1

BUSINESS ENVIRONMENT

STUDY PAPERS

AS PER

SCIENCE COLLEGE AUTONOMOUS, HINJILICUT

SYLLABUS

(2021)

PRESENTED BY: PRITAM KUMAR JENA

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CONTENTS

S.L NO. CHAPTER PAGE

NO.

1 UNIT-I An Overview of Business 3-16

Environment

2 UNIT-II Economic Environment 17-42

3 UNIT-III Political and Legal Environment 43-77

4 UNIT-IV Socio-cultural Environment 78-89

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UNIT-1

Modern Business
A modern business is that which use the latest in technology on their benefit, in order to maintain
a competitive advantage over their competitors. Committed deeply to delivering individual, social
and environmental value. That is tightly aligning with the creation of economic value for its
stakeholders.

Characteristics/nature of a modern business

1. Economic activity:
Business is an economic activity of production and distribution of goods and services. It provides

employment opportunities in different sectors like banking, insurance, transport, industries, trade

etc. it is an economic activity corned with creation of utilities for the satisfaction of human wants.

It provides a source of income to the society. Business results into generation of employment

opportunities thereby leading to growth of the economy. It brings about industrial and economic

development of the country.

2. Buying and Selling:

The basic activity of any business is trading. The business involves buying of raw material, plants

and machinery, stationary, property etc. On the other hand, it sells the finished products to the

consumers, wholesaler, retailer etc. Business makes available various goods and services to the

different sections of the society.

3. Continuous process:
Business is not a single time activity. It is a continuous process of production and distribution of

goods and services. A single transaction of trade cannot be termed as a business. A business

should be conducted regularly in order to grow and gain regular returns. Business should

continuously involve in research and developmental activities to gain competitive advantage. A

continuous improvement strategy helps to increase profitability of the business firm.

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4. Profit Motive:
Profit is an indicator of success and failure of business. It is the difference between income and

expenses of the business. The primary goal of a business is usually to obtain the highest possible

level of profit through the production and sale of goods and services. It is a return on investment.

Profit acts as a driving force behind all business activities.

Profit is required for survival, growth and expansion of the business. It is clear that every business

operates to earn profit. Business has many goals but profit making is the primary goal of every

business. It is required to create economic growth.

5. Risk and Uncertainties:

Risk is defined as the effect of uncertainty arising on the objectives of the business. Risk is

associated with every business. Business is exposed to two types of risk, Insurable and Non-

insurable. Insurable risk is predictable.

Predictable factors are controllable to some extent, such as:

a) Taxes

b) Change in the volume of expected sales

c) Cost of supplies and equipment

d) Overhead costs

e) Salaries

f) Cost of goods and services offered

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Unpredictable factors include:

a) Changes in trends and tastes of customers.

b) Impact of the local economy on customer base.

c) Any unexpected action taken by your competitors.

The calculation and management of the risk is vital to ensure the success of a business firm.

Insurance and Risk management helps in minimizing the risk associated with the business.

6. Creative and Dynamic:

Modern business is creative and dynamic in nature. Business firm has to come out with creative

ideas, approaches and concepts for production and distribution of goods and services. It means to

bring things in fresh, new and inventive way.

One has to be innovative because the business operates under constantly changing economic,

social and technological environment. Business should also come out with new products to satisfy

the growing needs of the consumers.

7. Customer satisfaction:
The phase of business has changed from traditional concept to modern concept. Now a day,

business adopts a consumer-oriented approach. Customer satisfaction is the ultimate aim of all

economic activities. Modern business believes in satisfying the customers by providing quality

product at a reasonable price. It emphasize not only on profit but also on customer satisfaction.
Consumers are satisfied only when they get real value for their purchase. The purpose of the

business is to create and retain the customers. The ability to identify and satisfy the customers is

the prime ingredient for the business success.

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8. Social Activity:
Business is a socio-economic activity. Both business and society are interdependent. Modern

business runs in the area of social responsibility. Business has some responsibility towards the

society and in turn it needs the support of various social groups like investors, employees,

customers, creditors etc. by making goods available to various sections of the society, business

performs an important social function and meets social needs. Business needs support of different

section of the society for its proper functioning.

9. Government control:
Business organisations are subject to government control. They have to follow certain rules and

regulations enacted by the government. Government ensures that the business is conducted for

social good by keeping effective supervision and control by enacting and amending laws and rules

from time to time.

Some important acts framed by the government include:

i. The Competition Act, 2002

ii. Foreign Exchange Management Act, 1999

iii. The Environment Act, 1986

iv. Indian Companies Act, 1956

v. Consumer protection Act

10. Optimum utilisation of resources:

Business facilitates optimum utilisation of countries material and non-material resources and

achieves economic progress. The scarce resources are brought to its fullest use for concentrating

economic wealth and satisfying the needs and wants of the consumers.
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Meaning of Business Environment

No business can exist in a vacuum. The rapidly changing business environment might shorten the
life of a given strategy. The external changes might influence the activities and quality of decisions
of both the firm and its competitors. George Salk says, “If you’re not faster than your competitor,
you’re in a tenuous position, and if you’re only half as fast, you’re terminal.” environmental analysis
is the critical starting point of strategic thinking.” Charles Darwin has said, “It is not the strongest
of the species that survive nor the most intelligent, but the one most responsive to change.

Concept of Business Environment

Managers must have a deep understanding and appreciation of the environment in which they and
their organisations function. The environment of business is the ‘aggregate of conditions, events
and influences that surround and affect it’ (Davis).
Since the organisation is part of a broader social system, it has to work within the framework
provided by the society and its innumerable constituents.

Significance of Business Environment

Some of the direct benefits of understanding the business environment are given below:
1. Customer Focus: Environmental understanding makes the management sensitive to the changing
needs and expectations of consumers. For example: Hindustan Lever and several other FMCG
companies launched small sachets of shampoo and other products realising the wishes of
customers. This move helped the firms to increase sales.
2. Strategy Formulation: Environmental monitoring provides relevant information about the
business environment. Such information serves as the basis for strategy making. For example: ITC
realised that there is a vast scope for growth in the travel and tourism industry in India and the
government is keen to promote this industry because of its employment potential. With the help of
this knowledge ITC planned new hotels both in India and abroad.
3. Public Image: A business firm can improve its image by showing that it is sensitive to its
environment and responsive to the aspirations of public. Leading firms like Reliance Industries,
ICICI Bank and others have others have built good image by being sensitive and responsive to
environmental forces. Environmental understanding enables business to be responsive to their
environment.
4. Continuous learning: Environmental analysis serves as broad based and ongoing education for
business executives. It keeps them in touch with the changing scenario so that they are never are
caught unaware. With the help of environmental learning managers can react in an appropriate
manner and thereby increase the success of their organisations.
5. Giving Direction for Growth: The interaction with the environment leads opening up new frontiers
of growth for the business firms. It enables the business to identify the areas for growth and
expansion of their activities.
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6. Change Agent: Business leaders act as agents of change. They create a drive for change at the
grass root level. In order to decide the direction and nature of change, the leaders needs to
understand the aspirations of people and other environmental forces through environmental
scanning. For example: contemporary environment requires prompt decision-making and power
to people. Therefore, business leaders are increasingly delegating authority to empower their staff
and to eliminate procedural delays.

Types of Business Environment

Internal environment refers to those factors within an organisation e.g Policies and
programmes, organisational structure, employees, financial and physical resources.
These factors can be changed or altered and hence are known as controllable
factors.

Internal Environment Factors

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i. Values system: The values of the founder/ owner of the business , percolates down to the entire
organisation and has a profound effect on the organisation. The success of an organisation depends
upon the sharing of value system by all members. External business associates like suppliers and
distributors consider the value system practised by an organisation with strong culture of ethical
standards and values.

ii. Vision and objectives: The vision and objectives of a business guides its operations and strategic
decisions. Example ‘Amul the taste of India’ Gujarat Co-operative Milk Marketing Federation
GCMMF

Two Indian companies TATA Steel and WIPRO have been named as the world’s most ethical
companies by American Think tank Ethisphere Institute. Infosys, Murugappa group, TVS group

Vision: Liberate our farmers from economic oppression and lead them to prosperity.

iii. Management structure and ature: The structure of management/board and their style of
functioning, the level of professionalism of management, the composition of the board are the
various factors which affects the decision making. Since the board is the highest decision making
authority, it’s composition, degree of professionalism and style of operations plays a very critical
role in the growth and development in an organisation.

iv. Internal power relations: This refers to the internal power relations that exist in an organisation.
The relations among board members , between board members and the CEO and the level of
support enjoyed by the board from its’ stakeholders namely employees and shareholders are
significant factors which affects decision making and its implementation in an organisation.

v. Human resources : The success of an enterprise is solely dependent on its manpower. Therefore
the quality, skill competency, right attitude and commitment of its human resources is essential
for the success of an organisation.

vi. Company image: The image of an organisation plays an important role in introducing new
products, selecting agents and dealers for distribution, forging alliances with suppliers, expanding
and entering new markets both domestic and international, raising finance etc.

vii. Other factors: The firm’s ability to innovate reflected by its research and development, the
strength of its financial position and the capital structure, the efficiency in managing the marketing
and distribution network ,and the physical resources like plant, building technology are the other
major factors on which affects the success of a business.

External Environment :

The external environment is relatively watched compared to the internal business environment. It
is composed of various organizations institutions and other forces which operate beyond the
control of the organization.
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Micro Environment
Micro Environment Factors

This refers to those factors which are in the immediate environment of a business affecting its
performance.

i) Financiers: The financiers of a business which includes the debenture holders and financial
institutions play a significant part in the running of a business. Their financial capability, policies
strategies, attitude towards risk and ability to give non–financial assistance are all important to a
business.

ii) Suppliers: In any organisation the suppliers of raw materials and other inputs play a very vital
role. Timely procurement of materials from suppliers enables continuity in production and reduces
the cost of maintaining stock/inventory. Organisations generally obtain supplies from a panel of
suppliers instead of relying on a single source. Organisations have realised the importance of
nurturing and maintaining good relationship with the suppliers.

iii) Marketing Channel members: The marketing inter-mediaries serve as a connecting link
between the business and its customers .The middlemen like dealers, wholesalers and retailers
ensure transfer of product to customers .physical distribution is facilitated by transporters, and
warehouses help in storing goods. Market research agencies help the firm to understand the needs
of the customers while advertising agencies help in promoting the products and services.
Insurance firm is another marketing intermediary which provides coverage for risk in business.

iv) Public This refers to any group like media group, citizen action group and local public which has
an impact on the business. The public group has the ability to make or mar a business. Many
companies had to face closure due to actions by local public.

v) Customers: The aim of any business is to satisfy the needs of its customers. The customer is the
king and the fulcrum around which the business revolves. Hence it is essential for any business to
understand the needs of its varied customers like individuals, retailers, wholesalers, industries
and government sector. Customer relationship management aims at creating and sustaining
cordial relations with customers.

vi) Competitors: All organisations face competition at all levels local, national and global.
Competitors may be for the same product or for similar products. It is important for a business to
understand its competitors and modify their business strategies in the face of competition.
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Macro Environment:
Macro Environment Factors

This is the general or overall environment in which the business operates. The success of a
business is dependent on its ability to adapt to the macro environment, since these are
uncontrollable factors. They offer enormous opportunities to business and also poses serious
threats to business.

I. Economic environment: The business is an integral part of the economic system prevalent in a
nation. The multiple variables in the macro environment system which has a bearing on a business
include

1) The nature of economy based on the stage of development: The countries across the globe can
be categorised on the basis of growth and per capita income as developed nations, developing
nations and under developed nations. The USA, Japan, Germany, Canada and Australia developed
economies generally have high degree of technological advancement, very strong and robust
industrial base, and high standard of living. Many of these developed nations have successfully
integrated the computer based technologies with their existing business. Developing nations like
India, China, Brazil Mexico are middle income economies are characterised by low to moderate
industrial growth, the inequality in the distribution of income, high population, a low standard of
living and slow absorption of technology. Under developed nations are low income economies with
a very low degree of technology adoption and a very poor standard of living.

2) The nature of economic system: The economic systems can be classified as Capitalistic,
Socialistic and Mixed economy. Capitalistic economy is a free enterprise market where individual
ownership of wealth is predominant. Socialistic economy is a state controlled with a lot of
restrictions on private sector. Mixed economy is a combination of both state owned and private
sector ownership.

3) The economic policies of a nation: Monetary policy, fiscal policy, Export-import policy, Industrial
policy Trade policy, Foreign exchange policy etc are part of the economic environment.

4) Economic indices: The Economic indices like GDP, GNP national income, per-capita income,
balance of payments, rate of savings and investments etc. form an important part of economic
environment.

5) Development of financial market: The organisation and development of money market, capital
market securities market and, the banking system has a greater impact.

6) Economic structure: The Economic structure includes capital formation, investment pattern,
composition of trade balance, occupational distribution of workforce, and the structure of national
output.

II. Socio-Cultural environment - Business is a part of the society .Social environment refers to the
sum total of factors of the society in which the business is located. Social and cultural environment
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of society affects the business. It is dynamic and includes the behaviour of individuals, the role and
importance of family, customs, traditions, beliefs and values, religion and languages, the ethical
values. The literacy level, and the social attitudes of the people of the society. The socio-cultural
environment also includes the following;

1) The social institutions and groups

2) Family structure prevalent in the society

3) Role of marriage as an institution

4) Caste system in the society

5) Customs , beliefs and values

6) Demographic factors which includes the size, composition, literacy level, distribution and
mobility of the population

7) The lifestyle of people and their tastes, likes and preferences.

III. Political and Legal environment – The framework for running a business is given by the political
and legal environment. The success of a business lies in its ability to adapt and sustain to political
and legal changes. The legislative, executive and judiciary are the three political institutions which
directs and influences a business. The major elements of the legal and political environment are

1) Political stability is reflected by the following parameters like the election system, the law and
order situation, the role and structure of Military and Police force, the declaration of President’s
rule, civil war etc

2) Political organisation refers to the ideology and philosophy of the political parties, the
government, the role and degree of authority of bureaucracy, the level of political consciousness
among citizens and the funding of political parties by business houses and the clout wielded by
them.

3) The image of the leader and the country in the inter-national arena.

4) Legal framework of business and their degree of flexibility.

5) The constitution of the nation.

6) The Foreign policy of the country with special reference to tariffs and free trade.

IV. Geo-physical environment – The natural, geographical and ecological factors have a bearing on
the business. These are as follows;

1) the availability of natural resources like minerals oil .etc, since setting up of industries requires
availability of raw materials
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2) the weather and climatic conditions and availability of water and other natural resources is
essential for the agricultural sector .

3) topographical factors like the terrain impacts type of business since the demand and
consumption pattern may vary in these regions. E.g in the the hilly region mode of transport will
have to be modified to tackle the terrain.

4) ecological factors are now gaining momentum, since the governments across the globe are
framing stringent policies for ecological conservation and prevention of pollution. The ban on use
of plastic bags imposed by the Ooty corporation is an example.

5) location of certain industries is influenced by the geographical conditions For e.g In Tamilnadu
the concentration of cotton textile industry in Coimbatore is due to conducive weather conditions.
.

6) availability of natural harbours and port facilities for transporting goods .

V. Technological environment

The development in the IT and telecommunications has created a global market. Technology is
widely used in conducting market research for understanding the special needs of the customer.
Digital and social media are used as a platform for advertising and promoting the
products/services. Data-mining and data analytics are used to know the customer better.
Technology is used in managing inventory, storing goods in warehouses, in distributing goods and
in receiving payment. This dynamic environment also includes the following ;

1) the level of technology available within the country

2) rate of change in technology

3) technology adopted by competitors

4) technological obsolescence

VI. Global environment

With the rapid growth of technology the physical boundaries are fast disappearing and the new
global market is emerging. The international environmental factors which affects a business are
as follows;

1) Differences in language and culture

2) Differences in currencies
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3) Differences in norms and practices

4) Differences in tastes and preferences of people

5) The tax structure relating to import and export.

6) Differences in the degree of adoption of technology.

Environmental Analysis
An environmental analysis is a strategic analysis tool to identify all of the external and internal
factors that can affect a company's performance. The purpose is to assess the level of risk various
environmental factors pose as well as the business opportunities they present. The analysis
considers the company's strengths and weaknesses and how they affect the ability to handle
external threats/opportunities.

Environmental Analysis Process

1. Identify environmental factors
To conduct an environmental analysis, start by selecting environmental factors to evaluate. This
depends on your type of industry. For instance, if you work for a healthcare facility, you may want
to consider legal factors, such as health and safety regulations. When selecting factors, choose
ones that have the potential to impact how you do business.

2. Gather information
Once you decide which factors to evaluate, collect information related to your selected
environmental factors. Here you may observe your factors and do some research. There are two
main types of information to collect: verbal and written information. Individuals obtain verbal
information through hearing, such as listening to a radio broadcast, whereas they obtain written
information by reading sources, such as a newspaper or magazine. Using the above example, this
would involve researching online and in medical magazines to see if there were any changes to
health and safety regulations that may impact your health facility.

3. Evaluate your competitors

To determine if there are any threats from your competitors, you may want to collect information
about them. You can do this using a technique called spying, where you collect information in a
non-traditional way. Using the same scenario, you may spy on a nearby health facility to learn
about their recent activities, such as a new branch opening.
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4. Forecast the impact

Forecasting allows you to predict how certain environmental factors may impact your business.
This allows you to anticipate potential threats or opportunities. When forecasting, there are a
variety of methods to use, such as brainstorming and surveying. Continuing with the same example,
the health facility may forecast that the new branch opening at their competitor's facility may take
away some of their patients.

5. Assess your strategies

Finally, assess your current and potential strategies to determine how the projected environmental
changes may affect your organization. This helps you resolve potential challenges that may have
resulted from the factors. For instance, the health facility may want to create a new strategy for
how they plan to address the decrease in clients due to their competitor's new branch.

Advantages of Environmental Analysis

1. Helps in Achieving 0bjectives

When a company neglects to adjust its strategy to the business environment, or does not react to
the demands of the environment by changing its strategy, the company cannot achieve success in
attaining its objectives. However, environmental analysis enables the business enterprises to
study the environment and formulate the strategies accordingly, which will result in successful
attainment of objectives.
2. Identification of Threats
Business Environment analysis and diagnosis give businessmen time to anticipate opportunities
and to plan to take optional response to these opportunities. It also helps strategies to develop an
early warning system to prevent threats or to develop strategies, which can turn a threat to the
firm’s advantage.

3. Happenings in the Market Place

Every firm should be in constant touch with the market place and should be aware of what is
happening in the marketplace. If the company fails to adjust or react to the demands of the
environment, by changing their strategies, it can’t achieve corporate objectives.

4. Threats Inherent in any Opportunity

Business Environmental diagnosis helps the businessmen in two ways. 1. He can ascertain the
possible threats to the business. This will enable him to take proper preventive measures. 2. He
can identify the opportunities and avenues in which the businessman can operate successfully and
achieve the object.

5. Forecasting the Future

Changes in the environment are often frequent and all of a sudden. Moreover, such changes cannot
be predicted precisely well in advance. Again the entrepreneur can anticipate only a few of such
changes and not all. If the anticipations and expectations are precise and accurate, the decisions
are likely to be better. Hence business environment analysis helps to forecast the future prospects
of the business concern.
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6. Threats and Opportunities

Some factors of the environment present threats to the company’s present strategy and the
accomplishment of the objectives. While some factors, on the other hand, present greater
opportunities for a great accomplishment of the objectives. A thorough analysis of the
environmental factors shall enable the analyst to recognize the inherent risk involved and also
enable him to take advantage of the opportunities.

In every threat there is an opportunity and in every opportunity there is a threat. By properly
analysing the environment and anticipating the changes likely to occur in the environment, the
business manager can estimate the future and adjust his plans accordingly. Of course, not all the
future events can be anticipated but some can and are, the extent to which the expectations are
accurate, managerial decisions are likely to be better. Moreover, the process of environmental
analysis reduces the time pressures on a few which are not anticipated.

Limitations or Disadvantages of Environment Analysis

Environmental analysis suffers from certain limitations also. These limitations are as
follows:

1. Lack of Forewarning of Unforeseen Events

Environmental analysis does not predict the future. It does not eliminate uncertainty for the
organization also. Business enterprises sometimes face events, which are unexpected during
analysis. Environmental analysis, however, should aim at minimizing the frequency and extent of
surprises that may attack a business organization.

2. No Assurance as to Organization Effectiveness

Environmental analysis does not ensure organizational effectiveness. It acts only as inputs in
strategy development and testing. Sometimes, managers place uncritical faith in the data without
thinking about the data’s verifiability or accuracy. If this is the case, it may lead to misleading
outcome.

3. Not fully Reliable

Normally, people place too much reliance on the information collected through environmental
scanning. But in practice, it is not so. When there is overloading of information, one is likely to get
confused.

4. Absence of Strategic Approach

Success of any organization lies in adventure and strategic risk-taking. Environmental analysis
often makes an individual too cautious in his approach and he is likely to be left behind the events.
So this analysis should be strategically done.
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UNIT-2
What Is Economy ?
An economy is a system of organizations and institutions that either facilitate or play a role in the
production and distribution of goods and services in a society. Economies determine how
resources are distributed among members of a society; they determine the value of goods or
services; and they even determine what sorts of things can be traded or bartered for those services
and goods.
How a society structures its economic system is largely a political and social issue. The political
and legal structure of a society will govern how wealth can be accumulated, how wealth and
resources are distributed, and the manner of competition permitted between different participants
in the economy.

What Is Economics?
Economics is a social science concerned with the production, distribution, and consumption of
goods and services. It studies how individuals, businesses, governments, and nations make
choices about how to allocate resources. Economics focuses on the actions of human beings,
based on assumptions that humans act with rational behaviour, seeking the most optimal level of
benefit or utility. The building blocks of economics are the studies of labour and trade. Since there
are many possible applications of human labour and many different ways to acquire resources, it
is the task of economics to determine which methods yield the best results.

Economics can generally be broken down into macroeconomics, which concentrates on the
behaviour of the economy as a whole, and microeconomics, which focuses on individual people
and businesses.

What Is the Economic Environment in Business ?

The economic environment consists of external factors in a business market and the broader
economy that can influence a business. You can divide the economic environment into the
microeconomic environment, which affects business decision making - such as individual actions
of firms and consumers - and the macroeconomic environment, which affects an entire economy
and all of its participants. Many economic factors act as external constraints on your business,
which means that you have little, if any, control over them. Let's take a look at both of these broad
factors in more detail.
Macroeconomic influences are broad economic factors that either directly or indirectly affect the
entire economy and all of its participants, including your business. These factors include such
things as:

• Interest rates
• Taxes
• Inflation
• Currency exchange rates
• Consumer discretionary income
• Savings rates
• Consumer confidence levels
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• Unemployment rate
• Recession
• Depression

Microeconomic factors influence how your business will make decisions. Unlike macroeconomic
factors, these factors are far less broad in scope and do not necessarily affect the entire economy
as a whole. Microeconomic factors influencing a business include:

• Market size
• Demand
• Supply
• Competitors
• Suppliers
• Distribution chain, such as retail stores

Nature of the Economy

Since independence India has been a 'Mixed Economy'. Indian economy is basically based in the
contribution of service sector (currently provides 60% share of GDP) and near about 53% of its
population is dependent on the Agriculture.

Since independence India has been a 'Mixed Economy'. India's large public sectors were
responsible for rendering the country a 'mixed economy' feature. Indian economy is basically based
in the contribution of service sector (currently provides 60% share of GDP) and near about 53% of
its population is dependent on the Agriculture. As soon as the time is passing, the share of
Agriculture is decreasing and share of service sector is increasing. Currently India is called a
developing economy of the world.

Additional nature of the Economy

1. Since independence India has been a 'mixed economy'. India's large public sectors were
responsible for providing employment and revenue to the economy.

2. India’s share in global exports and imports increased from 0.7% and 0.8% respectively in 2000 to
1.7% and 2.5% in 2012 as per the WTO estimates.

3. Indian economy overview was highly inspired by Soviet Union's practices post-independence. It
had been recording growth rate not greater than five jumped till 1980s. This stagnant growth was
termed by many economists as 'Hindu Growth Rate'.

4. In 1992, the country ushered into liberalization regime. Thereafter, the economy started scaling
upward. This new trend in growth was called 'New Hindu Growth Rate'.

5. India's diverse economy encompasses traditional village farming, modern agriculture,

handicrafts, a wide range of modern industries and a multitude of services.
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6. Services are the major source of economic growth, accounting for more than half of India's
output with less than one third of its labour force.

Current Analysis

1. The current GDP factor cost is (at 2004-05 prices) Rs. 5748564 cr (2013-14)

2. Per capita Income (at current prices) Rs. 74920 (2013-14)

3. Gross domestic saving rate (at current market price as % of GDP) for 2-11-12 is 30.8%

4. Tertiary sector contributes 56% of GDP (2012-13).

5. Total food grain production is 265 million tone (2013-14).

6. India’s share in world export is 1.8% of total trade.

7. India’s share in total world import is 2.5%.

8. Total size of Indian population is 1.26 bn (2014).

9. Beating America and China, India saw the highest FDI inflow for new projects among all nations
in the first half of calendar 2015. To boot, India attracted $31 billion against $12 billion in the first
half of last year in capital expenditure (Capex) from foreign companies, while China and the US
attracted $28 billion and $27 billion, respectively, in the same period.

10. Total size of foreign exchange reserve of India is $ 330 bn in 2015.

11. Exports of top five sectors — engineering, petroleum, gems and jewelery, textiles and
pharmaceuticals - fell by about 25% to $13.33 billion in August 2015 due to global demand slowdown.
These five sectors accounted for about 65% of the country's total merchandise exports in 2014-15.
In August last year, exports of these sectors stood at $17.79 billion.

12. Poverty Estimation:

i. The Rangarajan panel's recommendation (those who spends Rs 32 in a day in rural areas and Rs
47 in towns and cities should not be considered poor,), results in an increase in the below poverty
line population, which is estimated at 363 million in 2011-12, compared to the 270 million estimate
based on the Tendulkar formula — an increase of almost 35%.

ii. This means 29.5% of the India population lives below the poverty line as defined by the Rangarajan
committee, as against 21.9% according to Tendulkar. For 2009-10, Rangarajan has estimated that
the share of BPL group in total population was 38.2%, translating into a decline in poverty ratio by
8.7 percentage points over a two-year period.

Indian economy is a mixed economy (combination of public and private sector). Currently India is
considered as one of the most developing economy of the world because of its nature: part of
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agriculture in total GDP is decreasing, part of service sector is increasing or the contribution of
tertiary sector is increasing in the GDP on year to year basis.

Structure of the Economy

Economic structure comprises a broad array of economic characteristics that may support (and
also result from) innovation. These include the prosperity of the local economy, its employment
structure, and the competitiveness of area businesses.

What Is Economic Policy?

An economic policy is a course of action that is intended to influence or control the behavior of the
economy. Economic policies are typically implemented and administered by the government.
Examples of economic policies include decisions made about government spending and taxation,
about the redistribution of income from rich to poor, and about the supply of money. The
effectiveness of economic policies can be assessed in one of two ways, known
as positive and normative economics.

Positive and normative economics. Positive economics attempts to describe how the economy and
economic policies work without resorting to value judgments about which results are best. The
distinguishing feature of positive economic hypotheses is that they can be tested and either
confirmed or rejected. For example, the hypothesis that “an increase in the supply of money leads
to an increase in prices” belongs to the realm of positive economics because it can be tested by
examining the data on the supply of money and the level of prices.

Normative economics involves the use of value judgments to assess the performance of the
economy and economic policies. Consequently, normative economic hypotheses cannot be tested.
For example, the hypothesis that “the inflation rate is too high” belongs to the realm of normative
economics because it is based on a value judgment and therefore cannot be tested, confirmed, or
refuted. Not surprisingly, most of the disagreements among economists concern normative
economic hypotheses.

Goals of economic policy.

The goals of economic policy consist of value judgments about what economic policy should strive
to achieve and therefore fall under the heading of normative economics. While there is much
disagreement about the appropriate goals of economic policy, several appear to have wide,
although not universal, acceptance. These widely accepted goals include:

1. Economic growth: Economic growth means that the incomes of all consumers and
firms (after accounting for inflation) are increasing over time.
2. Full employment: The goal of full employment is that every member of the labor force
who wants to work is able to find work.
3. Price stability: The goal of price stability is to prevent increases in the general price
level known as inflation, as well as decreases in the general price level known as
deflation.
 21

Economic Policies
1. Industrial Policy:
The first Industrial Policy based on the mixed economy principle was announced in 1948 which
demarcated clearly the areas of operation of the public and private sectors. This policy was revised
in 1956 which laid greater emphasis on the expanding role of the public sector. This was in keeping
with the Mahalanobis strategy of industrialisation embodied in the Second Five Year Plan (1956-
1961).

The basic instrument of control was given by the Industries (Development and Regulation) Act, 1951,
which provided the legislative framework for licensing of industrial investment in the country. The
MRTP Act, 1970—another regulatory mechanism—aimed at controlling the concentration of
economic power in the hands of a few big monopoly business houses. The FERA, 1973, was designed
to control foreign investment in India. All these controls and regulations were consistent with the
broad ISI policy.

2. Trade Policy:
What should be the appropriate trade policy or commercial policy of a country? The issue was first
raised by the classical authors. However, they were the champions of free trade. The two giant
advocates of free trade—Adam Smith and David Ricardo—about two hundred years ago argued that
free flow of goods and services, i.e., unrestricted trade, would be beneficial.

As a result of free trade, each country specialises in production in which it has a comparative
advantage. This will enable each country to reap gain from trade. After the Second World War (1939-
1945), commercial policy underwent a change when the wave of protectionism swept all over the
world. It was argued at that time that though some trade is better than no trade, there is no reason
to suppose that free trade is the best.

3. Monetary Policy:
Monetary policy or credit policy concerns itself with the cost (i.e., the rate of interest) and the
availability of credit to affect the overall supply of money. The hallmark of the RBI’s monetary policy
in the 1950s was that of controlled monetary expansion. To supplement the process of macro
stabilisation and structural adjustment programmes launched in mid-1991, monetary policy has
been redesigned. Market-oriented reforms (such as interest rate liberalisation, entry of private
Indian and foreign banks, development of alternative system of monetary controls, etc.), are being
constantly made since monetary policy measures are continuous.
 22

The Three Instruments of Monetary Policy:

The monetary authority controls the money supply directly and/or indirectly by altering either the
monetary base or the reserve-deposit ratio. To do this, the monetary authority has at its disposal
three main instruments of monetary policy: open-market operations, reserve requirements and
the discount rate.

Open-market Operations are the purchases or sales of government bonds by the Central
Bank/monetary authority. When it buys bonds from the public, the money it pays for bonds
increases the monetary base and thereby increases money supply. When it sells bonds to the
public, the money it receives reduces the monetary base and thus decreases the money supply.
Open-market operations are the most-often used policy instrument of the Central Bank.

Reserve Requirements are Central Bank regulations that impose on banks a minimum reserve-
deposit ratio. An increase in reserve requirement raises the reserve-deposit ratio and thus lowers
the money multiplier and the money supply. This is the least-frequently used instrument.

The discount rate is the interest rate that the Central Bank (BOE) charges when it makes loans to
banks. Banks borrow from the Central Bank (CB) when they find themselves with too few reserves
to meet reserve requirements. The lower the discount rate, the cheaper are borrowed reserves
and the more banks borrow at the CB’s discount window. Hence, a reduction in the discount rate
raises the monetary base and the money supply.

Although these instruments give the CB substantial power to influence the money supply, the CB
cannot control money supply perfectly. Bank discretion in conducting business can cause the
money supply to change in. ways the CB did not anticipate.

4. Fiscal Policy:
Another arm of economic policy is the fiscal policy which is concerned with the policy of taxation,
expenditure and borrowing. Fiscal policy as evolved over time has resulted in a tax structure with
its great reliance on indirect taxation. As it has failed to contain non-plan expenditures, reinvestible
surpluses could not be generated. The government then relied on deficit financing and public
borrowing.

All these widened fiscal deficit. However, the situation worsened in the early 1990s when fiscal
imbalances rose to an unprecedented height. Necessary fiscal policy measures were made, first
in mid-1991. Since then fiscal policy has been aiming at promoting a market-led development of the
economy. For instance, a continuous effort is being made even today to simplify both the tax
structure and tax laws.
 23

In its new fiscal policy, the Government has taken initiative to strengthen methods of expenditure
control. Above all, the new fiscal policy aims at improving allocation of resources in terms of
market principles. It aims at giving demand stimulus on the one hand, and restraining supply on
the other hand by calibrating tax rates.

5. Indian Agricultural Policy:

Immediately after independence, the country was faced with two major problems: food crisis and
shortage of industrial raw materials. The major objectives of the First Plan in the field of agriculture
were to correct the imbalances caused by Partition in the supply of food grains and commercial
crops and improve infrastructural facilities.

Agriculture, including irrigational power, was, therefore, accorded the highest priority. However,
Indian agriculture is characterised by low productivity and backwardness. This demanded agrarian
reforms. In fact, there are two ways of improving productivity in agriculture institutional and
technological.

At the time of launching of the First Five Year Plan (1951), socialists believed that institutional
factors were responsible for low productivity. Another school of thought pointed to the
technological backwardness as the prime factor in holding back agricultural production.

Ultimately, institutional measures dominated the government’s agricultural policy up to mid-1960s.

In the mid-60s, technological measures were introduced. High priority was accorded to technology
as a major input. Focus now shifted to broadening base of agricultural growth and modernisation
through infrastructure development: irrigation, drainage, roads, markets and credit institutions,
extension of new technology, appropriate price and procurement policies, etc.

9. Exchange Rate Management Policy:

Although a nation’s BOP always balances in the accounting sense, it need not balance in an
economic sense. An unbalance in the BOP account has the following implications.

In the case of a deficit:

(i) Foreign exchange or foreign currency reserves decline,

(ii) Volume of international debt and its servicing mount up, and

(iii) The exchange rate experiences a downward pressure. It is, therefore, necessary to correct
these imbalances

.
 24

BOP adjustment measures are grouped into four:

(i) Protectionist measures by imposing customs duties and other restrictions, quotas on imports,
etc., aim at restricting the flow of imports,

(ii) Demand management policies—these include restrictionary monetary and fiscal policies to
control aggregate demand [C + I + G + (X – M)],

(iii) Supply-side policies—these policies aim at increasing the nation’s output through greater
productivity and other efficiency measures, and, finally,

(iv) exchange rate management policies— these policies may involve a fixed exchange rate, or a
flexible exchange rate or a managed exchange rate system.

10. EXIM Policy:

The Exim Policy (1997-2002):
The export-import policy for five years 1997- 2002 (co-terminus with the Ninth Plan) was an-
nounced on March 31, 1997.

Four important objectives of the policy are the following:

1. The primary objective is to make India’s transitions to a globally-oriented vibrant economy faster
with a view to deriving the maximum benefits from expanding global opportunities.

2. The second objective is to promote faster economic growth which can be sustained in the long
run. This is possible by providing access to essential raw materials, intermediate goods, com-
ponents and commodity and capital goods required for increasing domestic production.

3. The third objective is to enhance the technological strength and efficiency of Indian agriculture,
industry and services with a view to improving their competitiveness in the world market as also
for enabling Indian products to attain internationally accepted standards of quality.

4. The fourth and final objective is to provide consumers with quality products at acceptable prices.

Economic Conditions
Economic conditions refer to the present state of the economy in a country or region. These
conditions change over time along with the economic and business cycles, as an economy goes
through periods of expansion and contraction. Economic conditions are considered to be sound or
positive when an economy is expanding and are seen as adverse or negative when an economy is
contracting.
 25

Understanding Economic Conditions

A country's economic conditions are influenced by numerous macroeconomic and microeconomic
factors, including monetary and fiscal policy, the state of the global economy, unemployment
levels, productivity, exchange rates, inflation and many others.

Economic data is released on a regular basis, generally weekly or monthly and sometimes
quarterly. Some economic indicators like the unemployment rate and GDP growth rate are
monitored closely by market participants, as they help to make an assessment of economic
conditions and potential changes in them. A plethora of economic indicators can be used to define
the state of the economy or economic conditions, including the unemployment rate, levels of
current account and budget surpluses or deficits, GDP growth rates and inflation rates.

Generally speaking, economic indicators can be categorized as leading, coincident or lagging. That
is, they describe likely future economic conditions, current economic conditions or conditions of
the recent past. Economists are typically most interested in leading indicators as a way to
understand what economic conditions will be like in the next three to six months. For example,
indicators like new orders for manufactured goods and new housing permits indicate the pace of
future economic activity as it relates to the rate of manufacturing output and housing construction.

Why Economic Conditions Matter for Investors and Businesses

Indicators of economic conditions provide important insights to investors and businesses.
Investors use indicators of economic conditions to adjust their views on economic growth and
profitability. An improvement in economic conditions would lead investors to be more optimistic
about the future and potentially invest more as they expect positive returns. The opposite could
be true if economic conditions worsen. Similarly, businesses monitor economic conditions to gain
insight into their own sales growth and profitability. A fairly typical way of forecasting growth
would be to use the previous year's trend as a baseline and augment it with the latest economic
data and projections that are most relevant to their products and services. For example, a
construction company would look at economic conditions in the housing sector to understand
whether momentum is improving or slowing and adjust its business strategy accordingly.

Importance of Economic Conditions

• The economic cycle, or business cycle, can be determined by monitoring the trend of upward
and downward movements of Gross Domestic Product (GDP).
• Virtually everyone is a participant in the market economy. Everyone plays a role in either
consuming or producing goods and services.
• The success of the market-based economy depends on the fact that it makes everyone
better off by producing and consuming more goods and services over time. It is measured
by GDP, which provides a rough depiction of the overall wealth of an economy.
• As everyone participates in the overall economy, it reasonably follows that everyone is
somehow impacted by economic conditions. It is in the best interest for the economy to
continuously expand and for everyone to continue accumulating more wealth.
• When economic conditions are strong and the economy is in a period of economic expansion,
generally speaking, everyone is better off. Businesses generate profits and hire more
employees, which leads to more disposable income that is spent to generate more profits
in a virtuous cycle.
 26

• However, when economic conditions are weak and the economy is in a period of economic
contraction, generally speaking, everyone ends up being worse off. Businesses begin losing
money and laying off employees, which leads to less disposable income and less consumer
spending, resulting in less income for businesses in a vicious cycle.

Government policies
government economic policy, measures by which a government attempts to influence the economy.
The national budget generally reflects the economic policy of a government, and it is partly through
the budget that the government exercises its three principal methods of establishing control: the
allocative function, the stabilization function, and the distributive function.

Over time, there have been considerable changes in emphasis on these different economic
functions of the budget. In the 19th century, government finance was primarily concerned with the
allocative function. The job of government was to raise revenue as cheaply and efficiently as
possible to perform the limited tasks that it could do better than the private sector. As the 20th
century began, the distribution function acquired increased significance. Social welfare benefits
became important, and many countries introduced graduated tax systems. In the later interwar
period, and more especially in the 1950s and ’60s, stabilization was central, although equity was
also a major concern in the design of tax systems. In the 1970s and ’80s, however, the pendulum
swung back. Once more, allocative issues came to the fore, and stabilization and distribution
became less significant in government finance.
The allocative function

The allocative function in budgeting determines on what government revenue will be spent.
Because a high proportion of national income is now devoted to public expenditure, allocation
decisions become more significant in political and economic terms. At all times and in all countries
the calls for expenditure on specific services or activities, or for more generous transfer payments,
will always exceed the amount that can reasonably be raised in taxation or by borrowing. The
debate about how these scarce resources should be allocated has continued for hundreds of years,
and, although numerous methods of deciding on priorities have emerged, it has never been
satisfactorily resolved. In practice, most democracies contain a number of different factions that
disagree on the proper allocation of resources and indeed the proper level of public
sector involvement in the economy; the frequent change of national governments is related to the
constant search for the right answers.

Public goods

Economists have sought to provide objective criteria for public expenditures through the so-called
theory of public goods. It is generally recognized that some goods needed by the public cannot be
provided through the private market. Lighthouses are a classic example. The costs of a lighthouse
are such that no one shipowner will want to finance it; on the other hand, if a lighthouse is provided
for one shipowner, it can be made available to all for no additional cost. Indeed it must be available
to all, since there is no practical means of excluding ships from using the facility provided by the
lighthouse, even if their owners have refused to pay for it. The only practical method of providing
such services is by collective action.
 27

If goods are to be provided in this way, rather than through the private market, it is immediately
necessary to confront the twin problems of deciding how much to provide and who should pay for
that provision. Even if all individuals wanted the service equally—as, perhaps, with lighthouses—
their views on the extent of the service would be influenced by the allocation of the costs. Where
different households may have different preferences and some may not want the service at all—
as, for example, with defense by nuclear weapons—these difficulties are compounded.

Merit goods

The concept of merit goods assists governments in deciding which public or other goods should be
supplied. Merit goods are commodities that the public sector provides free or cheaply because the
government wishes to encourage their consumption. Goods such as subsidized housing or social
services, which predominantly help the poor, or health care services, which help the poor and
elderly, are generally regarded as having considerable merit and therefore have a strong claim on
government resources. Other examples include the provision of retraining schemes or urban
regeneration programs.

Public ownership and privatization

Until the mid-1970s the proportion of economic activity controlled by the government and
the share of taxes in national income tended to increase in most countries. Since then, however,
challenges to this growth in the role of government have become increasingly influential, and
moves to privatization have been common.

There are several types of privatization. One involves the sale to private owners of state-owned
assets, and this is most correctly called privatization. Publicly owned houses may be sold to their
occupants. Commodity stockpiles may be reduced or disbanded. Increasingly, however, attention
has been turned to the sale of publicly owned industries, thus reversing the move
to nationalization that occurred, particularly in western Europe, around and after World War II.

Where the privatized industry operates in a competitive environment, no new problems arise.
Singapore has privatized its airline system, for example, which now competes with a mixture of
privately and publicly owned international airlines. Where privatization occurs but monopoly
continues, however, there are new difficulties. Both Japan and the United Kingdom have privatized
their telecommunications networks. Although, in certain limited areas of telecommunications,
competition is possible—and has been allowed to develop in both the United States and Britain—
technical and legal restrictions inhibit competition in many sectors of the industry.

Other forms of government intervention

Government spending is not the only way in which government allocates resources. Its regional
policies will determine whether domestic and overseas investors build factories in particular
places, while its taxation policies will determine whether they build them at all. Government
competition and merger policies affect the structure of industry and commerce, while regulatory
activities—setting the number of hours shops may be open or who may buy cigarettes—have
profound effects on commercial activities.
 28

Private Sector
The private sector is the part of the economy that is run by individuals and companies for profit
and is not state controlled. Therefore, it encompasses all for-profit businesses that are not
owned or operated by the government. Companies and corporations that are government run
are part of what is known as the public sector, while charities and other non-profit
organizations are part of the voluntary sector.

Understanding the Private Sector

The private sector is the segment of a national economy that is owned, controlled, and managed
by private individuals or enterprises. The private sector has a goal of making money and employs
more workers than the public sector. A private sector organization is created by forming a new
enterprise or privatizing a public sector organization. A large private sector corporation may be
privately or publicly traded. Businesses in the private sector drive down prices for goods and
services while competing for consumers’ money; in theory, customers do not want to pay more
for something when they can buy the same item elsewhere at a lower cost.

In most free economies, the private sector makes up a big portion of the economy, as opposed to
nations that have more state control over their economies, which have a larger public sector. For
example, the United States has a strong private sector because it has a free economy, while China,
where the state controls many of its corporations, has a larger public sector.

Types of Private Sector Businesses

The private sector is a very diverse sector and makes up a big part of many economies. It is based
on many different individuals, partnerships, and groups. The entities that form the private sector
include:

• Sole proprietorships
• Partnerships
• Small and mid-sized businesses
• Large corporations and multinationals
• Professional and trade associations
• Trade unions

Even though the state may control the private sector, the government does legally regulate it. Any
business or corporate entity operating in that country must operate under the laws.

Private and Public Sector Differences

The private sector employs workers through individual business owners, corporations or other
non-government agencies. Jobs include those in manufacturing, financial services, professions,
hospitality, or other non-government positions. Workers are paid with part of the company’s
profits. Private sector workers tend to have more pay increases, more career choices, greater
opportunities for promotions, less job security, and less comprehensive benefit plans than public
sector workers. Working in a more competitive marketplace often means longer hours in a more
demanding environment than working for the government.

The public sector employs workers through the federal, state or local government. Typical civil
service jobs are in healthcare, teaching, emergency services, armed forces, and various
 29

regulatory and administrative agencies. Workers are paid through a portion of the government’s
tax dollars. Public sector workers tend to have more comprehensive benefit plans and more job
security than private sector workers; once a probationary period concludes, many government
positions become permanent appointments. Moving among public sector positions while retaining
the same benefits, holiday entitlements, and sick pay is relatively easy while receiving pay
increases and promotions is difficult. Working with a public agency provides a more stable work
environment free of market pressures, unlike working in the private sector.

Private and Public Sector Partnerships

The private and public sectors sometimes work together while promoting common interests.
Private sector businesses leverage governmental assets and resources while developing,
financing, owning and operating public facilities or services. For example, a private
company might pay a state a one-time fee to operate a specific length of freeway for a set time in
exchange for revenue from tolls.

Public sector
public sector, portion of the economy composed of all levels of government and government-
controlled enterprises. It does not include private companies, voluntary organizations, and
households.

The general definition of the public sector includes government ownership or control rather than
mere function and thereby includes, for example, the exercise of public authority or the
implementation of public policy.

The public sector aims at achieving the following objectives:

• To promote rapid economic development through creation and expansion of

infrastructure
• To generate financial resources for development
• To promote redistribution of income and wealth
• To create employment opportunities
• To promote balanced regional growth
• To encourage the development of small-scale and ancillary industries, and
• To accelerate export promotion and import substitution

Role of public sectors in the development of the country is explained below:

• Public Sector and Capital Formation: The role of public sector in collecting saving and investing
them during the planning ear has been very important. During the first and second five year plan it
was 54% of the total investment, which declined to 24.6 % in the 2010-11.
• Employment Generation: Public sector has created millions of jobs to tackle the unemployment
problem in the country. The number of persons employed in the as on march 2011 was 150 lakh.
Public sector has also contributed a lot towards the improvement of working and living conditions
of workers by serving as a model employer.
• Balanced Regional Development: Public sector undertakings have located their plants in
backward parts of the county. These areas lacked basic industrial and civic facilities like electricity,
water supply, township and manpower. Public enterprises have developed these facilities thereby
bringing about complete transformation in the socio-economic life of the people in these regions.
 30

Steel plants of Bhilai, Rourkela and Durgapur; fertilizer factory at Sindri, are few examples of the
development of backward regions by the public sector.
• Contribution to Public Exchequer: Apart from generation of internal resources and payment of
dividend, public enterprises have been making substantial contribution to the Government
exchequer through payment of corporate taxes, excise duty, custom duty etc. gross internal
resource generation in 1990- 2000 was 36000 cr which rose to 1, 11,000 cr in 2008-09, while net
profit was 92,077 cr in 2010-11.
• Export Promotion and Foreign Exchange Earnings: Some public enterprises have done much to
promote India’s export. The State Trading Corporation (STC), the Minerals and Metals Trading
Corporation (MMTC), Hindustan Steel Ltd., the Bharat Electronics Ltd., the Hindustan Machine Tools,
etc., have done very well in export promotion.
• Import Substitution: Some public sector enterprises were started specifically to produce goods
which were formerly imported and thus to save foreign exchange. The Hindustan Antibiotics Ltd.,
the Indian Drugs and Pharmaceuticals Ltd. (IDPL), the Oil and Natural Gas Commission (ONGC), the
Indian Oil Corporation Ltd., the Bharat Electronics Ltd., etc., have saved foreign exchange by way
of import substitution.
• Promotion of Research and Development: As most of the public enterprises are engaged in high
technology and heavy industries, they have undertaken research and development programmes in
a big way. Public sector has laid strong and wide base for self-reliance in the field of technical
know-how, maintenance and operation of sophisticated industrial plants, machinery and
equipment in the country. Expenditure on research and development reduces the cost of
production.

Problems of Public Sectors:

• Poor policy making and its execution

• Over staffing

• Wastage of resources or under utilization of resources

• Higher operating cost

• Lack of motivation for self improvement

• Lack of proper price policy

Conclusion:

The expansion of the public sector was aimed at the fulfillment of our national goals, that is., the
removal of poverty, the attainment of self-reliance, reduction in inequalities of income, expansion
of employment opportunities, removal of regional imbalances, acceleration of the pace of
agricultural and industrial development, to reduce concentration of ownership and prevent growth
of monopolistic tendencies by acting as effective countervailing power to the private sector, to
make the country self-reliant in modern technology and create professional, technological and
managerial cadres so as to ultimately rid the country from dependence on foreign aid. But these
motives could not be achieved up to the desired extent. That is why government is on the spree of
privatization of these enterprises.
 31

Industrial Sickness
Industrial sickness can be defined as a steady imbalance in the debt-equity ratio and distortion in
the financial position of the unit. A sick unit is one which is unable to support itself through the
operation of internal resources.
Once the sick units continue to operate below the break-even point (at which total revenue = total
cost), industries are forced to depend on the external sources for funds of their long-term survival.
According to the criteria accepted by the Reserve Bank of India, “a sick unit is one which has
reported cash loss for the year of its operation and in the judgment of the financing bank is likely
to incur cash loss for the current year as also in the following year.”

Industrial Sickness – Special Provisions Act, 1985

The government defined industrial sickness for the first time in the Sick Industrial Companies
(Special Provisions) Act, 1985.
According to this Act, a medium or large (i.e. non-SSI) company was defined as sick if:
(1) it was registered for at least 7 years (later reduced to 5 years)
(2) it incurred cash losses in the current year and the preceding year.
(3) its entire net worth (i.e. paid-up capital and reserves) was eroded.
A company is regarded, as weak or incipiently sick on the erosion of 50% of its peak net worth
during any of the preceding five financial years.
Industrial sickness has been redefined in the Companies (Second Amendment) Act, 2002.

Causes of Industrial Sickness

The reasons for industrial sickness in India can be divided into two categories:

• Internal causes – which includes

o Faults at the initial levels of planning and construction.
o Financial constraints.
o Labour and management problems.
o Defective, inefficient, and age-old machinery.
o Incompetence on the parts of entrepreneurs.
o Unskilled laborers to work with modern technology.
• External causes are those which are beyond the control of its management and
include –
o Sudden changes in government policies.
o Erratic supply of inputs.
o Non-availability of energy resources and raw materials.
o Increased competition.
o Power cuts.
o Demand and credit restraints.
o Delay on the part of the Government in sanctioning licenses, permits, etc.
 32

As suitable remedies for the sick industries, the government provides liberal policies, financial
assistance from banks and other institutes, exemption from taxes, etc.

Revival and rehabilitation measures

The government undertakes the following measures to revive and rehabilitate the sick industrial
units.

Financial Assistance
As per the directions of the RBI, the commercial banks granted the following concessions to sick
industrial units:

• Rescheduling of loans and interest:

• Grant of additional working capital:
• Waiving off interest on loans:
• Moratorium on payment of interest, etc.

Organizational measures
The different organizational measures are given below:

• State-level inter-institutional committees: These are set up by the RBI to ensure better
coordination between the banks, state governments, and other concerned financial institutions.
• Special Cell: It was set up by the Rehabilitation Finance Division of the IDBI to assist the banks
for the revival of sick units.

Fiscal Concessions

• The government amended the Income Tax Act in 1977 to provide a tax benefit to those units
which take over the sick units for reviving them.
• The government announced a scheme for the grant of excise loans to sick/weak units.
• Under this scheme, selected sick units are eligible for excise loans not exceeding 50% of the
excise duty paid over the preceding 5 years.

Small Scale Industries (SSI)

Introduction of SSI
Essentially the small scale industries are generally comprised of those industries which
manufacture, produce and render services with the help of small machines and less manpower.
These enterprises must fall under the guidelines, set by the Government of India.
The SSI’s are the lifeline of the economy, especially in developing countries like India. These
industries are generally labour-intensive, and hence they play an important role in the creation of
employment. SSI’s are a crucial sector of the economy both from a financial and social point of
view, as they help with the per capita income and resource utilisation in the economy.
 33

Examples and Ideas of Small Scale Industries:

• Bakeries
• School stationeries
• Water bottles
• Leather belt
• Small toys
• Paper Bags
• Photography
• Beauty parlours

Characteristics of SSI
Ownership
SSI’s generally are under single ownership. So it can either be a sole proprietorship or sometimes
a partnership.
Management
Generally, both the management and the control is with the owner/owners. Hence the owner is
actively involved in the day-to-day activities of the business.
Labor Intensive
SSI’s dependence on technology is pretty limited. Hence they tend to use labour and manpower for
their production activities.
Flexibility
SSI’s are more adaptable to their changing business environment. So in case of amendments or
unexpected developments, they are flexible enough to adapt and carry on, unlike large industries.
Limited Reach
Small scale industries have a restricted zone of operations. Hence, they can meet their local and
regional demand.
Resources utilisation
They use local and readily available resources which helps the economy fully utilise natural
resources with minimum wastage.

Role in the Indian Economy

Employment
SSI’s are a major source of employment for developing countries like India. Because of the limited
technology and resource availability, they tend to use labour and manpower for their production
activities.
 34

Total Production
These enterprises account for almost 40% of the total production of goods and services in India.
They are one of the main reasons for the growth and strengthening of the economy.
Make in India
SSI’s are the best examples for the Make in India initiative. They focus on the mission to
manufacture in India and sell the products worldwide. This also helps create more demands from
all over the world.
Export contribution
India’s export industry majorly relies on these small industries for their growth and development.
Nearly half of the goods that are exported from India are manufactured or produced by these
industries.
Public Welfare
These industries have an opportunity to earn wealth and create employment. SSI’s are also
important for the social growth and development of our country.

Objectives of SSI
The objectives of the small scale industries are:
• To create more employment opportunities.
• To help develop the rural and less developed regions of the economy.
• To reduce regional imbalances.
• To ensure optimum utilisation of unexploited resources of the country.
• To improve the standard of living of people.
• To ensure equal distribution of income and wealth.
• To solve the unemployment problem.
• To attain self-reliance.
• To adopt the latest technology aimed at producing better quality products at lower costs.

Registration of SSI
SSI registration is a registration provided by the Ministry of MSME. A business should obtain SSI
registration in order to be eligible for a number of schemes, subsidies and other incentives
provided by the Government to such SSI’s. SSI registration can be obtained online too.

Eligibility Criteria for SSI Registration

SSI registration can be obtained for enterprises that are considered as micro and small enterprises
under the MSME Act, 2006.
A micro enterprise is an enterprise whose investment in plant, machinery and equipment does not
exceed Rs.1 crore, and turnover does not exceed Rs.5 crore.
 35

A small enterprise is an enterprise whose investment in plant, machinery and equipment does not
exceed Rs.10 crore, and turnover does not exceed Rs.50 crore.

Benefits of obtaining SSI Registration

There are various tax rebates offered to SSI’s.
A credit for Minimum Alternate Tax (MAT) is allowed to be carried forward for up to 15 years instead
of 10 years.
There are many government tenders that are only open to the SSI.
They get easy access to credit.
Once registered the cost of acquiring a patent, or the cost of setting up the industry reduces as
many rebates and concessions are available.
Business registered as SSI are given higher preference for government license and certification.

Exim Policy
‘Exim Policy or Foreign Trade Policy is a set of guidelines, terms and instructions, established by
the Directorate General of Foreign Trade in/for matters related to the import and export of goods
in/from India’ The EXIM Policy of India contains several policy measures and related decisions
taken by the government (central) in the sphere of imports and exports to/from the country. In
addition, it also describes the various export promotion measures, policies and procedures related
thereto. The Foreign Trade Policy is prepared and announced by the Central Government (Ministry
of Commerce) of the country. India's Export Import Policy also known as Foreign Trade Policy, in
general, aims at developing export potential, improving export performance, encouraging foreign
trade and creating favourable balance of payments position.

The Directorate General of Foreign Trade is the chief governing body for the matters pertaining to
such a policy. In addition the policy is steered according to the regulations stated in the Foreign
Trade Development and Regulation Act. The current, Foreign Trade Act has replaced the earlier law
in this regard, known as the imports and Exports (Control) Act 1947.

History of EXIM Policy in India

Whilst the trade policies during 1950s and 1960s were designed to lay emphasis on self reliance
and self sufficiency of the country; the policies during (and post) 1970s were driven by the objectives
of export led growth and increased efficiency and competitiveness. In the year 1962, the
Government of India appointed a special EXIM Committee to review the previous export import
policies of the Government. Later, Mr. V. P. Singh, the then Commerce Minister announced the Exim
Policy on the 12th of April, 1985. Initially, the EXIM Policy was introduced for the period of three
years with main objective to boost the export business in India. The trade policy, however during
this period was of a restrictive sort. In this context, the year 1991 is considered as a ‘watershed’ as
far as the trade sector of the country is concerned. It was in/during this year that the country
evidenced massive trade liberalization measures and departed from the prevalent protectionist
trade policies. The period, after the year 1991 is therefore considered as the post reform period.
 36

Foreign Trade Policy (2002-2007)

The foreign trade policy of 2002-07 was the first trade composite trade policy, drafted for a period
of five years. The policy was announced on 31st March, 2002, and marked a shift from the focus on
‘liberalization’ to ‘export promotion’. Various objectives of the trade policy were:

• To increase the country’s share in the world trade from 0.67 per cent in 2002 to 1 per cent in 2007

• To increase the growth rate in exports to 12.4 per cent per annum

• To allow liberal import of technology

• To remove quantitative restrictions on exports

• To set up abroad ‘Business Centers’ for the benefit of Indian exporters

Evaluation

The EXIM policy of 2002-07 was characterized by the following merits:

• Comprehensiveness

• Boost to agricultural exports

• Boost to the cottage and small scale industries

• Export promotion

• Facilities for technology up gradation

• Procedural simplification

• Neutralization of duty

• Setting up of business centers

• Diversification of business

• Focus of export led growth

Thus, all in all, the policy was export friendly in nature however, owing to a change in government
from NDA to Congress, the policy was revisited and a new EXIM policy was announced in the year
2004. The new EXIM policy was targeted for a period of five years from 2004 to 2009, and attempted
to overrule the existing FTP.
 37

Foreign Trade Policy (2004-09)

The objective of the New Foreign Trade Policy announced on 31st August 2004, were as follows:

• To double India’s percentage share of global merchandise trade by 2009. India‘s share in Foreign
Trade between 2003-2004 was 0.8%; the target in this policy was set to achieve 1.5% share in world
trade by 2009.

• To act as an effective instrument of economic growth by giving a thrust to employment generation,

especially in semi-urban and rural areas.

Critical Evaluation

The Foreign Trade Policy of this period has been criticized on the following grounds

• The policy was considered complex as far as charging tariffs at different rates is concerned. This
in turn has an implication for procedural complexities and red tapism.

• Measures to promote export of manufacturers in the FTP were relatively few.

• Certain export promotion schemes were started during the period when India was facing an acute
foreign competition. . These measures are no more required, but have continued indefinitely in time,
due to pressure from certain exporters.

• Larger focus was on export promotion and not on the strength Ing of the indigenous industries.

However, despite this criticism, the New FTP was extremely comprehensive and forward looking.

Foreign Trade Policy (2009-14)

On August 27, 2009, the then, Minister of Commerce and Industry of India, Mr. Anand Sharma
presented the five-year Foreign Trade Policy (FTP) for 2009-2014. Aiming to reverse contraction in
exports for 10 consecutive months, the new FTP presented several measures to ensure a steady
growth of the country’s foreign trade.

Objectives Following were the objectives of the 2009-14 FTP:

• To arrest and reverse declining trend of exports of the country.

• To Double India’s exports of goods and services by 2014.

• As a long term aim, to double India’s share in global merchandise trade by 2020

• Simplification of application procedure

• To set strategies and policies to catalyse the country’s exports’ growth

 38

• To encourage exports through a “mix of measures, including, fiscal incentives, institutional

changes, procedural rationalization and efforts for enhance market access across the world and
diversification of export markets.

Criticism

The Foreign Trade Policy of 2009-14 is however, not free from shortcomings. Apart from adding 26
countries under the FMS, the policy lacked an innovative approach altogether. SMEs account for a
big share in the country’s exports; they, however were not adequately provided financial and
marketing assistance under the current scheme. The crises situation, post the global meltdown
urged the need for a much higher financial and technical support to the exporters. The policy
provided only minor tinkering and continuation.

Foreign Trade Policy (2015-2020)

The Government of India announced the new foreign trade policy, covering the period from 2015 to
2020, on April 1, 2015

Vision and Mission

The Vision of the Trade Policy is to make India a significant participant in the world trade by 2020.
The mission and objectives include the ideology to make the country assume a position of
leadership in the international trade. The Government of India aims to increase the exports of
merchandise and services from $465.9 billion in 2013-14 to approximately $ 900 billion by 2019-20.
Additionally, the policy aims to increase the country’s share in the world exports from 2 per cent
to 3.5 per cent.

Objectives
• To provide a stable and sustainable policy environment for foreign trade.

• To link the rules and procedures with other initiatives like ‘Make in India’, ‘Digital India’ and ‘Skills
India’.

• To diversify India’s exports.

• To provide a mechanism for regular appraisal in order to rationalize imports.

• To improve India’s Balance of Payment position.

• To create architecture for India’s global trade engagement with a view to expand and integrate
markets, thereby augmenting the ‘Make in India’ initiative.
 39

Industrial Policy
A. Industrial Policy Resolution of 1948:
In a mixed economy of our sort, the government should declare its industrial policy clearly
indicating what should be the sphere of the State and of the private enterprise. A mixed economy
means coexistence of the two sectors public and private. This the Government of India did by a
policy resolution on 30 April 1948 called the First Industrial Policy Resolution or Industrial Policy
Resolution of 1948, which made it clear that India was going to have a mixed economy.

The Industrial Policy Resolution 1948, drawn in the context of our objectives of Democratic
Socialism through mixed economic structure, divided the industrial structure into four groups:
(i)Basic and strategic industries such as arms and ammunition, atomic energy, railways, etc. shall
be the exclusive monopoly of the State.

(ii) The second group consisted of key industries like coal, iron and steel, ship-building,
manufacture of telegraph, telephone, wireless apparatus, mineral oils, etc. In such cases the State
took over the exclusive responsibility of all future development and the existing industries were
allowed to function for ten years after which the State shall review the situation and explore the
necessity of nationalisation.

(iii) In the third group, 18 industries including automobiles, tractors, machine tools, etc. were
allowed to be in the private sector subject to government regulation and supervision.

(iv) All other industries were left open to the private sector. However, the State may participate
and or intervene if circumstances so demand.

To ensure the supply of capital goods and modern technology, the IPR, 1948 encouraged the free
flow of foreign capital. The government ensured that there shall be no discrimination between
Indian and foreign undertakings; facilities shall be given for remittance of profit and due
compensation shall be paid in case a foreign undertaking is nationalised. The IPR also emphasised
the importance of small-scale and cottage industries in the Indian economy.

The Industries (Development and Regulation) Act was passed in 1951 to implement the Industrial
Policy Resolution, 1948.

B. Industrial Policy Statement of 1956:

On 30 April 1956, the Government revised its first Industrial Policy (i.e., the policy of 1948), and
announced the Industrial Policy of 1956.
 40

The reasons for the revision were:

(i) introduction of the Constitution of India,

(ii) adoption of planned economy, and

(iii) declaration by the Parliament that India was going to have a socialist pattern of society.

All these principles were incorporated in the revised industrial policy as its most avowed
objectives.

And the revised policy still provides the basic framework for the government’s policy in regard to
industries. The 1956 Policy emphasises, inter alia, the need to expand the public sector, to build up
a large and growing cooperative sector and to encourage the separation of ownership and
management in private industries and, above all, prevent the rise of private monopolies. “The IPR,
1956, has been known as the Economic Constitution of India” or “The Bible of State Capitalism.”

The Resolution classified industries into three categories having regard to the role which the State
would play in each of them:
(i) Schedule A consisting of 17 industries shall be the exclusive responsibility of the State.

Out of these 17 industries, four industries—arms and ammunition, atomic energy, railways, air
transport— could be Central Government monopolies; new units in the remaining industries shall
be developed by the state Governments.

(ii) Schedule B, consisting of 12 industries, shall be open to both the private and public sectors;
however, such industries shall be progressively State-owned.

(iii) All the other industries not included in these two Schedules constitute the third category which
is left open to the private sector. However, the State reserves the right to undertake any type of
industrial production.

The classification of industries into three categories did not mean that they were being placed in
watertight compartments. In appropriate cases, the private sector might be allowed to produce an
item falling within Schedule A for meeting its own requirements. Further, heavy industries in the
public sector might obtain their requirements from the private sector while the private sector, in
turn, would rely on the public sector for many of its requirements.
 41

The features of the new policy that distinguish it from the previous one are:
(i) Expansion of the role of the State:
This was in keeping with the Mahalanobis Strategy of large-scale industrialisation embodied in the
Second Five Year Plan.

(ii) Reduced threat of nationalization:

The apprehensions of nationalisation contained in the previous policy were reduced to the bare
minimum.

(iii) More meaningful approach to our concept of a ‘mixed economy:

Various complementaries of the public and private sectors were made clear.

Criticisms:
The 1956 IPR came in for sharp criticisms from the private sector since this Resolution reduced the
scope for the expansion of the private sector significantly. Private sector apprehended that the
expansion of public sector meant swallowing of the private sector. But this criticism is unfounded.
No doubt, public sector had been given an adequate role to play, but, in a mixed economy, public
sector must assume the role of a senior partner in the acceleration of economic development. In
fact, the Resolution gave ample scope for expansion of the private sector. Even in Schedule A,
private sector had been allowed to operate in appropriate cases, though the development of
industries mentioned in Schedule A was the exclusive responsibility of the State.

C. Industrial Policy of 1991:

The long-awaited liberalised industrial policy was announced by the Government of India on 24
July 1991. There are several important departures in the latest policy. The New Industrial Policy has
scrapped the asset limit for MRTP companies and abolished industrial licensing of all projects,
except for 18 (now 5) specific groups. It has raised the limit for foreign equity holdings, thereby
demanding a greater participation of foreign capital in the country’s industrial landscape.

The new policy has dismantled all needless, irksome bureaucratic controls on industrial growth.
The new policy has re-defined the role of the public sector and has asked the private sector to
operate even in those areas which were hitherto reserved for the public sector. Thus, the new
policy considers that no longer big and monopoly business houses and foreign capital and
multinational corporations (MNCs) are “fearsome” and, in fact, they are benign to the country’s
industrial growth.

Anyway, the new policy has decided to take a series of initiatives in respect of the policies relating
to the following areas:
(a) industrial licensing,
 42

(b) MRTP Act,

(c) public sector policy,

(d) foreign investment, and

(e) foreign technology agreements.

The highlights of the new policy are:

(i) Industrial licensing will be abolished for all projects except for a short list of industries. The
exemption from licensing will apply to all substantial expansion of existing units. The existing and
new industrial units will be provided with a broad banding facility to enable them to produce any
article so long as no additional investment in plant and machinery is involved.

However, the small-scale industries taking up manufacture of those products reserved for small
sector will not be subjected to compulsory licensing procedures. As a result, all existing
registration schemes (like de-licensed registration, exempted industries registration, DGTD
registration) will be abolished. Now, entrepreneurs are required to fill an information
memorandum on new projects and substantial expansion.

(ii) The policy provides for automatic clearance for import of capital goods in cases where the
foreign exchange availability is ensured through foreign equity. As for the MRTP Act, the policy
states that the pre-entry scrutiny of investment decisions by the so-called MRTP companies will
no longer be required.

(iii) The policy intends to scrap the asset limit of the MRTP companies.

(iv) The policy envisages disinvestment of government equity in public sector to mutual funds,
financial institutions, general public and workers. For the first time, sick public units will come
under the purview of the Board of Industrial and Financial Reconstruction (BIFR) for their revival.

A social security mechanism to protect workers’ interests in such affected public sectors has been
proposed in this policy. Pre-eminent place of public sector in two core areas production of atomic
energy, and rail transport will, however, continue. Reservation for the public sector, as on 2008, is
very limited covering only manufacturing involving certain substances relevant for atomic, energy
and provision of railway transport.

(v) In order to invite foreign investment in high priority industries, requiring large investments and
advanced technology, it has been decided to provide approval for direct foreign investment up to
51 p.c. foreign equity in such industries.
 43

UNIT- 3
Political-Legal Environment
This is a non-market factor but it can still greatly impact a business. The political-legal environment
is a combination of a lot of factors such as the current political party in power, the degree of
politicization of trade and industry, the efficiency of the current government, government policies,
current legal framework, the public attitude towards the economy, etc.

All these factors will shape the political-legal environment in which the firm has to operate and
compete. There are three main elements of a political-legal environment. Let us have a look.

1] Government
You must have often heard that an election year is an extremely important factor for the economy.
This is why the type of government governing at the centre and the state has a huge impact on the
businesses. The government decides all the fiscal policies, monetary policies, and taxation modules
as well.

So the type of government in power has a huge impact on the economy and the firms that operate
and compete in the economy. Like for example, the current government has the Make in India initiative
which is good for the manufacturing sector.

2] Legal
A sound legal system is essential to the success of any business. So a country must have a sound
and functioning legal system with laws that equally protect both consumers and manufacturers. There
are various other matters like company law, royalties law, patent law, intellectual property rights.

International laws etc that also have a great influence on the business of firms. For example, the new
GST laws are going to have a significant effect on the businesses.

3] Political

Political stability in a country is essential for a stable economy and stock

market. Also, various political groups also hold a lot of influence on
businesses and unions. So the political environment of a country is a
major factor in the success of a firm.
 44

Types of Political Environment

The political environment is usually classified into the following types of political ideologies which
are most prevalent in many countries

1. Democracy

It involves full participation by citizens in the crucial decision-making processes.

There are voting rights granted to citizens for the selection of representatives, and freedom of
speech is considered as the primary or fundamental right of the citizens.

The judiciary is independent of political parties, as is the defense.

The elected officials are elected only for a limited time, and empowerment is given to the citizens.

Fair and competitive elections are indicated as the political right of the citizens, and limited power
is given to the elected representatives, which can safeguard the minorities of that society.

Freedom of the press and equal rights for everyone is what indicates civil liberty. The government
also grants personal social freedom.

The purest democracy never exists, but it exists in the form of representative government that the
citizens of that country have voted for. They believe in the government and give them the power to
make decisions on their behalf. The primary forms of these types include:

1. Presidential in which the direct election of a president is made who has power for a limited time
2. Parliamentary in which elected representatives form a government and the leader with majority
party becomes the head of the country, which is the Prime Minister and forms and runs a cabinet
of ministers.

2. Totalitarianism
While democracy exists on one side of the spectrum, totalitarianism exists on the far another side.

Unlike democracy, in the case of totalitarianism, a single party or an individual holds power and
monopolizes it.

The party in the power hardly recognizes the opposition, and select individuals have the right to
make significant decisions for the country.

The government monopolizes most of the resources.

 45

Theocratic and Secular on two types in which totalitarianism falls:

In the case of theocratic the entire political control is given to the religious leaders of the fraternity

In the case of secularism, the principal states that the affairs of this world are more important than
ethics as well as human life. It is concluded that secular totalitarianism is based on political
concepts and not on religious ideas. The existence of totalitarianism may range from fascism to
communism.

3. Communism

The political and economic systems are entirely integrated, and the social revolution is always the
precursor of political revolution.

The working class usually guides the social revolution.

The long-term transformation of society is based entirely on the removal of economic differences
and inequalities.

4. Fascism
The military is what controls the politics in case of fascism

The state is considered as totalitarian, and the individual is expected to be subordinate to that.

Nationalism and corporate state are the ways by which the class struggle is eliminated.

How is a business affected by Political factors?

The political factors can directly affect the market, which will, in turn, affect the ability of an
organization to conduct the business in the market. The political inference can make a market, less
friendly for businesses. The government has a lot of power over businesses, and there is not much
that companies can do about it.

There are many ways in which political factors can influence business. The political factor is an
external environmental factor that adds risk and can also lead to a significant loss in business.
This also can change the entire result, which is why companies should be better while dealing with
politics locally as well as internationally. Many companies have a specially appointed person who
deals with such politicians and political agendas.

Political factors also impact other factors that are related to business and can have a significant
indirect impact on the business. Following are a few examples of the factors that can be affected
because of political considerations:
 46

• The sociocultural environment of the country can be affected by political decisions

• The economic environment is directly affected because of political decisions

• The acceptance and perpetuation of technology are also affected by political decisions.
For example, Google is banned in China.

• Politicians are also able to influence the development of new technology in the country.

4 Political Factors which affect the business environment

As the administration changes, the policies change along with them. These political factors can
affect and possibly change the entire scenario of business. They can be as follows:

1. Taxation policies and economics

Change in tax rate is one of the best examples of how a political environment can affect the
business. The government may increase or decrease the tax of a particular industry or change the
percentage of taxes on all businesses for many reasons. The decision is expected to directly impact
many companies, which is why companies should have a strategy that can deal with such
situations on priority.

The annual budget is the time when most of the factors of businesses may change because of the
change in tax laws, financial laws, etc.

Climate change is prevalent everywhere around the globe, and to combat it, many governments
have come up with alternatives to conventional fuels. Solar energy and Electric energy are two
which have gained popularity in many countries because of such government policies. Many
government vehicles now run on solar power, and for companies involved in the solar business,
it’s a boon. Thus this is an example of how government policies can impact enterprises to positively.

2. Political stability
Businesses can be affected a lot because of a lack of political stability. This could be troublesome
for businesses operating on a global scale. Such situations will lead to riots and looting, which can
severely affect businesses. The operations and regular activities of the business are directly
impacted because of such conditions, and it is difficult for companies to run. Communal riots are
one such example in which companies suffer a lot.

For example, the recent communal riots which took place in New Delhi, which started during
President Donald Trump’s India Visit. Although both had no connection, India and the US signed
many trade deals, and ironically, businesses were affected because of these riots.
 47

Similarly, almost entire Cairo came up on the streets for the removal of Egyptian President
Mubarak Hosni. After the revolution of 18 days in 2011, the President had to step down. During this
time, many businesses were impacted negatively. This is why political stability is crucial for
businesses.

3. Foreign Trade Regulations

Every business expects to expand its own company to another country. The political background of
that country could impact this. The government controls almost everything right from tax policies
to prices of the products. It is up to the government to expand particular business operations in
their area or not.

Implementing complicated tax policies can affect the business expansion for many industries. The
local government initiatives are designed in such a way that they help local businesses. The
businesses should keep this in mind while entering a foreign country.

The policies of the company should be in such a way that it not only helps the company is to earn
profits but also supports local businesses and helps them to improve their earnings.

4. Employment Laws
The employment laws are made and implemented by the government so that the rights of
employees are protected. It includes every aspect of employer and employee business relations.
And employment law is considered to be very complicated, which has many Pitfalls. When the
businesses employ the latest technologies and developments and implement this with the latest
law, then they can take the company forward in the right way. There are many countries in which
the employment of locals is mandatory when opening a foreign business.

For example, when Starbucks arrived in India, it was mandatory to open a Starbucks outlet in the
joint-venture ship with Tata. Following the employment laws of the land is compulsory for
businesses. However, making those laws complicated will not help the government or
corporations.

What is the legal environment of business?

The Legal Environment of Business introduces us to the role of legal agendas in managerial
decisions. It helps managers in the operation of their business and allows them to know the limits
and boundaries of there being in the name of their respective firms.
It makes their decisions apt to the legal system. These regulations assist the business enterprise
to be under the scope of Law and government's regulations. Companies, firms, managers, owners,
and their share or debenture holders endeavour the operation to help and protect the rights.
They also get bind into several legal tenures that cope up to legal liability and legal consequences
from their decisions and actions. One might think that the business environment consists of just
 48

the legal system and its processes. Nut the fact of the matter is that these also cover up several
sources of law of our society.
It requires comparison and an in-depth study of various aspects related to the legal rules of
business. The legal terms that relate to it are tort law, contract law, and criminal Law and
government regulatory mechanisms.
At last, the legal environment helps to make the business decisions that are ethical and are in hand
with the welfare of society. To put in simple terms, everything that is related to the welfare of any
registered parties which can be among, owner, the business itself, equity shareholders, creditors,
debtors, debenture holders or any third-party that is bound in a legal contract with the company
itself, come under the term of the legal environment.

Different aspects of Business legal environment

As said earlier, there is a plethora Law that makes up the business' legal environment. It is
impossible to cover every single aspect of it by anyone whether it is you or I. Thus, here are some
of the major aspects that are really necessary and have the prime relevancy towards the topic of
this article.

FERA and FEMA

Introduction

Foreign Exchange

“Foreign exchange is the system or process of converting one national currency into another, and
of transferring money from one country to another.”

Foreign currency

Foreign currency means any currency other than Indian currency.

Foreign security

Foreign security means any security, in the form of shares, stocks, bonds, debentures or any other
instrumental denominated or expressed in foreign currency and includes securities expressed in
foreign currency but where redemption or any form of return such as interest or dividends is
payable in Indian currency.
 49

Inception of Law

The 1973 law was created during the tenure of Prime Minister Indira Gandhi with the goal of
conserving India's foreign exchange resources. The country was facing a trade deficit, which was
followed by a devaluation of the currency and an increase in the price of imported oil. The act
specified which foreign exchange transactions were permitted, including those between Indian
residents and non-residents.

INTRODUCTION TO FERA

The Foreign Exchange Regulation Act (FERA) is legislation that was passed by the Indian
Parliament in 1973 and came into effect on January 1, 1974. FERA was an act to regulate dealings in
foreign exchange and foreign securities with the objective of conservation of foreign exchange
resources of India and its proper utilization in the economic development of India. It extended to
whole of India and applied to all the citizens of India, outside India as well as in India and to
branches and agencies of Indian companies or body corporates, outside India.

FERA imposed strict regulations on transactions involving foreign exchange and controlled the
import and export of currency. Unlike other laws where everything is permitted unless specifically
prohibited, under FERA nothing is permitted unless specifically permitted. Hence the tenor and
tone of the Act was very drastic. It provided for imprisonment for violation of even a very minor
offense. Under this act, a person was presumed guilty unless he proved himself innocent whereas
under other laws, a person is presumed innocent unless he is proven guilty. Therefore one had to
be very careful while dealing in foreign exchange and ensure that all legal compliances were
carried out.

Eventually the government realized that FERA rules were perhaps a hindrance to economic
liberalization. A draft of the Foreign Exchange Management Bill (FEMA) was prepared by the
Government of India to replace FERA keeping in view the liberal spirit of the Indian economy.
However, until FEMA was enacted, the provisions of FERA were applicable.

FERA was finally repealed by the government in 1999 by the Foreign Exchange Management Act
(FEMA), which liberalized foreign exchange controls and removed many restrictions on foreign
investment. The need for replacing FERA with FEMA was felt with the introduction of economic
reforms in the country, there was a need to remove the drastic and rigorous measures of FERA
and replace it with a set of liberal foreign exchange management regulations.

FEMA came into existence on June 1, 2000 but FERA was provided a sunset clause of two years to
enable the Enforcement Directorate (ED) to complete investigations into cases already detected by
it for FERA violations before May 31, 2000.
 50

Objectives of FERA

• To prevent the outflow of Indian currency

• To regulate dealings in foreign exchange and securities

• To regulate the transaction indirectly affecting foreign exchange

• To regulate import and export of currency and bullion

• To regulate employment of foreign nationals

• To regulate foreign companies

• To regulate acquisition, holding etc of immovable property in India by non-residents

• To regulate certain payments .

• To regulate dealings in foreign exchange and securities.

• To regulate the transactions indirectly affecting foreign exchange.

Provisions of FERA

• Regulation of dealing in foreign exchange.

• Restrictions on payments.

• Restrictions regarding assets held by non-residents and import & export of certain currency &
bullion.

• Duty on persons entitled to receive foreign exchange and payment for exported goods.

• Restriction on appointment of certain persons and companies as agents or technical or

management advisers in India

• Restriction on establishment of place of business in India

 51

• Prior permission of Reserve Bank required for taking up employment in India by nationals of
foreign state • Restrictions on immovable property

Amendment in the Act

Government proposed to introduce comprehensive amendments in FERA due to changes in

economic policy, especially liberalization of industrial sector and most to open up the economy
through changes in trade policy and encouragement of foreign investment. As a result, the required
changes were announced in budget speech of 1992-1993. The changes so introduced by issue of
notification by RBI or Central Government.

Transition from FERA to FEMA

• The main objective of FERA framed against the background of severe foreign exchange problem
and controlled economic regime, was conservation and proper utilisation of the foreign exchange
resources of the country.

• FERA created flourishing black market in foreign exchange. It brought into the economic lexicon
the word “HAWALA”.

• There was a demand for a substantial modification of FERA in the light of ongoing Economic
liberalization and improving foreign exchange reserves position. Accordingly, a new act, FEMA
(Foreign Exchange Management Act) 1999 replaced the FERA.

FEMA Replaced FERA

The older version had very strict laws (for example, a person was assumed guilty unless proven
otherwise.) All the unnecessary restrictions were removed. The rules regarding foreign
investments were simplified to encourage more foreign investment in India and consequently
ensure better foreign cash flow. However, FERA was not in accordance with the pro-liberalization
policies of the Indian Government. Finally, in 1999 the FEMA was passed which replaced the FERA,
though certain provisions of FERA 1973 still exist under FEMA 1999.

Objective of the FEMA

• To facilitate the external trade and payment

• To promote of an orderly maintenance of the foreign exchange market In India.

• Regulation of foreign capital in India.

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• To remove imbalance of payment.

• To make strong and developed foreign exchange market.

• Regulation of employment business and investment of non-residents .

• To regulate foreign payments.

• The new law is more transparent in its application. it has laid down the areas where special
permission of the reserve bank/government of India is required.

Salient Features of the Act

• Full freedom to a person resident in India to hold or transfer any foreign securities or immovable
property situated outside India.

• A person resident outside India is also permitted to hold shares, securities and property acquired
by him while he was resident in India.

• The EEFC account holders and RFC account holders are permitted to freely use the funds held in
EEFC\RFC accounts for payment of all permissible current account transactions .

• The limit for permitting overdraft against NRI accounts balance has been raised from 20,000 to
50,000.

The similarities between FERA and FEMA are as follows:

• The Reserve Bank of India and Central Government continued to be the regulatory bodies 

• Presumption of extra territorial jurisdiction as conceived in FERA was retained 

• The Directorate of Enforcement continued to be the agency for enforcement of the provisions
of the law such as conducting search and seizure
 53

Difference between FERA AND FEMA

BASIS FOR
FERA FEMA
COMPARISON

Meaning An act promulgated, to FEMA an act initiated to

regulate payments facilitate external trade and
and foreign exchange payments and to promote
in India, is FERA. orderly management of the
forex market in the country.

Enactment Old New

Number of sections 81 49

Introduced when Foreign exchange Foreign exchange position

reserves were low. was satisfactory.

Approach towards Rigid Flexible

forex transactions

Basis for determining Citizenship More than 6 months stay in

residential status India

Violation Criminal offence Civil offence

Punishment for Imprisonment Fine or imprisonment (if fine

contravention not paid in the stipulated
time)

When a business enterprise imports goods from other countries, exports its products to them or
makes investments abroad, it deals in foreign exchange.
 54

Foreign exchange means 'foreign currency' and includes deposits, credits and balances payable in
any foreign currency; drafts, travellers' cheques, letters of credit or bills of exchange, expressed
or drawn in Indian currency but payable in any foreign currency; and drafts, travellers' cheques,
letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but
payable in Indian currency. The management of foreign exchange is very important in the present
day business.

FEMA facilitates external trade and payments and promotes the orderly development and
maintenance of foreign exchange market. The Act has assigned an important role to the Reserve
Bank of India (RBI) in the administration of FEMA. The rules, regulations and norms pertaining to
several sections of the Act are laid down by the Reserve Bank of India, in consultation with the
Central Government.

HIGHLIGHTS OF FEMA 1999 

FEMA is transparent in its applicability. Only capital account transactions are regulated by RBI.
While current account transactions under FEMA are permissible freely subject to certain
restrictions. The exceptions for current account transactions include:

 Remittance out of lottery winnings.

 Remittance of income from racing/riding etc. or any other hobby

 Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools,

sweepstakes, etc.

 Payment of commission on exports made towards equity investment in joint ventures/wholly

owned subsidiaries abroad of Indian companies.

 Remittance of dividend by any company to which the requirement of dividend balancing is

applicable.

 Payment related to ‘call back services’ of telephones.

 Remittance of interest income on funds held in non-resident account. 

Certain current account transactions need permission of appropriate Government authority

irrespective of the amount. While some other transactions would require RBI permission, if they
exceed a certain celling

.
 55

Consumer Protection Act

INTRODUCTION

The concept of consumer protection is a thought as old as human civilization. Protecting the buyers’
interests is amongst the prime considerations of the business. According to Mahatma Gandhi
consumer is giving an opportunity for the businesspersons to serve him and he is the ultimate
purpose of the business and we can even go to the extent of saying that according to certain
interpretations of some Indian traditions a customer/consumer is equivalent to God. But the profit
motive of the marketers, sellers and dealers is resulting in consumer exploitation through deceitful
and immoral market practices (Singh and Grewal 2013).

Consumer Protection is a socio-economic day to day activity that is to be carried out by government
and business with a prime objective of protecting interests of consumers and their fair satisfaction.
It is the prime responsibility of the government to protect the rights and interest of consumers
through formulating suitable policies, laws and administrative framework. Different acts and laws
were incorporated to protect the consumers. But Consumer Protection Act 1986 (CPA 1986) is
considered as a milestone in the history of India for consumers right. This paper examine the
background and evalution of Consumer Protection act over a period of time. This study is based on
secondary data. This paper analyses the background of CPA 1986, its implementation, post
implementation, changes and journey.

Definitions
Consumer
A person who purchases goods and services.
Consumer Rights
Consumer rights are generally a refer laws that give powers to consumers against exploitations
and misconduct, misinformation &misguide by producers and sellers and force them of goods to
protect interests of consumers. These laws have come into existence through a series of legal
disputes in India , and have been shaped by the result of those cases.
Consumer Protection
The Consumer Protection Act, 1986 is that the most vital legislative enacted to supply for effective
safeguards to customers against varied kinds of exploitations and unfair dealings by seller.
 56

JOURNEY OF CONSUMER PROTECTION 1986 TO 2019.

Consumer protection in India has been a part of its culture and civilization. The Consumer
protection in India can be studied with reference to the four main historical periods viz. Ancient,
Medieval, during the British time and Post-Independence.

➢ Consumer Protection in Ancient India

The concept of consumer protection against unscrupulous, unfair and unethical malfunction
practices and safeguarding the interest of consumers was a part of Indian culture, business and
administration for centuries in the ancient times. References to it can be seen in Ancient Indian
Dharmas like Manu Smriti (800 BC- 600 BC), The Yajnavalkya Smriti (300 B.C. - 100 B.C), The
Narada Smriti (100 A.D.- 200 A.D.), The Brihaspati smriti (200A.D.- 400 A.D.) In the Katyayana
Smriti (300 A.D.- 600 A.D) were explained the living conditions of the people of that time and
were basis on the Dharma to be followed at that time. They were even the premise for the system
that is being followed currently. In India, Manu Smriti was one of the most influential texts that
dealt with various consumer matters. Arthashastra of Kautilya is considered as one of the oldest
and a very effective book on trade and commerce in ancient India. Kautilya( Chanakya ) has
mentioned different punishments to be given to sellers who involve themselves in different kinds
of exploitations, and wrong measures. The consumer protection was a common part of the
ancient laws. (Shamasastri, 1951)

➢ Medieval period and Pre-independence

During the medieval period Muslim kings who ruled India, like Alauddin Khilji, Sher Shah Suri,
and Akbar etc., thought about protecting the shoppers and consumers and they enacted strict
laws for the same. They introduced weights, measures standardization process.

➢ The modern and British times

British rulers combined the previous customs and culture (dharma) with a unified nationwide
system that had similarities with the laws already enacted in Britain. (Prasad, 2008).

They introduced Acts like:

• The Indian Penal Code, 1860
• Carriers Act, 1865 Law of Tort
• The Indian Contract Act, 1872
• Sale of Goods act 1930
• The Agricultural Product (Grading & Marking) Act, 1937
• The Drugs and Cosmetics Act, 1940

➢ Post Independence
After independence, many laws were enacted in India for safeguarding innocent customers from
unfair and restrictive trade practices sort of a false and dishonorable description regarding the
character and quality of the goods exaggerated statements concerning their power and
efficiency, false weights and measurements and obstruction of capital and resources into the
stream of production. The Acts that were enacted and covered the whole of the Republic of India
are given below-
 57

• The Drugs Control act, 1950

• The Industries (Development and Regulations) Act, 1951
• The Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954
• The Prevention of Food Adulteration Act, 1954
• The Essential Commodities Act, 1955
• The Trade and Merchandise Marks Act, 1958
• The Monopolies and Restrictive Trade Practices Act, 1969, Compition Act 2002
• The Cigarettes (Regulation of Production, Distribution, and Supply) Act, 1975
• The Standards of Weights and Measures Act, 1976
• The Prevention of Black Marketing and Maintenance of Supplies of Essential
• Commodities Act, 1980
• The Standards of Weights and Measures (Enforcement) Act, 1985
• The Bureau of Indian Standards Act, 1986

But of these Acts weren't as effective, focused and did not cater to needs all sections of the
population. There was a need for a focused and strong law to ensure for better protection of the
interests of shoppers and consumers and to save them from the evils of unfair trade practices
and for this the Protection Act -1986 was enacted by Indian Government. The various
amendments in this Act unto 2019 give it more teeth and power to consumers but do not tamper
with the basic spirit of the Act of 1986.

THE CONSUMER PROTECTION BILL, 2015 and 2019

HIGHLIGHTS OF THE BILL.

➢ This Bill replaces the CPA, 1986. The Bill enforces consumer rights, and provides a system for
redressal of complaints regarding defect & fraud in goods and deficiency in services.
➢ Consumer Dispute Redressal Commissions will be set up at the district level, state level and
national level for adjudicating consumer complaints easily.
➢ This Bill maintain a Consumer Protection system to investigate consumer complaints, issue a
safety notices for goods, Products& services, and pass orders for recall of goods and against
misleading advertisements in society.
➢ If a consumer suffers an injury from a defect in a goods, they may file a claim of product liability
against the manufacturer. The consumer must establish 7 conditions in order to prove such a
claim.
➢ The Bill classifies six contract terms as ‘unfair’.
➢ These cover terms such as
1. Payment of excessive security deposits;
2. Disproportionate penalty for a breach ;
3. Unilateral termination without cause;
4. One which puts the consumer at a disadvantage.

KEY ISSUES AND ANALYSIS.

➢ The Bill empowers the central government to supervise the functioning of, and issue binding
directions to the district, state and national consumer redressal commissions. This could have
 58

an effect on the independence of those quasi-judicial bodies.

➢ The District Commission, a quasi-judicial body, may be headed by a District Magistrate rank
officer, who is part of the executive. This could violate the principle of separation of powers
between the judiciary and government.
➢ The National Commission of consumer protection act headed by a judicial member and
comprising at least 15 technical or judicial members, who will examine complaints on questions
of law. This could contradict a Supreme Court judgment that questioned the ability of such
technical members.
➢ In order to claim products or goods liability, a claimant must establish four kinds of defects in
the product, the injury caused from it, and that it belonged to the manufacturer. The applicant
should additionally establish that the manufacturer had information of such a defect. It may be
argued that the conditions to ascertain a product liability claim area unit unreasonable.
➢ The Bill defines goods liability to include defects in goods and deficiency in services. However,
the conditions to be evidenced to say product liability don't embrace conditions for services. It
is unclear however a client will claim product liability for deficiency in services below the Bill.

CONSUMER PROTECTION ACT IN INDIA

In India the movement was initiated as a ‘social force’ to safeguard and encourage the interests
and rights of the consumers. But the Consumer Protection Act in 1986 gave it a legal authority with
the declaration of six consumer rights that time . Separate government departments of consumer
affairs for consumer were set up and three tier system of consumer courts at national, state and
district levels. The movement has already progressed a lot in spreading consumer awareness but
is still facing some of the problems such as:

➢ The consumer redressal system is becoming difficult, expensive and time-consuming.

➢ Evidence is not easy to gather as cash memos are not issued for most of the purchases.
➢ The existing laws are not very clear about the issue of compensation to consumers injured by
defective products.

As codified under the Indian Laws the Consumers have the following Rights:

➢ Right to Safety—to protect against hazardous goods and products.

➢ Right to be Informed—about price, quality, purity, Quantity, etc.
➢ Right to choose—access to a variety of goods and services at competitive prices.
➢ Right to be Heard—consumers interest and welfare must be taken care of rights.
➢ Right to seek Redress—protection against unfair trade practices and settling
genuine grievances.
➢ Right to Consumer Education.—Knowledge about goods and issues related to
consumers.
 59

MAJOR PROVISION IN CONSUMER PROTECTION ACT

The first Bill to protect the consumers rights , passed after Independence India was Drug Control
Act 1950. It was implemented by Industries & manufacturing sector (Development and
Regulation) act, 1951, The Indian Standards Institution (Certificate Marks) Act 1952 and Drugs and
Magic Remedies (Objectionable Advertisements) act 1954. Though these acts were intended to
protect consumers, these acts did not achieve the desired results and its was not too effective..

➢ Prevention of Food and Adulteration Act, 1954

It was the Prevention of Food and food products Adulteration act 1954, that was made
every attempt to protect the consumers. There were detailed provisions for analysis
of food, Quality, Quantity, giving warranty by manufacturers, distributors and dealers,
the disclosure of names by the vendors, food poisoning, the summary trial of cases,
forfeiture of property, etc. The Act was enacted to eradicate the anti-social people &
food processor of food adulteration and ensure purity. The central government of
India and all state governments framed rules with regard to Central Food Laboratory,
Standard of quality, public analysts and inspectors, ceiling, fattening and dispatch of
samples, Manufacturing process, coloring matter, packing and labeling of foods,
prohibition and regulating sales, conditions for sale and license, preservative,
poisonous metals, and solvent-extracted oils and edible flour etc. After
implementation of this Act, Essential Commodities Act was enabled to extend to
control the production, supply, and distribution of certain essential commodities.
➢ MRTP Act, 1969
Another important measure taken by Indian government to protect the consumers
was Monopoly in market and Restrictive Trade Practices Act (MRTP Act) 1969. It was
passed by Parliament ( Lower& Upper House ) on the recommendations of
Mahalanobis Committee Report, 1954, Justice K C Gupta Commission Report, 1965. It
came into enforcement on 1st June 1970. The Act was enacted in order that there
wouldn't be any concentration of economic power as a results of financial system
operations, and prohibition of Monopoly and restrictive trade practices. To accomplish
the aims and objectives, there were provisions for the establishment of MRTP
commission to enquire into monopolistic and restrictive trade practices and to grant
a temporary injunction and compensation. The Act was amended in 1982, 1984, 1985
and 1986. (Pathak A, 2007)
➢ Other Acts
The legal relationship and disabilities between the buyer ( Consumer) and seller were
by and large regulated by Law of Contract (1872) and Sale of Goods Act (1930).
Consumers were unable to avail these acts when they had some grievances related
to product. Law of Torts and Provisions of IPC 1980 were also applied to protect
consumers rights. After Independence, there were around 40 legislations were
enacted or strengthen to protect the consumers interests, which included some of
the British laws. But because of inadequacy in their implementation and improper
coverage of consumer’s rights and redressal through the prevailing civil court system
was cumbersome, lethargic and defendant, none of them could able to protect the
consumers against exploitation.
 60

CONSUMER PROTECTION IN THE WORLD

The trend of the globalization is market driven by new technologies and advances in product selling
and repair delivery and is that the continued retreat of Governments in several nations from ancient
sorts of regulation the market place. during this regard Foreign Direct Investment (FDI) is a crucial
tool within the Economic development of the state. Indian retail sector is one amongst the foremost
necessary sectors that carry nice potential for attracting FDI. Entry of worldwide retailers is
anticipated to own direct impact on consumer similarly as mortal. it's expected to bring down trade
goods costs of the mortal. Massive scale and high volume sourcing and technology fringe of
international retailers facilitate in realizing bigger operational potency and wide assortment of
products at lower costs could also be created obtainable to consumer. Food-safety hygiene and
quality area unit price additions. Over 60 percent of the wastage are often prevented if specialized
cold storage chains area unit designed according to need. However, aggressive opposition parties
from all states of India raised voice and alleged that client shall profit because of selection quality
and accessibility of wide merchandise. However, it's feared that within the end of the day consumer
might ought to face the chance of high costs, substandard quality and restricted choices once these
huge retailers quiet down well in Indian market. however it's additionally true that FDI in retail
trade also will facilitate in desegregation the fashionable Indian retail market thereupon of
worldwide retail market however at constant time legal and administrative unit and robust
mechanism is critical to confirm that huge retailers don't dislocate little retailers by unfair suggests
that. However, uniform restrictive structure has to be started with reference to taxes and duties
as regards trendy retail sector.

In 1962, former America President John F Kennedy declared four basic client rights –

• the proper to safety;

• the proper to be informed;
• the proper to decide on and also
• the right to be detected.

His declaration issued a license for the world’s client teams that have swollen since then to
replicate the necessity of consumer within the market. The rules were developed to:

• Assist countries to attain and maintain adequate protection for shoppers

• Encourage moral conduct within the market
• Encourage the event of market conditions which give shoppers with bigger
alternative at lower costs

After intensive international consultation, world organization General Assembly adopted few world
organization tips for consumer Protection in April 1985, and updated in 1999.

The eight rights listed below area unit the work of consumer teams and lots of government client
affairs agencies round the world.
 61

• Right to satisfaction of Basic wants

• Right to Safety
• Right to be told
• Right to decide on
• Right to be detected
• Right to Redress
• Right to client Education
• Right to Healthy setting

It acted as a tool for the nations to support consumer protection. At the international level this has
become the muse for consumer movement. These days 245 organizations from over one hundred
twenty countries have come back up and united underneath one body named consumer
International.

THE FACTORS THAT CONTRIBUTED AND INFLUENCED THE CONSUMER

PROTECTION ACT

Though there were a series of legislative measures undertaken after Independence in India , the
consumers had not been protected to the extent desired. A Private Bill for consumer protection
law was introduced but failed in the Parliament house in the year 1977 (CUTS report, 2001). Lokpal
and Lokayukta were set up, after the suggestions of Administrative Reforms Commission headed
by Morarji Desai Former Prime Minister, to resolve the grievances of Indian citizens .The law
Commission of India, in its 105th Report on Quality Control and Inspection of Consumer goods,
October 1984 (Law Commission Report 1984), under the Chairmanship of KK Mathew, suggested
that we need to establish a much better system to safeguard the patron interests while not the
patron being driven to initiate pricey and presumably long drawn out judicial proceeding. During
the same period, Madhya Pradesh State Government had introduced “Madhya Pradesh Consumer
Protection Bill 1984” which was the outcome of an intensive and analytical study by Consumer
Protection Sub-Committee of Madhya Pradesh Law Commission. The Bill had a provision to
establish State Institute of Consumer Education Research and Training, State Fair Trade Practices
Forum and Consumer Prices Review Commission. It additionally projected a State action beneath
Unified Comprehensive shopper Code. The bill proposed legal protection to community activists
and award punitive damages to those who were the victims of unfair trade practices.

The bill was intended to make inroads to achieve social and economic goals where it could not act
directly (Nayak, 1985). The bill also proposed to establish councils at District, City and Village and
ward levels to collect information and a Consumer Ombudsman, who could recommend on policy
and research, and additionally to recommend on Laws and publications on Safety and Standards.
The Prime Minister’s 20-point formula was one of the significant aspects in Consumer Protection,
which was the brainchild of then Prime Minister Shri. Rajiv Gandhi. Initially, 20-point program was
structured by Mrs. Indira Gandhi in 1975, restructured in 1982. The same was upgraded by Shri Rajiv
Gandhi to enhance the productivity of Indian Economy and to accelerate the upliftment of weaker
sections. Consumer Protection was the eighteenth purpose among the socio- economic aspects
represented therein program (Madan, 1998).
 62

Consumer Protection bill and CPA1986

Based on the guidelines of United Nations, a 28-member National Consumer Protection Council,
consisting of various ministry representatives, conducted two meetings and decided to organize a
National Workshop on Consumer Protection on March 11-12, 1985 with consumer representatives.
Based on the guidelines, suggestions and recommendations made by representatives of State
Governments, Voluntary Consumer Organizations, Central Ministers and Officials of various
Government departments, at the national seminar, a draft bill was formulated. The Laws of uk,
United States of America, Australia, and New Zealand were closely studied, analyzed and were
considered while drafting the Bill (Viswanathan, 2008). After a number of inter-ministerial
meetings, a final draft was prepared and submitted to the LokSabha by then Minister of
Parliamentary Affairs, and Food and Civil Supplies, HKL Bhagat on 9th December 1986 (Rao M, 1999).
There were some verbal and minor amendments suggested by Shri C. Madhava Reddy, ShriMool
Chand Daga, Prof N.G. Ranga, ShriJainulAbedin, ShriSharadDhige, and Shri Thompson Thomas, but
were withdrawn and passed on the same day (Rao M, 1999). Simultaneously six different shopper
protection laws were amended to allow shoppers and their organizations the correct to prosecute
offenders.

These laws are

• Standards of Weights and Measures Act, 1976;
• Prevention of Food Adulteration Act, 1954;
• Bureau of Indian Standards Act, 1986;
• Agricultural Produce (Grading and Marking) Act, 1937;
• Monopolies & Restrictive Trade Practices Act, 1969; and
• Essential Commodities Act, 1955 (CUTS Report, 2001)).

The parliament enacted Consumer Protection Act 1986, which received the assent of Indian
president on 24th December 1986. The Act is supposed to produce single, speedy and inexpensive
redressal for consumer grievances under a three-level quasi-judicial redressal agency. According
to Shri H K L Bhagat, this legislation was intended to provide a prompt and meaningful remedy for
consumer grievances. He realized that the success of the Act depends upon its effective
implementation of Central and State governments and also the development of broad-based
voluntary shopper movement at the grassroots level.
 63

CONSUMER PROTECTION ACT1986

The preamble of the Act says, “An act to provide for better protection of the interests of consumers
and for that purpose to make provision for the establishment of consumer councils and other
authorities for the settlement of consumers' disputes and for matters connected therewith.”

Objectives of the Act :

The Act seeks to provide for better protection of the consumers. There are provisions in the Act for
the establishment of Councils and Authorities to settle the consumer disputes.
a. The Act seeks inter alia to promote and protect the rights of consumers.
b. The protection of consumers’ interests and their rights are sought to be promoted and
protected through consumer protection councils established at national and State level.
c. The Act seeks to provide speedy and simple redressal mechanism through quasi-judicial
machinery at the District, State and Central level. These quasi-judicial bodies are
supposed to observe the principles of Natural Justice. They are empowered
d. To give reliefs of a specific nature and
➢ To award appropriate compensation to the consumer.
➢ Penalties for non-compliance of the orders given by the quasi-judicial bodies have
also been provided. (Kapoor N D,2002)

An Act to provide for better protection of the interests of consumers and for that purpose to make
provision for the establishment of consumer councils and other authorities for the settlement of
consumers' disputes and for matters connected therewith.
The Act came into effect from April 15th, 1987. And Chapter3 of the Act, which deals with Consumer
Redressal Agencies, came into effect from 1st July 1987 (Maheswari, 2008).

Amendments
The Consumer Protection Act 1986 was amended in 1991, 1993, 2002, 2010 and another amendment
is due. The 2002 amendment was passed by RajyaSabhaon 11th April 2002 and by LokSabha ( Lower
House )on 30th July 2002 with some amendments and again by RajyaSabha ( Upper House )on
22ndNovember 2002, Assent of the President of India was given on 17th December 2002. The
provisions of the Act are being brought into force with effect from 15th March 2003. Though CPA
1986 has remedies for the consumers in the market place, they are not sufficient and consumer
finds himself/herself as helpless due to ineffective legal machinery (Chatterjee and Sahoo, 2011).
The Act needs further amendments to provide better protection to consumers in the country. (Singh
and Chadah, 2008). One amendmentbill was put forward, in the year 2011, before Parliament which
was lapsed and Amendments were proposed in the year 2015, for which the bill has been in pending
for approval (http://www.prsindia.org/).

In the recent past Government has initiated a series of steps to strengthen the mechanism of
consumer protection, in the era of E-Commerce (“Major Proposed Changes in Consumer Protection
Act”, 2016). The amendments to the bill were drafted after due consultation with different
stakeholders, with more emphasis to ensure simplicity, speed, access, affordability and timely
delivery of justice (“New Consumer Protection Bill to Ensure Timely Justice”, 2016). To handle
complaints related to misleading advertisements, issuances of guidelines, online case monitoring
system in the Consumer Forum, a portal – Grievance Against Misleading Advertisements (GAMA)
 64

– has been launched. The government is even planning for e-filing complaints in Consumer Forum.

LEGAL PROCEDURE OF CONSUMER PROTECTION ACT IN INDIA.

As stated few years earlier, Consumer Protection act was enacted so as to have a single
comprehensive law for the protection of the interest of consumers and consumer rights and for
the creation of special courts to solve the consumer disputes speedily, effectively and inexpensive
manner.

DECLARATION OF CONSUMER RIGHTS

JUSTICE SYSTEM FOR CONSUMER

• Setting up of a separate Department of Consumer Affairs in Central and State Governments.

Setting up of a three tier consumer courts for deciding the consumer disputes,

Namely
o National Commission at national level complaints.
o State Commission at State level complaints.
o District Forums at district level complaint

SUGGESTIONS FOR CONSUMER

• The consumers should collect an original bill and the warranty card for every important
purchase.
• Consumers should check ISI mark or A-Mark printed on the goods or their labels.
• Consumers should unite together and form consumer welfare groups or any association.
• Consumers should come forward to make a complaint on genuine grievances on time.
 65

• Consumers should be aware and should try to enforce their rights.

• Consumers should check for proper sealing, labeling, full information about product, health
warnings, handling information, operational instructions, expiration date, etc.
• Consumers should not pay above the MRP in any circumstance.

PROBLEMS OF THE CPA 1986

No country will wittingly or inadvertently disregard the interest of the Consumer. The Consumer
Protection Act, 1986, is one in every of the examples that's to be treated as a milestone within the
history of socio-economic legislation to safeguard the interests of the consumers in India. The
world’s most outstanding and simple enactment of our parliament is Consumer Protection Such
an easy law isn't precocious to several countries. Before the enactment of this act, there have
been sure enactments that protected the consumer rights solely in Associate in nursing for health
issues, Some of which are Prevention of Food Adulteration act related to food industry, Magic
Remedies act, Weights and Measures Act, Essential Commodities Act, etc. But under these laws,
the guilty ones are punished and no direct relief is available to the consumers. Then comes the
patron Protection Act, 1986 that conjointly provides relief by the means of compensation to the
patron of products and services. The Act was brought into force from September 1, 1987, and was
amended in 1993, enlarging its scope and effectivness. The Act meets most of the demands of the
consumers but still, there are various shortcomings and limitations in the implementation of the
Act.

➢ The consumer redressal systemor forum is becoming difficult, expensive, complicated and
time-consuming.
➢ Evidence and proof of misconduct is not easy to gather as cash memos are not issued for
most of the purchases.
➢ The existing laws are not very clear about the issue of compensation to consumers injured by
defective products or services.

SUGGESTIONS FOR IMPROVEMENTS IN THE CPA 1986

Section 2(1)(d) and 2(1)(0) of the Act should be suitably amended to modify the definition of the
terms consumer and ‘services’ to make it clear that consideration shall not be a condition
precedent in case of availing medical and municipal services provided by the government. A victim
of medical negligence or health negligence in a government hospital or by doctor should be entitled
to compensation by enlarging the definition of consumer and bringing free services provided to the
public by the government.

➢ The Consumer redressal Forum should be vested with powers to issue interim
injunctions restraining an undertaking or person from carrying on any unfair trade
and service practice as defined in act.
➢ The Consumer Redressal Forum should be empowered to take up the cases
suomoto by authority.
➢ In case the unfair trade practices about seller or manufacturer about which a
complaint has been made and about which the consumer Redressal Forum has
 66

given relief to the complainant, then if Forum is of the opinion that the alleged
unfair trade practices is against public interest, it should be empowered to pass
an order that the practices shall be discontinued and shall not be repeated. This
is commonly called ‘cease and desist’ ordered.
➢ It is absolutely essential to ensure the quality of product and services and
competence of non-judicial members who are selected to work on the
Benches of Consumer redressal agencies.
➢ The consumer redressal agencies should be equipped with the personnel
for effective and immediate execution of their orders, and in this way the
necessity of depending on Civil or Criminal Courts would be obviated.
➢ There is a need to prescribe the essential infrastructure& facility to the
District Forums and State Commissions so that they are not hamstrung
functioning effectively.
➢ The presence of lawyers should be permitted only where the complainant
engages or unavailable for physical presents, a lawyer who will justify
the engagement of the lawyer by the respondent. Otherwise. a attorney
ought to be allowed solely wherever the court specifically permits or
considers it necessary. Further, it should be provided that in no case more
than two adjournments will be allowed. Furthermore, a procedure should
be established that makes it obligatory the court to right away provides a
copy of the order to the parties so no excuse is given for the delay in
submission of appeals.
➢ The Act should be amended to empower Consumer Courts or authority to
publish the names of manufacturers, traders and dealers whose goods
are found to be hazardous to public safety. This empowerment would work
as a deterrent to the erring business community.
➢ The Act should be amended as to streamline the fast and fair procedure
that would facilitate expeditious disposal of consumer cases.

Patents
A patent is an exclusive right granted for an invention, which is a product or a process that
provides, in general, a new way of doing something, or offers a new technical solution to a
problem. To get a patent, technical information about the invention must be disclosed to the
public in a patent application.

FUNCTIONS OF PATENTS
It is commonly acknowledged that state-of-the-art inventions ought to be hedged against imitation
and be a spur for conducting further research. Often a moment of granting a patent for an invention
is a transition point between research and development (R&D) activities and its economic use
[Schmeisser and Mohnkopf 2008, p.136-141]. According to the guide published by WIPO (World
Intellectual Property Organization), a patent has basically two functions: protection and disclosure
[2012, p.4]. Firstly, the patent owner is allowed to exclude competitors from commercial
exploitation of an invention covered by the patent and the binding right might be utilized for a
certain period of time and within a specific country or internationally. This function is the one most
often distinguished amongst researchers [Guellec and van Pottelsberghe de la Potterie 2004,
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p.648-650; Gassmann and Bader 2011, p.137]. The second function refers to the disclosure of
information: a granted patent right provides access to knowledge concerning the new technology
which should contribute to the stimulation of the innovativeness and faster economic growth. In
addition, according to WIPO, patent documentation contains information on filing trends, which are
important for public policy makers (for instance for national innovation and industrial strategies
[2012, p.8]). This basic division has been reformulated by Corbel and Le Bas [2011, p.1-3]. They prove
that the role and functions of patents have evolved over time. Patents are not only instruments
facilitating the achievement of a monopoly position, but also tools enabling protection of products
or processes, which constitute the source of differentiation from competition. Furthermore, an
individual patent cannot be perceived as a guarantee to obtain a temporary monopoly anymore.
Mentioned authors classified functions of patents into four categories: (1) innovation protection, (2)
trade and finance, (3) defensive roles and (4) input in the innovation process. The first function was
admittedly discussed in the previous paragraph, however, it needs to be added that lately important
improvements have been implemented to protect successfully an innovation, namely probabilistic
patents [Lemley and Shapiro 2005, p.75-98], strategic patents, as well as patent portfolios and
families [Blind et al. 2006]. Secondly, functions related to trade and finance comprise such aspects
as technology exchange (licensing), treating patents as quasi financial assets and a contribution to
tax optimization [Schmeisser and Mohnkopf 2008, p.136-141]. On the other hand, the defensive
function of patents is based on defensive blockades, deterring character of large patent portfolios
and the role of patents as a “currency”, since in case of a patent-infringement a cross-licensing
deal may be proposed to the competitor. The fourth category of patent’s functions refers to
signaling function, which seems to be relevant especially for SMEs (small and medium
enterprises), since they can signal the growth potential to potential investors. Furthermore, a
patent may be used as an innovativeness index and a basis for further development, due to the fact
that innovations have a cumulative character.

DOWNSIDES OF PATENT PROTECTION

The role of patent protection cannot be uncritically evaluated. Although patents have many vital
functions, there are also some significant disadvantages. First of all, the monopoly position
achieved through patent rights leads, as other monopolies on the market, to a non-effective
allocation of public resources. Secondly, patent system contributes to waste of resources, since
other companies are required to patent or invent around the patented inventions. Thirdly, the idea
of the patent right to be an award for inventors for technological development is misguided,
because there are other institutional and technological methods bringing benefits for the
innovators. Furthermore, patent holders may deliberately postpone developing new inventions in
order to gain profit from already patented invention. In addition, high collateral costs incurred in
patent protection without a guarantee of financial return cannot be ignored. Consequently, patent
rights could have both a negative impact on national economies and on companies.
SLOWING DOWN THE TECHNOLOGICAL PROGRESS
Although patent systems are generally recognized as instruments driving or even speeding up the
technological development, Kortum and Lerner [1999] challenged this statement due to the
monopoly position gained through patents. Accordingly, patent commercialization requires time,
which contributes to slowing down the technological advancement [Kortum and Lerner 1999,
p.1105-1107]. Furthermore, patent rights on the one hand stimulate propensity to innovate, but on
the other hand, contribute to reducing the amount of technology spillovers and following “non-risky
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research strategies”. The issue of hindering the global technology development has rarely been
raised by researchers and business policy makers.
UNTAPPED POTENTIAL OF INNOVATIVE IDEAS
The total amount of granted patents has been constantly growing due to possible high revenues,
generated thanks to achieved competitive advantage [EPO 2016]. Innovative companies try to take
the maximum benefit of continuous conversion of intangible assets into a measurable profit, since
significant investments in R&D and hedging may pay off in the long term. Nevertheless, many of
patented inventions never find an industrial application, for instance due to the lack of an effective
cooperation between scientists and industrial entrepreneurs. Literature provides examples of
patented innovations in the field of advanced materials, for which their applicability has not been
known of at the time of their invention. One such example is the invention of CZ-method
(Czochralski method) in the beginning of XXth century. Nowadays, scientists struggle to find a
commercial applicability for a promising semi-metal – graphene [Waszak 2011]. In 2011 Polish
scientists managed to develop a method of industrial mass production of this material without the
quality deterioration and high expenses. The process was granted a worldwide patent protection
and thus became a big hope of the Polish science for a development of new, high-growth potential
markets or a formation of a new industry. Proper patent management is crucial in order to find an
appropriate way of its commercialization.
HOSTILE TAKEOVERS OF PATENT OWNERS
Although small companies and individual inventors contribute to enlarging of global knowledge
and technological development through ground-breaking inventions, innovation management
within such organizations is especially difficult, due to risks and threats caused by large, well
established corporations. Hixon [2013] evaluated the role of patent rights held by small enterprises
indicating their lack of usefulness in most of cases (with some exceptions, such as pharma
industry). Accordingly, many entrepreneurs incorrectly understand the patent value creation
process. To begin with, in contrast to common opinions, patent should not be perceived as a
defensive tool (a “shield”) safeguarding a freedom to operate, but rather as an offensive one (a
“sword”), which gives the right to challenge competitors infringing intellectual property. With
reference to the new understanding of this approach, as well as having in mind the length and
costs involved in the average lawsuit, international corporations are thus often resistant to any
suits filed by small competitors. Moreover, large companies often pursue offensive legal strategies
against start-ups, e.g. by an alleged infringement of their patent, since the incurred litigation costs
substantially harm small companies’ liquidity. Therefore they are more exposed to hostile
takeovers. All in all, small enterprises may improve their reputation through patenting which leads
to attracting potential inventors, but on the other hand it can also grasp the attention of hostile
competitors. Accordingly, general business strategy should not be based on patent rights. Hixon
[2013] advises small entrepreneurs to develop their business on real competitive advantages such
as: rapid innovation and long-term customer relationship management.
PATENT THICKETS
The cumulative character of innovations leads to building of patent thickets, required to
commercialize the state of the art inventions. This concerns especially industries with “complex”
technologies (e.g. biotechnology, software, semiconductors), namely those with dispersed
ownership [Shapiro 2000, p.121-122]. Should a company have developed a new product consisting
of numerous other complementary patents, for each component a license has to be gained, which
often makes it unprofitable. Therefore, enterprises are often forced to sign patent pools
agreements and cross-licensing deals to assure themselves a bigger chance for the freedom-to-
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operate [Shapiro 2000, p.121-122].

PATENT WARS
Since the competition between companies all over the world has become so harsh, the importance
of legal patent strategies has also grown. Having in mind the increasing role of patent rights in the
contemporary knowledge-based economies, enterprises are forced to struggle for enhancement
of their competitive positions through available patent-related measures. Especially vulnerable
sectors for patent rights infringements are those with high competitiveness rate and complex high-
tech technologies, due to the dispersed ownership of patent rights. A patent war is a legal "battle"
between corporations or individuals in order to secure patent rights, often in the form of multiple
lawsuits. This forces firms to allocate time and money that could have been spent on research and
development in multiple patent litigations. Suits between Apple and Samsung or RIM against NTP
are flagship examples of multimillion patent wars.
PATENT TROLLS
Another negative aspect related to patent management refers to the growing share of
nonpracticing entities (hereafter called “patent trolls” or “NPEs”) [Reitzig, Henkel and Heath 2007,
p.137]. The goal of a patent strategy pursued by patent trolls is to acquire patent rights and then
sue potential violators of their patent portfolio in order to obtain either royalties in case of a
settlement or damage compensation for an infringement based on the court’s ruling. Therefore
business model of NPEs is to benefit from innovation only through litigation without
commercializing the patentprotected inventions. In addition, an important element of the business
strategy pursued by patent trolls is not to offer their competitors a possibility to license-in patent
rights [Fischer and Henkel 2012, p.1520-1521]. Due to the fact that small companies are especially
vulnerable to measures taken by NPEs, three hints can be provided in order to avoid or minimize
damages caused by patent trolls: (1) being proactive – determining which innovations are already
patented, (2) purchasing insurance – insurance companies offer protection against infringement
lawsuits, (3) attorney consultation – usually requires high costs, although these expenses are
incomparably lower than expenditures incurred in the lawsuit.

What Is Trademark Protection?

Trademark protection refers to safeguarding intellectual property rights to protect a trademark
from counterfeiting and infringement. A trademark is an established or legally registered mark
that identifies a manufacturer's unique goods and services. The owner of a distinctive mark can
apply to receive trademark protection. However, trademark protection also requires you to
continually use the mark in commerce.
To protect your trademark from infringement and counterfeiting, you need to make sure your mark
is not used by others, and you need to bring legal charges against those who use your mark without
permission. By conducting research, you can develop a strong trademark or service mark that
other competitors will find it difficult to steal.
Once you start using your trademark, you will need to focus on your strategy for defense:

➢ Using the mark correctly and regularly

➢ Keeping a lookout for potential counterfeiting or infringement
➢ Taking action against those who don't respect your rights to the trademark
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How to Choose a Strong Trademark

If you're launching a new business, product, or service, you should choose a trademark with the
strongest legal status. For example, a generic term such as sandwiches can't be protected by a
trademark. A descriptive name such as Speedy Bikes may be eligible for trademark registration,
but you will need to make sure that no one has already registered that trademark.
You will receive strong protection for a trademark that creatively and indirectly suggests the nature
of your business, products, or services. Some examples of good trademarks include the following:

➢ Blu-ray
➢ Coppertone
➢ Pasta Pomodoro

An arbitrary or fanciful trademark is one of the strongest types of trademarks eligible for
protection. An example of an arbitrary mark is an English word used in a new context. For example,
Apple is the name of a company that sells smartphones and computers. Blackberry refers to a
mobile phone for business.
A fanciful mark is distinctive due to the use of fictitious names. You can find fanciful marks
everywhere and in all industries. Some examples of fanciful marks include the following:

➢ Kodak
➢ Viagra
➢ Verizon
➢ Prozac

A good trademark is one that no one else is using already. You can use the U.S. Patent and
Trademark Office (USPTO) website (uspto.gov) to do a search of all registered trademarks.
However, you should keep in mind that you won't see common law trademarks. These trademarks
get created following a series of rules governed by states, not federal governance. A business has
the legal right to a common law trademark if it is the first to use it.
Before you attempt to register a new trademark, you want to make sure that you're not infringing
on the trademark of another person. You can spend $100 to $400 for the services of a
professional trademark search firm. You can count on such firms to do more thorough research
for potential infringement. Another option is to have a trademark attorney conduct research for
you.

How to Maintain Your Trademark for Protection

Once you have a trademark through registration or common law use, you will need to take steps
to protect the trademark.

➢ One of the best methods for protecting your trademark is simply using the mark regularly. Every
five or 10 years, you will need to pay trademark renewal fees to the USPTO.
➢ You should also display the correct sign for your trademark. For example, you should display
TM for a common law trademark and SM for a common law service mark. If your mark is
federally registered, you should display the federally registered trademark symbol (®) on any
marketing materials and products.
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Keep in mind that you don't need to include the TM or registered trademark symbol each time you
mention the name in your company. However, you should display the mark often, especially in the most
prominent places, such as products and marketing materials. You will notice that corporations use
registered trademark symbols about 50 percent of the time.
Include trademark language on all publications and packaging, including websites.

Trademark Protection Length

Once a trademark is successfully registered with the U.S. Patent and Trademark Office's Principal
Register, the owner of the mark will receive a certificate. This certificate of registration is valid for
10 years. However, if the owner does not file a statement within five or six years of the mark's
registration date, the trademark's registration may expire. The purpose behind this statement of
use is to inform the USPTO that the mark is being used in commerce.
The owner of the mark can renew the original registration as many times as need for additional
10-year periods. Trademark owners need to complete their renewal applications and file them with
the USPTO. If the owners fail to complete the renewal applications, all the special benefits of
registration with the federal government will cease. However, the owners do not lose all rights to
their marks.

What is a trademark?

Trademark refers to any mark used to identify and distinguish products or services of a
particular manufacturer. Trademarks can include:

➢ Words
➢ Symbols
➢ Phrases

A good example of a trademark is Nike and the well-known Nike swoosh. Both the name of the
brand and the logo helps distinguish the shoes produced by Nike from the shoes produced by
other companies, such as Adidas and Reebok. Another example of an effective trademark is
Coca-Cola.
If you use a mark to identify a service, not a product, then the mark is a service mark. However,
service marks get treated the same as traditional trademarks for trademark protection.
A trademark enables a consumer to easily identify the source of a product. Trademarks also
give manufacturers an incentive to emphasize the production of quality products. Trademark
law regulates the proper usage of trademarks.

What is trade dress?

In some cases, trademark protection can go further than symbols, words, and phrases. Some
examples of aspects of a product that can receive trademark protection include color and
packaging. For example, a Coca-Cola bottle has a distinctive shape that can serve as an
identifying feature for the brand. These features are trade dress.
If consumers tend to associate a certain feature with a brand and not the type of product, trade
dress may apply. However, these features will not receive trademark protection if they offer a
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competitive or functional advantage over other products. For example, if a unique bottle shape
makes the product easier to grip, this feature cannot receive trademark protection.

What laws regulate trademarks?

Both state and federal laws govern trademarks. In the past, state common law served as the
main source of trademark protection. However, in the late 19th century, Congress passed the
first federal trademark law. Over time, federal laws for trademark protections have expanded.
Now, federal laws are the main source of trademark protection.
In 1946, the Lanham Act became the main federal statute for trademark protection. In 1996, the
Lanham Act was amended. State common laws are still available for those seeking trademark
protection, but federal law remains the best source for nationwide trademark protection.

Which marks qualify for trademark protection?

For a mark to qualify for trademark protection, it needs to be distinctive. In other words, the
mark needs to be capable of identifying the manufacturer of a particular product or service.
Courts consider four categories to determine whether a mark is distinctive:

➢ Suggestive
➢ Descriptive
➢ Generic
➢ Arbitrary or Fanciful

The marks in each of these four categories vary in terms of distinctiveness. Therefore, the extent
of protection that a trademark receives will rely on the category the mark encompasses.

What is a fanciful or arbitrary mark?

A fanciful or arbitrary mark refers to a mark that has no logical relationship to the products or
services. Some examples of such marks include Apple, Exxon, and Kodak. Apple is a company
that sells computers; no logical relationship exists between computers and apples. A mark that
is fanciful or arbitrary is inherently distinctive. Therefore, such marks receive trademark
protection to the greatest extent.

What is a suggestive mark?

If a mark is suggestive, then it suggests or evokes a characteristic of the product or service.

Coppertone is an example of a suggestive trademark. While Coppertone does not specifically
describe sunscreen, the name is suggestive of the product. In general, if you need to use your
imagination to associate a product with a mark, the mark can be considered suggestive.
Suggestive marks also receive significant trademark protection because they are inherently
distinctive.
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What is a descriptive mark?

A descriptive mark refers to a mark that describes, not suggests, a quality or characteristic of
a product or service. Some examples of such marks include Vision Center, Holiday Inn, and All
Bran. A descriptive mark will tell you about a certain aspect of the product or service.

What is a generic mark?

A generic mark refers to a mark that describes the product or service's general category. For
example, the term computer would be an example of a generic mark. Under trademark law, generic
marks are not entitled to receive any protection. Therefore, if a manufacturer is selling Camera
brand cameras, the manufacturer would have no exclusive rights to the brand name.
Generic terms are useful for describing a product. Therefore, trademark law does not extend
trademark protection to generic terms. If a single manufacturer has control over a generic term,
that control would grant them an advantage. In some cases, a term that was not considered generic
can change to become generic with time. In such circumstances, the term loses its right to
trademark protection.

What is the difference between copyrights and trademarks?

A frequent misconception is that copyrights and trademarks are the same. However, trademarks
and copyrights offer different protections. Trademark laws are responsible for protecting short
phrases, names, and titles that help identify the source of the product or service. On the other hand,
copyright refers to the legal right established by law that grants an original work's creator the
exclusive rights for the use and distribution of that work.

What is trademark infringement?

A party that possesses rights to a certain trademark can sue other parties for trademark
infringement. The likelihood of confusion determines whether someone can sue another business
or individual for trademark infringement. If another person's use of a trademark to sell a product
or service is likely to lead to consumer confusion related to the source of the product or service,
then the individual has likely committed trademark infringement.
Some of the factors that the courts will consider when determining whether consumers may be
confused include:

➢ The mark's strength

➢ Proximity of the mark to products
➢ Similarity of the two marks
➢ Existing evidence of customer confusion
➢ The amount of caution the typical purchaser will exercise
➢ Similarity of the marketing channels used
➢ Intent of the defendant
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What is trademark dilution?

The owner of a trademark can also accuse another person or company of trademark dilution under
state or federal law. A dilution claim under federal law is only possible if the mark is a well-known
mark. In order to determine whether a mark is famous, the courts will consider the following
factors:

➢ Extent of acquired or inherent distinctiveness

➢ The extent and duration of use
➢ The amount of publicity and advertising
➢ The market's geographic extent
➢ The channels and methods of trade
➢ Extent of recognition
➢ The infringing person or company's use of similar marks
➢ The registration status of the mark

What are the benefits of registering a trademark using the USPTO's Principal Register?

Registering a trademark on the Principal Register enables people to receive the full value of federal
trademark protection. The most important benefit is that anyone who may infringe on a trademark
may be labelled by the courts as a wilful infringer. Registration on the Supplemental
Register doesn't offer evidence of an owner's exclusive right to use a trademark in connection with
a product or service. Additionally, owners of trademarks on the Supplemental Register can't use
customs services to stop imports on products that infringe upon their trademarks.

Competition Act 2002

Competition is the act of the sellers individually seeking to acquire the patronage of buyers in order
to achieve profits or market share. The Competition Act, 2002 was enacted by the Parliament of
India and replaced The Monopolies and Restrictive Trade Practices Act, 1969. It is in effect to govern
Indian competition law.
After the enactment of the Competition Act, 2002, (“Act”) it has been amended twice, the
Competition (Amendment) Act, 2007 and the Competition (Amendment) Act, 2009.
Two of the main features of the Competition Act, 2002 is the framework it provides for the
establishment of the Competition Commission, and the tools it provides to prevent anti-competitive
practices and to promote positive competition in the Indian market.
Objectives of the Competition Act
The Act seeks to provide the legal framework and tools to ensure competition policies are met, to
prevent anti-competition practices and provide for the penalisation of such acts. The Act protects
free and fair competition which protects the freedom of trade.
The Act seeks to prevent monopolies and also to prevent unnecessary intervention by the
government. The main objectives of the Competition Act, 2002 are:
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➢ to provide the framework for the establishment of the Competition Commission.

➢ to prevent monopolies and to promote competition in the market.
➢ to protect the freedom of trade for the participating individuals and entities in the market.
➢ to protect the interest of the consumer.

Anti-Competitive Agreements
In simple words, Anti-Competitive agreements are agreements that are made by two or more
companies competing in the same market to fix prices or reduce stocks etc, so as to manipulate
the market favourably for them. This has the effect of the companies reducing the competition in
the market which adversely affects the end consumer.
The Competition Act, 2002 defines anti-competitive agreements as such in section 3 where it states,
“No enterprise or association of enterprises or individuals or association of individuals may enter
into an agreement regarding production, supply, distribution, storage, acquisition or control of
goods or provision of services which may adversely affect the competition in the Indian market”.
Such agreements are termed as AAEC agreement, which means the Appreciable Adverse Effect
on Competition agreements. The Act expressly states that such an agreement shall be void. An
AAEC agreement is classified as any agreements that result in:
➢ Directly affects purchase or sale prices.
➢ Indirectly affects purchase or sale prices.
➢ Limits production.
➢ Limits supply.
➢ Limits technical development.
➢ Limits service provision in the market.
➢ Leads to the rigging of bids.
➢ Leads to collusive bidding.

Abuse of Dominant Position

The abuse of the dominant position is prohibited by Section 4 of the Competition Act. Abuse of
dominant position is defined under the second part of the same Section. According to the act
dominant position means any enterprise that enjoys the position and power in the Indian market
which enables it to:
➢ Operate independently of competitive forces in the relevant market.
➢ Affect its competition, consumer or the relevant market in its favour.
For example, predatory pricing is a practice that is seen to be an abuse of the dominant position.
In simple words when a dominant enterprise engages in AAEC acts, it is considered an abuse of
the dominant position.
The difference between the definition of anti-competitive agreements and abuse of dominant
position is that in anti-competitive agreements there have to be two or more parties and it can be
between any enterprise or firm and doesn’t require there to be a dominant firm involved. In abuse
of dominant position, it can be done by a single party but the party has to be in a dominant
position in the relevant market.
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Remedies
Remedies against AAEC agreements and abuse of dominant position are provided by the
Competition Commission of India. Upon a review and enquiry into the alleged practices the
Competition Commission may pass the following orders:
➢ Direct the discontinuance of such practices.
➢ Impose a penalty that is less than 10% or the turnover of the preceding three financial years; in the
case of a cartel, the penalty shall be 10% or three times the turnover of every financial year and shall
continue for the period of continuance of such practices.
➢ Direct the modification of such an agreement or abuse so as to curtail its adverse effect upon the
competition of the market.
➢ Pass any order that it may so deem fit.

Competition Commission
The Competition Commission of India is established under the Competition Act, 2002. It is a
statutory body that has the power to govern and enforce the Competition Act including penalties.
It was established when the need for a healthy competitive environment became necessary
following liberalisation under the Vajpayee government.
The Commission is composed of a chairman and a minimum of 2 board members and a maximum
of 6 board members. These members are required to have a minimum of 15 years of experience
in their respective fields.
Its objectives, duties and powers are enumerated in the Competition Act, 2002. Its main duty and
object is to ensure that the Indian markets maintain a healthy and fair competitive environment
and is granted the power to ensure such an environment and penalise any acts adversely
affecting its duties.
Regulation of Combination
The term combination has a broad definition under the Act, it includes:
➢ any acquisition of shares,
➢ voting rights,
➢ control of assets, and
➢ party to merger or amalgamation of enterprises.
Any person/enterprise shall not enter into a combination that is likely to have an adverse effect on
the competition and such a combination will be void. If any person/enterprise proposes to enter
into a combination he shall intimate the Competition Commission of India within 30 days of:
➢ Approval of the proposal relating to mergers and amalgamation by the Board of Directors
of the enterprises involved in the process.
➢ Execution of any agreement pertaining to acquiring control.
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Business Perspective
Business operations in India necessitate the knowledge of the various laws and regulations and
also the implementation of the same. Competition in the market is a huge challenge that needs to
be dealt with carefully.
It is essential for businesses to realize that although competition brings prosperity, thriving and
striving shall be a continuous process. The various matters to be kept in mind by the business
houses are:
➢ The markets are susceptible to the formation of cartels which pose a risk of formation of
monopolies. The awareness of the fact that such associations are not permitted under the
Competition Act, 2002 is essential.
➢ When discussions are made with competitors documentation of the same should be done.
➢ Any meetings wherein any matter is being discussed, which shall raise issues under the
Competition Law shall be avoided.
➢ It is advisable to avoid discussions pertaining to price and the actual cost to the company.
➢ Appointment of an Ombudsman for advice on the Competition Law so as to prevent any legal
issues may be done.
➢ Communication aspects although seem trivial may leave an impact when it comes to abuse
of dominant position issues. Any statements made shall be weighed carefully.
The Competition Act, 2002 is a comprehensive law and the intent of the legislation is to promote
fair competition, catch up with the global economy, safeguard the interest of the consumers and
ensure a stable market for India.
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UNIT-4
Sociocultural environment
The sociocultural environment refers to trends and developments in changes in attitudes, behavior,
and values in society. It is closely related to population, lifestyle, culture, tastes, customs, and
traditions. These factors are created by the community and often are passed down from one
generation to another.

Examples of critical sociocultural variables are:

• Culture. Individual values and habits can change individuals through contact with specific
cultures.
• Habits that represent how to behave in response to a given situation.
• Beliefs and values. Belief refers to how we feel about something or someone. Meanwhile, values
are relatively long-standing beliefs and serve as guidelines for culturally appropriate behavior.
• Number and growth of population. Increasing the population indeed provides more labor and
demand for goods and services. On the other hand, it can lead to social problems such as crime
and poverty, especially when employment is inadequate.
• Age composition. In some countries, productive age populations dominate and provide
opportunities for economic growth and demand for goods and services. However, countries like
Japan, the elderly population dominates. It presents opportunities as well as challenges for the
economy and companies there.
• Geography. Populations may be concentrated in some geographical regions, for example, on
arable agricultural land or in industrial areas.
• Ethnicity. A country, like Indonesia, consists of a variety of different ethnic and ethnic groups. It
has implications for various aspects such as language, culture, habits, and tastes.
• Household and family structure. The population of a community can be broken down based on the
number of children.
• Employment, for example, the composition of white-collar workers vs. blue-collar workers.
• Wealth and social class. People from different social classes can have different values that
reflect their position in society.

How does the sociocultural environment affect business

Changes in several sociocultural factors may take years. However, some of them are changing faster
and more dynamically, for example, thanks to technological developments.

Sociocultural factors continue to change. That has implications for the opportunities and threats that
companies face. And finally, these changes also determine the company’s strategy that the company
must choose.

Social and cultural change challenges companies to find more effective ways to adapt to stay ahead
of their competitors.
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For example, changes in age composition affect changes in patterns of demand for goods and
services. As the elderly population begins to dominate, the need for health services and pensions
increases.

Furthermore, changes in age composition also affect recruitment policies. Companies must face
more elderly with reduced productivity.

Different sociocultural factors also influence business practices, policies, and activities.

Culture influences taste and lifestyle. Therefore, culture also influences the types of products and
services that businesses must offer.

Also, human resource management may need to overcome cultural differences in recruitment. For
example, some ethnic minorities have different body language, which may be difficult for
interviewers to interpret.

Elements of Socio-Cultural Environment

Attitude And Beliefs
Beliefs of a person relate from which society he came from. Attitude means how a person
behaves. Beliefs of people matters a lot in order to set up the business. i.e, western clothing is
totally different from middle east outfits.

Demographic
Demographics is about the characteristics of the population. It includes the income of a family,
area, age, society and etc.

Religion
Which religion person belong effects the buying behaviour. Religion influences food habits, dress,
and traveling.

Language
Language is a medium of communication. what you speak relates to your background. Language
effect your relations.
Education
Education leads to the person to communicate an idea and thought. An educated person knows
the value of discipline to do what is right.

Family Structure
The family structure includes the people who are considered part of the family and the quality of
the relationships among them.
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Social Organization
In a Social organization, it made for fun and some small work. it may be in the form of the group
in the office. Circle of friends. The social groups are the most influencing power. Cause we get a
habit from our group. That also influences the Socio-Cultural Environment.

Class Structure
It can be classified into upper, middle, lower. It reflects income, occupation, education an area of
residence. Upper class means high earning people. Lower class earns low earning people.

Nature of Culture on Business

Culture has various nature. From various definitions, we can deduce the following nature of culture:

Learned Behaviour

Not all behaviour is learned, but most of it is learned; combing one’s hair, standing in line, telling
jokes, criticizing the President, and going to the movie all constitute behaviours that had to be
learned.

Sometimes the terms conscious learning and unconscious learning are used to distinguish the
learning.

Some behaviour is obvious. People can be seen going to football games, eating with forks, or
driving automobiles. Such behaviour is called “overt” behaviour. Other behaviour is less visible.

Culture is Abstract

Culture exists in the minds or habits of the members of society. Culture is the shared ways of doing
and thinking. There are degrees of visibility of cultural behaviour, ranging from persons’
regularized activities to their internal reasons for so doing.

In other words, we cannot see culture as such; we can only see human behaviour. This behaviour
occurs in a regular, patterned fashion, and it is called culture.

Culture Includes Attitudes, Values, and Knowledge

There is a widespread error in the thinking of many people who tend to regard the ideas, attitudes,
and notions they have as “their own.”

It is easy to overestimate the uniqueness of one’s own attitudes and ideas. When there is an
agreement with other people, it is largely Unnoticed, but when there is a disagreement or
difference, one is usually conscious of it.

Your differences, however, may also be cultural. For example, suppose you are a Muslim, and the
other person is a Christian.
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Culture also Includes Material Objects.

Man’s behaviour results in creating objects.

Men were behaving when they made these things. To make these objects required numerous and
various skills which human beings gradually built up through the ages. Man has invented something
else, and so on.

Occasionally one encounters the view that man does not really “make” steel or a battleship.

All these things first existed in a “state nature.”

The man merely modified their form, changed them from a state in which they were to the state in
which he now uses them. The chair was first a tree which man surely did not make. But the chair
is’ more than trees, and the jet airplane is more than iron ore and so forth.

The Members of Society share culture

The patterns of learned behaviour and behaviour results are possessed not by one or a few people,
but usually by a large proportion.

Thus, many millions of persons share such behaviour patterns as automobiles or the English
language. Persons may share some part of a culture unequally.

Sometimes the people share different aspects of culture.

Culture is Super-Organic

Culture is sometimes called super organic. It implies that “culture” is somehow superior to “nature.”
The word super-organic is useful when it implies that what may be quite a different phenomenon
from a cultural point of view.

For example, a tree means different things to the botanist who studies it, the older woman who
uses it for shade in the late summer afternoon, the farmer who picks its fruit, the motorist who
collides with it, and the young lovers who carve their initials in its trunk.

The same physical objects and physical characteristics, in other words, may constitute a variety of
quite different cultural objects and cultural characteristics.
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Culture is Pervasive

Culture is pervasive; it touches every aspect of life. The pervasiveness of culture is manifest in two
ways.

First, culture provides an unquestioned context within which individual action and response take
place. Cultural norms govern not only emotional action but relational actions.

Second, culture pervades social activities and institutions.

Culture is a Way of Life

Culture means simply the “way of life” of a people or their “design for a living.” Kluckhohn and Kelly
define it in his sense”, A culture is a historically derived system of explicit and implicit designs for
living, which tends to be shared by all or specially designed members of a group.”

Explicit culture refers to similarities in word and action, which can be directly observed.

For example, adolescent cultural behaviour can be generalized from regularities in dress,
mannerism, and conversation. Implicit culture exists in abstract forms, which are not quite obvious.

Culture is Idealistic

Culture embodies the ideals and norms of a group. It is the sum-total of the ideal patterns and
norms of behaviour of a group. Culture consists of the intellectual, artistic, and social ideals and
institutions that the members of society profess and strive to confirm.

Culture is Transmitted among Members of Society

Persons learn cultural ways from persons.

Many of them are “handed down” by their elders, parents, teachers, and others. Other cultural
behaviours are “handed up” to elders. Some of the transmission of culture is among
contemporaries.

For example, the styles of dress, political views, and the use of recent labour-saving devices. One
does not acquire a behaviour pattern spontaneously.

He learns it. That means that someone teaches him, and he learns. Much of the learning process
for the teacher and the learner is unconscious, unintentional, or accidental.

Culture is Continually Changing

There is one fundamental and inescapable attribute (a special quality) of culture, the fact of
unending change.
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Some societies sometimes change slowly, and hence in comparison to other societies, seem not
to be changing at all. But they are changing, even though not obviously so.

Language is the Chief Vehicle of Culture

Man lives not only in the present but also in the past and future.

He can do this because he possesses a language that transmits what was learned in the past and
enables him to transmit the accumulated wisdom to the next generation.

A specialized language pattern serves as a common bond to the members of a particular group or
subculture.

Although culture is transmitted in various ways, language is one of the most important vehicles for
perpetuating cultural patterns.

Culture is Integrated

This is known as holism, or the various parts of a culture being interconnected.

All aspects of a culture are related to one another, and to truly understand a culture, one must
learn about all of its parts, not only a few.

Culture is Dynamic

This simply means that cultures interact and change.

Because most cultures are in contact with other cultures, they exchange ideas and symbols. All
cultures change. Otherwise, they would have problems adapting to changing environments.

And because cultures are integrated, the entire system must likely adjust if one component in the
system changes.

Culture is Transmissive

Culture is transmissive as it is transmitted front one generation to another.

Language is the main vehicle of culture. Language in different forms makes it possible for the
present generation to understand the achievement of earlier generations.

Transmission of culture may take place by imitation as well as by instruction.

Culture Varies from Society to Society

Every society has a culture of its own. It differs from society to society. The culture of every society
is unique to itself. Cultures are not uniform.
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Cultural elements like customs, traditions, morals, values, beliefs are not uniform everywhere.
Culture varies from time to time also.

Impact of Culture on Business

No one can dispute that culture affects how we think and how we act as individuals. It affects our
relationships. So understanding the importance of culture, one can see that it definitely has
implications for business.

• Culture affects how we think and how we act as individuals on our job.
• Culture affects our relationships with any of our business associates.

And with the globalization of business through the ease of communication and travel,
understanding culture is increasingly important in today’s world. You probably have heard the
expression that “… when in Rome, do like the Romans do.”
We need to minimize the possibility of cross-cultural misunderstandings so we can benefit from
our differences. This will result in happier work environments and better business relationships.
Who knows, it may even lead to more tangible goals for the company like higher sales or increased
profits.
So how do you go about understanding other cultures?
This may sound quite basic but you need to look at your own culture first. There are many areas
that may affect how you relate to others. You may not have considered some of these aspects
before. But if you step back a little and think, you will see that each area is impacted by your own
culture. Let’s look at some significant areas:

• Age/Gender/Ethnicity and Religion

• Body language and communication style
• Personal appearance/dress
• Eating and drinking traditions/etiquette
• Entertaining and socializing/gift giving
• Holidays
• Language
• Cultural assumptions/ethics/political correctness
• Business organization/management style and leadership/business relationships
• Work expectations/time management

When you work in an environment that involves others from various cultures, you need to be aware
of your own culture in terms of each of these areas. This will help you to realize that other cultures
may have distinct differences in one or more of these areas. When you work with individuals from
another culture, you need to be aware of their culture(s). This will allow you to be more sensitive
to other cultures. This mindset will help you to appreciate other cultures and to view things (i.e.
the situation or problem, etc.) from a broader perspective and not just from your viewpoint.

Consumerism
Consumerism is the idea that increasing the consumption of goods and services purchased in the
market is always a desirable goal and that a person's wellbeing and happiness depend
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fundamentally on obtaining consumer goods and material possessions. In an economic sense, it

is related to the predominantly Keynesian idea that consumer spending is the key driver of the
economy and that encouraging consumers to spend is a major policy goal. From this point of view,
consumerism is a positive phenomenon that fuels economic growth.

Understanding Consumerism
In common use, consumerism refers to the tendency of people living in a capitalist economy to
engage in a lifestyle of excessive materialism that revolves around reflexive, wasteful, or
conspicuous overconsumption. In this sense, consumerism is widely understood to contribute to
the destruction of traditional values and ways of life, consumer exploitation by big business,
environmental degradation, and negative psychological effects.

The Impact of Consumerism

According to Keynesian macroeconomics, boosting consumer spending through fiscal and
monetary policy is a primary target for economic policymakers. Consumer spending makes up the
lion's share of aggregate demand and gross domestic product (GDP), so boosting consumer
spending is seen as the most effective way to steer the economy toward growth.

Consumerism views the consumer as the target of economic policy and a cash cow for the
business sector with the sole belief that increasing consumption benefits the economy. Saving
can even be seen as harmful to the economy because it comes at the expense of immediate
consumption spending.

Consumerism also helps shape some business practices. Planned obsolescence of consumer
goods can displace competition among producers to make more durable products. Marketing and
advertising can become focused on creating consumer demand for new products rather than
informing consumers.

Advantages and Disadvantages of Consumerism

Advantages
Advocates of consumerism point to how consumer spending can drive an economy and lead to
increased production of goods and services. As a result of higher consumer spending, a rise in
GDP can occur. In the United States, signs of healthy consumer demand can be found in consumer
confidence indicators, retail sales, and personal consumption expenditures. Business owners,
workers in the industry, and owners of raw resources can profit from sales of consumer goods
either directly or through downstream buyers.

Disadvantages
Consumerism is often criticized on cultural grounds. Some see that consumerism can lead to a
materialistic society that neglects other values. Traditional modes of production and ways of life
can be replaced by a focus on consuming ever more costly goods in larger quantities.

Consumerism is often associated with globalization in promoting the production and consumption
of globally traded goods and brands, which can be incompatible with local cultures and patterns
of economic activity. Consumerism can also create incentives for consumers to take on
unsustainable debt levels that contribute to financial crises and recessions.
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Environmental problems are frequently associated with consumerism to the extent that consumer
goods industries and the direct effects of consumption produce environmental externalities.
These can include pollution by producing industries, resource depletion due to widespread
conspicuous consumption, and problems with waste disposal from excess consumer goods and
packaging.

Social Responsibility
Social responsibility means that businesses, in addition to maximizing shareholder value, must
act in a manner that benefits society. Social responsibility has become increasingly important to
investors and consumers who seek investments that are not just profitable but also contribute to
the welfare of society and the environment. However, critics argue that the basic nature of
business does not consider society as a stakeholder.

Understanding Social Responsibility

Social responsibility means that individuals and companies must act in the best interests of their
environment and society as a whole. As it applies to business, social responsibility is known
as corporate social responsibility (CSR) and is becoming a more prominent area of focus within
businesses due to shifting social norms.

Criticism of Corporate Social Responsibility

Not everyone believes that businesses should have a social conscience. Economist Milton
Friedman stated that "social responsibilities of business are notable for their analytical
looseness and lack of rigor." Friedman believed that only individuals can have a sense of social
responsibility. Businesses, by their very nature, cannot. Some experts believe that social
responsibility defies the very point of being in business: profit above all else.

Social responsibility of business: How it’s becoming the future lighthouse

for consumer’s choice
The journey from source to shelf reflecting the social responsibility in business
I wanted to drill down to know what the concept of the supply chain is all about. The supply chain
doesn’t merely involve moving of raw materials or products in a systematic flow to end in the
delivery of the final product. It, in fact, involves the interaction of human beings at each step giving
rise to numerous issues. Most of the time, we tend to forget these interacting elements and just
focus on the final product or outcome.
At a glimpse, here are the 5 elements of the ethical supply chain.
These ethical business issues remain under wraps. These issues demand to be recognised and
addressed as a part of the social responsibility of business. With the advent of advancing
communications, this news is reaching the consumers. The journey of an “ethical consumer or
shopper” has started. The consumer’s expectations are rising high.

Codes, standards, and laws related to the social responsibilities of business

I came across the standards that set requirements and guidelines to manage ethical business
issues. ETI Base Code, SA 8000, ISO 26000, ISO 14001, are a few of the international requirements
guiding social responsibility in business across the supply chain. International Labour Organisation
(ILO) has many such advisory and guidelines that set the basis of legal requirements of different
countries.
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Assurance and certification programs for social responsibility in business

I started searching and to my utter surprise, I found hundreds of assurance and certification
programs are available on earth to ensure that the company manages ethical business issues. In
fact, different commodities have different assurance programs. However, most of them follow a
similar framework and issues related to social responsibility in business.
As a consequence, this opened up my heart, just not the eyes. Really, there are so much more to
just a product.

Business ethics and social responsibility of business – the new value consumers are looking
for
Consumers are now moving into an ecosystem where they have the power to choose
among competitive socially responsible brands that manage ethical business issues
and corporate social responsibilities well. Brands are just not an emblem but a movement.
Social responsibility in business is just not an activity. It shows the organization’s concern
for the environment and society and how much they are creating social impact. It must
percolate down to the base of the pyramid. This should be communicated to the end-user
in a simplified way.
Consumer’s choice and behaviour can reshape how brands perceive creating value. It’s the
time when transparency, values and business ethics stands strong.

Social responsibility of business – what value does it really bring to society?

It brings back dignity to the bottom of the pyramid.
I finally bought my grandma’s saree which as per my information and analysis is humane in the
total process. Still, I am not sure if it’s made up of sustainably grown cotton in environmentally
friendly safe working conditions. I don’t know if a reasonable part of my money is reaching the
deserved beneficiaries like farmers and the weavers.

But I’m hopeful as a consumer to know about the responsible sourcing of a product, soon or
sooner.

Business Ethics
Business ethics is the study of appropriate business policies and practices regarding potentially
controversial subjects including corporate governance, insider trading, bribery, discrimination,
corporate social responsibility, and fiduciary responsibilities. The law often guides business
ethics, but at other times business ethics provide a basic guideline that businesses can choose to
follow to gain public approval.

Understanding Business Ethics

Business ethics ensure that a certain basic level of trust exists between consumers and various
forms of market participants with businesses. For example, a portfolio manager must give the
same consideration to the portfolios of family members and small individual investors. These
kinds of practices ensure the public receives fair treatment.
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The concept of business ethics began in the 1960s as corporations became more aware of a rising
consumer-based society that showed concerns regarding the environment, social causes, and
corporate responsibility. The increased focus on "social issues" was a hallmark of the decade.

Why Are Business Ethics Important?

Business ethics are important because they have lasting implications on several levels. With
increased investor awareness on environmental, social, and governance issues, a company's
reputation is at stake. For instance, if a company partakes in unethical practices, such as poor
customer privacy procedures and protections, it could result in a data breach. This, in turn, may
lead to a significant loss of customers, erosion of trust, less competitive hires, and share price
declines.

What Is an Example of Business Ethics?

Consider an employee who is told in a meeting that the company will face an earnings shortfall
for the quarter. This employee also owns shares in the firm. It would be unethical for the
employee to sell their shares since they would be subject to insider information. Alternatively, if
two large competitors came together to gain an unfair advantage, such as controlling prices in a
given market, this would raise serious ethical concerns.

Social Audit
A social audit is a formal review of a company's endeavors, procedures, and code of conduct
regarding social responsibility and the company's impact on society. A social audit is an
assessment of how well the company is achieving its goals or benchmarks for social
responsibility.

Understanding a Social Audit

Ideally, companies aim to strike a balance between profitability and social responsibility. A social
audit is an internal examination of how a particular business is affecting society. The audit helps
companies to determine if they're meeting their objectives, which may include measurable goals
and benchmarks. A social audit serves as a way for a business to see if the actions being taken
are being positively or negatively received and relates that information to the company’s overall
public image.

In the era of corporate social responsibility, corporations are often expected to deliver value to
consumers and shareholders as well as meet environmental and social standards. Social audits
can help companies create, improve, and maintain a positive public relations image. For many
companies, a good public perception helps foster a positive image of the company and ultimately
reduce negative impacts on earnings from bad press.

Items Examined in a Social Audit

The scope of a social audit can vary and be wide-ranging. The assessment can include social and
public responsibility but also employee treatment. Some of the guidelines and topics that
comprise a social audit include the following:
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• Environmental impact resulting from the company's operations

• Transparency in reporting any issues regarding the effect on the public or environment.
• Accounting and financial transparency
• Community development and financial contributions
• Charitable giving
• Volunteer activity of employees
• Energy use or impact on footprint
• Work environment including safety, free of harassment, and equal opportunity
• Worker pay and benefits
• Non-discriminatory practices
• Diversity

Example of a Social Audit

Salesforce.com (CRM) is a Fortune 500 company and one of the largest enterprise software
companies in the U.S. As part of its social audit and assessment, the company has strived to use
100% renewable energy globally. The company lists its findings including an annual Stakeholder
Impact Report on its website. Below is a portion of the report from 2017.

According to the company's website, Salesforce was one of the first cloud companies to commit
to powering all data centre operations with renewable energy. Below is a graph from the
company's stakeholder report showing where the company stands in its goal of 100% renewable
energy.

Use of Social Audit Findings

Since social audits are voluntary, any release of the findings to the general public is
also voluntary. While positive results might be disclosed, negative results might be
kept internal and used to identify potential improvements that can make the results of
the next social audit more favorable.

For example, a company might find out through its assessment that the company was
not adequately involved in charitable activities within the community. As a result,
company executives could enact initiatives with measurable goals designed to
increase community involvement. The activities could be monitored and analyzed
during the next social audit.

By continuously striving to meet and exceed its social responsibility benchmarks, the
company can improve its public perception over time. In short, social audits help
companies achieve a balance between profits and ethics.