direction of credit to various sectors of the economy.
1) Rationing of Credit
Central bank fixes credit amount to be granted. Credit rationing refers to the situation where lenders limit the
supply of additional credit to borrowers who demand funds, even if the borrowers are willing to pay higher interest
rates.
2) Moral Suasion
Moral suasion (a phrase from the Latin words "moral" and "suasion" which denote respectively "conduct or
character that is right and virtuous” and "to present in a pleasing manner". It implies to pressure exerted by the
RBI on the Indian banking system without any strict action for compliance of the rules. It helps in restraining
credit during inflationary periods .
Central bank also appeals commercial banks to extend their wholehearted co-operation to achieve the objectives of
monetary policy. Being the monetary authority directions of the central bank are usually followed by commercial
banks.
3) Direct Action
This method is adopted when a commercial bank does not co-operate the central bank in achieving its desirable
objectives. Direct action may take any of the following forms:
1) Central banks may charge a penal rate of interest over and above the bank rate upon the defaulting banks.
2) Central bank may refuse to rediscount the bills of those banks which are not following its directives.
3) Central bank may refuse to grant further accommodation to those banks whose borrowings are in excess of
their capital and reserves.
4) At last it can even put a ban on a particular bank.
4) Regulation in Consumer Credit

Now-a-days, most of the consumer durables like T.V., Refrigerator, Motorcar, etc. are available on installment
basis financed through bank credit. Such credit made available by commercial banks for the purchase of consumer
durables is known as consumer credit.
If there is excess demand for certain consumer durables leading to their high prices, central bank can reduce
consumer credit by (a) increasing down payment, and (b) reducing the number of installments of repayment of
such credit.
This can help in checking the credit use and then inflation in a country.
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5) Changes in Margin Requirements

Generally, commercial banks give loan against ‘stocks or ‘securities’. While giving loans against stocks or
securities they keep margin. Margin is the difference between the market value of a security and its maximum
loan value. Let us assume, a commercial bank grants a loan of Rs. 8000 against a security worth Rs. 10,000.
Here, margin is Rs. 2000 or 20%.
If central bank feels that prices of some goods are rising, it wants to discourage the flow of credit to such goods.
Therefore, it increases the margin requirement in case of borrowing for business and thereby discourages
borrowing. This leads to reduction is money supply for undertaking speculative activit ies and thus inflationary
situation is arrested.
Factors affecting Monetary Policy

1) There exist a non-monetized sector
2) Excess of non-banking financial institutions (NBFI)
3) Existence of unorganized financial market
4) Money not appearing in an economy
5) Time lag affects success of monetary policy
6) Monetary policy and fiscal policy lacks coordination
FISCAL POLICY
Fiscal policy deals with the taxation and expenditure decisions of the government. These include, tax policy,
expenditure policy, investment or disinvestment strategies and debt or surplus management.
Objectives of Fiscal Policy
1) Increase in capital formation.
2) Degree of Growth.
3) To achieve desirable price level.
4) To achieve desirable consumption level.
5) To achieve desirable employment level.
6) To achieve desirable income distribution
Fiscal Policy there are three possible positions

1) Neutral position applies when the budget outcome has neutral effect on the level of economic activity where the
govt. spending is fully funded by the revenue collected from the tax.
2) Expansionary position is when there is a higher budget deficit where the govt. spending is higher than the
revenue collected from the tax.
3) Contractionary position is when there is a lower budget deficit where the govt. spending is lower than the
revenue collected from the tax.
Instruments of fiscal policy
Taxation Policy
Both direct and indirect taxes imposed by government for mobilising resources, formation of capital by promoting
savings and investment. If Govt. will increase taxes, more burden will be on the public and it will reduce
production and purchasing power of public. If Govt. will decrease taxes, then public's purchasing power will
increase and it will increase the inflation.
Public Expenditure Policy
There are large number of public expenditure like opening of government schools, colleges and universities,
making of bridges, roads and new railway tracks. In all above projects government has paid large amount for
purchasing and paying wages and salaries, all this expenditure are paid after making government expenditure
policy. Govt. can increase or decrease the amount of public expenditure by changing govt. budget.
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Deficit Financing Policy

It is a practice in which a government spends more money than it receives as revenue, the difference being made
up by borrowing new funds. But it also creates the problem of inflationary rise in prices. If government’s
expenditures are more than its revenue, then government should have to collect this amount. This amount is deficit
and it can be fulfilled by issuing new currency by central bank of country. But, it will reduce the purchasing power
of currency. More new currency will increase inflation and after inflation value of currency will decrease.
Public Debt Policy
It is a debt owed by a central government for financing government operations. Governments usually borrow by
issuing securities, government bonds and bills. If Government thinks that deficit financing is not sufficient for
fulfilling the public expenditure, then government can take loan from world bank , or take loan from public by
issuing govt. securities and bonds . But it will also increase the cost of debt in the form of interest which
government has to pay on the amount of loan. So, government has to make solid budget for this and after that the
amount should be fixed which is taken as debt. This policy can also use as the technique of fiscal policy for
increasing the treasure of government.
Merits of Fiscal Policy

1) Capital Information
2) Mobilisation of resources
3) Incentives to savings
4) Reduction of inequality
5) Export promotion
6) Inducement to private sector
Shortcomings of Fiscal Policy

1) After issuing new notes for payment of govt. of expenses, inflation of India is increasing rapidly and in this
inflation, prices of necessary goods are increasing very fastly. Living of poor person has become difficult. So,
these sign shows the failure of Indian fiscal policy.
2) Govt. fiscal policy has failed to reduce the black money. There is a large amount of black money which is
deposited in Swiss Bank.
3) After taking loan from World Bank under the fiscal policy's debt technique, government has to obey the rules and
regulations of World Bank and IMF. These rules are more harmful for developing small domestic business of
India. These organizations are interrelated with WTO and they want to stop Indian domestic Industry.
4) After expending large amount for generating new employment under fiscal policy, rate of unemployment is
increasing fastly and its effect on government employment exchange can be seen generally in working days.
Database of employment exchanges are full from educated unemployed candidates.
PRICE POLICY
The policy system can be used as a mechanism to secure the desired allocation of consumption and production. It
is essential to have a price policy to achieve various socio-economic aims.
OBJECTIVES OF PRICE CONTROL
1. Equity
2. Maintain quality of goods and services.
3. Prevention of Monopolistic, restrictive and unfair trade practices.
4. Increase supply.
5. Enlargement and smoothening of the supply system.
6. Supply of inputs to priority sectors.
7. Resource allocation.
8. Prevention of Black marketing.
9. Control of Inflation.
PRICE CONTROL
A number of measures have been taken to control prices. These measures include both:
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PRICE CONTROL MEASURES
INDIRECT DIRECT
CONROLS CONTROLS
Exercised through monetary policy, Works through administrative
fiscal policy. Measures.
Monetary Policy
Refers to policy of Central Bank of country with respect to cost and availability of credit.
Fiscal Policy
Refers to policy of government with respect to public revenue and public expenditure.
ADMINISTRATIVE PRICES
Coined by Lord Keynes refers to prices which is set by single decision making body. Under this system, price is
fixed at a particular level; fluctuations in demand and supply do not cause any price fluctuation.
DUAL PRICING
It helps weaker sections of people to get commodity at a lower price.
For example , under dual pricing for sugar, a part of total production was to be sold to government at price
fixed by government. The remaining part was allowed to be sold at price fixed at free market price.
ESSENTIAL COMMODITIES ACT, 1955

It helps to control production, supply and distribution of trade and commerce in certain commodities. This
Act empowers Central Government to regulate commodities for following reasons:
1. Maintain or increase their supplies.
2. Equitable distribution.
3. Securing any essential commodity for the defense of India.
Stock Exchange of India

What Is A Stock Market
A stock market or equity market is a public entity for the trading of company stock (shares) and derivatives at
an agreed price. These are securities listed on stock exchanges as well as those only traded privately. The stocks are
listed and traded on stock exchanges which are entities of a corporation or mutual organization. The largest stock
market in the USA, by market capitalization, is the NYSE.
WHAT IS STOCK EXCHANGE?
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The securities regulation act of 1956 defined stock exchange as “an association , organization , or a individual
which is established for for the purpose of assisting , regulating , and controlling business in buying ,selling and
dealing in securities.”
Meaning:
This comes under treasury sector, which provides service to stock brokers & traders to trade stocks, bonds and
securities. Stock exchanges help the companies to raise their fund. Therefore the companies needs to list themselves in
the Stock Exchange and the shares will be issued which is known as equity or a ordinary share and these shareholders
are the real owners of the company the Board of Directors of the Company are elected out of these Equity
Shareholders only.
Features of Stock Exchange

1) It is an organized market
2) It is a securities market
3) It is an important constituent of capital market i.e., market for long-term finance
4) It is a voluntary association of persons desirous of dealing in securities
5) Stock exchange is a voluntary association, its membership is not open to everybody
6) In a stock exchange, only the members can deal in i.e., buy & sell securities
7) The members of a stock exchange can buy and sell securities either as brokers for & on behalf of their clients
8) The dealings in a stock exchange are under certain accepted code of conduct i.e., rules and regulations
Important Function of Stock Exchange

1) Provide central and convenient meeting places for sellers and buyer of securities
2) Increase the marketability and liquidity of securities
3) Contribute to stability of prices of securities
4) Equalization of price of securities
5) Smoothen price movement
6) Help the investors to know the worth of their holdings
7) Promote the habit of saving and investment
8) Help capital formation
9) Help companies and government to raise funds from the investors
10) Provide forecasting service
History of Stock Exchange

The stock exchange was established by “East India Company” in 18th century. In India it was established in 1850 with
22 stock brokers opposite to town hall Bombay .This stock exchange is known as oldest stock exchange of Asia.
Some Indian Stock Exchanges
LOCATION EXCHANGE
MUMBAI BOMBAY STOCK EXCHANGE
MUMBAI NATIONAL STOCK EXCHANGE
JAIPUR JAIPUR STOCK EXCHANGE
KANPUR UP STOCK EXCHANGE ASSOCIATION
CHENNAI MADRAS STOCK EXCHANGE
COCHIN COCHIN STOCK EXCHANGE
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BENGULURU BANGLORE STOCK EXCHANGE

GAUHATHI GAUHATI STOCK EXCHANGE
LUDHIANA LUDHIANA STOCK EXCHANGE
KOLKATA CALCUTTA STOCK EXCHANGE
NSE AND BSE ARE THE MAJOR STOCK EXCHANGES IN
INDIA.
BOMBAY STOCK EXCHANGE
It is oldest and first stock exchange of India established in the year 1875. First it was started under baniyan tree
opposite to town hall of Bombay over 22 stock brokers. The top gainer in BSE is 100 companies in that GMR infra is
first.
NATIONAL STOCK EXCHANGE OF INDIA(NSE OR NSEI)

The NSE of India is the leading stock exchange of India, covering 370 cities and towns in the
country. It was established in1994 as a TAX company. It was established by 21 leading financial institutions and banks
like the IDBI, ICICI, IFCI, LIC, SBI,etc.
Features of NSEI
1) Nationwide coverage i.e., investors from all over country
2) Ring less i.e., it has no ring or trading floor
3) Screen-based trading i.e., trading in this stock exchange is done electronically.
4) Transparency,i.e.,the use of computer screen for trading makes the dealings in securities transparent.
5) Professionalization in trading, i.e., it brings professionalism in its functions
OVER-THE-COUNTER EXCHANGE OF INDIA(OTCEI)

The OTCEI is a national, ringless and computerized stock exchange. It was established in October, 1990.it started its
operation in September, 1992.
Features of OTCEI
1) It is a nation-wide stock exchange. Its operational areas cover entire India.
2) It is a ring less stock exchange. The trading ring (i.e., trading place) commonly found in a traditional stock
exchange is not found in the OTCEI.
3) It is a computerized stock exchange
Advantages of OTCEI
1) It helps the investors to have easy and direct access to the stock exchange
2) It helps investors to get fair prices for their securities
3) It provide safety to the investors
4) To provide computerized trading system
5) To provide investors a convenient,effcient and transparent mode of investment
Reserve Bank of India
Role and Function of the Reserve Bank of India (RBI)

In every country there is one organization which works as the central bank. The function of the central bank of a
country is to control and monitor the banking and financial system of the country. In India, the Reserve Bank of India
(RBI) is the Central Bank.
The RBI was established in 1935. It was nationalised in 1949. The RBI plays role of regulator of the banking system
in India. The Banking Regulation Act 1949 and the RBI Act 1953 has given the RBI the power to regulate the banking
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system.
The RBI has different functions in different roles. Below, we share and discuss some of the functions of the RBI.
FUNCTIONS OF RBI
RBI performs so many functions. For simplicity we can categorize them in to three major heads like
i) Monetary functions
ii) Non- monetary functions and
iii) Other or miscellaneous functions
I - Monetary functions
RBI performs the following monetary functions
Monopoly of note issue

In India RBI enjoys the sole right to issue notes except coins. RBI has an department for money issue called “issue
department”. When RBI issue money in to the economy, RBI keeps its reserves in the form of gold, bullion etc.
banker to government
RBI become the banker of government by doing activities like collecting of taxes, making payments on behalf of
central government, maintain debt of public union, provides loans to government with out securities (up to three
months) etc.
bankers bank and lender of last resort
RBI is the banker’s bank, RBI can issue licenses to new banks and other permissions. All the banks in India should
follows the rules and regulations given by RBI, including many policies related to reserve ratio, bank rate, ripo and
rivers ripo rate etc. RBI act as a clearing houses also, it is done by RBI by collecting precautionary deposits from
commercial banks.
credit controller
It is a very important function performing by RBI. They can control the economy via adopting many policies with
other banks like changing interest rates, SLR, CRR etc.
controller of foreign exchange operations

Simply RBI is the authorized dealer in foreign exchange, gold coin, bullion etc. on behalf of government. So, RBI is
the authorized agent to control foreign exchange operations of the country.
II – NON- MONETARY FUNCTIONS

RBI performs the following non- monetary functions. Mainly they can classified in to two, namely supervisory
functions and promotional functions.
Supervisory functions
RBI is the banker’s bank and so, they supervising all Indian banks. RBI can supervise banks by using of RBI Act and
further issuing of rules and regulations. Now, RBI setup a department called “department of supervision” to control the
commercial banks.
Promotional functions
Since RBI is the central bank of India , it has the responsibility to boost the Indian rural area and by achieve balanced
society. RBI provides many promotional schemes to promote rural area’s agriculture, small industries to create
employment opportunity by establishing financial institutions, conducting surveys etc. Banks like NABARD, RRB etc
are dedicated to rural area. So, RBI promoting villages of India.
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Further, RBI promoting industrial fields by establishing financial institutions like UTI. Any way the motto behind RBI
to promote rural area is nothing, to create a good atmosphere for industries and employment and by achieve balanced
development of the country.
III – OTHER OR MISCELLANEOUS FUNCTIONS

Further RBI functioning many other things also. RBI collecting data related to Indian economy and publishes those via
media. RBI offering its own specialized institutions to youngsters who are enthusiastic in banking field. Many
innovative fields of studies are introducing RBI. College of Agricultural Finance at Pune is one of them.
CONCLUSION
RBI is one of the great central bank in India. Now, India is considering as an emerging and developing economy, the
central bank playing a vital role. RBI controls all Indian banks and performs many other functions including
promotional functions.
Securities and Exchange Board of India (SEBI)
Introduction
1) SEBI(Securities and Exchange Board of India) was constituted on April 12,1988 as a non-statutory body
2) It is an apex body to develop and regulate the stock market in India
SEBI is the regulator for the securities market in India, originally set up by the Government of India in 1988; it
acquired statutory form in 1992 with SEBI Act 1992 being passed by the Indian Parliament.
3) SEBI head quartered in popular business district of bandra-kurla complex in Mumbai.
Objectives
1) To protect the interest of investors so that there is a steady flow of savings in to the capital market.
2) To regulate the securities market
3) Ensure fair practices by the issuers of securities so that they can raise resources at minimum cost.
4) To promote efficient services by brokers, merchant bankers and other intermediaries so that they become
competitive and professional.
Functions
The SEBI act 1992 has entrusted with two functions they are
1) Regulatory functions and
2) Developmental functions
Regulatory Functions
1) Regulation of stock exchanges and self regulatory organizations.
2) Registration and regulation of stock brokers , sub-brokers , registrars of all issues, merchant bankers, underwriters,
portfolio managers..etc
3) Registration and regulation of the working of collective investment schemes including mutual funds.
4) Prohibition of fraudulent and unfair trade practices relating to securities market.
5) Prohibiting of insider trading.
6) Regulating substantial acquisition of shares and takeovers of the company.
Developmental functions
1) Promoting investors education.
2) Training of intermediaries.
3) Conducting research and publishing information useful to all market participants.
4) Promoting of fair practices.
5) Promotion of self regulatory organisations.
Powers of SEBI
1) Power to call periodical returns from recognized stock exchanges .
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2) Power to compel listing of securities by public companies.
3) Power to levy fees or other changes for carrying out the purposes of regulation.
4) Power to call information or explanation from recognized stock exchanges or their members.
5) Power to grant approval to bye-laws of recognized stock exchanges.
6) Power to control and regulate stock exchanges.
7) Power to direct enquiries to be made in relation to affairs of stock exchanges or their members.
8) Power to make or amend bye-laws of recognized stock exchanges.
9) Power to grant registration to market intermediaries
10) Power to declare applicability of section 17 of the securities contract (regulation) act 1956 in any state or area to
grant licenses to dealers.
Structure of SEBI
The board shall consist of following members:-
1) Chairman
2) Two members, one from amongst the officials of the central government dealing with finance and another from the
administration of companies act of 1956.
3) One member from amongst the officials of the reserve bank of India.
4) Five other members of whom at least three shall be the whole-time members to be appointed by the central
government.
National Income
National income measures the total value of goods and services produced within the economy over a period of time .
There are many concepts of national income which are used by different economists and all of which are inter-related.
This suggests that the labor and capital of a country, working on the natural resources produces certain net amount of
goods and services, the aggregates of which as known as national income or national products. National income or
national product is defined as the total market value of all the final goods and services produced in an economy
in a given period of time.
The important concepts of national income are:
1) Gross Domestic Product (GDP)
2) Gross National Product (GNP)
3) Net National Product (NNP) at Market Prices
4) Net National Product (NNP) at Factor Cost or National Income
5) Personal Income
6) Disposable Income
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is the total market value of all final goods and services currently produced within the
domestic territory of a country in a year.
It measures the market value of annual output of goods and services currently produced. This imp lies that GDP is a
monetary measure.
For calculating GDP accurately, all goods and services produced in any given year must be counted only once so as to
avoid double counting. So, GDP should include the value of only final goods and services and ignores the transactions
involving intermediate goods.
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GDP includes only currently produced goods and services in a year. Market transactions involving goods produced in
the previous periods such as old houses, old cars, factories built earlier are not included in GDP of the current year.
GDP refers to the value of goods and services produced within the domestic territory of a country by nationals or non-
nationals.
Algebraic expression under product method is,
GDP=(P*Q)
where,
GDP=Gross Domestic Product
P=Price of goods and service
Q=Quantity of goods and service
denotes the summation of all values.
According to expenditure approach, GDP is the sum of consumption, investment, government expenditure, net
foreign exports of a country during a year.
Algebraic expression under expenditure approach is,
GDP=C+I+G+(X-M)
Where,
C=Consumption
I=Investment
G=Government expenditure
(X-M)=Export minus import
GDP includes the following types of final goods and services. They are
1) Consumer goods and services.
2) Gross private domestic investment in capital goods.
3) Government expenditure.
4) Exports and imports.
Gross National Product (GNP)

Gross National Product is the total market value of all final goods and services produced annually in a country plus net
factor income from abroad. Thus, GNP is the total measure of the flow of goods and services at market value resulting
from current production during a year in a country including net factor income from abroad. The GNP can be
expressed as the following equation:
GNP=GDP+NFIA (Net Factor Income from Abroad)

or, GNP=C+I+G+(X-M) +NFIA
Hence, GNP includes the following:

a) Consumer goods and services
b) Gross private domestic investment in capital goods.
c) Government expenditure.
d) Net exports (exports-imports).
e) Net factor income from abroad.
Net National Product (NNP) at Market Price

NNP is the market value of all final goods and services after providing for depreciation. That is, when charges for
depreciation are deducted from the GNP we get NNP at market price. Therefore’
NNP = GNP – Depreciation
Or, NNP=C+I+G+(X-M)+NFIA-Depreciation
Depreciation is the consumption of fixed capital or fall in the value of fixed capital due to wear and tear.
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National Income (NI)
National Income is also known as National Income at factor cost. National income at factor cost means the sum of all
incomes earned by resources suppliers for their contribution of land, labor, capital and organizational ability which go
into the years net production. Hence, the sum of the income received by factors of production in the form of rent,
wages, interest and profit is called National Income. Symbolically,
NI=NNP+Subsidies-Interest Taxes
or, GNP-Depreciation Subsidies-Indirect Taxes
or, I=C+G+I+(X-M) +NFIA-Depreciation-Indirect Taxes Subsidies
Personal Income
Personal income is the sum of all incomes actually received by all individuals or households during a given year P.I is
the sum of all the incomes earned by the individuals and households in a country during a year. It’s the amount
available to them for spending, paying taxes and saving purposes. P.I. is less than N.I because several deductions are
made out of it.
Corporate income taxes are to be paid out of corporate profit before they are distributed among shareholders.
A firm may retain a part of corporate profit, these amounts aren`t distributed among the shareholders. This will reduce
their incomes to some extent.
Laborers and salaried employee have to contribute their part of provident fund or pension fund etc. Hence this part of
income not available for spending purpose.
On the other hand, the government gives unemployment benefits , old age pension, widow pensions etc. which (social
security benefits) adds to their incomes. Hence,
Personal Income = National Income – Social Security contributions – corporate income taxes – undistributed
corporate profits + transfer payments.
Disposable Income (DI)
The income left after the payment of direct taxes from personal income is called Disposable Income. Disposable
income means actual income which can be spent on consumption by individuals and families. Thus, it can be
expressed as:
DI=PI-Direct Taxes
From consumption approach,
DI=Consumption Expenditure Savings
Per Capita Income (PCI)

Per Capita Income of a country is derived by dividing the national income of the country by the total population of a
country. Thus,
PCI=Total National Income/Total National Population
Measurement of national income

Production generate incomes which are again spent on goods and services produced. Therefore, national income can be
measured by three methods:
1) Output or Production method
2) Income method, and
3) Expenditure method.
Output or Production Method
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This method is also called the value-added method. This method approaches national income from the output side.
Under this method, the economy is divided into different sectors such as agriculture, fishing, mining, construction,
manufacturing, trade and commerce, transport, communication and other services. Then, the gross product is found out
by adding up the net values of all the production that has taken place in these sectors during a given year.
In order to arrive at the net value of production of a given industry, intermediate goods purchased by the producers of
this industry is deducted from the gross value of production of that industry. The aggregate or net values of production
of all the industry and sectors of the economy plus the net factor income from abroad will give us the GNP. If we
deduct depreciation from the GNP we get NNP at market price. NNP at market price – indirect taxes + subsidies will
give us NNP at factor cost or National Income.
The advantage of this method is that it reveals the contributions and relative importance and of the different sectors of
the economy.
Income Method
This method approaches national income from the distribution side. According to this method, national incom e is
obtained by summing up of the incomes of all individuals in the country. Thus, national income is calculated by adding
up the rent of land, wages and salaries of employees, interest on capital, profits of entrepreneurs and income of self-
employed people. This method of estimating national income has the great advantage of indicating the distribution of
national income among different income groups such as landlords, capitalists, workers, etc.
Expenditure Method
This method arrives at national income by adding up all the expenditure made on goods and services during a year.
Thus, the national income is found by adding up the following types of expenditure by households, private business
enterprises and the government: -
Expenditure on consumer goods and services by individuals and households denoted by C. This is called personal
consumption expenditure denoted by C.
Expenditure by private business enterprises on capital goods and on making additions to inventories or stocks in a
year. This is called gross domestic private investment denoted by I.
Government’s expenditure on goods and services i.e. government purchases denoted by G.
Expenditure made by foreigners on goods and services of the national economy over and above what this economy
spends on the output of the foreign countries i.e. exports – imports denoted by (X – M). Thus,
GDP = C + I + G + (X – M)
Importance of National Income
Measuring national income is crucial for various purposes:
1) The measurement of the size of the economy and level of country’s economic performance;
2) To trace the trend or the speed of the economic growth in relation to previous year(s) also in other countries;
3) To know the composition and structure of the national income in terms of various sectors and the periodical
variations in them.
4) To make projections about the future development trend of the economy.
5) To help government formulate suitable development plans and policies to increase growth rates.
6) To fix various development targets for different sectors of the economy on the basis of the earlier performance.
7) To help businesses to forecast future demand for their products.
8) To make international comparison of people’s living standards.
Role of Industry in Economic Development
Role of industry in economic development are as follows:

Increase In Output and Incomes
It is the industrial development which makes it possible to produce greater amounts of consumer as well as producer
goods. Moreover, because of industrial growth the construction and provision of infra-structure becomes possible.
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Thus it is said that industrial growth not only stimulates the directly productive activities but it also promotes social
overhead activities.
Increase in Incomes and Employment

It is obvious that the economically advanced countries are normally more industrialized than economically poor
countries. Consequently, a wave of change will emerge in the economy leading to raise incomes and employment.
Agricultural Development
In case of UDCs there is a big pressure of population on the lands. As a result, the lands go on sub—dividing. The
farmers are bound to make subsistence farming. In such situation the agri. sector will remain lagging. Therefore, for
the sake of economic development the agri. sector will have to be re-oriented through industrial development.
Removal of Unemployment and Under Employment

In case of agri. sector of UDCs more than required number of workers are working. It means that their agri. is
furnished with disguised unemployment. Most of these workers have zero marginal productivity and if they are
removed from lands it will not affect the productivity. Therefore, it is the industrial sector which plays an important
role in the removal of such unemployment, as the expansion of industrial sector will be able to absorb them.
Economies of Scale
The economies of scale from industrialization will lead to reduce the costs of production. It will have the effect, of
extending the markets. The industrial development will promote civic and urban life. The research and training
facilities will be promoted and further forces of change will set in.
Instability in the Prices of Exports
Industrialization is advocated for the UDCs that it will save them from the instability which rises due to big
fluctuations in the prices of their primary exports. Therefore, if developing countries install their industrial concerns
they will be able to produce the import substitutes as well as manufactured goods for the sake of exportation.
Increase in Use of Money
Because of industrial development the use of money in the economy increases. The new and technological changes
will occur. The people will follow inventions and innovations. The risk taking ventures will be taken up and efficient
entrepreneurs will come forward.
Socio—Economic Changes
It is argued that industrialization can alter the present economic and social structures of UDCs. As more goods and
services become available to the people. The values of the society will change. The urbanization will increase leading
to reduce illiteracy and lethargic attitudes. The standard of living of rural and urban population will improve. The
distribution of income will become fairer.
Self-Sufficiency and Productivity
Most of the economists are agreed upon it that it is the industrial development which will enhance productivity in the
country, as well as provide self-sufficiency in a variety of fields.
Increase in Savings and Investment
The economic history of Newly Industrialised Countries shows that the industrialization in these countries has led to
grow the incomes, savings and investment. Their markets have been extended. Above all, the inflow of foreign
investment is increasing day by day in these countries.
Foreign Trade
The foreign trade of a country refers to its import and export of goods from and to other countries under
contract of sale. No country in the world produces all the commodities it requires. The commodity which the country
produces in surplus, it exports while those it produces in deficit, it imports. In short, Foreign trade refers to exchange
of goods and services between two or more countries. Such trade is also known as International Trade .
History
1) The Government of India, Ministry of Commerce and Industry announced New Foreign Trade Policy on 27th
August 2009 for the period 2009-2014
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2) Earlier this policy was known as Export Import (EXIM) Policy.
3) Union Commerce Ministry, GOI announces integrated FTP every five year.
4) The Export Import Policy (EXIM Policy) or Foreign Trade Policy is updated every year on the 31st of March and
the modifications, improvements and new schemes becomes effective from April month of each year
Features of Foreign Trade
1) Involvement of different monitory units
2) Impositions of restrictions in import and export by various countries.
3) Imposition of restrictions on release of foreign currencies.
Types of Foreign Trade
1) Import Trade
2) Export Trade
Import Trade
Import trade refers to purchase of goods by one country from another country or inflow of goods and services from
foreign country to home country.
Export Trade
Export trade refers to the sale of goods by one country to another country or outflow of goods from home country to
foreign country.
Need and Importance of Foreign Trade

Following points explain the need and importance of foreign trade to a nation.
1) Division of labour and specialisation
Foreign trade leads to division of labour and specialisation at the world level. Some countries have abundant
natural resources. They should export raw materials and import finished goods from countries which are advanced
in skilled manpower. This gives benefits to all the countries and thereby leading to division of labour and
specialisation.
2) Optimum allocation and utilisation of resources
Due to specialisation, unproductive lines can be eliminated and wastage of resources avoided. In other words,
resources are channelised for the production of only those goods which would give highest returns. Thus there is
rational allocation and utilization of resources at the international level due to foreign trade.
3) Equality of prices
Prices can be stabilised by foreign trade. It helps to keep the demand and supply position stable, whic h in turn
stabilises the prices, making allowances for transport and other marketing expenses.
4) Availability of multiple choices
Foreign trade helps in providing a better choice to the consumers. It helps in making available new varieties to
consumers all over the world.
5) Ensures quality and standard goods
Foreign trade is highly competitive. To maintain and increase the demand for goods, the exporting countries have
to keep up the quality of goods. Thus quality and standardised goods are produced.
6) Raises standard of living of the people
Imports can facilitate standard of living of the people. This is because people can have a choice of new and better
varieties of goods and services. By consuming new and better varieties of goods, people can improve their
standard of living.
7) Generate employment opportunities

Foreign trade helps in generating employment opportunities, by increasing the mobility of labour and resources. It
generates direct employment in import sector and indirect employment in other sector of the economy. Such as
Industry, Service Sector (insurance, banking, transport, communication), etc.
8) Facilitate economic development
Imports facilitate economic development of a nation. This is because with the import of capital goods and
technology, a country can generate growth in all sectors of the economy, i.e. agriculture, industry and service
sector.
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9) Assistance during natural calamities

During natural calamities such as earthquakes, floods, famines, etc., the affected countries face the problem of
shortage of essential goods. Foreign trade enables a country to import food grains and medicines from other
countries to help the affected people.
10) Maintains balance of payment position
Every country has to maintain its balance of payment position. Since, every country has to import, which results in
outflow of foreign exchange, it also deals in export for the inflow of foreign exchange.
11) Brings reputation and helps earn goodwill
A country which is involved in exports earns goodwill in the international market. For e.g. Japan has earned a lot
of goodwill in foreign markets due to its exports of quality electronic goods.
12) Promotes World Peace
Foreign trade brings countries closer. It facilitates transfer of technology and other assistance from developed
countries to developing countries. It brings different countries closer due to economic relations arising out of trade
agreements. Thus, foreign trade creates a friendly atmosphere for avoiding wars and conflicts. It promotes world
peace as such countries try to maintain friendly relations among themselves.
Balance of Payment
“The balance of payment of a country is a systematic record of all economic transactions between the residents
of one country and residents of foreign countries during a given period of time.”
India’s Balance of Payments

The balance of payments of a country is a systematic record of all transactions between the residents of a country and
the rest of the world carried out in a specific period of time.
India's balance of payment worsened in the early 1990's but now the situation is under control. In fact, India has a good
foreign exchange reserves mainly due to capital inflows from foreign financial institutions or the stock exchange.
Purpose of BOP
1) Provides data for economic analysis
2) Reveals changes in the composition & magnitude of foreign trade
3) Provides indications of future repercussions of country’s past trade performances
4) Reveals the weak and strong points of a country’s foreign trade relations
Components of BOP
1) Current Account-
It records transactions relating to export and import of goods, services, unilateral transfers and international
incomes. An important long run and comprehensive measure of country’s transaction with the rest of the world.
It comprises of trade in goods and services and income from assets abroad and payment on foreign owned assets in
the country. The export and import of goods are called visible items whereas invisible items include shipping,
banking, insurance, gifts.
2) Capital Account-
It records all international economic transactions relating to change in assets-both financial and physical. It is a
record of short term and long term capital transactions, both private and official.
Capital Account shows transactions in real or financial assets between countries
a) Purchase of real estate
b) FDI, FII
c) Purchase and sale of securities0
d) Changes in official reserves of gold, silver, SDRs, and foreign exchange
Disequilibrium In Bop
A disequilibrium in the balance of payments may appear either as a surplus or as a deficit.
A Surplus in the BOP occurs when Total Receipts exceeds Total Payments. Thus,
BOP= CREDIT>DEBIT
A Deficit in the BOP occurs when Total Payments exceeds Total Receipts. Thus,
BOP= CREDIT<DEBIT
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BOP Surplus and Deficit

BOP Surplus-
An imbalance in a nation's balance of payments in which payments made by the country are less than payments
received by the country. This is also termed as favorable balance of payments.
BOP Deficit-
An imbalance in a nation's balance of payments in which payments made by the country exceed payments received by
the country. This is also termed as unfavorable balance of payments.
Poverty in India
What is Poverty ?
Poverty is about not having enough money to meet basic needs including food, clothing and shelter. However, poverty
is more, much more than just not having enough money.
The World Bank describes poverty as:
“Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is
not having access to school and not knowing how to read. Poverty is not having a job, is fear for the future,
living one day at a time.”
What Is Poverty Line ?
Poverty Line is drawn on the basis of Expenditure that is necessary to secure the Minimum Acceptable Living
Standard for Work & Efficiency. Since, Food is the most Basic Requirement, thus, Poverty Line is drawn on the basis
of a Minimum Necessary Nutritional Standard expressed in terms of Calories per Day.
Those spending over Rs 32 a day in rural areas and Rs 47 in towns and cities should not be considered poor, an
expert panel headed by former RBI governor C Rangarajan said in a report submitted to the BJP government
last week.
Two Ways Of Poverty
1) Relative Poverty
Relative poverty is the condition in which people lack the minimum amount of income needed in order to maintain
the average standard of living in the society in which they live. Relative poverty is considered the easiest way to
measure the level of poverty in a individual country. Relative poverty is defined relative to the members of a
society and therefore differs across countries.
For Example, an Average Middle Class Person is Poor when compared to the Upper Middle Class Person, who in
turn, may be poorer than the Richer Person and so on.
The economic conditions of different regions or countries are compared. According to the UNO those countries are
treated poor whose per capita income is less than US Rs.725 per annum.
2) Absolute Poverty
Absolute poverty refers to a condition where a person does not have the minimum amount of income needed to
meet the minimum requirements for one or more basic living needs over an extended period of time
Causes of Poverty
1) Rapidly Rising Population
The population during the last 45 years has increased at the rate of 2.2% per annum. On average 17 million people
are added every year to its population which raises the demand for consumption goods considerably.
2) Low Productivity in Agriculture
The level of productivity in agriculture is low due to subdivided and fragmented holdings, lack of capital, use of
traditional methods of cultivation, illiteracy etc. This is the main cause of poverty in the country.
3) Under Utilized Resources
The existence of under employment and disguised unemployment of human resources and under utilization of
resources has resulted in low production in agricultural sector. This brought a down fall in their standard of living.
4) Low Rate of Economic Development
The rate of economic development in India has been below the required level. Therefore, there persists a gap
between level of availability and requirements of goods and services. The net result is poverty.
5) Price Rise
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The continuous and steep price rise has added to the miseries of poor. It has benefited a few people in the society
and the persons in lower income group find it difficult to get their minimum needs.
6) Unemployment
The continuously expanding army of unemployent is another cause of poverty. The job seeker is increasing in
number at a higher rate than the expansion in employment opportunities.
Effects of poverty
1) High Mortality Rates.
2) Increased health risks and perpetuation of epidemics such as HIV/AIDS and Malaria.
3) Hampers children’s ability to grow & develop properly and contributes to a cycle of poverty
4) Inhibits education and social advancement
5) Increased armed conflict
Measures to Reduce Poverty

1) Agriculture & other Rural Vocations should be rapidly developed so as to Eradicate Rural Poverty.
2) Village and Small Industries should be developed to create greater Employment both in Rural & Urban Areas.
3) Programmes should be implemented that directly target the Poor & help them increase their Income &
Consumption.
4) Income Inequalities should be reduced:
a) Labour Legislation should ensure better Wages.
b) Goods consumed by the Poor should not be Taxed.
c) Goods required by the Poor must be Subsidized.
d) Free Health Care & Education should be provided to the Poor.
e) Persons belonging to Poor Families must be provided Employment.
5) Rapid Growth of Population must be controlled &
6) Population Growth Rate brought down through
7) Family Planning, Education, Incentives, etc.
Prevention Measures
The Government, of India took certain measures to reduce poverty, inequality of income and wealth in its five year
plan periods. Followings are some steps taken by the Government, from time to time.
1) Integrated Rural Development Programme(IRDP)
2) National Rural Employment Programme (NREP)
3) Rural Landless Employment Guarantee Programme (RLEGP)
4) Jawahar Rozgar Yojana
5) Training of Rural Youth for Self-Employment
6) Development of Women and Children.
7) Drought Prone Area Programme
8) Desert Development Programme
9) Minimum Needs Programme
10) Employee Guarantee Scheme
What can we do?
In our own small way,

let us not waste resources,
the fruit of hard earned tax payer’s money,
which might better be used to eradicate the misery of others.
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Let us show that we care and realize

the dream of seeing a poverty free India.
Unemployment in India
1) Every 6th person in the world is an Indian and every 3rd poor person in the world is also an Indian.
2) With Increase in the number of unemployed persons, Poverty expands.
3) The problems of unemployment and poverty are Very High which demands an immediate solution.
4) Till 5th Five Year Plan, no serious efforts were taken to solve the unemployment problem.
5) It was assumed that the gains of economic growth would percolate downwards and the inequalities would decline
and problems of poverty and unemployment would get solved automatically.
6) But after the Fifth Five Year Plan, removal of unemployment became as one of the important Objectives of
economic planning in all five year plans.
7) In less developed countries economic growth generally benefits the elite groups and, as a result, economic
Inequality grow.
8) India is facing the same problem of Inequalities.
What is Unemployment
General Sense
Unemployment means lack of jobs even for those who are able and willing to work at the prevailing wage
Measurement point of view
the unemployment may be defined as the gap between the potential “full employment” and number of employed
persons.
Classification of Unemployment
Cyclical
Disguised
Involuntary Structural
Unemployment
Voluntary Seasonal
Frictional
Voluntary
A person is out of job because of his own desire to not to work on the prevalent or prescribed wages.
Involuntary
A person is separated from remunerative work and devoid of wages although he is capable of earning his wages and is
also anxious to earn them.
Kinds of Unemployment
1) Frictional Unemployment
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The unemployment generated due to the change in market conditions is called frictional unemployment. Agriculture is
the main occupation in India. The supply condition still depends on weather’s mood and similarly demand conditions
depend on availability of resources. Any change arising either of any or both creates a diversion from the equilibrium
which results in frictional unemployment.
2) Structural Unemployment
This type unemployment is associated with economic structure of the country. When demand for labour falls short to
supply of labour due to rapidly growing population and their immobility, the problem of unemployment appears in the
economy. Besides, due to growing population, rate of capital formation falls down which again limits the employment
opportunities, this type of structural unemployment is basically related to this category of unemployment.
3) Educated Unemployment
Even when a person who is educated/trained and skilled, fails to obtain a suitable job suited to his qualifications, he is
to be educated unemployed. Presently this type of unemployment has become a problem for developing economies,
particularly for India.
4) Cyclical Unemployment
Cyclical unemployment is the result of businesses not having enough demand for labour to employ all those who are
looking for work. When business cycles are at their peak, cyclical unemployment will be low because total economic
output is being maximized. When economic output falls, the business cycle is low and cyclical unemployment will
rise.
5) Disguised unemployment
When more people are engaged than actually required for production, it is called disguised unemployment. If a part of
labour force is withdrawn from the farm the total output of the farm will remain unchanged. The withdrawn labour
force will be termed as disguisedly employed.
6) Underemployment
Those labourers are under-employment who obtain work for but their efficiency and capability are not utilized at their
optimum and as a result they contribute in the production upto a limited level. A country having this type of
unemployment fails to exploit the efficiency of their labourers.
7) Seasonal unemployment
This is primarily confined to agriculture. Agriculture does not provide employment round the year. It is also known as
perennial unemployment. Sowing and harvesting season ranges between five and seven months. For the rest of the
period the cultivator has to remain idle.
8) Open Unemployment
It is a condition in which people have no work to do. They are able to work and are also willing to work but there is no
work for them. When the labourers live without any work and they don’t find any work to do, they come under the
category of open unemployment. Educate unemployment and unskilled labour unemployment are included in the open
unemployment.
Causes of Unemployment
1) Rapid Population Growth
2) Economic Inflation
3) Economic Recession
4) Changing Technology
5) Demand for highly skilled labor
6) Global Competition
7) Illiteracy
8) Over 70% of total labour force is illiterate or educated below primary level
9) Agriculture – backward farming 70 % population depend on it
Solutions
1) A Change in the pattern of investment
2) Encouragement to small enterprises as against big enterprises
3) Problem of Choice of technique
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4) Encouragement of New Growth Centers in Small Towns and Rural Areas
5) Subsidies on the Basis of Employment
6) Reorientation of Educational Policy
Inflation
Inflation is defined as a sustained increase in the price level or a fall in the value of money. When the level of
currency of a country exceeds the level of production, inflation occurs. Value of money depreciates with the
occurrence of inflation.
According to Webster's “An increase in the amount of currency in circulation, resulting in a relatively sharp and
sudden fall in its value and rise in prices or a relative increase in expenditures as when the supply of goods fails to
meet the demand.
According to Prof. Samuelson “inflation occurs when general level of prices & cost are rising”.
Features of Inflation:
1) Inflation is always accompanied by a rise in the price level.
2) Inflation is a monetary phenomenon and it is generally caused by excessive money supply.
3) Inflation is a dynamic process as observed over the long period.
4) A cyclical movement of prices is not inflation.
5) Pure inflation starts after full employment.
6) Inflation may be demand pull or cost push.
7) Excess demand in relation to the supply of everything is the essence of inflation.
Causes of inflation
Demand Pull Inflation
The demand for goods and services increases and production remains the same or does not increase as fast. The excess
demand results in prices being “pulled up”. Demand pull inflation
occurs when total demand for goods and services exceeds the total supply. This type of inflation happens when there is
an inflationary gap
Factor
a) Increase in money supply.
b) Increase in the demand for goods by the govt.
c) Increase the income of various factor of production.
Main causes of demand pull inflation
1) A large depreciation of the exchange rate
2) A reduction in direct or indirect taxation
3) Rapid growth of the money supply as a consequence of increased bank and building society borrowing
4) Rising consumer confidence and an increase in the rate of growth of house prices
5) Faster economic growth in other countries providing a boost to UK exports overseas
Cost-push Inflation:
Caused by an increase in the cost of production. Increased costs “push up” the price level.
Cost push inflation can result from change in aggregate supply.
The two main sources of change in aggregate supply are increase in wage rate and price of raw material.
Types of Inflation
There are many types of inflation. It can be classified on the basis of the following :
A. On the basis of the degree of government control:

1) Open inflation
Situation in which no steps are taken to control rising prices. According to Milton,
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“it is a process in which prices are allowed to rise without any attempt on part of government to control them.
Under open inflation goods are distributed through price mechanism. Price mechanism is a situation in which,
those people who have large money to spend, buy more goods.”
1) Suppressed inflation-
Situation in which rising prices are controlled through measures taken by the government.
According to FRIEDMAN,
“suppressed inflation is more dangerous than open inflation because of the corrupt officials responsible for
administrating price control ,black market raises its ugly head”.
B- On the basis of political conditions :
1) War time inflation
Inflation that takes place during the period of a war-like situation is known as War-Time inflation. During a war,
scare productive resources are all diverted and prioritized to produce military goods and equipments. This overall
result in very limited supply or extreme shortage (low availability) of resources (raw materials) to produce
essential commodities. Production and supply of basic goods slow down and can no longer meet the soaring
demand from people. Consequently, prices of essential goods keep on rising in the market resulting in War-Time
Inflation.
2) Peace time inflation-
When prices rise during a normal period of peace, it is known as Peace-Time Inflation. It is due to huge
government expenditure or spending on capital projects of a long gestation (development) period.
C- On the basis of the scope ::
1) Sectoral inflation
When inflation affects only a particular part of the country or covers only one or two goods like pulses, petrol etc,it is
called sectoral inflation. For example , rise in food prices due to bad monsoon (winds bringing seasonal rains in
India).
2) Comprehensive inflation
When inflation is not confined to a given part of the country or a few goods ,but comprise the entire country and
all goods ,it is called comprehensive inflation
D- Some other general types of inflation are:
1) Creeping inflation :
In this inflation prices rise very slowly. Such inflation is not only considered beneficial to the economy but is
also considered essential to some extent. Some economists are of the view that 3% rise in prices can be called
creeping inflation. Appropriate and desirable in the interest of national development.
2) Running inflation:
When there is rapid increase in prices in very short period of time it is called running inflation .In this case rate of
inflation is between 80 and 100% over a decade. Such inflation has adverse effect on poor and middle sections of
the society.
Consequences of inflation
1) Inflation impacts negatively on economic growth.
2) Inflation brings about uncertainty in the economy.
3) Savings and investment are discouraged.
4) Inflation affects the distribution of income.
5) Redistributes income from people with fixed incomes to those with flexible incomes.
6) Redistributes income from private individuals to the government.
7) Inflation has an adverse effect on a country’s balance of payments.
8) If India’s rate of inflation is higher than that of our trading partners the result is a loss of international
competitiveness.
9) Inflation can cause a decrease in the real money value of savings.
Measures to control Inflation

Fiscal measures
1) Increase direct taxes.
2) Increase indirect taxes.
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3) Reduce government spending.
4) Introduce measures to increase productivity, e.g. tax rebates
Monetary measures
1) Increase interest rates of banks.
2) Decrease money supply.
3) Decrease availability of credit from banks.
4) Decrease currency control.
General Measures
1) Increase productivity.
2) Freeze prices and wages.
3) Implement a wage restraint policy.
4) Encourage personal savings.
5) Implement control measures for consumer credit.
6) Import control: make competing imported goods cheaper.
7) Introduce price indexation: linking all prices to a particular index, e.g. CPI.
8) Inflation targeting.
Human Development
“Human development is a process of widening peoples choices as well as raising the level of well-being
achieved”
Essential components of human development
1. Equity
2. Sustainability
3. Productivity
4. Empowerment
1. EQUITY
People must have an equitable access to opportunities.
2. SUSTAINABILITY
Sustainability is a matter of sharing development opportunities between present and future generations. The next
generation deserves the opportunity to enjoy the same well being that we now enjoy.
3. PRODUCTIVITY
To increase productivity, it is essential to increase investment in people and building a environment for them so
that they can gain or achieve their maximum potential.
4. EMPOWERMENT
Human development ensures a full empowerment of people. Empowerment means having the power to exercise
our own free will.
Importance of human development
1. Improves productivity
2. Better utilisation of resources
3. Controls population growth
4. Safeguards physical environment
5. Improves the quality of life
6. Encourages research and development
7. Development of agriculture and industry
8. Change in attitude
9. Higher returns
Rural Development
Rural development is a strategy designed to improve the economic and social life of rural poor.
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It is a process, which aims at improving the well being and self realization of people living outside the urbanized areas
through collective process.
Rural Development is all about bringing change among rural community from the traditional way of living to
progressive way of living. It is also expressed as a movement for progress.
The United Nations defines Rural Development as:

“Rural Development is a process of change, by which the efforts of the people themselves are united, those of
government authorities to improve their economic, social and cultural conditions of communities in to the life of the
nation and to enable them to contribute fully to national programme.”
Development In rural area can bring
INFA-
STRUCTURE
TECHNO
ECONOMY
LOGY
EDUCATION HEALTH
Objectives of rural development

1) To develop farm, home, public service and village community.
2) To bring improvement in producing of crops and animals living condition.
3) To improve health and education condition etc. improvement of the rural people.
4) To improve villagers with their own efforts.
5) To improve village communication.
Main Objectives
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To build
Infrastructure Public Service Communication
To improve
Health Education Living condition
To generate
Employment Farm & storage Economical activities
Problems in rural development

1) People related
2) Agricultural related problems
3) Infrastructure related problems
4) Economic problems
5) Social and Cultural problems
6) Leadership related problems
7) Administrative problems
People related problems
1) Traditional way of thinking.
2) Poor understanding.
3) Low level of education to understand developmental efforts and new technology.
4) Deprived psychology and scientific orientation.
5) Lack of confidence.
6) Poor awareness.
7) Low level of education.
8) Existence of unfelt needs.
9) Personal ego.
Agriculture related problems
1) Lack of expected awareness, knowledge, skill and attitude.
2) Unavailability of inputs.
3) Poor marketing facility.
4) Insufficient extension staff and services.
5) Multidimensional tasks to extension personnel.
6) Small size of land holding.
7) Division of land.
8) Unwillingness to work and stay in rural areas.
Infrastructural related problems
Poor infrastructure facilities like-:
1) Water
2) Electricity
3) Transport
4) Educational institutions
5) Communication
6) Health
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7) Employment
8) Storage facility etc.
Economic problems
1) Unfavourable economic condition to adopt high cost technology.
2) High cost of inputs.
3) Under privileged rural industries
Importance of Rural Development
Rural development is a dynamic process, which is mainly concerned with the rural areas. These include- Agricultural
growth, putting up of economic and social infrastructure, fair wages as also housing and house sites for the landless,
village planning, public health, education and functional literacy, communication etc.
Rural development is a national necessity and has considerable importance in India
Rural development is needed because-:

1) To develop rural area as whole in terms of culture, society, economy, technology and health.
2) To develop living slandered of rural mass.
3) To develop rural youths, children and women.
4) To develop and empower human resource of rural area in terms of their psychology, skill, knowledge, attitude and
other abilities.
5) To solve the problems faced by the rural mass for their development.
6) To develop infrastructure facility of rural area.
7) To provide minimum facility to rural mass in terms of drinking water, education, transport, electricity and
communication.
8) To develop rural industries through the development of handicrafts, small scaled industries, village industrie s, rural
crafts, cottage industries and other related economic operations in the rural sector.
9) To restore uncultivated land, provide irrigation facilities and motivate farmers to adopt improved seed, fertilizers,
package of practices of crop cultivation and soil conservation methods.
10) To develop entertainment and recreational facility for rural mass.
11) To develop leadership quality of rural area.
12) To improve rural marketing facility.
13) To minimise gap between the urban and rural in terms of facilities availed.
14) To improve rural people’s participation in the development of state and nation as whole.
15) To improve scopes of employment for rural mass.
16) For the sustainable development of rural area.
17) To eliminate rural poverty.
PROBLEMS OF GROWTH
1) Black Money
The growing black money in every sector of the economy has a very serious influence on the working of the
Indian economy.
For Example,
Loss of revenue due to tax evasion both from direct and indirect taxes
2) Corruption
World Bank study that the value of all the bribes paid all over the world in 2003 over Rs.1000bn.
Former Indian Prime Minister, Rajiv Gandhi once said,
“Out of every rupee that the government spends on welfare schemes, only 14 paisas reach actual
beneficiary.”
3) Regional Imbalances
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Some states are economically advanced while others are relatively backward. Balanced regional growth is
necessary for the harmonious development of India.
Economic backwardness indicated by symptoms like, high pressure of population, excessive dependence on
agriculture, leading to disturbance of rural employment, absence of urbanization, low productivity in agriculture.
4) Social Injustice
In most of the components of the social sector, the percentage share of the state government expenditures has
declined during the reform period.
Bsiness Environment
Unit III
Direct & Indirect Taxes
“A tax may be defined as a “monetary burden laid upon individuals or property owners to support the
government”
Types of taxes
Importance of tax
1) Economic growth
2) Government revenue
3) Private savings
4) Restraining the consumer demand
A. Direct taxes
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It is directly levied on source of income and wealth. A Direct tax is a kind of charge, which is imposed directly on the
taxpayer and paid directly to the government by the persons on whom it is imposed. A direct tax is one that cannot be
shifted by the taxpayer to someone else
E.g. Income tax and Wealth tax
1) Income tax
Annual charge levied on both earned income (wages, salaries, omission) and unearned income (dividends, interest,
rents). The Income Tax Law comprises The Income Tax Act 1961, Income Tax Rules 1962, issued by central
board of direct taxes
2) Corporation income tax
Corporation income tax, levied on profits of incorporated firms. However, presence of tax loopholes (whose
number increases in direct proportion to the complexity of tax code) may allow some wealthy persons to escape
higher taxes without violating the letter of the tax laws.
3) Securities Transaction Tax
STT is levied on every purchase or sale of securities that are listed on the Indian stock exchanges. This would
include shares, derivatives or equity-oriented mutual funds units. The rate of tax that is deducted is determined by
the central government, and it varies with different types of transactions and securities.
4) Wealth Tax
A wealth tax is usually conceived of as a levy based on the aggregate value of all household holdings actually
accumulated as purchasing power stock, including owner-occupied housing; cash, bank deposits, money funds,
and savings in insurance and pension plans; investment in real estate and unincorporated businesses; and corporate
stock, financial securities, and personal trusts.
5) Capital Gains Tax
A type of tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an
investor realizes when he or she sells the capital asset for a price that is higher than the purchase price. Capital
gains taxes are only triggered when an asset is realized, not while it is held by an investor.
B. Indirect taxes
It is indirectly levied on activity/transaction which generates income or wealth. An indirect tax is a tax collected by an
intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the
customer). An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax may increase the
price of a good so that consumers are actually paying the tax by paying more for the products. The some important
indirect taxes imposed in India are as under: E.g. sales tax, service tax, etc.
1) Excise Duty
A percentage levied on manufacture, sale, or use of locally produced goods (such as alcoholic drinks or
tobacco products). A percentage tax levied on a company's revenue, instead of (like income tax) on the
company's income.
A fixed tax levied on an activity or occupation, such as the license fee charged from attorneys, doctors, and
other professionals. Also called excise tax.
2) Customs Duty
Customs Duty is a type of indirect tax levied on goods imported into India as well as on goods exported from
India. Taxable event is import into or export from India. Import of goods means bringing goods in India from a
place outside India.
3) Service Tax
Service tax is a tax levied by the government on service providers on certain service transactions, but is actually
borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994.
In this case, the service provider pays the tax and recovers it from the customer. Service Tax was earlier levied on
a specified list of services, but in the 2012 budget, its scope was increased. Services provided by air-conditioned
restaurants and short term accommodation provided by hotels, inns, etc. were also included in the list of services.
This tax is payable only when the value of services provided in a financial year is more than Rs 10 lakhs. This tax
is not applicable in the state of Jammu & Kashmir.
4 ) Ce ntral Sale s Tax
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Central Sales Tax is a type of tax charged by a registered dealer at the time of selling the goods outside state in
which he is registered
Central Sales Tax (CST) is a tax on sales of goods levied by the Central Government of India. CST is applicable
only in the case of inter-state sales and not on sales made within the state or import/export of sales.
Inter-state sale is when a sale or purchase constitutes movement of goods from one state to another. Sales Tax is a
tax, levied on the sale or purchase of goods. There are two kinds of Sales Tax i.e. Central Sales Tax, imposed by
the Centre and Sales Tax, imposed by each state.
5) Value added Tax
A type of consumption tax that is placed on a product whenever value is added at a stage of production and at final
sale. The amount of value-added tax that the user pays is the cost of the product, less any of the costs of materials
used in the product that have already been taxed.
For example when a television is built by a company in Europe the manufacturer is charged a value-added tax on
all of the supplies they purchase for producing the television. Once the television reaches the shelf, the consumer
who purchases it must pay the value-added tax that applies to him or her.
MODVAT
Modvat stands for "Modified Value Added Tax". Modvat was introduced in India in 1986 (Modvat was re-named as
Cenvat w.e.f. 1-4-2000). The system was termed as Modvat, as it was restricted up to manufacturing stage and credit
of only excise duty paid on manufacturing products was available.
It is a scheme for allowing relief to final manufacturers on the excise duty borne by their suppliers in respect of goods
manufactured by them.
Modvat Scheme ensures the revenue of the same order and at same time the price of the final product could be lower.
Apart from reducing the costs through elimination of cascade effect, and bringing in greater rationalization in tax
structure and also bringing in certainty in the amount of tax leviable on the final product, this scheme will help the
consumer to understand precisely the impact of taxation on the cost of any product and will, therefore, enable
consumer resistance to unethical attempts on the part of manufacturers to raise prices of final products, attributing the
same to higher taxes.
For E.g.
ABC Ltd is a manufacturer and it purchases certain components from PQR Ltd for use in manufacture. POR Ltd would
have paid excise duty on components manufactured by it and it would have recovered that excise duty in its sales price
from ABC Ltd. Now, ABC Ltd has to pay excise duty on toys manufactured by it as well as bear the excise duty paid
by its supplier, PQR Ltd. This amounts to multiple taxation. Modvat is a scheme where ABC Ltd can take credit for
excise duty paid by PQR Ltd so that lower excise duty is payable by ABC Ltd.
Cascading Effect
A tax that is levied on a good at each stage of the production process up to the point of being sold to the final
consumer. A cascade tax is a type of turnover tax with each successive transfer being taxed inclusive of any previous
cascade taxes being levied. Because each successive turnover includes the taxes of all previous turnovers, the end tax
amount will be greater than the cascade tax rate.
For example,
A government levies a 2% cascade tax on all goods produced and distributed. A company sells Rs1, 000 worth of stone
for a tax-inclusive price of Rs.1, 020 (Rs.1000 + 2% cascade tax) to an artist. The artist makes a sculpture out of the
stone and wants to make Rs.2,000 when he sells it to an art dealer, so he adds this figure to what he paid for the stone
to get Rs.3,020, and then adds on the cascade tax to bring the total to get Rs.3,080 (Rs.3020 + 2%). The art dealer
wants to make Rs.5, 000 for the sculpture, adding this to Rs.3, 080 for a pre-tax Rs.8, 080. She then adds the 2%
cascade tax for a total price of Rs.8, 242. The government collected taxes of Rs.242, which is actually a rate of 3.025%
(Rs.242/Rs.8, 000).
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CENVAT
MODVAT scheme was restructured into CENVAT (Central Value Added Tax) scheme. A new set of rules 57AA to
57AK, under The Cenvat Credit Rules, 2004 were framed and whatever restrictions were there in MODVAT Scheme
were put to an end and comparatively, a free hand was given to the assesses.
Under the Cenvat Scheme, a manufacturer of final product or provider of taxable service shall be allowed to take credit
of duty of excise as well as of service tax paid on any input received in the factory or any input service received by
manufacturer of final product
The inspiration for Cenvat is derived from a tax system that is generally referred to as VAT, or a Value Added Tax.
Both Cenvat and VAT are designed with the express purpose of minimizing a cascading effect when it comes to taxes
on income, goods and services, and other forms of tax revenue. The aim of Cenvat is to aid in maintaining a tax
structure that is considered equitable for both the citizens incurring the tax and the government that is collecting the tax
revenue.
One notable example of Cenvat can be found in India. Originally designated as a modified value added tax, this
approach placed some limits on the type of taxation that could occur on goods used in the manufacturing process of
finished consumer products. Modvat was later designated as Cenvat, and continued to function as a means of
promoting industry within the country while still receiving some form of tax revenue from the effort.
It is helpful to think of Cenvat as an incentive that encourages the production of goods within the country, rather than
outsourcing the production to countries where the economic and tax climate is more favorable. By providing a credit
on the taxes associated with materials used in the creation of finished goods, the government makes it more attractive
for manufacturers to maintain operations within the country. This of course leads to the creation of more jobs for the
citizens within the community and provides income for the purchase of products within the country. By reducing the
tax burden for the end user of the materials, Cenvat opens the door to a more stable economy within the country, and a
better standard of living for its citizens.
Under the best of circumstances, the application of Cenvat can accomplish three goals.
1) The structure for Cenvat requires a tax collection procedure that is fairly transparent and easy to follow.
2) The benefits associated with Cenvat help to cut down on tax evasion and creative bookkeeping.
3) The use of Cenvat ultimately leads to an overall increase in collected tax revenues by keeping more citizens
employed and thus able to pay taxes on salary and wages.
Competition Act, 2002

Competition
Is “a situation in a market in which firms or sellers independently strive for the buyers’ patronage in order to achieve a
particular business objective for example, profits, sales or market share” (World Bank, 1999)
“Competition” is an age-old phenomenon
Benefits of Competition:
1) Companies : Efficiency, cost-saving operations, better utilization of resources, etc.
2) The Consumer : Wider choice of goods at competitive prices
3) The Government : Generates revenue
BUT………………………… all these benefits are lost if Competition is UNFAIR or NON-EXISTANT
4) It is not necessary that there are a large number of producers/suppliers to have competition conditions.
5) A single producer can exist and provide a competitive atmosphere provided entry of new firms is easy and not
costly.
6) Entry barriers can be due to the market position of incumbent firms, legal barriers or strategic barriers
7) Incumbent firms may use their power as “first Movers” to block entry.
8) Legal barriers include licensing and other Government regulations
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9) Strategic barriers are generally erected by incumbent firms in the form of artificial and sudden price reduction with
a view to thwarting new entry.
10) Contestability of markets ensure competitive conditions in the market.
11) Competition is expected to enhance allocated and productive efficiency so as to maximize economic welfare.
12) Monopoly (market) power tends to lead to inefficient allocation of sources and discourages innovation or
introduction of better technology.
Objectives of competition law & policy

1) Promoting economic efficiency in both static and dynamic sense
2) protecting consumers from the undue exercise of market power
3) Facilitating economic liberalization, including privatization. Deregulation and reduction of external trade barriers
4) Preserving and promoting the sound development of a market economy
5) Ensuring fairness and equity in market place transactions
6) Protecting the ‘public interest’ including in some cases considerations relating to industrial competitiveness and
employment
7) Protecting opportunities for small and medium business
THE COMPETITION ACT, 2002

1) Introduced in the year 2002
2) It extends to the whole of India except the State of Jammu and Kashmir.
3) It is a tool to implement and enforce competition policy and to prevent and punish anti-competitive business
practices by firms and unnecessary Government interference in the market.
The broad objectives of the Competition Act, as laid down in its preamble are:
"To prevent practices having adverse effect on competition, to promote and sustain competition in markets, to
protect the interest of the consumers and to ensure freedom of trade carried on by other participants in markets
in India"
Competition Act, 2002 has essentially four compartments:
1) Anti - Competition Agreements
2) Abuse of Dominance
3) Combinations Regulation
A. ANTI-COMPETITIVE AGREEMENTS
Section 3 provides for prohibition of entering into anti-competitive agreements.
No enterprise or association of enterprises or person or association of persons shall enter into any agreement in
respect of production, supply, distribution, storage, acquisition or control of goods or provision of services,
which causes or likely to cause an appreciable adverse effect on competition within India .
Any agreement entered into in contravention of this provision shall be void.
Adverse effect on competition
1) Creation of barriers to entry
2) Driving existing competitors out of market
3) Benefits to consumers
4) Benefit to Scientific and technical knowhow
Agreements presumed to have adverse effect
1) Directly or indirectly determines purchase or sales price
2) Limits or controls production, supply, technical know how
3) Shares the market or sources of production
4) Results in bid rigging or collusive bidding
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CCI orders against Anti-competitive agreements

1) Penalty equal to three times the amount of profit made out of such agreement or 10% of average turnover of the
cartel for preceding three years whichever is higher
2) Modification directed to the agreement
Powers of Competition Commission as Regards Agreements
After the inquiry into the Agreement, Competition Commission can:
1) direct parties to discontinue the agreement
2) prohibit parties from re-entering such agreement
3) direct modification of the agreement
4) impose penalty up to 10% of average turnover of the enterprise
B. Abuse of Dominance
1) “Dominant position” is defined as a position of strength which enables the enterprise
a) to operate independently of competitive forces in the market, or
b) to affect its competitors or consumers in its favor.
2) No mathematical or statistical formula is adopted to “measure” dominance –
Abuse of Dominant Position
Includes practices like:
1) Unfair or discriminatory conditions or prices,
2) Limiting or restricting production or technical/scientific development,
3) Denial of market access, and
4) Predatory pricing.
Power of the Competition Commission
After inquiry into abuse of dominant position, the Competition Commission can order:
1) discontinuance of abuse of dominant position
2) impose a penalty up to 10% of the average turnover of the enterprise
Factors to be considered while determining Dominance
1) Dominant position linked to a host of factors
2) Market share of enterprise
3) Size and resources of enterprise
4) Size and importance of competitors
5) Commercial advantage of enterprise over competitors
C. Mergers and Acquisitions
Commission is expected to regulate “Combinations”, i.e., large mergers, acquisitions, etc. likely to have appreciable
adverse effect on competition.
The acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be
treated as ‘Combination’ of such enterprises & persons or enterprises in following cases:
(a) Acquisition by Large Enterprises
(b) Acquisition by Group
(c) Acquisition of Enterprise having similar Goods/Services
(d) Acquisition Enterprise having similar goods/services by a Group
(e) Merger of Enterprises
(f) Merger in Group Company
Notification of Combination to Commission is voluntary
If notified, Commission to take a decision within 90 days on the combination. Decision may allow, disallow, and
modify, etc. the combination.
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Powers of Commission
1) Cease and desist order
2) Impose penalty up to 10% of turnover.
3) In case of cartel, penalty can be 10% of turnover or 3 times of profit illegally gained from cartel activity,
whichever is higher.
4) Recommend to Government the division of dominant Enterprise
5) Various penalties ranging from Rs.1 lac up to Rs.1 crore are also provided for failure to comply with
direction/order of Commission.
COMPETITION COMMISSION
1) Sections 7-40 deal with the Competition Commission, its composition, powers, duties, jurisdiction, inquiries,
procedures for inquiries…etc.
2) Competition Commission of India (CCI) is the apex body vested with the responsibility of:
3) eliminating practices having adverse effect on competition
4) promoting and sustaining competition
5) protecting the interest of the consumers and
6) ensuring freedom of trade carried on by other participants in India
7) Successor to the MRTP Commission.
8) CCI consists of a chairman, who is to be assisted by a minimum of two, and a maximum of ten other members to
be appointed by the Central government.
Functions of CCI:
1) Acts as a law enforcement agency
2) actively involved in the formulation of the country's economic policies
3) advise the government on competition policy
4) take suitable measures for the promotion of competition advocacy
5) To create awareness and impart training about competition issues.
6) The Commission assumes the role of competition advocate
7) Section 49 deals exclusively with competition advocacy.
8) In formulating a policy on competition (including review of laws related to competition), the Central Government
may make a reference to the Commission for its opinion on possible effect of such policy
Foreign Exchange Management Act (FEMA)

The Foreign Exchange Management Act (FEMA) was an act passed in the winter session of Parliament in 1999 which
replaced Foreign Exchange Regulation Act 1974. This act seeks to make offenses related to foreign exchange civil
offenses. It extends to the whole of India.
1) FERA had become incompatible with the pro-liberalisation policies of the Govt. of India
2) This was done in order to relax the controls on foreign exchange in India, as a result of economic liberalization.
3) FEMA served to make transactions for external trade (exports and imports) easier – transactions involving current
account for external trade no longer required RBI’s permission.
FERA vs. FEMA
1) The objective of FERA was to conserve forex and prevent its misuse. The objective of FEMA is to facilitate
external trade and payments and maintenance of foreign exchange in India.
2) Violation of FERA was considered a criminal offence. Whereas violation of FEMA was considered a civil
offence.
3) Under FERA citizenship was a criteria while determining a person as resident of India whereas under FEMA stay
of more than 182 days is a criteria to determine residential status of a person.
Objectives of the Act
1) Facilitating external trade
2) For promoting the orderly development and maintenance of foreign exchange market in India.
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Investing in India
Government Route
Automatic Route
(FIPB)
General Rule
No prior Permission Required
Only informing RBI within 30 Prior Permission Required
days
of issue and reciept of funds
Two golden rules or principles in FEMA are mentioned as follows:

1) All current account transactions are permitted unless otherwise prohibited.
2) All capital account transactions are prohibited unless otherwise permitted
FEMA includes:
1) Holdings of foreign Exchange
2) Dealings in foreign Exchange
3) Export of goods and services
4) Realization of Foreign Exchange
5) Current Account and Capital Account transactions.
Holding of foreign exchange, ACT
No person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any
immovable property situated outside India.
Dealing in foreign exchange, ACT
1) FEMA gives the central government the power to impose the restrictions.
2) The transactions should be made only through an authorized person.
3) Deals in foreign exchange under the current account by an authorized person can be restricted by the central
government
4) Deals in foreign exchange under the current account by an authorized person can be restricted by the Central
Government, based on public interest.
Export of goods and services
1) The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such reduced value of
the goods as the Reserve Bank determines, having regard to the prevailing market conditions, is received without
any delay, direct any exporter to comply with such requirements as it deems fit.
2) Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in such form
and in such manner as may be specified, containing the true and correct material part iculars in relation to payment
for such services.
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Realization of Foreign Exchange
When any amount of foreign exchange is due or has accrued to any person shall take all reasonable steps to realize and
repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve
bank.
Current account transactions
Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawl is a current
account transaction: Provided that the Central Government may, in public interest and in consultation with the Reserve
Bank, impose such reasonable restrictions for current account transactions as may be prescribed.
Few Examples,
Payment for imports of goods, Booking with Airlines/Shipping, Salary/remuneration to Foreign Directors subject to
restrictions in any other law
Capital Account Transactions
1) Transfer or issue of any foreign security by a person resident in India.
2) Deposit between persons resident in India and person resident outside India.
3) Any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction
permitted by the RBI in consultation restrictions in public interest.
Capital account transaction" means a transaction which alters the assets or liabilities, including contingent liabilities,
outside India of persons resident in India or assets or liabilities in India of person are resident outside India, and
includes transactions like:
a) Changes in Assets/ Liabilities
b) Transfer/ issue of security
c) Borrowing/ Lending
d) Export, import or holding of currency or currency notes
e) Giving guarantee
The Reserve Bank may, by regulations, prohibit, restrict or regulate the following –
1) transfer or issue of any foreign security by a person resident in India;
2) transfer or issue of any security by a person resident outside India;
3) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident
outside India;
4) any borrowing or lending in rupees in whatever form or by whatever name called;
5) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in
India and a person resident outside India
6) deposits between persons resident in India and persons resident outside India;
7) export, import or holding of currency or currency notes;
8) transfer of immovable property outside India, other than a lease exceeding five years, by a person resident in
India;
9) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person
resident outside India;
10) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred –
11) by a person resident in India and owed to a person resident outside India; or
12) by a person resident outside India.
A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any
immovable property situated outside India if such currency, security or property was acquired, held or owned by
such person when he was resident outside India or inherited from a person who was resident outside India.
A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable
property situated in India if such currency, security or property was acquired, held or owned by such person when he
was resident in India or inherited from a person who was resident in India.
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Few Definitions
Authorized person
Means an authorized dealer, money changer, off-shore banking unit or any other person for the time being authorized
under sub-section (1) of section 10 to deal in foreign exchange or foreign securities;
Capital account transaction
Means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons
resident in India or assets or liabilities in India of persons resident outside India, and includes transactions referred to
in sub-section (3) of section 6;
Currency
Includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of
credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the
Reserve Bank.
Currency notes
Means and includes cash in the form of coins and bank notes;
Current account transaction
Means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing
such transaction includes –
1) payments due in connection with foreign trade, other current business, services, and short-term banking and credit
facilities in the ordinary course of business,
2) payments due as interest on loans and as net income from investments,
3) remittances for living expenses of parents, spouse and children residing abroad, and
4) expenses in connection with foreign travel, education and medical care of parents, spouse and children;
Foreign exchange
Means foreign currency and includes,-
1) deposits, credits and balances payable in any foreign currency,
2) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable
in any foreign currency,
3) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside
India, but payable in Indian currency;
Person resident in India
Means- (i) a person residing in India for more than one hundred and eighty-two days during the course of the
preceding financial year
Person resident outside India
Means a person who is not resident in India;
Repatriate to India
Means bringing into India the realized foreign exchange and –
1) the selling of such foreign exchange to an authorized person in India in exchange for rupees, or
2) the holding of realized amount in an account with an authorized person in India to the extent notified by the
Reserve Bank, and includes use of the realized amount for discharge of a debt or liability denominated in foreign
exchange and the expression "repatriation" shall be construed accordingly;
Business Ethics
Ethics refers to a system of moral principles a sense of right and wrong, and goodness and badness of actions and the
motives and consequences of these actions. As applied to business firms, ethics is the study of good and evils, right
and wrong and just and unjust actions of businessmen.
Ethics is a body of principles or standards of human conduct that govern the behavior of individuals and groups.
Business ethics can be defined as written and unwritten codes of principles and values that govern decisions and
actions within a company. In the business world, the organization’s culture sets standards for determining the
difference between good and bad decision making and behavior.
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Who is responsible for creating ethics in an organization?

A company’s managers play an important role in establishing its ethical tone. If managers behave as if the only thing
that matters is profit, employees are likely to act in a like manner. A company’s leaders are responsible for setting
standards for what is and is not acceptable employee behavior. It’s vital for managers to play an active role in creating
a working environment where employees are encouraged and rewarded for acting in an ethical manner.
Other Factors Impacting Organizational Ethics

1) Corporate culture
2) Existence and application of a written code of ethics
3) Formal and informal policies and rules
4) Norms for acceptable behavior
5) Financial reward system
6) System for recognizing accomplishment
7) Company attitude toward employees
8) How employees are selected for promotions
9) Hiring practices
10) Applications of legal behavior
11) Degree to which professionalism is emphasized
12) The company’s decision making processes
13) Behaviors and attitudes of the organization’s leaders
Importance of business ethics

Ethics is important to business in general and HR in particular, for several reasons as stated below:
1) Public expects business to exhibit high levels of ethical performance and social responsibility.
2) Encouraging business firms and their employees to behave ethically is to prevent harm to society.
3) Promoting ethical behavior is to protect business from abuse by unethical employees or unethical competitors.
4) High ethical performance also protects the individuals who work in business.
For Example,
There are many companies in the world, but not all do business ethically. Ethisphere Institute, an American think-tank,
has come out with a list that shows that 145 companies in countries like the US, Great Britain, Japan, Portugal and
India stood out for setting high standards of employee behaviour and conduct including two from India, that have been
rated most ethical by the institute. Tata Steel has been rated one of the most ethical companies in the world.
Wipro is another Indian company that has made it to the list.
Conclusion
Ethics are important not only in business but in all aspects of life because it is an essential part of the foundation on
which of a civilized society is build. A business or society that lacks ethical principles is bound to fail sooner or later.
Corporate governance
Corporate Governance refers to the structures & processes for the efficient & proper direction & control of companies
(both private and public) in the interest of all stakeholders.
1) A means whereby society can be sure that large corporations are well-run institutions to which investors and
lenders can confidently commit their funds.
2) Safeguards against corruption and mismanagement, while promoting fundamental values of a market economy in
democratic society.
3) (Considering the ethical failures in the last several years and the resulting crisis in confidence)..A sincere
commitment to creating and sustaining an ethical business culture in public and private sectors..(has never been so
important).
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4) Corporate governance are the policies, procedures and rules governing the relationships between the shareholders,
(stakeholders), directors and managers in a company, as defined by the applicable laws, the corporate charter, the
company’s bylaws, and formal policies.
5) Primarily it is about managing top management, building in checks and balances to ensure that the senior
executives pursue strategies that are in accordance with the corporate mission.
6) Corporate governance governs the relationship among the many players involved (the stakeholders) and the goals
for which the corporation is governed.
Corporate governance in India
1) The Indian corporate scenario was more or less stagnant till the early 90s.
2) The position and goals of the Indian corporate sector has changed a lot after the liberalisation of 90s.
3) India’s economic reform programme made a steady progress in 1994.
4) India with its 20 million shareholders, is one of the largest emerging markets in terms of the market capitalization.
Scope of Corporate Governance
1) Preparing company’s financial statements
2) Internal controls
3) Review compensation arrangements
4) Resources made available to directors.
5) Risk management
Participants to CG
CEO, Board of Directors and management.
Stakeholders- suppliers, employees, creditors, customers, community
Principles
1) Equitable treatment of shareholders.
2) Interests of other stakeholders
3) Roles and responsibilities of Board
4) Integrity and Ethical Behaviour
5) Transparency
Why Corporate Governance
1) Enhances performance of companies
2) Enhances access to capital
3) Enhances long term prosperity.
4) Provides a barrier to corrupt dealings- limiting discretionary decision making, increasing oversight, introducing
Codes of Ethics etc
5) Impacts on the society as a whole:
Better companies, Better societies.
For Example,
Infosys established on Dec4, 1996 with the objective of fulfilling social responsibility of business within short
period of time.
Philosophy and strategy of planning in India

What is Strategic Planning?
Is broader in concept and consequences, and contributes more to the destiny of the organization.
It focuses on changing internal and external conditions together. It assumes that organizations must be responsive to a
dynamic, changing environment.
Different Perspectives of Strategic Planning

Board of Directors – Government tool
Leaders- Preparing for change by making things happen
Managers- Instruments for designing and bringing about a desired future
General- Act of transferring vision into a set of concrete actions.
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Benefits of Strategic Planning

1) Clearly defines the purpose of the organization
2) Establishes realistic goals and objectives
3) Communicates those goals and objectives
4) Develops a sense of ownership
5) Ensures the most effective use of resources
6) Provides a base from which progress is measured
7) Establishes a mechanism for informed change
8) Builds up a consensus about the direction
9) Provides a clearer focus of the organization
10) Bridges staff and board of directors
11) Builds strong teams in the board
12) Provides the glue that keeps the board together
13) Produces great satisfaction on the vision
14) Increases productivity from increased efficiency and effectiveness
15) Solves major problems
Strategic Planning (SP) Model
External Environment/Factors
1) Economic status
2) Technological factors
3) Legal-political factors
4) Socio-cultural factors
Internal Environment/Factors
1) Change in status
2) Change in human perceptions
3) Change in culture
4) Change in management philosophy
5) Change in management beliefs and principles
Approaches to Strategic Planning
1) Economic Imperative
2) Administrative Coordination
3) Political Imperative
4) Quality Imperative
(1) Economic Imperative
Economic imperative focused MNCs employ worldwide strategy based on cost leadership, differentiation, and
segmentation. Strategy also used when product is regarded as generic and therefore is not sold on name brand or
support service. Often sell products for which large portion of value is added in upstream activities of industry
value chain
1) Research and development
2) Manufacturing
3) Distribution
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(2) Political Imperative

MNCs using political imperative are country-responsive; approach designed to protect local market niches. These
MNCs often use country-centered or multi-domestic strategy. Success of product or service depends heavily on
1) Marketing
2) Sales
3) Service
(3) Quality Imperative
Quality imperative has 2 paths
a) Change in attitudes and raising of expectations for service quality
b) Implementation of management practices designed to make quality improvement an ongoing process
(4) Administrative Coordination Imperative
MNC makes strategic decisions based on merits of individual situation rather than predetermined economic or
political strategy. Least common approach to formulation and implementation of strategy. Many large MNCs work
to combine all 4 of the approaches to strategic planning
Unit IV
Liberalisation
1) Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known
as, Liberalization, Privatization and Globalization (LPG model)
2) It was aimed at making the Indian economy as fastest growing economy and globally competitive. The series of
reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy
more efficient.
Reasons for implementing LPG

1) Excess of consumption and expenditure over revenue resulting in heavy govt. borrowings.
2) Growing inefficiency on the use of resources.
3) Over protection to industries.
4) Mismanagement of the firm and the economy.
5) Increase in losses for public sector enterprises.
6) Various distortion like poor technological development, shortage of foreign exchange and borrowing from abroad.
7) Low foreign exchange reserves.
8) Inflation
LLiberalization
It is a very broad term that usually refers to fewer government regulations and restrictions in the economy.
Liberalization refers to the relaxation of the previous government restriction usually in area of social and economic
policies. When government liberalized trade , it means it has removed the tariff ,subsidies and other restriction on the
flow of goods and services between the countries.
Measures taken for liberalization
1) Freedom for expansion and production to industries.
2) Increase in the investment limit of the small industries.
3) Freedom to import the capital goods and raw materials.
4) Freedom to import technology.
5) Liberalization of export and import transactions.
6) Liberalization in taxation policy.
7) Liberalization in capital markets.
8) Liberalization in banking sector.
9) Increase the foreign investment.
10) Increase the foreign exchange reserve.
11) Increase in consumption.
12) Control over price.
13) Check on corruption.
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14) Reduction in dependence on external commercial borrowings.
Benefits of liberalization
1) Increase the foreign investment.
2) Increase the foreign exchange reserve.
3) Increase in consumption.
4) Control over price.
5) Check on corruption.
6) Reduction in dependence on external commercial borrowings.
Limitations of liberalization
1) Increase in unemployment.
2) Loss to domestic units
3) Increase dependence on foreign nations.
4) Unbalanced development.
5) Increase the imbalances.
Privatization
1) Privatization means transfer of ownership and/or management of an enterprise from the public sector to the
private sector
2) Privatization is opening up of an industry that has been reserved for public sector to the private sector.
3) Privatization means replacing government monopolies with the competitive pressures of the marketplace to
encourage efficiency, quality and innovation in the delivery of goods and services.
4) The privatization of public sector enterprises will occur only when govt. sells more than 51% of its
ownership to private entrepreneurs.
Need for Privatization
Though the PSUs have contributed heavily to develop the industrial base of the country, they continue, even today, to
suffer from a number of shortcomings which are identified below very briefly:-
1) A sizable number of PSUs have been incurring and reporting losses on a continual basis. Consequently, a large
number of PSUs have already been referred of loss giving units;
2) Multiplicity of authorities to whom the PSUs are accountable;
3) Delay in implementation of projects leading to cost escalation and other consequences
4) Ineffective and widespread inefficiency on management;
5) With a view to provide opportunities for more and more unemployed youths, more number of people, than
required, were recruited and therefore, many PSUs are over-staffed resulting in lower labour productivity, bad
industrial relations, etc.;
6) A number of sick companies (40 companies) which were in the private sector was taken over by public sector
mainly to protect the employees. These sick units are causing a big drain on the resources of the state; etc.
Advantages of Privatization
1) Reduction in economic burden
2) Increase in efficiency
3) Reduction in sense of irresponsibility
4) Scientific Management
5) Reduction in Political Interference
6) Encouragement of new Inventions
Disadvantages of Privatization
1) Lack of social welfare
2) Class struggle
3) Increase in inequality
4) Increase in unemployment
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5) Exploitation of weaker section
Examples of privatization in India

1) Lagan Jute Machinery Company Limited (LJMC)
2) Videsh Sanchar Nigam Limited (VSNL)
3) Hindustan Zinc Limited (HZL)
4) Hotel Corporation Limited of India (HCL)
5) Bharat Aluminum Company limited (BALCO)
Disinvestment
Disinvestment is a process in which the public undertaking reduces its portion in equity by disposing its shareholding.
“Disinvestment” as per SEBI (substantial acquisition of shares) guideline, means the sale by the central
government/state government, of its shares or voting rights and/or control, in PSUs. The disinvestment reduces
government participation in the company.
Disinvestment beyond 50% involves transfer of management, where as disinvestment below 50% would result
in the govt. continuing to have a major say in the undertaking.
1) In India, the new economic policy have given rise to significant focus for privatization of public sector
enterprises.
2) Hence, disinvestment is one of the method of privatization, which started in the year 1992.
3) It implies selling of govt. equity shares of public sector units in the market.
4) It is a concrete step towards privatization and liberalization of our economy.
Reasons for Disinvestment
1) To meet fiscal deficit
2) Expansion or diversification of the firm
3) To repayment of government debts
4) Implementation of government plan
5) PSU's give negative rate of return on capital
Objectives
1) To reduce the financial burden on government
2) To improve public finances
3) To introduce, competition and market discipline
4) To increase growth of the firm
5) To encourage wider share of ownership
Background of Disinvestment
1) The Indian economy had virtually embraced bankruptcy during the period of 1980-92.
2) In 1991, there was 236 operating public sector undertakings, of which only 123 were profit making.
3) The top 20 profit making PSU’s were responsible for 80 percent of profits.
4) The return on public sector investment for the year 1990-91 was just over 2 percent.
The basic charges against the public sector for its Poor performance are as follows:
1) Low rate of return on Investment
2) Declining contribution to national savings
3) Poor capacity utilization
4) Overstaffing, bureaucratization leading to excessive delays and wastage of scares resources.
5) On account of these phenomenon, many public sector enterprises have become more a burden than an asset to the
government.
Criteria for Disinvestment
The decision regarding disinvestment or liquidation viewed in the light of following criteria:
1) Whether the objectives of the company are achieved
2) Whether there is decrease in number of beneficiaries
3) Whether serving the national interest will be affected because of disinvestment
4) Whether private sector can efficiently operate and manage the undertaking.
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5) Whether the original rate of return targeted could not be possible to achieve.
6) Whether socio-economic objectives lots its purpose
Process of Disinvestment
The govt. in July 1991 initiated the disinvestment process in India, while launching the New Economic Policy (NEP).
The govt. had appointed the Krishnamurthy committee in 1991 and Rangarajan committee in 1992 to look after the
disinvestment process.
Both the committees have recommended disinvestments to fulfill objectives of modernization of the PSE’s through:
a) Strengthening R &D
b) Initiating diversification/expansion programme
c) Retaining and reemployment of employees
d) Funding genuine needs of expansion
e) Mitigating fiscal deficit of the government
These committees also distinguished between the short term and long term goals of the disinvestment and advised the
govt. not to sacrifice the long term goals for the sake of fulfilling the short term objectives.
The govt. has announced in its NEP that mitigating the fiscal deficits is the only objective of disinvestment.
The crucial shift in govt. policy for disinvestment of PSU’s was mainly attributed to poor performance of these
enterprises and burden of financing their requirements through budget allocation.
Further in 1996, the govt. constituted a five member public sector disinvestment commission under the chairmanship
of G.K.Ramakrshna for drawing a long term disinvestment programme for the PSU’s.
The committee submitted its report covering 58 enterprises, out of 70 enterprises referred to it by the govt.
recommendations ranged from strategic sales in various proportions to disinvestments ant various level.
This committee was ultimately abolished in 1999.
The govt. set up a new Department of Disinvestment in 1991 to establish a systematic policy approach to
disinvestment and to give fresh impetus to the programme of disinvestment, which will increasingly emphasize
strategic sales of identified PSU’s.
In 2001, the govt. reconstituted the disinvestment commission with R.H.Patil as its chairman.
The govt. has decided to refer all ‘non-strategic’ PSU’s and their subsidiaries, excluding IOC, ONGC, and GAIL to the
commission for its independent advice.
Merits of disinvestment
1) In Private Sector, the decision making process is quick and decisions are linked with the competitive market
changes.
2) The disinvestment process would bring in better corporate governance, exposure to competitive, corporate
responsibility, improvement in work environment etc.
3) The market participation in capital of PSUs through stock exchanges would enable the market to discover the
latent worth of PSUs.
4) The Loss making PSUs can be successfully revived by asking the strategic partner to infuse fresh capital and
exercising excellent management control over sick PSUs
Demerits of disinvestment
1) Selling of profit-making and dividend paying PSU would result in loss of regular source of income to the
government.
2) There would be chances of ‘asset stripping’ by the strategic partner. Most of the PSUs have valuable assets in the
shape of plant and machinery, land and buildings etc.
3) The Government’s Policy or disinvestment includes the disposal of both profit making, as well potentially viable
PSUs.
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Special Economic Zones (SEZ)

It is a geographical region that is designed to export goods and provide employment. SEZ’s policy was
announced in April, 2000.A region that has economic laws that are more liberal than a country’s typical
economic laws. They are engines for economic growth and supported by subsidized provision of natural resources.
SEZ’s are virtually industrial townships that provide appropriate infrastructure such as housing, roads, ports and
telecommunications. SEZ’s was created/established to secure regional balance in development of opportunities.
History of SEZs in India
The modern day Special Economic Zone came in to existence because the economic reforms incorporated in the early
1990s did not resulted in the overall growth of the Indian economy. The SEZ policy of India was devised to act as a
catalyst to promote the economic growth attained in the early 1990. The Indian manufacturing sector witnessed a
sudden dip in the overall growth of the industry, during the second-half of 1990s. The History of SEZs in India
suggests that red tape, lengthy administrative procedures, rigid labor laws and poor physical infrastructural facilities
were the main cause of deterioration of Foreign Direct Investments (FDI) inflow in to India. Further, the Indian
markets were not mature enough to facilitate easy entry of Foreign Institutional Investors (FIIs) in to the Indian
economic system. Furthermore, the legal framework of Indian economy was not strong enough to prevent misuse of
Indian markets by the foreign investors. Thus, the lack of investor friendly environment in India prevented growth of
Indian industry, in spite of implementation of liberal economic policy by the central government.
The History of SEZs in India suggests that the present day Special Economic Zone policies of India are well
complimented by the provisions of the Acts and Rules of Special Economic Zone. A number of meetings were held
across India for the formulation of - 'The Special Economic Zones Act, 2005', which was subsequently passed by
Parliament in May 2005. The SEZ Act, 2005 and SEZ Rules became effective on and from 10th February 2006.
The SEZ Act 2005 defines the key role for the State Governments in Export Promotion and creation of infrastructural
facilities.
Importance/Contribution
1. SEZ’s attract foreign and domestic investment.
2. Stimulates export.
3. Acts as a solution to unemployment problem.
4. Leads to balanced development of the region.
5. Fosters linkages with the economy.
Objectives of Setting up of SEZ
1) Generation of additional economic activity
2) Promotion of exports of goods and services
3) Promotion of investment from domestic and foreign sources
4) Creation of employment
5) Development of infrastructure facilities
6) Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting
up units and conducting business
7) Single window clearance for setting up of a SEZ and an unit in SEZ
8) Single window clearance on matters relating to Central as well as State Governments
9) Easy and simplified compliance procedures and documentations with stress on self certification
Benefits from SEZs
1) Corporate/ Income Tax Benefits for 15 Years
2) Freedom from Industrial Licensing
3) Duty free imports
4) 100% tax exemption on export income for SEZ units
5) External commercial borrowing by SEZ units up to $500million in a year
6) Exemption from Sales Tax, Service Tax
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Incentives and facilities offered to the SEZs

The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including
foreign investment include:-
1) Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
2) 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first
5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
3) Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
4) External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction
through recognized banking channels.
5) Exemption from Central Sales Tax.
6) Exemption from Service Tax.
7) Single window clearance for Central and State level approvals.
8) Exemption from State sales tax and other levies as extended by the respective State Governments.
The major incentives and facilities available to SEZ developers include:-

1) Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.
2) Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in
15 years under Section 80-IAB of the Income Tax Act.
3) Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
4) Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
5) Exemption from Central Sales Tax (CST).
6) Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).
Some of the established important Special Economic Zones in India are given as below –
1) Falta food processing unit, West Bengal
2) Salt Lake Electronic City, West Bengal
3) Manikanchan - Gems and jewelry, West Bengal
4) Calcutta Leather Complex, West Bengal
Disadvantages: Dark side of SEZ
1 .Land grabbing at very low prices.
2. If SEZ built on agricultural land the farmers will loose their livelihood as they are not skilled laborers it would to
tough to relocate them to other jobs. Already Farmers are having very bad days in India, one of the leading agriculture
countries.
3. Since the companies that operate under SEZ enjoy a lot of tax holidays it would create a burden on the finance
ministry as tax collected would be less.
4. Huge downward impact on Tax: GDP ratio & the common man have to pay the price of it.
World Trade Organization (WTO)
WTO was formed on 1st Jan, 1995. It took over GATT (General agreement on tariffs & trade). In 8th round of GATT,
popularly known as Uruguay Round, member nations of GATT decided to set up a new organization, ‘World Trade
Organization’ in place of GATT.
A Forum where member countries met from time to time to discuss & solve world trade problems. It enjoys identical
legal status, privileges, Immunities that the World Bank & IMF get.
The WTO was born out of the General Agreement on Tariffs and Trade (GATT).
Headquarters : Geneva, Switzerland
Formation : 1 January 1995
Membership : 153 member countries
Objectives of WTO
1) The primary aim of WTO is to implement the new world trade agreement.
2) To promote multilateral trade.
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3) To promote free trade by abolishing tariff & non-tariff barriers.
4) To enhance competitiveness among all trading partners so as to benefit consumers.
5) To increase the level of production & productivity with a view to increase the level of employment in the world.
6) To expand & utilise world resources in the most optimum manner.
7) To improve the level of living for the global population & speed up economic development of the member nations.
8) To take special steps for the development of poorest nations.
Functions of WTO
1) Administering WTO trade agreements
2) Forum for trade negotiations
3) Handling trade disputes
4) Monitoring national trade policies
5) Technical assistance and training for developing countries
6) Cooperation with other international organizations
Principles of WTO
The basic principles of the WTO (according to the WTO):
1) Trade Without Discrimination
a) Most-favoured-nation (MFN): (treating other people equally)
Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant
someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same
for all other WTO members.
b) National treatment: (Treating foreigners and locals equally)
Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the
market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights
and patents.
2) Freer trade: gradually, through negotiation
Lowering trade barriers is one of the most obvious means of encouraging trade. The barriers concerned include
customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively
3) Predictability: through binding and transparency
Sometimes, promising not to raise a trade barrier can be as important as lowering one, because the promise gives
businesses a clearer view of their future opportunities. With stability and predictability, investment is encouraged,
jobs are created and consumers can fully enjoy the benefits of competition — choice and lower prices. The
multilateral trading system is an attempt by governments to make the business environment stable and predictable.
4) Promoting fair competition
The WTO is sometimes described as a “free trade” institution, but that is not entirely accurate. The system does
allow tariffs and, in limited circumstances, other forms of protection. More accurately, it is a system of rules
dedicated to open, fair and undistorted competition.
5) Encouraging development and economic reform.
The WTO system contributes to development. On the other hand, developing countries need flexibility in the time
they take to implement the system’s agreements. And the agreements themselves inherit the earlier provisions of
GATT that allow for special assistance and trade concessions for developing countries.
Role of WTO
1) The main goal of WTO is to help the trading industry to become smooth, fair, free and predictable. It was
organized to become the administrator of multilateral trade and business agreements between its member nations.
It supports all occurring negotiations for latest agreements for trade. WTO also tries to resolve trade disputes
between member nations.
2) Multi-lateral agreements are always made between several countries in the past. Because of this, such agreements
become very difficult to negotiate but are so powerful and influential once all the parties agree and sign the multi-
lateral agreement. WTO acts as the administrator. If there are unfair trade practices or dumping and there is
complain filed, the staff of WTO are expected to investigate and check if there are violations based on the multi-
lateral agreements.
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The Relevance of WTO

1) The system helps promote peace.
2) The system allows disputes to be handled constructively.
3) A system based on rules rather than power makes life easier for all.
4) Freer trade cuts the cost of living.
5) It gives consumers more choice and a broader range of qualities to choose from.
6) Trade raises incomes.
7) Trade stimulates economic growth and that can be good news for employment
8) The basic principles make the system economically more efficient, and they cut costs.
Micro, Small and Medium Enterprises (MSME)
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the
Indian economy over the last five decades. MSMEs not only play crucial role in providing large employment
opportunities at comparatively lower capital cost than large industries. It also helps in industrialization of rural &
backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and
wealth.
1) MSME stands for micro, small and medium enterprises.

2) It plays a important role for economic development of our country.
3) The major advantage of the sector is its employment potential at low capital cost. The labor intensity of the MSME
sector is much higher than that of the large enterprises.
4) It satisfies the demand of local customer.
Industry coming under MSME

1) Food Processing(kfc product,berger,pasta)
2) Agricultural Inputs(Seeds, fertilizer)
3) Chemicals & Pharmaceuticals(medicines)
4) Engineering; Electricals, Electronics
5) Electro-medical equipment
6) Textiles and Garments
7) Meat products
8) Sports goods
9) Plastics products
10) Computer Software, etc.
MICRO, SMALL & MEDIUM ENTERPRISES DEVELOPMENT (MSMED) ACT,2006

MSMED Act was established to provide for facilitating the promotion and development and enhancing the
competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto.
Became operational from 2nd October 2006
In India, the enterprises have been classified broadly into two categories
1) Manufacturing
2) services.
Both categories have been further classified into micro, small and medium enterprises based on their investment in
plant and machinery or on equipment.
Classification Investment ceiling for plant, Machinery or Equipments

Manufacturing Enterprises Service Enterprises
Micro Upto Rs. 25 lakh Upto R. 10 lakh
Small Above Rs. 25 lakh & upto Rs. 5 crore Above Rs. 10 lakh & upto Rs. 3 crore
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Medium Above Rs. 5 Crore an upto Rs. 10 crore Above Rs. 2 crore & upto Rs. 5 crore
Aim of MSME
MSME development as a tool of state policy aims at :
1) Generation of Employment
2) Dispersal of Economy
3) Utilization of local skills and resources
4) Meet demands locally
Importance of the MSME sector

1) The contribution of micro, small and medium enterprises (MSME) sector to
2) manufacturing output, employment and exports of the country is quite significant.
3) The MSME sector employs about 42 million persons in over 13 million units throughout the country.
4) There are more than 6000 products, ranging from traditional to high-tech items, which are being manufactured by
the Indian MSMEs.
Traditionally Indian SMEs have had the following characteristics:
1) Born out of individual initiatives &skills
2) Greater operational flexibility
3) Low cost of production
4) High propensity to adapt technology
5) High capacity to export
6) High employment orientation
7) Utilization of locally available human & material resources
8) Critical for poverty reduction
Factors affecting MSMEs
1) Accessing adequate and timely financing on competitive terms, particularly longer tenure loans.
2) Accessing credit on easy terms has become difficult in the backdrop of current global financial crisis which has
held back the growth of SMEs and impeded overall growth and Development.
3) It has become difficult for lenders to be able to assess risk premiums properly, creating differences in the perceived
versus real risk profiles of SMEs.
4) Access to skilled manpower, R&D facilities and marketing channels is limite 5.Availability of finance at cheaper
rates, skills about decision-making and good management and accounting practices, and access to modern
technology
5) Availability of finance at cheaper rates, skills about decision-making and good management and accounting
practices, and access to modern technology.
6) Bribery & corruption.
Challenges For MSMEs

1) Problem of skilled manpower.
2) Inadequate credit assistance.
3) Irregular supply of raw material.
4) Absence of organized marketing.
5) Lack of machinery and equipment.
6) Absence of adequate infrastructure.
7) Competition from large-scale units and imported articles.
8) Other problems like poor project planning, managerial inadequacies, old and orthodox designs, high degree of
obsolescence and huge number of bogus concerns etc.
Unit V
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Social Responsibility of Business Enterprises

Introduction
A business enterprise should do business and earn money in ways that fulfill the expectations of the society. Every
individual living in society has certain obligations towards society. He has to respect social values and norms of
behaviour. A business enterprise is permitted by society to carry on industrial or commercial activities and thereby
earn profits. But it is obligatory on part of the business enterprise not do anything, that is undesirable from society’s
point of view.Eg: A business enterprise should do business and earn money in ways that fulfill the expectations of the
society. Every individual living in society has certain obligations towards society.
Social responsibility is the obligation of the decision makers to take decisions which protect and improve the
welfare of the society as a whole along with their own interests.
Social responsibility means the intelligent & objective concern for the welfare of society and leads in the direction of
human welfare.
Concept of Social Responsibility
Social responsibility of business refers to its obligation to take those decisions and perform those actions which are
desirable in terms of the objectives and values of our society. The assumption of social responsibilities by business
enterprises implies that they respect the aspirations of society and would try their best to contribute to the achievement
of these aspirations along with their profit interests. This idea is in contrast to the common notion that business exists
only for maximizing profits for its owners and it is irrelevant to talk of public good. It follows that a responsible
business, and indeed any responsible member of society, must act with due concern for the effects on he lives of other
people In this sense, social responsibility is broader than legal responsibility of business.
Factors inducing Social Responsibility
1. The pressure of organized labour
2. Growing public awareness
3. Public opinion stressing on business morality
4. To prevent public exploitation and evils of monopoly
5. Development of consumerism
6. Managerial revolution
RESPONSIBILITY TOWARDS SHAREHOLDERS

1. A fair return on investment.
2. Provide full & accurate information regarding business.
3. Safety of investment.
4. Improving the public image of company.
RESPONSIBILITY TOWARDS CUSTOMERS

1. True and fair information through advertisements.
2. Regular supply of good.
3. Charge reasonable prices.
4. Avoid black marketing.
5. Provide after sales service.
6. Providing products of proven quality.
7. Supply of right quality & quantity of goods & services to consumers at reasonable prices constitutes the
responsibility of an enterprise towards its customers
8. The enterprise must take proper precaution against adulteration, poor quality & lack of desired service &
courtesy to customers, misleading & dishonest advertising
9. The must also have the right of information about the product the company & other matters having a bearing
on their purchasing decision
RESPONSIBILITY TOWARDS EMPLOYEES
1. Fair treatment, fair wages.
2. No discrimination on the basis of sex, caste or creed.
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3. Healthy and safe working environment.
4. Fair work standards and norms.
5. Labour welfare facilities.
6. Fair opportunity for accomplishment and promotion.
7. Proper training and development programmes.
8. Management of an enterprise is also responsible for providing opportunities to the workers foe a meaningful
work
9. It should try to create the right kind of workisg conditions so that it can win the cooperation of the workers
10. The enterprise must respect the democratic rights of the workers to form unions
11. The worker must also be ensured of a wair wage & a fair deal from the management
RESPONSIBILITY TOWARDS COMMUNITY

1. To prevent environmental pollution and ecological balance.
2. Improve efficiency of business operations.
3. Development of backward regions.
4. Promotion of small scale industry.
5. An enterprise must respect the law of the country & pay taxes regularly & honestly
6. It must behave as a good citizen & act according to the well accepted values of the society
7. It must protect the natural environment & should avoid bad , effluents , smoky chimneys , ugly dirty working
conditions
Major Social Responsibilities

1. Optimum utilization of scarce national resources.
2. Not to make losses.
3. Improve quality of life.
4. Responsibility of Employment and Income.
5. Fair Trade Practices.
6. Environmental Protection.
7. To ensure safety of capital.
8. To ensure proper dividend and it’s timely payment.
9. Informing about the progress of the company throughcorrect accounts.
10. To ensure proper use of invested capital.
11. To treat different types of share holders equally.
12. To furnish accurate information as regards working ofbusiness.
For Example,
J.R.D. Tata conducted first social audit in India
New Economic Policy

Meaning:
Industrial policy means rules, regulations , principles , policies , and procedures laid down by government for
regulating , developing and controlling industrial undertakings in the country. It prescribes the respective roles of the
public, private joint and cooperative sectors for the development of industries. It also indicates the role of the large ,
medium , and small sector . It incorporates fiscal and monetary policies, tariff policy , labour policy and the
government attitude towards foreign capital, and role to be played by multinational corporations in the development of
the industrial sector.
Why new Economic Policy 1991
1) The Indian currency, the rupee, was inconvertible and high tariffs and import licensing prevented foreign goods
reaching the market.
2) India also operated a system of central planing for the economy, in which firms required licenses to invest and
develop.
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3) Restriction on Private Investment
4) Socialism
5) Mixed Economy
6) Internal debt liability increased to 53% of GDP.
Features of New Economic Policy

1) Integration with world economy with dismantling of tariff wall.
2) Protection of foreign direct investment.
3) upgrading the technology of production.
4) Financial stability
5) Outward looking policies
6) Deregulation of domestic market.
7) Correcting the disequilibrium in foreign exchange market through demand reduction
8) Reform in trade policy
9) Reduction in fiscal deficit
10) Dismantling of barrier to free flow of capital
11) Depreciation of exchange rate.
Components of New Economic Policy

1) Exchange rate
2) Trade and industrial policy
3) Policies concerning the public sector
4) financial sector
5) Capital market.
Outcome of New Economic Policy

1) Liberalisation
2) Privatistaion
3) Globalisation
Liberalisation
1) Amendment in MRTP act.
2) Emphasis to be on controlling and regulating monopolistic, restrictive and unfair trade practices Except the six
industries , all other kinds of industrial license have been abolished.
3) Thrust of policy to be on controlling unfair or restrictive business practices
4) Need for achieving economies of scale for ensuring higher productivity and competitive advantage in the
international market, the interference of the government through the MRTP Act has to be restricted
Privatistaion
1) Disinvestment
2) selling of govt. equity, partially or wholly, to private parties.
3) Mergers
4) acquisition
Globalisation
1) Outsourcing
2) Reduction in trade barriers.
3) Free flow of technology
4) Free movement of labor capital among different countries.
Effects of New Economic Policy (Positive)

1) Increase in GDP growth rate
2) Increase in foreign direct investment
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3) Increase in foreign exchange
4) Fulfilled a long-felt demand of the corporate sector for declaring in very clear terms that licensing was abolished
for all industries except 18 industries which included coal, petroleum, sugar, motor cars, cigarettes, hazardous,
chemicals, pharmaceuti cals and some luxury items
5) Increase in per capita income
6) Increase in foreign trade.(Import,Export,FDI,FII,Merger )
7) Increase mobility of factor of production
8) Outsourcing
Effects of New Economic Policy (Negative)

1) Growing unemployment
2) Neglect of agriculture
3) Growing personal disparities
4) Infrastructural inadequacies
5) Wide spread poverty.
6) Demonstration effect (luxury goods)
7) Indian small scale industries badly affected
8) Failure of MRTP to break the monopolistic or Oligopolistic character of the Indian market
Globalization
The movement towards the expansion of economic and social ties between countries through the spread of
corporate institutions and the capitalist philosophy that leads to the shrinking of the world in economic terms.
There was a time when most regions were economically self-sufficient. Locally produced foods, fuels and raw
materials were generally processed for local consumption. Trade between different regions was quite limited. Today,
the economies of most countries are so interconnected that they form part of a single, interdependent global economy.
According to World Bank,
Globalization is the growing integration of economies and societies around the world. Globalization is the increasing
interdependence, integration & interaction among people and corporation in various locations around the world.
Nature of Globalisation
1) It is a conglomerate of multiple units located in different parts of the globe but all linked by common ownership.
2) Multiple units draw on a common pool of resources such as money, credit, information, patents, trademarks &
control systems.
3) The units respond to some common strategy.
4) Product presence is in different markets of the world.
5) Human resources are highly diverse.
6) Transactions involving intellectual properties such a copyrights, patents, trademarks and process technologies
across the globe.
Dimensions of Globalisation
1) Doing or planning to expand, business globally.
2) Giving up the distinction between domestic and foreign market and developing a global outlook of the business.
3) Locating the production and other physical facilities considering global business dynamics, irrespective of national
consideration.
4) Creating product development and production planning on global market considerations.
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5) Global sourcing of factors of production i.e. raw materials, components, machinery / technology, finance etc. are
obtained from the best source anywhere in the world.
6) Global orientation of organisation structure and management culture.
Causes of Globalisation:
1) Improved Communications
a) The development of communication technologies such as internet, email and mobile phones have been vital to
the growth of globalisation because they help MNCs to operate throughout the world.
b) The development of satellite TV channels such as Sky and CNN have also provided worldwide marketing
avenues for the concept and products of globalisation.
2) Improved Transport
The development of refrigerated and container transport, bulk shipping and improved air transport has allowed the
easy mass movement of goods throughout the world. This assists globalisation.
3) Free Trade Agreements
a) MNCs and rich capitalist countries have always promoted global free trade as a way of increasing their own
wealth and influence.
b) International organisations such as the World Trade Organisation and the IMF also promote free trade.
4) Global Banking
a) Modern communication technologies allow vast amounts of capital to flow freely and instantly throughout the
world.
b) The equivalent of up to $US1.3 trillion is traded each day through international stock exchanges in cities such
as New York, London and Tokyo.
5) The Growth of MNCs
a) The rapid growth of big MNCs such as Microsoft, McDonalds and Nike is a cause as well as a consequence of
globalisation.
b) The investment of MNCs in farms, mines and factories across the world is a major part of globalisation.
c) Globalisation allows MNCs to produce goods and services and to sell products on a massive scale throughout
the world.
Stages of Globalisation
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Essential Conditions of Globalisation

1) Business Freedom / Economic Liberalisation
No unnecessary Govt restrictions
2) Facilities
Infrastructural facilities available in the home country.
3) Government support
Policy and procedural reforms, financial market reforms, R & D support
4) Resources
Finance, technology, R& D capabilities, company brand image, human resources
5) Competitiveness
Competitive advantage of the company is an important determinant of success in global business
Benefits of Globalisation
1) Promotes Foreign capital
2) Increase in competition would make companies more cost and quality conscious.
3) Global competition keeps a check on prices.
4) It improves standard of living
5) Enhances consumer choice and surplus
6) Better pay package
7) Gives encouragement to innovation
8) Opens up opportunities for firms in developing countries.
9) Capital flow gives the country access to foreign investment and keep the interest rate low.
Challenges of Globalisation
Globalisation gives lot of challenges for the firms and nations. Like:
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1) Attracting foreign investment
2) Globalisation may increase the economic inequality. Therefore globalisation should be accompanied by socio-
economic reforms.
3) Merger and acquisition pose a challenge to government for ensuring fair competition. An effective policy to
safeguard domestic companies is required.
4) Rise in domestic unemployment of unskilled labour, which needs to be absorbed
5) Increase competition worldwide, as only efficient firms can survive.
The Effects of Globalisation

1) Changed Food Supply
Food supply is no longer tied to the seasons. We can buy food anywhere in the world at any time of the year.
2) Division of Labour
Because MNCs search for the cheapest locations to manufacture and assemble components, production processes
may be moved from developed to developing countries where costs are lower.
3) Less Job Security
a) In the global economy jobs are becoming more temporary and insecure.
b) A survey of American workers showed that people now hold 7 to 10 jobs over their working life.
4) Damage to the Environment
a) More trade means more transport which uses more fossil fuels and causes pollution.
b) Climate change is a serious threat to our future.
5) Cultural Impact
Websites such as YouTube connect people across the planet. As the world becomes more unified, diverse cultures
are being ignored. MNCs can create a monoculture as they remove local competition and thereby force local firms
to close.
6) Increase in anti-Globalisation Protests
There is a growing awareness of the negative impacts of globalisation. People have begun to realise that
globalisation can be challenged by communities supporting each other in business and society and through public
protest and political lobbying.
EXIM Policy
Export means trade across the political boundaries of different nation. No Nation is self sufficient and had all the
goods that it needs. This happens because of climatic variation & unequal distribution of natural resources. As a
result, countries all over the world have become interdependent, which necessitated foreign trade. A developing
country like India with its fast growing agricultural production to keep pace with the population growth and growing
Industrial infrastructure needs high-import and this can be sustained only with fast export growth. To meet the oil
import bill, export is unavoidable. Thus, it is evident that export promotion continues to be a major thrust area for the
government. Several measures have been under taken in the past for improving export performance of the country. In
India, Govt. has come out from time to time with various policies on foreign trade to promote export thereby
increasing the “Foreign Exchange Reserve”. These policies are termed as “Exim Policy”
Introduction
1) The Foreign trade Policy which was announced on August 28, 2009 is an integrated policy for the period 2009-14.
2) Exim policies are provisions related to export import of goods incorporated in foreign trade policy
3) Every exporter or importer is complied with provisions made here
4) Announced every 5 years by director general of foreign trade, ministry of commerce and industry,
government of India
5) Updated every year on the 31st March and are effective from 1st April
6) Separate policies are designed for units in the special economic zones
7) Different procedures are to be followed in each of these schemes
NEED OF THE POLICY

1) Exports in India are witnessing an upward trend
2) Need to sustain this growth and accelerate country's transition to vibrant economy and leading global player
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3) Need to derive maximum benefits from expanding global market opportunity
4) Need to provide Indian consumer with good quality products at reasonable prices
OBJECTIVES OF EXIM
1) To establish the framework for globalisation.
2) To promote the productivity competitiveness of Indian industry.
3) To encourage the attainment of high & internationally accepted standards of quality.
4) To augment export by facilitating access to raw materials, intermediate components, consumables and capital goods
from the international market.
5) To generate new employment.
6) To provide quality consumer products at reasonable prices.
Aim
The policy aims at developing export potential, improving export performance, boosting foreign trade and earning
valuable foreign exchange. FTP assumes great significance this year as India's exports have been battered by the global
recession. A fall in exports has led to the closure of several small- and medium-scale export-oriented units, resulting in
large-scale unemployment.
Import Restrictions
1) Freely importable items are open general license category or free list of imports – anybody is allowed to bring
in items listed under this category
2) Exim policy prohibits import of certain products
3) Prohibited list contains sensitive items: explosives banned for security reasons. Items banned for environment
and pollution-related aspects
4) Wildlife and related products can only be imported for specific purpose with prior permission
5) CANALIZATION for some categories - can be imported only by designated agencies.
6) E.G. Urea can be imported only by MMTC and STC, the government's trading arms
7) Gold, in bulk, by specified banks like SBI , some foreign banks , designated agencies
8) Earlier sugar, edible oil, wheat and rice used to be imported by the government only. liberalization led to
freely importable items
9) Imports allowed only if importer gets license
Functions of Board of Trade

1) Its Role is of advising government on issues related to foreign trade
2) To advise for preparation and implementation of plans for increasing exports
3) To review export performance of various sectors and suggest measures to optimize export earnings
4) To examine institutional framework and suggest measures for streamlining to achieve desired objectives
5) To review policy instruments and procedures and suggest steps to rationalize and channelize such schemes for
optimum use
6) To examine issues for promotion of India’s foreign trade, and to strengthen international competitiveness of
Indian goods and services
7) To commission studies for furtherance of above objectives
Downfall of Indian Exports

1) Slowdown in the manufacturing, trade and consumer-spending front of large developed economies
2) Non-tariff barriers through developed nations due to environmental concerns, technical and non-technical
standards and regional groupings.
3) High interest on export credit, uncertainty in export policy and infrastructure constraints
4) But , these very low exports helped India beat economic recession facing the entire world as it was less
dependent on external factors
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Provisions In Current Policy (Current policy: 2009-14)
1) 2009 a year of severe global recession. Entire world facing economic slow down
2) India not affected much, only exports have suffered
3) Strategies and policies required to catalyze growth of exports
4) objective : to arrest and reverse the declining trend of exports and to provide additional support to those sectors
which have been hit badly by recession in the developed world
5) need to improve infrastructure related to exports, bring down transaction cost, provide full refund of indirect
taxes
6) Special trust needs to be provide for those who lost jobs in recession
7) Need to encourage value addition in manufactured exports, with 15% value addition on imported inputs
8) Need to diversify export markets in Africa , Latin America, oceanic and CIS countries
9) Comprehensive economic partnership agreement with south Korea which gives enhanced market access to Indian
exports.
10) For technology up gradation imports of certain capital goods is sought by zero percent duty under EPCG
11) For upgradation of export sector infrastructure , ‘Towns of Export Excellence’ and units located therein would
be granted additional focused support and incentives.
12) to reduce the transaction cost and institutional bottlenecks, the e-trade project would be implemented in a time
bound manner to bring all stake holders on a common platform
13) SPECIAL BONUS BENEFIT SCHEME : provide special assistance to certain products for 6 months where rate
of duty credit is 1% of FOB value of exports
14) SPECIAL FOCUS MARKET SCHEME : additional 1% duty credit provided for products exported to certain
countries listed here( Africa ,Latin America, CIS)
15) SUPPORT TO APPARAL SECTOR : 2% duty credit available to these products
16) FOCUS PRODUCT SCHEME : 2% duty credit is available to certain chemicals, textiles, engineering items,
electronics.
FDI Policy
The Foreign Direct Investment means “cross border investment made by a resident in one economy in an
enterprise in another economy, with the objective of establishing a lasting in the investee economy.
The Foreign Direct Investment means “cross border investment made by a resident in one economy in an enterprise in
another economy, with the objective of establishing a lasting interest in the investee economy.
FDI is also described as “investment into the business of a country by a company in another country”. Mostly the
investment is into production by either buying a company in the target country or by expanding operations of an
existing business in that country”. Such investments can take place for many reasons, including to take advantage of
cheaper wages, special investment privileges (e.g. tax exemptions) offered by the country.
The Purpose For Which The Countries Seek FDI

1) Domestic capital is inadequate for the purpose of economic growth.
2) Foreign capital is usually essential, at least as a temporary measure, during the period when the capital market is in
the process of development.
3) Foreign capital usually brings it with other scarce productive factors like technical knowhow, business expertise and
knowledge.
Forms of FDI
1) Greenfield investment
a) Direct investment in new facilities or the expansion of existing facilities.
b) Greenfield investments are the primary target of a host nation’s promotional efforts because they create new
production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global
marketplace.
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c) Downside of Greenfield investment is that profits from production do not feed back into the local economy, but
instead to the multinational's home economy. This is in contrast to local industries whose profits flow back into
the domestic economy to promote growth.
2) Mergers and Acquisition
a) Transfers of existing assets from local firms to foreign firms takes place; the primary type of FDI.
b) Cross-border mergers occur when the assets and operation of firms from different countries are combined to
establish a new legal entity.
3) Horizontal Foreign Direct Investment
It is the investment in the same industry abroad as a firm operates in at home.
4) Vertical Foreign Direct Investment
It takes two forms:
a) backward vertical
b) FDI where an industry abroad provides inputs for a firm's domestic production process
c) forward vertical FDI
d) in which an industry abroad sells the outputs of a firm's domestic production
What are the major benefits of FDI
1) Economic Growth
2) Increase trade
3) Superior quality products
4) Increase employment opportunity
5) Outsourcing of knowledge
6) Increase investment by joint-ventures
7) Reduce intermediaries involvement
8) Bringing down prices at retail level and calm inflation
9) Bigger market for small and medium enterprises and better branding.
10) Bring foreign investment and global practices
11) Induce better competition
12) Introduce cost effective manufacturing technology
13) Handling issues and challenges faced by two wheeler industry in India including fuel technology, development of
nurturing practices for working manpower
Disadvantages of FDI In India
1) Limited employment generation to semi-illiterate people
2) Fear of lowering of prices
3) drain out the country’s share of revenue to foreign countries
4) loss of market share by domestic organization
5) Small retailers and other ‘Kirana Stores’ may close down
6) Supermarkets will establish their monopoly in the Indian market
7) Domestic companies may lose their ownership
8) Loss of control by Government
7 Major Sectors Attracting FDI In India

1) Infrastructure
2) Automotive
3) Retail and consumer products
4) Technology
5) Financial service
6) Life sciences
7) Cleantech
Sector Where FDI Is Not Allowed In India
1) Atomic energy
2) Lottery business
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3) Gambling and betting
4) Business of child fund
5) Nidhi company
6) Agriculture and Plantation activities
7) Housing and Real Estate business
8) Trading in Transferable Development Rights(TDRs)
9) Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
Procedures For Receiving FDI In Indian Company
Automatic Route
FDI is allowed under the automatic route without prior approva l either of the Government or the Reserve Bank of
India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time
to time.
Government Route
FDI in activities not covered under the automatic route requires prior approval of the Government which are
considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.
Multinational Corporation (MNC)
A multinational corporation is an entity headquartered in one country that does business in one or more foreign
countries.
Many MNCs progress through the following stages:
1) Exports products to foreign countries.
2) Establishes sales organizations abroad.
3) Licenses use of patents and technology to foreign firms that make and sell the MNCs products.
4) Establishes foreign manufacturing facilities, but control remains at the home office.
It is a corporation that:
Manages
Delivers Services
Production
In More than one

country
According to Franklin Root (1994), an MNC is a parent company that:

1) engages in foreign production through its affiliates located in several countries,
2) exercises direct control over the policies of its affiliates,
3) implements business strategies in production, marketing, finance and staffing that transcend national boundaries.
A firm to be an MNC following criteria has to be fulfilled:

1) The firm should own or control operations in multiple countries, typically across the world
2) It should generate a substantial portion of its revenue by its operations from foreign countries
3) Should employ workforce from multiple countries, including employees at the senior levels
4) It should have a strategic management perspective and a vision of multinational operations
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EXAMPLES OF MNCs
Ford, IBM , British Petroleum,Mc Donald’s, Phillips
Features of MNC
1) Big size
2) Huge intellectual capital
3) Operates in many countries
4) Large number of customer
5) Large number of competitors
6) Structured way of decision making
Objectives
1) To expand the business beyond the boundaries of the home country.
2) Minimize cost of production, especially labour cost.
3) Capture lucrative foreign market against international competitors.
4) Avail of competitive advantage internationally.
5) Achieve greater efficiency by producing in local market and then exporting the products.
6) Make best use of technological advantages by setting up production facilities abroad.
7) Establish an international corporate image.
Reasons for the Growth of MNCs
Factor mobility.
Development in
Economic
communication
technology. reforms.
Risk minimize. Growth urge.
Market
potential.
MULTINATIONAL CORPORATE STRUCTURE
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Multinational corporations can be divided into three broad groups according to the configuration of their production
facilities:
1) Horizontally integrated multinational corporations
It manage production establishments located in different countries to produce the same or similar products.
(example: McDonald's)
2) Vertically integrated multinational corporation
It manages production establishment in certain country/countries to produce products that serve as input to its
production establishments in other country/countries. (example: Adidas)
3) Diversified multinational corporations
It manages production establishments located in different countries that are neither horizontally nor vertically nor
straight, nor non-straight integrated. (example: Microsoft or Siemens A.G.)
Advantages of MNCs to the Host Country

1) Transfer of technology, capital and entrepreneurship.
2) Increase in the investment level and thus, the income and employment in the host country.
3) Greater availability of products for local consumers.
4) Increase in exports and decrease in imports.
Advantages of MNCs to the Home Country.
1) Acquisition of raw materials from abroad.
2) Technology and management expertise acquired from competing in global markets.
3) Export of components and finished goods for assembly or distribution in foreign markets.
4) Inflow of income from overseas profits, royalties and management contracts.
Disadvantages of MNCs
1) Trade restrictions imposed at the government-level
2) Limited quantities (quotas) of imports.
3) Effective management of a globally dispersed organization.
4) Slow down in the growth of employment in home countries.
5) Destroy competition and acquire monopoly.
MNCs in India
1) India is the home of a number of multinational companies since the country’s market was liberalized in 1991.
2) Initially The MNC from United States account 37% of turnover of first 20 firm operated in India
3) Now scenario has changed a lot more enterprises from European union like Britain, France, Netherlands, Italy,
Germany, Belgium and Finland have come to India and outsourced their work to this country
4) Example Finnish mobile giant Nokia has their second largest base in India
Why India attracting the multinational companies ?

1) Fastest Growing economy
2) Huge market potential
3) FDI attractiveness
4) Labor competitiveness
5) Macro economic stability
Transnational Corporations (TNC)

Transnational corporations (TNCs) are incorporated or unincorporated enterprises comprising parent
enterprises and their foreign affiliates . A parent enterprise is defined as an enterprise that controls assets of other
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entities in countries other than its home country, usually by owning a certain equity capital stake.
An equity capital stake of 10 per cent or more of the ordinary shares or voting power for an incorporated enterprise, or
its equivalent for an unincorporated enterprise, is normally considered as a threshold for the control of assets (in some
countries, an equity stake other than that of 10 per cent is still used. In the United Kingdom, for example, a stake of 20
per cent or more was a threshold until 1997.).
A foreign affiliate is an incorporated or unincorporated enterprise in which an investor, who is resident in another
economy, owns a stake that permits a lasting interest in the management of that enterprise (an equity stake of 10 per
cent for an incorporated enterprise or its equivalent for an unincorporated enterprise).
Transnational company is a company who possesses a larger part of share or a major share holder itself rather
than the people of country where they are operating in.
Transnational Companies/Corporations:- Companies which try to achieve economies of scale through its
centralised core competencies whereas others decentralised.
It is a firm formed by the merger of two firms of approximately the same size that are from two different
countries.
A transnational corporation (TNC) is a huge company that does business in several countries.
Many TNCs are much richer than entire countries in the less developed world.
Such companies can provide work and enrich a country's economy - or some say they can exploit the workers with low
pay and destroy the environment.
Examples of TNCs include :
Nestlé, Unilever , Cadbury-Schweppes , BP-Amoco
A firm which owns or controls production facilities in more than one country through direct foreign investment.
Although multinationals grew most rapidly in the 1960s, the foundations were laid in the inter-war period, notable
examples being Ford, Vauxhall, and Philips. In the mid-1980s transnational’s accounted for 14% of UK employment
and 30% of UK exports. The corresponding figures for France were 24% and 32%.
Transnationals are made possible by improved international communications which provide rapid containerized
transhipment and foreign travel, easy communication of information, and international mobility of capital. When one
market is saturated, the multinational can rapidly develop others, since foreign investment cuts transport costs, and
makes possible a rapid response to local markets. It also eases tariff barriers—the UK has been an attractive location
for many Japanese manufacturers, for example, because it is within the European Union, but has opted out of the EU's
social charter.Transnationals can compare costs at different locations, and can switch activities to different areas as
appropriate.
TNCs are probably the major force affecting world-wide shifts in economic activity, since the largest have a turnover
greater than the GNP of many less developed nations. Although a developing nation may benefit from the construction
of a plant for a TNC in terms of jobs and markets, it has been argued that the price is a loss of local control.
How do TNC’s grow?

1) Motive – Profit. They control costs of raw materials and production costs, and do this by merges and take over's in
3 ways. 1) Horizontal integration – Buying up competition. 2) Vertical integration – controlling and owning every
stage of production. 3) Economies of sale – expand production to increase efficiency and reduce unit production
costs.
2) Means – The banks. Companies invest overseas too, to boost their market or take advantage of labour or
environmental laws. Flows of money around the world connect businesses and countries.
3) Mobility – Transport and communications. Accelerated and cheaper transport (containerisation and cheap flights)
and communication systems (fibre optics) along with production systems such as ‘just in time’ (companies demand
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goods on short time scale rather than holding stock) which provides cheap fast turnaround, enabling companies to
be faster than their competitors.
How do TNCs affect global wealth?
1) TNCs bring Foreign Direct Investment to nations – even if wages are low workers will still spend money after they
have been paid = stimulates growth of other local services
2) When TNCs locate in a trade bloc they bring wealth to poorer regions as they often source parts locally
3) One of the most effective mechanisms for wealth redistribution
Benefits of TNCs
• Raising living standards – TNCs invest in the economies of the developing nations
• Transfer of technology – south Korean firms e.g. Samsung have learned to design products for foreign markets
• Political stability – investment by TNCs has contributed to economic growth and political stability e.g. China
• Raising environmental awareness – due to large corporate image TNCs do respond to criticism e.g. Co-op has
‘green credentials’
Disadvantages
• Tax avoidance – many avoid paying full taxed in countries they operate in through concessions
• Limited linkages – FDI does not always help developing nations economies
• Sweatshops – workers are employed for long hours, low pay in poor conditions
• Growing global wealth divide – selective investment in certain global areas is creating a widening divide e.g.
Southeast Asia vs. sub-Saharan Africa
• Environmental degradation – example of Bhopal, India disaster in 1984
TECHNOLOGY
Technology denotes the utilisation of the materials and processes necessary to transforms inputs into outputs.
Technology is any tool or technique, any product or process, any physical equipment or method of doing
or making, by which human capacity is extended.
Components of Technology
1. Inputs
2. Outputs
3. Production activity
4. Technology
TECHNOLOGY ADOPTION
Process of making the technology fits for the organisation. In the process of adoption, it is modified significantly to
match the socio economic and technological situation of user.
Adoption of technology involves matching it with characteristics of human resources (technology utilisers).
TECHNOLOGY DIFFUSION
It is defined as the degree to which technology is being applied at that time. Thus diffusion is a continuous or
gradual process of growth of application of technology with passage of time. Better the diffusion of information the
easier will be two process of diffusion of technology.
APPROPRIATE TECHNOLOGY
No single technology can be considered appropriate for each country or organisation. For example, What may be
appropriate for HLL maybe misfit for KTC (Cyhari Detergent).
Selection of technology is a means to achieve an end (objective) capital intensive technology (machine
intensive technology) requires huge investment on machines with lesser amount of labour.
Thus, technology should be appropriate and for this it should meet technical, socio-cultural, political and
economic requirements of situation.
Criteria for appropriate technology
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1. Effectiveness
2. Affordability
3. Cultural Acceptability
4. Local sustainability
5. Efficiency
6. Measurability (its impact and performance needs proper evaluation)
TYPES OF TECHNOLOGY
1. Core Technologies:- The core technology is usually central to all or most of the company’s products. For
example, diesel e ngine technology is central to Mahindra & Mahindra.
2. Complementary Technologies :- Additional technologies essential in product development. For example,
designing shockers for automotive companies.
3. Peripheral Technologies:- Technology that is not incorporated into the product but whose application
contributors to business. For example, Computer Software is a peripheral technology for Mahindra &
Mahindra.
4. Emerging Technologies:- These are new to the company but may have long term significance. For example,
alternative fuel technology is an emerging technology for Mahindra & Mahindra.
TECHNOLOGY TRANSFER
Technology transfer is the application of technology to a new user. It is the process by which technology developed
for one purpose is employed either in a different application or by a new user.
The activity involves the increased utilisation of existing technology base in new areas of application.
Reason for Technology Transfer:-

1. Profit from Selling Technology.
2. Location and Logistics Advantage.
3. Competitive Edge.
4. To obtain subsidies
5. Limitation of home country.
6. To enhance competence
Method of Technology Transfer

1. Foreign Direct Investment for example, Hyundai established its own subsidiary and thus brought its
technology to India.
2. Licensing for example, as in case of software, the user purchases the licenses to use the software from the
technology provider, against royalty or payment of fee.
3. Franchising Similar to license, where organisations establish their own franchise and transfer their technology
to the franchisee. For example, McDonald’s creates its franchisers and transfers the technology to the
franchisee.
4. Management Contracts Point to point technology transfer, organisations either transfer technology to other
organisations under certain terms and conditions, or simply establish a project for the host, train its personnel,
to operate it and transfer control to the host. For example, In India, steel plants of Bokara.
5. Contract Manufacturing Organisations transfer technology to the user and get product manufactured from
the user for them. For example, Many Indian companies like HCL, Marico, Colgate etc transfer their
technology to some other manufacturer and get products manufactured for them.
6. Joint Ventures Organisations transfer technology to their joint venture partner. For example, Hero Honda,
Maruti Suzuki are examples of successful joint ventures where technology transfers have taken place.
COMPETITIVE ADVANTAGE AND TECHNOLOGY
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(Role/Importance of Technology)
Technology is an important factor for the competitiveness of both the service and manufacturing sectors.
Competitiveness emerges from the strength of knowledge, power which is powered by technology and in turn by
capital.
Customer Service, operations, product and marketing strategies are dependent on technology.
Sustainable competitive advantage allows uninterrupted maintenance and improvement of enterprise’s
competitive position in the market.
The truth is that a company can hold its competitive edge and stay ahead is through innovation (new
invention, discovery, new ways of doing things, a new product, new ways of servicing, new uses of existing
products).
Companies that compete through Innovation know that new ideas apply to quality, productivity, service,
employee, attitudes etc.
Ways of achieving competitive advantages:-

1. Product differentiation
2. Cost differentiation
Technology provides an edge over competitors on all the 4Ps of marketing Producr, Price, Place, Promotion.
Product:- for example, In automobile sector, most of the companies launch new models at short intervals to stay
ahead.
Price:- Technology not only helps in producing value added product but also reduces manufacturing costs. For
example, Nationwide companies provide shampoos, eatables etc at Rs 1 due to technology.
Promotion:- Technology has enabled all national, international and regional producers to reach out to customers
in the remotest of areas. For example, Regional brands like Ghari, Ujala, Priyagold are giving tough fight to a
established national brands, due to new promotional media, which they can afford.
Place:- “Jo dikhta hai wahi bikta hai”. For example, HLL is a king of FMCG market only because of its
distribution network.
Coca – Cola acquired Parle not because of its brands like Thumps Up but due to its distribution network.
Technology also provides an advantage in all the 3 critical success factors (CSFs), common to all the
industries, that is, Value addition, Differentiation, Cost.
Thus, technology adds value, and reduces cost.
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MBA (University of Lucknow)

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Importance of Business Environment

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COMPONENTS OF BUSINESS ENVIRONMENT

What Are Internal And External Environments?

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3) Top management Structure

Important Performers in the Micro Environment

The most important performers in the micro environment are as under:

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Socio- Cultural Environment

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RECENT POLITICAL ENVIRONMENT

The political environment in an economy is influenced by:

Indian Political System

Union Legislature (Parliament)

Lok Sabha Rajya Sabha

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Prominent Political Parties of India

Recent Economic Environment

Changing Face of Indian Economy

Key Factors of India’s New Economy

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Economic Planning In India

Need For Economic Planning

Objectives of Economic Planning

Planning commission of India

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NATIONAL DEVELOPMENT COUNCIL (NDC)

The functions of the Council are:-

FORMULATION OF THE PLAN

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1) First five year plan(1951-1956)

First Five Year Plan (1951-1956)

Second five year plan (1956-1961)

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Expected growth target is 4.5% and achieved is 4.27%.

Third five year plan (1961-1966)

Fourth five year plan (1969-1974)

Fifth five year plan (1974-1979)

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ANNUAL PLAN FROM 1990 TO 1992

Eighth five year plan(1992-1997)

It was the beginning of privatisation and liberalization in India.

Tenth five year plan (2002-2007)

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Objectives of Industrial Policy

Objectives of New Industrial Policy

Why NIP 1991?

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Positives & Negatives

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Compulsions for licensing

2) For Setting Up of New Industrial Units:-

3) For Substantial Expansion:-

4) Location of Industrial Units:-

5) For Producing Articles Reserved In Small-Scale Industries:-