UNIT – I

Business Environment: Importance at National and International Level

Business may be understood as the organized efforts of an enterprise to supply
consumers with goods and services for a profit. Businesses vary in size, as measured by the
number of employees or by sales volume etc. But, all businesses share one common purpose
that is to earn profits.
The purposes of business that goes beyond earning profits are:

 an important institution in society

 for the supply of goods and services
 creating job opportunities
 offering better quality of life
 contributing to the economic growth of the country.
Hence, it is understood that the role of business is crucial from the point of view of
individuals and national society as well. Society cannot do without business. Similarly, it
requires no emphasis that business needs society as much. Modern business is dynamic. If
there is any single word that can best describe today‘s busi-ness, it is ‗change‘. It is ‗change‘
that makes the companies spend substantially on Research and development (R&D) to
survive in the market. Environment refers to all forces, which have a bearing on the
functioning of business. They can be forces of economic, social, political and technological
factors, apart from internal forces of the organisation.
Environment factors are largely if not totally, external and beyond the control of
individual industrial enterprises and their managements. The business environment poses
threats to a firm or offers immense opportunities for potential market exploitation.
Definitions of Business Environment
 According to Bayard O Wheeler, business environment refers to ―The total of all things
external to firms and industries, which affect their organisation and operation‖.
 Keith Davis, defines business environment in his famous book ―The challenges of Business‖
as ―Business environment is the aggregate of all conditions, events and influences that
surround and affect it.‖
 According to Arthur M Weimer, ―Business environment encompasses the climate or set of
conditions, economic, social, political or institutional in which business operations are
conducted‖.
Features of Business Environment
Understanding environment within which the business is to operate is very important
for successful business.

Some of the features of business environment are as follows:

1. Totality of External Forces: Business environment is the sum total of all things
external to business firms and, as such, is aggregative in nature.
2. Specific and General Forces: Business environment includes both specific and
general forces. Specific forces (such as investors, customers, competitors and
suppliers) affect individual enterprises directly and immediately in their day-to-day
working. General forces (such as social, political, legal and techno-logical conditions)
have impact on all business enterprises and thus may affect an individual firm
indirectly only.
3. Dynamic Nature: Business environment is dynamic in nature. It keeps on changing
whether in terms of technological improvement, shifts in consumer preferences or
entry of new competition in the market.

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 4. Uncertainty: Business environment is largely uncertain as it is very difficult to predict
future happenings, especially when environment changes are taking place too
frequently as in the case of information technology or fashion industries.
5. Relativity: Business environment is a relative concept since it differs from country to
country and even region to region. Political conditions in the USA, for instance, differ
from those in China or Pakistan. Similarly, demand for sarees may be fairly high in
India whereas it may be almost non-existent in France.
6. Multi-faceted: Business environment changes are frequent and depend on knowledge
and existence of business person. Changes may be viewed differently bu different
individuals. It may be an opportunity for some or a threat for others.
Importance of Business Environment
There is a close and continuous interaction between the business and its environment. This
interaction helps in strengthening the business firm and using its resources more effectively.
As stated above, the business environ-ment is multifaceted, uncertain, and dynamic in nature
which has a far-reaching impact on the survival and growth of the business. To be more
specific, proper understanding of various aspects of business environment such as social,
political, legal and economic helps the business in the following ways:
(i) First Mover Advantage: Early identification of opportunities helps an enterprise to be
the first to exploit them instead of losing them to competitors. For example, Maruti
Udyog became the leader in the small car market because it was the first to recognize
the need of small cars in India.
(ii) Identification of Threats: Identification of possible threats helps in taking corrective
and improving measures to survive the competition. For instance; if an Indian firm
finds that a foreign multinational is entering the Indian market, it can meet the threat
by adopting measures like, by improving the quality of the product, reducing cost of
the production, engaging in aggressive advertising, and so on.
(iii) Coping with Rapid Changes: All types of enterprises are facing increasingly dynamic
environment. In order to effectively cope with these significant changes, firms must
understand and examine the environment and develop suitable course of action.
(iv) Improving Performance: The enterprises that continuously monitor their environment
and adopt suit-able business practices are the ones which not only improve their
present performance but also continue to succeed in the market for a longer period.
(v) Giving Direction for Growth: The interaction with the environment leads to 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.‘
(vi)Meeting Competition: It helps the firms to analyse the competitors‘ strategies and
formulate their own strategies accordingly in order to cope with the rapidly increasing
competition.
(vi) Image Building: Environmental understanding helps the business organisations in
improving their im-age by showing their sensitivity to the environment within which
they are working. For example, in view of the shortage of power, many companies
have set up Captive Power Plants (CPP) in their factories to meet their own
requirement of power and saving to loss of energy in transmission.
(vii) Continuous Learning: Environmental analysis makes the task of managers easier in
dealing with business challenges. The managers are motivated to continuously update
their knowledge, understanding and skills to meet the predicted changes in realm of
business.
Factors both Internal and External Influencing Business Environment
There are mainly two types of business environment, internal and external. A business
has absolute control in the internal environment, whereas it has no control on the external
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environment. It is therefore, required by businesses, to modify their internal environment on
the basis of pressures from external.
The internal environment has received considerable attention by firms. Internal
environment contains the owner of the business, the shareholders, the managing director, the
non-managers, employees, the customers, the infrastructure of the business organization, and
the culture of the organization.
It includes 6 Ms i.e.
1. Man (Human Resource) The human resource is the important factor for any
organization as it contributes to the strength and weakness of any organization. The
human resource in any organization must have characteristics like skills, quality,
high morale, commitment towards the work, attitude, etc.
2. Money (Financial Factors) Factors like financial policies, financial positions and
capital structure are another important internal factor which has a substantial impact
on business functioning and performance. Financial facilities are required to start
and operate the organisation. The sources of finance are share capital, banking and
other financial institutions and unorganised capital markets.
3. Marketing Resources Resources like the organization for marketing, quality of the
marketing men, brand equity and distribution net-work have direct impact on
marketing efficiency of the company and thereby, affecting the decision making
component of the management.
4. Machinery (Physical Assets) Facilities like production capacity, technology are
among the factors which influences the competitiveness of the firm. The proper
acquisition and working of the assets is indeed essential for efficient working of the
organization. An organisation invests money in plant and machinery because it
expects a positive rate of return over cost in future. The revenue from the use of
plant and machinery should be sufficient so as to cover the invested money,
operating costs, and generate enough profit to satisfy the organisation.
5. Management Structure and Nature The structure of the organization also
influences the business decisions. Being internal forces, the organizational structure
like the composition of board of directors influences the decisions of business. The
structure and style of the organization directly has an impact on the decision making
decisions of a firm. These needs to be appropriately managed for smooth
functioning and operations. The strategies available to an organisation are
determined by its structure.
6. Miscellaneous Factors The other internal factors that contribute to the business
environment are as follows:
(a) Research and Development Though Research and Development needs are
mostly outsourced from the external environment but it has a direct impact on
working, operations and decision making of the organization. This aspect
mainly determines the company‘s ability to innovate and compete. R&D mainly
results in technological improvements of the Business environment.
(b) Company Image and Brand Equity The image of the company in the outside
market has the impact on the internal environment of the company. It helps in
raising the finance, making joint ventures, other alliances, expansions and
acquisitions, entering sale and purchase contracts, launching new products, etc.
Brand equity also helps the company in similar manner.
(c) Value System The principles of right and wrong that are accepted by an
individual or organisation are what comprise value system. The value system of
the founders and those at the helm of affairs has important bearing on the choice

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 of business, the mission and the objectives of the organization, busi-ness
policies and practices.
(d) Competitive Advantage Competitor analysis is a critical aspect of analyzing
the internal business environment. Competitor‘s actions affect the ability of the
business to make profits, because competitors will continually seek to gain an
advantage over each other, by differentiating their product and service, and by
seeking to provide better value for money. It involves:
 identifying the actual competitors
 assessing competitors‘ objectives, strategies, strengths &
weaknesses, and reaction patterns
 selecting the strategies to deal with competitors.
External Environment
The external environment of an organisation comprises of all entities that exists
outside its boundaries, but have significant influence over its growth and survival. An
organisation has little or no control over its external environ-ment but needs to constantly
monitor and adapt to these external changes. A proactive or reactive response leads to
significantly different outcomes.
There are two types of external environment
– Micro/Operating Environment
– Macro/General Environment
Micro/Operating Environment
The micro environment is also known as the task environment and operating
environment because the micro environmental forces, though are external factors, still have a
direct bearing on the operations of the firm. The micro environment consists of the factors in
the company‘s immediate environment that affects the performance and working of the
company. The micro environmental factors are more intimately linked with the company
than the macro factors.
(i) Customers: Organizations survive on the basis of meeting ‗customer needs and
wants‘ and providing benefits to their customers. Failure to do so will result in a
failed business strategy. This includes offering customers the best quality products at
reasonable prices.
(ii) Employees: Employing the correct staff and keeping staff motivated is an essential
part of an organization‘s strategic planning process. Training and development play a
critical role in achieving a competitive edge; especially in service sector marketing.
Employees have a substantial influence on the success of the enterprise. They help in
executing the policies and plans of business. If this factor is not given, as much
attention as it requires, it may prove to be non-beneficial for the organisation as
employees after customer, are the backbone of the organisation.
(iii) Suppliers: Suppliers provide businesses with the materials they need to carry out their
manufacturing and production activities. A supplier‘s behaviour will directly impact
the business it supplies.
(iv) Shareholders: A shareholder is an individual that invests into company‘s business.
They own shares of the company thereby end up owning the company itself.
Therefore, they have the right to vote on decisions that affect the operations of
company. This means that shareholders affect the functions of the business. The
introduction of public shareholders brings new pressures as public shareholders want
a return from their money invested in the company.
(v) Media: Positive media attention can ‗make‘ an organisation (or its products) and
negative media atten-tion can ‗break‘ an are required. Organizations need to manage
the media so that it helps promote the positive things about the organisation and
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 conversely reduce the impact of a negative event on their reputation. Some
organizations will even employ public relations (PR) consultants or ‗gurus‘ to help
them manage a particular event or incident. .
(vi) Competitors: The name of the game in marketing a product is differentiation. Can the
organisation offer benefits that are better than those offered by competitors? Does the
business have a unique selling point (USP)? Competitor analysis and monitoring is
crucial if an organisation is to maintain or improve its position within the market.
Macro/General Environment
Macro environment is also known as general environment and remote environment. Macro
factors are generally more uncontrollable than micro environment factors. When the macro
factors become uncontrollable, the success of company depends upon its adaptability to the
environment. This environment has a bearing on the strategies adopted by the firms and any
changes in the areas of the macro environment are likely to have a far-reaching impact on
their operations.
(i) Socio Cultural and Demographics: Societal values and lifestyles change over time,
and the most important of these; directly or indirectly leave an impact on the
business environment. For example, over the past generation, it has become
acceptable for women to work; people are not retiring at 65; and people are more
aware of the environment etc. The changes in culture and lifestyle may come from
many sources: medical (smoking, healthy eating, exercises); science (global
warming, going ‗green‘); economic (people working longer, women in the
workforce); cultural diversity (music preferences, foods, living accommodations,
medicine); and technologies (biodegradable plastic) are just a few examples.
(ii) Technology: Technology is understood as the systematic application of scientific or
other organised knowledge to practical tasks. Technology changes fast and to
keep the pace with the dynamics of business environment; organisation must be
on its toes to adapt to the changed technology in their system. The business in a
country is greatly influenced by the technological development. The technology
adopted by the industries determines the type and quality of goods and services
produced. Techno-logical environment influences the business in terms of
investment in technology, consistent application of technology and the effects of
technology on markets.
(iii) Economic Conditions: There is a close relationship between business and its
economic environment. It obtains all inputs from economic environment and all
its output is absorbed here with. The state of the economy is usually in flux. The
current situation (specific to the industry) and any changes that may be forecast
are important. The economy goes through a series of fluctuations associated with
general booms and recessions in economic activity. In a boom nearly all business
are benefited whereas recession is a case vice versa. Business is influenced by
economic aspects like interest rates, wage rates etc. The survival and success of
each and every business enterprise depends fully on its economic environment.
(iv) Ecology and Physical Environment: The ecology and physical environment plays a
large part in many businesses – especially for those which carry out production
and manufacturing activities. Infact, business are affected on daily basis due to
environmental and ecological changes. For example, the impact of climate change
must be considered: water and fuel costs could change dramatically, if the world
warms by only a couple of degrees. The natural environment includes
geographical and ecological factors that influence the business operations. These
factors include the availability of natural resources, weather and climatic
condition, location aspect, topographical factors, etc.
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 (v) Political and Legal: Political environment refers to three political institutions viz.
legislature, executive and the judiciary in shaping, directing, developing and
controlling business activities. The political environment of a country is
influenced by the political organisations such as philosophy of political parties,
ideology of government or party in power, nature and extent of bureaucracy
influence of primary groups. The political environment of the country influences
the business to a great extent. The political environment includes the political
system, the government policies and their attitude towards the business
community. All these aspects have a bearing on the strategies adopted by the
business firms.

Problems and Challenges of Business Environment

In strategic business environment, strategic managers have face different problems in
different circumstance in their business and have to understand the different environmental
influence of business as outlined:
Problems of Business Environment
 The environment problems bring different dimensions to strategic managers. Strategic
managers are very difficult to make decisions regarding the different diversity of the
business. Strategist will list all conceivable environment influences and very difficult
to get overall picture of business environment task. These are emerging problems to
strategist and influence to business.
 Uncertainty is the second problems encountered by strategic managers. Strategic
managers typically claim knows the pace of the technological changes and the speed
the global network communication. These are more and more faster change now than
ever before in business environment. Some of the changes either predictable or
unpredictable by the mangers. Mangers can be trying to understand future external
influences on business enterprises and this task is very difficult to do so.
 Strategic managers are not different from individuals in form, they are coping with
complex and rigid. They tend to be simplify complex and rigid problems which are
focusing on aspects of the environment.
 These problems are historically important and confirm prior views of the business.
Strategic managers are trying to take risk and simplify the complex and rigid
problems in this way to find to breakout bias in the understanding of their
environment. It will be still achieving a useful and usable level of analysis in business
environment.
Challenges of Business Environment
Environmental factors influence to identify key issues, find the ways for coping with complex
and rigid issues and consider as challenging managerial thinking by mangers.
 First stage is strategic managers is to know the initial structure and nature of the business
organisations in terms of uncertainty. This is relatively either static or shows sign of change.
Strategic managers should aware of the simple and complex problems and also know the
decision skills for focus the rest of the analysis will be taken in the business environment.
 Second stage is the auditing of the environmental that influence to business. During this
stage, strategic managers aim to identify different environmental influences are likely to
affect the organisation‘s development or performance. It is done through assessment of
external environmental factors like political, economic, social and technological influences.
These are factors bearing at the time of audit of the business. It helpful to strategic managers
to develop overall pictures or scenario of possible futures and extent to ascertain to change in
the business.
 Strategic managers is to move to focus more towards an explicit considerations of the
immediate environment of the organisations, it is the last stage of assessment of the strategic
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 managers. It involves competitive environment and its five forces analysis of competitive
environment and identify the key forces at work environment. It is also required to analyze
the organisation competitive position in form of resources and customers.
Industrial Policies since Independence and their Significance
Industrial Policy is an important document. It lays a wide canvas and sets the tone for
implementation of government‘s regulatory and promotion roles.
The term Industrial Policy refers to the government‘s policy towards industries – their
establishment, functioning, growth and management. The policy will indicate the respective
areas of the large, medium, and small scale sectors.
Rationale for Industrial Policy
 Correct the imbalances in the development of industries and help bring about a
desirable balance and diversification in them.
 Direct the flow of scarce resources in the most desraible areas of investment in
accordance with national priorities.
 Prevent the wasteful use of scare resources and ensure their conversation and
judicious utilization.
 Empower the government to regulate the establishment and expansion of private
industry in accordance with the planned objectives.
 Demarcate areas among public, private and joint sectors of the economy.
Industrial Policy Resolution of 1948
The Government of India announced its first industrial policy resolution on 6
April,1948. The policy resolution laid stress on the role of the state in the development of
industry. The industrial activities were divided into four broad areas:
1. Items under central government control – Manufacture of arms and ammunition, the
production and control of atomic energy, Ownership and management of railway
transport, etc.
2. Items under the state government control – Coal, Iron and Steel, Aircraft
manufacture, Shipbuilding, Manufacture of telephone, telegraph and wireless
apparatus, excluding radio receiving sets, Mineral oils, etc.
3. Items of basic importance (planned & regulated by central government) – Salt,
Automobiles and Tractors, Electric, Other Heavy Machinery, Machine Tools, Heavy
Chemicals, Fertilizers and Pharmaceuticals, Power, Cotton and Woollen Textiles,
Cement, Sugar, Paper and Newsprint, etc.
4. Items for Private Sector – The rest of the industrial field will be open to private
enterprise.
It also emphasised on securing a continuous increase in production and its equitable
distribution. Importance was given to small scale and cottage industries.
Industrial Policy Resolution 1956
Industrial Policy Resolution (30 April, 1956) was also regarded as the ―Economic
Constitution of India‖. Major Objectives of Industrial Policy Resolution (30 April, 1956) are
as follows:
1. Improving living standards and working conditions for the mass of the people.
2. To reduce disparities in income and wealth.
3. To prevent private monopolies and concentration of economic power.
4. Development of transport facilities.
5. The State will progressively assume a predominant and direct responsibility for
setting up new industrial undertakings and for developing transport facilities.
6. Undertake State trading on an increasing scale.
7. Planned and rapid development.
8. Expand public sector.
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 9. Disparities in levels of development between different regions should be
progressively reduced.
The classification of Industries under three heads:
(a) Schedule – A (17 Industries)
(b) Schedule – B (12 Industries)
(c) Schedule – C

Industrial Policy Resolution, 1980

Announced on July, 23, 1980. The socio-economic objectives Industrial Policy
Resolution, 1980 as under:
 Optimum utilization of the Installed capacity
 Higher employment generation
 Achieving higher productivity and maximum production
 Development of industrially backward areas
 Promotion of agro based industries
 Faster promotion of export – oriented and import substitution industries.
 Consumer protection against high prices and bad quality.
 Revival of the economuy by over coming infrastructural gaps.

Industrial Policy, July 24, 1991

Government is pledged to launching a reinvigorated struggle for social and economic
justice, to end poverty and unemployment and to build a modern, democratic, socialist,
prosperous and forward-looking India. Such a society can be built if India grows as part
of the world economy and not in isolation. While Government will continue to follow the
policy of self-reliance, there would be greater emphasis placed on building up our ability
to pay for imports through our own foreign exchange earnings.
Government is also committed to development and utilisation of indigenous
capabilities in technology and manufacturing as well as its upgradation to world standards.
Government will continue to pursue a sound policy framework encompassing encouragement
of entrepreneurship, development of indigenous technology through investment in research
and development, bringing in new technology, dismantling of the regulatory system,
development of the capital markets and increasing competitiveness for the benefit of the
common man.
The spread of industrialization to backward areas of the country will be actively
promoted through appropriate incentives, institutions and infrastructure investments. Foreign
investment and technology collaboration will be welcomed to obtain higher technology, to
increase exports and to expand the production base. Labour will be made an equal partner in
progress and prosperity. Workers‘ participation in management will be promoted.
Need to preserve the environment and ensure the efficient use of available resources.
Maintain sustained growth in productivity and gainful employment and attain international
competitiveness. In pursuit of the above objectives, Government have decided to take a series
of initiatives in respect of the policies relating to the following areas:
1. Industrial Licensing.
2. Foreign Investment.
3. Foreign Technology Agreements.
4. Public Sector Policy.
5. MRTP Act.

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Five-Year Plans and their Importance
Though the planned economic development in India began in 1951 with the inception
of First Five Year Plan, theoretical efforts had begun much earlier , even prior to the
independence. Setting up of National Planning Committee by Indian National Congress in
1938. The Bombay Plan & Gandhian Plan in 1944. Peoples Plan in 1945 (by post war
reconstruction Committee of Indian Trade Union), Sarvodaya Plan in 1950 by Jaiprakash
Narayan were steps in this direction.
The Planning Commission was set up by a Resolution of the Government of India in
March 1950 in pursuance of declared objectives of the Government to promote a rapid rise in
the standard of living of the people by efficient exploitation of the resources of the country,
increasing production and offering opportunities to all for employment in the service of the
community. The Planning Commission was charged with the responsibility of making
assessment of all resources of the country, augmenting deficient resources, formulating plans
for the most effective and balanced utilization of resources and determining priorities.
Jawaharlal Nehru was the first Chairman of the Planning Commission.
• The PC was set up in March, 1950, by a Resolution of the Government of India.
Functions of Planning Commission
1. To make an assessment of the Materials, Capital, and Human Resources of the
country
2. To formulate a plan for the most effective and balanced utilisation of the country‘s
resources.
3. On a determination of priorities, define the stages in which the Plan should be carried
out and propose the allocation of resources for the due completion of each stage;
4. Indicate the factors which are tending to retard economic development, and determine
the conditions which, in view of the current social and political situation, should be
established for the successful execution of the Plan;
5. Determine the nature of the machinery which will be necessary for securing the
successful implementation of each stage of the Plan in all its aspects;
6. Appraise from time to time the progress achieved in the execution of each stage of the
Plan and recommend the adjustments of policy and measures that such appraisal may
show to be necessary; and
7. Make such interim or ancillary recommendations as appear to it to be appropriate
either for facilitating the discharge of the duties assigned to it, or on a consideration of
prevailing economic conditions, current policies, measures and development
programmes or on an examination of such specific problems as may be referred to it
for advice by Central or State Governments.
First Five Year Plan(1951 to 1956):
The 1st five year plan was presented by Jawaharlal Nehru, who was the Prime
Minister during that period. It was formulated for the execution of various plans between
1951 to 1956.
Objectives of the 1st five year plan(1951 to 1961):
The primary aim of the 1st five year plan was to improve living standards of the
people of India. This could be done by making judicious use of India's natural resources.
The total outlay of the 1st five year plan was worth Rs.2,069 crore. This amount was
assigned to different sectors which included:
1. Industrial sector
2. Energy, Irrigation
3. Transport, Communications
4. Land rehabilitation
5. Social services
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 6. Development of agriculture and community
7. Miscellaneous issues
The target set for the growth in the gross domestic product was 2.1percent every year.
In reality, the actual achieved with regard to gross domestic product was 3.6 percent per
annum.
Second Five year plan(1956 to 1961):
The 2nd five year plan was effective from 1956 to 1961.
Objectives of the 2nd five year plan (1956 to 1961): Industries got more importance in the
2nd five year plan. The focus was mainly on heavy industries. The Indian government
boosted manufacturing of industrial goods in the country. This was done primarily to develop
the public sector. The 2nd year five year plan, functioned on the basis of Mahalanobis model.
The Mahalanobis model was propounded by the famous Prasanta Chandra Mahalanobis in
the year 1953. His model addresses different issues pertaining to economic development.
Third five year plan (1961 to 1966):
India's 1st and 2nd five year plans paved the way for the 3rd five year plan, the term of this
plan being from the year 1961 to 1966.
Objectives of the 3rd five year plan:
In addition to the above measures and proposals, the Planning Commission aimed at
the following:
 Increasing the national income by 5 percent per annum.
 Making India self-sufficient by increasing agricultural production. This step was
taken to ensure that India does not have to bank on others for food products.
 Minimizing rate of unemployment.
 Ensuring that people enjoy equal rights in the country.
Fourth five year plan (1969 to 1974):
The 4th five year plan of India also served as a stepping stone for the economic
growth.
1. Main events of the 4th five year plan(1969 to 1974):India had to reform and
restructure its expenditure agenda, following the attack on India in the year 1962 and
for the second time in the year 1965.
2. Food grains production increased to bring about self-sufficiency in production. With
this attempt, gradually a gap was created between the people of the rural areas and
those of the urban areas.
3. The need for foreign reserves was felt. This facilitated growth in exports. Import
substitution drew considerable attention. All these activities widened the industrial
platform.
Fifth five year plan(1974-1979):
The 5th Five Year Plan commenced on 1974 and extended till 1979. Objective of the
Fifth Year Plan The objective of the 5th Five Year Plan was to increase the level of
employment, reduce poverty and to attain self-sufficiency in agriculture.
The 5th Five Year Plan was designed in a way to meet the needs of the time. The
issues that were emphasized were:
 Reducing the discrepancy between the economic development at the regional,
national, international level. It emphasized on putting the economic growth at par with
each other.
 Improving the agricultural condition by implementing land reform measures.
 Improving the scope of self-employment through a well-integrated program.
 Reducing the rate of unemployment both in the urban and the rural sectors.
 Encouraging growth of the small scale industries.

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  Enhancing the import substitution in the spheres including chemicals, paper, mineral
and equipment industries.
 Applying policies pertaining to finance and credit in the industrial sector.
 Stressed on the importance of a labour intensive production technology in India.
7th five year plan (1985-1989):
7th Five Year Plan which covered a time span of another five years started on 1985
and went on till 1989. This Five Year Plan was the come back vehicle of the Indian National
Congress Party into power. The primary aim of the five year plan was to upgrade the
industrial sector and enable India to establish itself as one of the developed countries of the
world. This Plan was released under the National Development Council of India. The
objective of the 7th Five Year Plan was to generate more scope of employment for the people
of India, to produce more in terms of food which would lead to an overall increase in
productivity.
The basic issues on which this plan put stress were:
 Introduction and application of modern technology
 Justice meted out to people from various social stratas
 Improving the position of the weak in the Indian society
 Development of agriculture
 Reducing poverty in India
 Assuring the essentials of food, shelter and clothing to the people
 Striving to achieve independence as per the Indian economy is concerned
 Help the small as well as the large farmers to increase their productivity
8th five year plan(1992-1997):
8th Five Year Plan commenced on 1992 and carried on till 1997. The basic objective
of this period was the modernization of industrial sector. This plan focused on technical
development. Through this plan the reduction of deficit and foreign debt was aimed at. The
rectification of certain flawed plans and policies were also done under this five year plan.
During this period only India received a coveted opportunity to become a member of the
World Trade Organization on January 1st 1995.
9th five year plan(1997-2002):
In the Ninth Five Year Plan period from 1997 to 2002, the recorded rate of growth was
merely 5.35%. However, this economic growth rate is a percentage point lesser than the GDP growth
of 6.5% targeted during this period. The main objective of this Plan is to achieve the following
goals:
 Industrialization at a rapid pace
 Reduction in poverty level
 Gaining self-sufficiency on local resources
 Complete employment for all countrymen
 Price stabilization should be initiated to hasten up the rate of growth of the Indian
economy
 Control the ever-increasing rate of population
 Creating an independent market, for enhancing private financial investments
 Promotion of social events like conservation of specific benefits for special social
groups, female empowerment, etc.
 Achieving self-sufficiency in food production
 Generation of equal opportunities for employment and taking steps to reduce poverty
10th five year plan(2002-2007):
Chief Objectives of the 10th Five Year Plan:
 The Tenth Five Year Plan proposes schooling to be compulsory for children, by the
year 2003.
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  The mortality rate of children must be reduced to 45 per 1000 livings births and 28
per 1000 livings births by 2007 and 2012 respectively
 All main rivers should be cleaned up between 2007 and 2012
 Reducing the poverty ratio by at least five percentage points, by 2007
 Making provision for useful and lucrative employments to the population, which are
of the best qualities
 Ensuring persistent availability of pure drinking water in the rural areas of India,
even in the remote parts
11th five year plan(2007-2012):
India has emerged as a super power. The transition was not easy. Guidelines for
operating the economy was provided by the five year plans. Owing to India's five year plans,
great advancement has been made with regard to India's national income.
12th five year plan(2012-2017):
The Planning Commission of India posted the draft Document of the 12th Five year
Plan on its website in the first week of December 2012 for feedback from the public before it
is adopted by the National Development Council (NDC) on 28 December and declared the
Five Year Plan for the country from 2012 to 2017.

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 UNIT – II
Structure of Indian Economy
Mixed economy of India consists of public and private sector. Policy on the public
sector has been guided by the Industrial Policy Resolutions 1956 and 1991 which gave a
strategic role in the economy. India was based agrarian economy with weak industrial base,
low level savings and investments and near essence of infrastructural facilities.
Public sector
The object of accelerating the pace of eco-development and the political ideology,
gave the public sector a dominant role in the industrial development of the nation led to rapid
growth of the State Owned Enterprises (SOEs) sector in India.
These enterprises came to cover a wide spectrum of activities in basic strategic
industries like steel, coal, minerals and metals, petroleum, heavy engineering, chemicals,
fertilizers and pharmaceuticals etc., on one hand and consumer goods, trading and marketing
activities, transportation, services, contracts and consultancy services, tourist service,
financial services, development of small industries etc., on the other.
Objectives:
It was promoted as an instrument for implementation of the govt.‘s socio-economic
policies.
(a) To help in the rapid eco growth and development and industrialization of the country
and create the necessary infrastructure for economic development.
(b) To earn return on investment and thus generate resources for development.
(c) To promote redistribution on income & wealth
(d) To create employment opportunities
(e) To promote balanced regional development
(f) To assist the development of small scale and ancillary industries
(g) To promote import substitution, save and earn foreign exchange for the economy.
Growth & Performance of Public Enterprise
1. Huge cost, time over runs in project implementation
2. Land acquisition
3. Procurement of equipment

4. Civil work and other imponderable [not able to estimate]

5. Locational & investment decisions
6. Irrational product mix
7. Imposed marketing arrangements
8. Foreign financing
9. Technology upgradation, inadequate R & D, over manning.
Economic Systems
Economic systems are the means by which countries and governments distribute
resources and trade goods and services. They are used to control the five factors of
production, including: labor, capital, entrepreneurs, physical resources and information
resources.
(a) Capitalist or free enterprise economy
(b) Socialist or centrally planned economy
(c) Mixed economy

(a) Capitalist or Free Enterprise Economy

The capitalist or free enterprise economy is the oldest form of economy. Earlier
economists supported the policy of ‗laissez fair‘ meaning leave free. They advocated

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minimum government intervention in the economic activities. The following are the main
features of a capitalist economy;
(i) Private property In a capitalism system all the individuals have the right to own property.
An individual can acquire property and use it for the benefit of his own family. There is no
restriction on the ownership of land, machines, mines, factories and to earn profit and
accumulate wealth. After the death of a person the property or wealth is transferred to the
legal heirs. Thus the institution of private property is sustained over time by the right of
inheritance.
(ii) Freedom of enterprise In a capitalist economy the government does not coordinate
production decisions of the citizens. Individuals are free to choose any occupation. Freedom
of enterprise implies that business firms are free to acquire resources and use them in the
production of any good or service. The firms are also free to sell their product in the markets
of their choice. A worker is free to choose his/her employer. In small business units owner
himself takes the risk of production and earns profit or loss for himself.
(iii) Consumer’s Sovereignty In a capitalist economy consumers are like a king. They have
the full freedom to spend their income on goods and services that give them maximum
satisfaction. In capitalist system production is guided by consumer‘s choices. This freedom of
consumers is called consumer‘s sovereignty
(iv) Profit Motive Self-interest is the guiding principle in capitalism. Entrepreneurs know
that they will own the profit or loss after the payment to all other factors of production.
Therefore they are always motivated to maximize their residual profit by minimizing cost and
maximizing revenue. This makes the capitalist economy an efficient and self-regulated
economy.
(v) Competition There are no restrictions on the entry and exit of firms in a capitalism
system. The large number of producers are available to supply a particular good or service
and therefore no firm can earn more than normal profit. Competition is the fundamental
feature of capitalist economy and essential to safeguard against consumer‘s exploitation.
Although due to large-size and product distinction monopolistic tendencies have grown these
days still the competition can be seen among a large number of firms.
(vi) Importance of markets and prices The important features of capitalism like private
property, freedom of choice, profit motive and competition make a room for free and
efficient functioning of price mechanism. Capitalism is essentially a market economy where
every commodity has a price. The forces of demand and supply in an industry determine this
price. Firms which are able to adjust at a given price earn normal profit and those who fail to
do so often quit the industry. A producer will produce those goods, which give him more
profit.
(vii) Absence of government interference In a free enterprise or capitalist economy the
price system plays an important role of coordinating agent. Government intervention and
support is not required. The role of government is to help in free and efficient functioning of
the markets. Capitalism in today‘s world Pure capitalism is not seen in the world now-a-days.
The economies of USA, UK, France, Netherland, Spain, Portugal, Australia ect. are known as
capitalistic countries with active role of their respective government in economic
development.
(B) Socialist Economy
In the socialist or centrally planned economies all the productive resources are owned and
controlled by the government in the overall interest of the society. A central planning
authority takes the decisions. The socialist economy has the following main features.
(i) Collective Ownership of means of Production In a Socialist economy means of
production are owned by the government on behalf of the people. The institution of private
property is abolished and no individual is allowed to own any production unit and accumulate
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wealth and transfer it to their heirs. However, people may own some durable consumer goods
for their personal use.
(ii) Social Welfare Objective The decisions are taken by the government at macro level with
the objective of maximization of social welfare in mind rather than maximization of
individual profit. The forces of demand and supply do not play any important role. Careful
decisions are taken with the welfare objectives in mind.
(iii) Central Planning Economic planning is an essential feature of a socialist economy. The
Central Planning Authority keeping the national priorities and availability of resources in
mind allocates resources. Government takes all economic decisions regarding production,
consumption and investment keeping in mind the present and future needs. The planning
authorities fix targets for various sectors and ensure efficient utilization of resources.
(iv) Reduction in Inequalities The institutions of private property and inheritance are at the
root of inequalities of income and wealth in a capitalist economy. By abolishing these twin
institutions a socialist economic system is able to reduce the inequalities of incomes. It is
important to note that perfect equality in income and wealth is neither desirable nor
practicable.
(v) No class conflict In capitalist economy the interests of the workers and management are
different. Both of them want to maximize their own individual profit or earnings. This results
in class conflict in capitalist economy. In socialism there is no competition among classes.
Every person is a worker so there is no class conflict. All are co-workers. Socialism in
today‘s world Countries such as Russia, China and many eastern European countries are said
to be socialist countries. But they are changing now and encouraging liberalisation in their
countries for their economic development.
(C) Mixed Economy
A mixed economy combines the best features of capitalism and socialism. Thus mixed
economy has some elements of both free enterprise or capitalist economy as well as a
government controlled socialist economy. The public and private sectors co-exist in mixed
economies. The main characteristics of a mixed economy are as follows:
(i) Co-existence of public and private sectors. The private sector consists of production
units that are owned privately and work on the basis of profit motive. The public sector
consists of production units owned by the government and works on the basis of social
welfare. The areas of economic activities of each sector are generally demarcated.
Government uses its various policies e.g. licensing policy, taxation policy, price policy,
monetary policy and fiscal policy to control and regulate the private sector.
(ii) Individual Freedom Individuals take up economic activities to maximize their personal
income. They are free to choose any occupation and consume as per their choice. But
producers are not given the freedom to exploit consumers and labourers. Government puts
some restrictions keeping in mind the welfare of the people. For instance, government may
put restrictions on the production and consumption of harmful goods. But within rules,
regulations and restrictions imposed by the government, for the welfare of the society the
private sector enjoys complete freedom.
(iii) Economic Planning The government prepares long-term plans and decides the roles to
be played by the private and public sectors in the development of the economy. The public
sector is under direct control of the government as such production targets and plans are
formulated for them directly. The private sector is provided encouragement, incentives,
support and subsidies to work as per national priorities.
(iv) Price Mechanism Prices play a significant role in the allocation of resources. For some
sectors the policy of administered prices is adopted. Government also provides price
subsidies to help the target group. The aim of the government is to maximize the welfare of

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the masses. For those who cannot afford to purchase the goods at market prices, government
makes the goods available either free of cost or at below market (subsidized) prices.
Structure of Indian Industry
In order to understand the structure of an economy, it is essential to understand its
constituent sectors. Depending upon the nature economic and business environment analysis,
there exist a a number of alternative classification based on different criteria.
(a) Household, Business and Government Sectors
It consists of consuming private individuals or groups of individuals which provide various
factor services like land, labour, capital and entrepreneurship or management to the business
sector and receive factor incomes in the form of rent, wages, interests and profits.
Business Sector includes both public and private sector producing units which produce both
goods and services drawing investible resources from the household sector directly as
through the financial markets.
Government produces a arrange of administrative, protective, supportive and regulatory
services which are consumed both by the household and business sectors.
(b) Primary, Secondary and Tertiary Sectors
Primary sector covers all economic activities relating to resources endowments of a country.
It include agriculture, forestry and logging, fishing, mining and quarrying.
Secondary Sector covers manufacturing, construction, electricity, gas, and water supply
Tertiary Sector encompasses trade, transport, storage, communication, financing, insurance,
real estate, business services, public administration defense and other services
(c) Domestic and External Sectors
Domestic Sector consists of all the producing and consuming units which have not
transactions with the rest of the world.
The external sector includes imports, exports, inward and outward foreign investments,
servicing of foreign loans.
(d) Real and Monetary Sectors
(e) Public, Private, Joint and Cooperative sectors
(f) Formal and Informal Sectors
(g) Productive and unproductive Sectors
(h) Endogenous and Exogenous Sectors
(i) Economic and Non-Economic Sectors

Economic Reforms in Various Sectors

The Crisis of June 1991
• The present process of ERs was born jout of the crisis in the economy, which
climaxed in 1991.
• The crisis compelled the government to adopt a new path-breaking economic policy
under which a series of wide-ranging ERs measures where initiated.
Major Characteristics of Crisis Situation
• Overall Agricultural promotion (-2.8%), Food grain production (-5.3%) Industrial
Production (-0.1%) showed negative growth.
• Foreign trade shrunk, import falling by 19.4% and export by 1.5%.
• Rupee depreciated by 26.7% vis-à-vis US dollars.
• NRIs were withdrawing their deposits at an alarmingly high rate.
• Creditworthiness rating fell from AAA to BB+.
• The government had to lease 20 tons of gold out its stock to the SBI to enable it to sell
the gold with repurchase option after 6 months.
• RBI was allowed to pledge 47 tons of gold to the Bank of England to raise a long of
$600 million.
Page 16 of 40
 • Gulf war led to sharp increase in oil prices.
• In January, 1991 the government had to borrow about $1billion from the IMF .
Major Steps
• Fiscal correction aimed at reducing fiscal deficit by about Rs.7,700 crores in 1991-92.
• Announcement of new Industrial Policy seeking to deregulate the industry.
• Abolition of Industrial licensing for all Industrial projects except 18 industries.
• Eliminate the need for prior approval by large companies for capacity expansion and
diversification.
• Nine areas in basic and core industries are opened fro private sector.
• FIPB established to negotiate proposals from large international firms
• Bringing back of gold earlier pledge to Bank of England and Bank of Japan.
• Import licensing in most capital goods, RM, Intermediate and components eliminated.
• Limit of foreign equity holding raised from 40% to 51% in wide range of priority
industries.
Globalization It is the process of global integration of products, technology, labour,
investment, information and even cultures. It is tends to narrow down international
differences in various aspects. Measures towards Globalization have taken the following
forms:
 Reduction in the scope of restrictive canalized trade
 Increase in the limit of Foreign Direct Investment in number of areas
 Permission to exporters to keep foreign exchange accounts abroad to finance trade
transactions.
 Creation of Foreign Investment Promotion Board (FIPB) as a separate body to study
and clear foreign direct investment proposals.
 Sustained reduction in the customs duty on a number of items.
 Free import of a large number of items through open general licenses.
 Reduction or elimination of quantitative restrictions.
 Increase in the number of areas for automatic approval to FDI proposals.
The Reforms Strategy
• Fiscal Strategy
• Monetary Strategy
• Strategy for Financial Sector
• Trade Strategy
• Industry and Labour Strategy
• Agriculture Strategy
Liberalization it is the process of liberating the economy from the various regulatory and
control mechanism of the state and of giving greater freedom to private enterprises.
 Delicensing
 Freedom from locational requirements and government clearance.
 Freedom to public sector undertakings to access capital market.
 Corporatization of departmental undertakings and public undertakings
 Permission to corporates for buyback of shares.
 Increase in the investment ceiling of small scale industries.
 Liberalization of tax provisions in selected sectors
 Freedom to banks to enter the insurance sector.
 Shifting of products and industries form administrative price mechanism
 Freedom to transfer licenses and assets.
 Tax exemptions, holidays and concessions.

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Privatization it is also refers in which major economic decisions concerning production,
exchange, distribution and consumption are entrusted to the market forces and decisions are
taken by a large number of individuals and private economic units.
 Denationalization of the previously nationalized enterprises and their sale to the
original or new owners.
 Franchising of public sector services to designated private sector units.
 Licensing of technology of public sector units to private enterprises on annual royalty
linked to output.
 Disinvestment of the public sector
 Opening of a number of core sectors earlier reserved for public sector
 Market related rates for 364 day treasury bills
 Freeing of deposits rates of banks.
Major Economic Reforms
• 80% of Industries are abolished from licensing requirements.
• Compulsory licensing Industries are come down to 9.
• Number of sectors reserved for the PS was reduced from 12 to 8.
• There has been increase in investment limited fro SSI.
• Some sectors are opened for private enterprise through various alternatives.
• To attract private investment tax holidays are declared.
• Expedite the Fast Track Approval System.
• Telecommunication sector thrown open to private enterprises as in 1992-1993.
• Value Added Telecom services (cellular, paging and radio trunking) were opened.
• In 1997-1998 the TRAI was established as a telecom regulator
• In 1994-95 air taxi operators were allowed to acquire the status of full fledged
airlines.
• In 1997-98, the Aviation Policy100% NRI equity and 40% foreign equity in domestic
airlines.
• In 1992-93 private participation was planned on Build-Own-Transfer (BOT) basis is
allowed in Road Sector.
• In 1994-95 National Highway Act was amended to provide for road toll.

Disinvestment Mechanism
Definition of Disinvestment
At the very basic level, disinvestment can be explained as follows:
―Investment refers to the conversion of money or cash into securities, debentures,
bonds or any other claims on money. As follows, disinvestment involves the conversion of
money claims or securities into money or cash.‖
Disinvestment can also be defined as the action of an organisation (or government)
selling or liquidating an asset or subsidiary. It is also referred to as ‗divestment‘ or
‗divestiture.‘
In most contexts, disinvestment typically refers to sale from the government, partly or
fully, of a government-owned enterprise.
Objectives of Disinvestment
The new economic policy initiated in July 1991 clearly indicated that PSUs had shown a very
negative rate of return on capital employed. Inefficient PSUs had become and were
continuing to be a drag on the Government‘s resources turning to be more of liabilities to the
Government than being assets. Many undertakings traditionally established as pillars of
growth had become a burden on the economy. The national gross domestic product and gross
national savings were also getting adversely affected by low returns from PSUs. About 10 to
15 % of the total gross domestic savings were getting reduced on account of low savings
Page 18 of 40
from PSUs. In relation to the capital employed, the levels of profits were too low. Of the
various factors responsible for low profits in the PSUs, the following were identified as
particularly important:
 Price policy of public sector undertakings
 Under–utilisation of capacity
 Problems related to planning and construction of projects
 Problems of labour, personnel and management
 Lack of autonomy
Disinvestment Problems
Social Problem—Process of disinvestment is not favored socially as it is against the interest
of socially disadvantageous people and society at large. This process will definitely affect the
social objectives of the government.
Political Problem— The coalition government at the centre with a number of parties has
posed a serious threat to this programme. Conflicting interest has made it difficult to arrive at
a national consensus.
Economic Problem—Most of the units identified for disinvestment are in a very bad shape
which does not offer good returns. The Government due to paucity of funds is also not in a
position to revive it.
Disinvestment Process Flow Chart
Disinvestment Commission Recommendations
Administrative Ministry‘s Comments
Consideration by Core Group of Secretaries
Advertisement for Appointment of Advisers
Receipt of Expressions of Interests from Advisers
Presentations by Advisers
Appoint of Advisers
Appointment of Legal Advisor and Fixed Assets Values on recommendation of Expert
Committee – Ministerial Consultations

Short-listing bidders & signing of confidential undertaking

Finalisation & distribution of information package etc.

Due Deligence, etc., by short-listed bidders

Financial/Capital/business restructuring etc.

Finalisation of shareholders‘agreement

Receipt of final bids

Cabinet Committee on Disinvestment (CCD)SEBI Regulatory Approvals

Execution of legal documents and inflow of funds Pubic offer annoucement by the
Strategic Partner, as per SEBI takeover Code, Whenver applicable

Documents Submitted to CAG‘s Office for Assesment.

Sickness in Indian industry

Industrial sickness is defined in India as an industrial company (being a company registered
for not less than five years) which has, at the end of any financial year, accumulated losses equal to,
Page 19 of 40
or exceeding, its entire net worth and has also suffered cash losses in such financial year and the
financial year immediately preceding such financial year‖.
The Reserve Bank of India has defined a sick unit as one ―which has incurred a cash loss for
one year and is likely to continue incurring losses for the current year as well as in the following year
and the unit has an imbalance in its financial structure, such as, current ratio is less than 1:1 and there
is worsening trend in debtequity ratio.‖
The State Bank of India has defined a sick unit as one ―which fails to generate an internal
surplus on a continuous basis and depends for its survival upon frequent infusion of funds.‖

Reasons for Sickness in Companies:

There are different factors as a reason for industrial sickness. It will be possible to
prevent industrial sickness in the first instance, and if unfortunately, sickness does affect
some industrial units, a proper and correct diagnosis would help the policy-makers to
successfully tackle the problem of industrial sickness. Industrial units may become sick due
to various reasons. According to V.N Nadkarni, ―….some industrial units are born sick, some
achieve sickness and-some have sickness thrust upon them‖. Causes of industrial sickness are
usually divided into two categories. They are internal causes and external causes. The
external factors which originate outside the unit and therefore, are not under the control of the
unit such as power cuts, demand, recession, erratic availability of inputs, government
policies, etc. the internal factors include which originate within the unit and can therefore be
said to be under the control of the unit such as production, management, marketing and
finance
Internal Causes
 Entrepreneurial Incompetence Many entrepreneurs are setting up business units
with limited knowledge regarding production, accounting and marketing etc. This is
not enough to survive in the competitive world. The entrepreneur requires vast
knowledge on strategic functional areas of the business. Lack of complete knowledge
on business leads to increase in cost of the business.
 Financial Problems: Many companies face acute financial problems from the initial
state of planning and construction of the business. The investment base of many small
scale units is very weak and a slight disturbance in the market put them under acute
financial strain. Often small scale units borrow from banks and financial institutions
but they are unable to meet the repayment schedules. The burden of unpaid debt
accumulates and they turn sick. In some cases lack of support from banks causes a
failure of small scale units as the banks insist on proven performance either to restore
working capital limits or to enhance existing limits.
 Management Problems: The most important internal cause of sickness is
management problems. Wrong managerial decisions in the fields of production,
marketing, finance, personnel management etc. can spoil the business. Inadequate
attention towards the maintenance management leading to frequent breakdown and
consequent lower capacity utilization, insufficient sales promotion activities,
inefficient management of working capital includes cash, receivables, inventory and
improper wage, increment and bad industrial relation make the companies become
sick.
 Gestation Period: Often the gestation period becomes for too long than anticipated
especially in the case of large scale industrial unit. This might be due to delay in
supply of capital expenditure goods to be imported. Such delays cause cost
escalations, leading to capital shortages, liquidity problems, hike in production costs,

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 and rise in prices and hence smaller than anticipated demand for the product of the
industrial unit. It adversely affects its profits.
 Demand Forecasting: The company production schedule is completely based on
demand forecasting. Sudden appearance of competing substitutes in the market,
radical and sudden change in the tastes of people as production of a commodity is
being taken down may all cause industrial sickness.
 Defective Plant & Machinery: Many entrepreneurs in the small scale sector do not
seek professional and technical guidance from competent authorities in choosing
correct machinery. If the plant and machinery finally selected and installed by them
turns out to be defective, their units are bound to suffer losses and will in all
probability, turn sick.
 Labour Problems: In some cases acute labour problem have resulted in strikes, lock
outs and even closure of industrial units. These problems may originate from
differences with management over the issue of wages, bonus, suspensions and
retrenchment, inter-union rivalry etc. if not tackled in time satisfactorily such
problems can causes sickness.
External Causes
 Demand and Credit Restrains At times, recession in the market causes a steep
decline in the demand resulting in unsold stocks and losses to individual units.
Products with towering prices for example tractors, trucks, busses, cars etc. depends
for their sustained demand on easy availability of credit to buyers. If credit restraints
are imposed so that the buyers are not able to arrange finance, the demand for these
products is bound to suffer. This is likely to leave the manufacturers with unsold
stocks inflicting losses on them. If this situation perseveres for quite sometimes, the
producing units are prone to turn sick. This problem can emerge in a serious way for
auxiliary units. If the demand of the principal buyer of the output of ancillary units
falls due to any reason whatsoever, these units are put in unstable position, they are
bound to turn sick and may even face closure.
 Erratic Supply of Inputs: Some units depend on scare raw material whose supply is
irregular. This results in disturbing the production schedule causing losses to the unit.
This often happens in the case of units depending upon the supply of imported inputs.
Insufficient availability of transport facilities can also upset the supply schedule of
inputs.
 Power Cuts: A large number of industrial units face power cuts from time to time.
These power cuts are imposed by the state government as the generation of power is
considerably below its actual requirements. Drought situation during some years in a
number of states further annoyed the problem and acute power shortage resulted in
frequent power cuts.
 Government Policy: Sudden changes in the government policy relating to imports,
exports, industrial licensing, and taxation etc. can make viable units sick overnight.
For instance, liberal import policy for a particular product can inflict severe damage
on the domestic units producing similar products. The very existence of these
domestic units is likely to be threatened particularly if the imported product is cheaper
and is of a better quality as compared to their products.
Preventive Measures: ―Prevention is better than Cure‖. This proverb is suitable in case of
Sick companies. The company must be very careful when it shows any kind of symptoms
regarding sickness. The preventive measures are as follows:
 Strict monitoring of sick companies is required in every stage of its functions.

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  Adoptions of Modern equipments, technology, production-process and infrastructure
development are around the existing unit. Adequate supervision input cost and
adopting economy of scale and keen observation of new market trends required.
 Introducing of proper work culture and ethics with professionalism and making
accountable to concern authority in the organization is required based on
circumstances
 Find innovative methods and changing patterns of existing methods before others do
 Try to be more practical about market demand of your product rather than depending
upon research totally
 Try to maintain own distribution center and price competitiveness with on time
delivery of the products.
 Be a master in innovation in terms of product and process. Product innovation means
introducing new products or launching of new products. Process innovation means
finding better and more efficient ways of producing the existing products.
 Focus much on incorporate innovative ideas to expand business rather than focusing
on adoption of new technology into business
 Handling of employees problems in apt way is another important element here.
Rationalization of wage structure, salary administration and recruitment of highly
trained personnel is required.
 Appropriate financial management system is required to fill the gap of working
capital and prohibit its unconstitutional application
 Optimum mobilization of resources with proper financial planning and dividend
distribution policy required.
 R & D activities are essential part of any organization but the expenditure should be
under control.
 Adequate system is required for proper check, balance and timely diversification.
 For promoting the companies and its products the management should adopt
marketing techniques and marketing strategies with the help of audio, video and print
media etc.
Competition Act 2002
The Competition Act, 2002 was enacted by the Parliament of India and governs Indian
competition law. It replaced the archaic The Monopolies and Restrictive Trade Practices Act, 1969. Under
this legislation, the Competition Commission of India was established to prevent activities that have an
adverse effect on competition in India. This act extends to whole of India except the State of Jammu and
Kashmir. The Act has came into the existence on 31st March, 2003.
Objectives of Competition Law & Policy
(i) Promoting economic efficiency in both static and dynamic sense.
(ii) Protecting consumers from the undue exercise of market power
(iii) Facilitating economic liberalization, including privatization. Deregulation and
reduction of external trade barriers
(iv) Preserving and promoting the sound development of a market economy
(v) Ensuring fairness and equity in market place transactions
(vi) Protecting the „public interest‟ including in some cases considerations relating to
industrial competitiveness and employment
(vii) Protecting opportunities for small and medium business
Elements of Competition Policy
 Putting in place a set of Policies that enhance competition in local and national
markets.
 A Law designed to prevent anti-competitive business practices and unnecessary
government intervention.

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It includes Reforms in certain Policy areas to make these more pro-competition:-
 Industrial policy
 Trade policy
 Privatization/disinvestment
 Economic Regulation
 State aids
 Labour policy
 Other such policies

Status of the Competition Commission

It is a body corporate It has Regulatory and quasi-judicial powers; functions through
Benches Each Bench shall consist of at least two Members and one of such Members must be
a judicial Member.
Suo Moto Inquiry
Commission has suo moto power to enquire whether an Anti-Competitive Agreement
or Abuse of Dominant Position causes or is likely to cause an appreciable adverse effect on
competition. This power must be exercised within one year from the date combination has
taken effect
Anti-competitive Agreements
These are agreements which cause or are likely to cause an appreciable adverse effect on
competition within India
Horizontal Agreements: These are between and among competitors who are at the same
stage of production, supply, distribution, etc. These are presumed to be illegal Examples:
cartels, bid rigging, collusive bidding, sharing of markets, etc.
Anti-Competitive Agreements Vertical Agreements: Vertical Agreements are between
parties at different stages of production, supply, distribution, etc. These are not presumed
illegal; are subject to rule of reason. Examples: tie-in arrangements, exclusive
supply/distribution agreements, refusal to deal.
‘

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 UNIT III
Fiscal Policy: Definition
The word fisc means ‗ state treasury ‘ and fiscal policy refers to policy concerning the
use of ‗state treasury‘ or the govt. finances to achieve the macroeconomic goals.
According to Culbarston, ―By fiscal policy we refer to government actions affecting
its receipts and expenditures which ordinarily as measured by the government‘s receipts, its
surplus or deficit.‖
Nature and significance
Nature of Fiscal Policy
1. Rationalization of product classification codes: The rationalized standard product
code structure for indirect taxes. The change has resulted in reduced disputes and
litigations about product classification.
2. Common accounting year for income tax: Taxation policy has adopted standard
accounting year (April-March) for the purpose of income tax.
3. Long term fiscal policy: Since 1986 budget, the Government of India has introduced
long term fiscal policy to provide greater certainties in its budgetary policies and to
improve the overall environment of business.
4. Impact on rural employment: Generation of employment is the main objective of the
fiscal policy.
5. Reliance on indirect taxes
6. Inadequate public sector contribution:
7. Introducing of Modified Value Added Tax (MODVAT)
Significance of Fiscal Policy
1. Capital formation
2. Mobilization of resources
3. Incentives to savings
4. Inducement to private sector
5. Alleviation of poverty and unemployment
6. Reduction in inequality

Public Revenues
Public revenue refers to income of a Government from all sources raised, in order to meet
public expenditure. Public revenue consists of taxes, revenue from administrative activities
like fines, fees, income from public enterprises, gifts and grants.
Sources of Public Revenue

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Public Expenditure
Public Expenditure refers to Government Expenditure. It is incurred by Central and
State Governments. The Public Expenditure is incurred on various activities for the welfare
of the people and also for the economic development, especially in developing countries. In
other words The Expenditure incurred by Public authorities like Central, State and local
Governments to satisfy the collective social wants of the people is known as public
expenditure.
Capital and Revenue Expenditure:

Capital Expenditure of the Government refers to that expenditure which results in creation of
fixed assets. They are in the form of investment.
The plan expenditure is incurred on development activities outlined in ongoing five year
plan.
The non - plan expenditure is incurred on those activities, which are not included in five-
year plan.
PUBLIC DEBT

Public debt refers to Government debt. It refers to Government borrowings from individuals,
financial institutions, organizations and foreign countries. If revenue collected through taxes
and other sources is not adequate to cover expenditure, the Government may resort to
borrowings. Thus public debt is one of the instruments to cover deficits in budget.
Types of Public Debt

1. Internal And External Debt

2. Short Term, Medium Term And Long - Term Debt

3. Productive And Unproductive Debt

4. Redeemable And Irredeemable Debt

5. Funded And Unfunded Debt

Balance of Payments
The balance of payments (BOP) is the method countries use to monitor all international
monetary transactions at a specific period of time. Usually, the BOP is calculated every
quarter and every calendar year.

The Balance of Payments is the statistical record of a country‘s international transactions

over a certain period of time presented in the form of double-entry bookkeeping.
It is a double entry system of record of all economic transactions between the
residents of the country and the rest of the world carried out in a specific period of time.
It takes into account the export and import of both visible and invisible items.
The Nature of BOP
1. Systematic Record: It is a systematic record of receipts and payments of a country
with other countries.

2. Fixed Period of Time: It is a statement of account pertaining to a given period of time,

usually one year.
3. Comprehensiveness: it includes all the three items. (Visible, invisible and capital
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 transfers)
4. Double Entry System: Receipts and payments a re recorded on the basis of double entry
system.

Structure of BOP
1. Credit Side: Credit side of all those values received or likely to be received from
abroad.
2. Debit Side: Debit side comprises all the payments made.

1. Current Account: The current account records all the income-related flow. This flow

could arise n account of trade in goods and services an d transfer payments among

countries.

(a) Merchandise Trade: Trade i n goods consists of export and import is called as
merchandise trade. Merchandise export are those exports in a country i.e., sales of
goods to resident of another country, are a source of reserves.
(b) Invisible Export: The invisible exports ar e those exports where sales of service are
credit and purchases of services are debit ed.

2. Capital Account: The capital account record movements on account of international

purchase or sale of assets. Assets include any form in which wealth may be held
money

Causes for disequilibrium in Balance of Payments

Various causes of disequilibrium in the balance of payments or adverse balance of
payments are as follows:

1. Population Growth
Most countries experience an increase in the population and in some like India and
China the population is not only large but increases at a faster rate. To meet their needs,
imports become essential and the quantity of imports may increase as population increases.
2. Development Programmes
Developing countries which have embarked upon planned development programmes
require importing capital goods, some raw materials which are not available at home and
highly skilled and specialized manpower. Since development is a continuous process, imports
of these items continue for the long time landing these countries in a balance of payment
deficit.
3. Demonstration Effect
When the people in the less developed countries imitate the consumption pattern of
the people in the developed countries, their import will increase. Their export may remain
constant or decline causing disequilibrium in the balance of payments.
4. Natural Factors:
Natural calamities such as the failure of rains or the coming floods may easily cause
disequilibrium in the balance of payments by adversely affecting agriculture and industrial
production in the country.

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5. Cyclical Fluctuations
Business fluctuations introduced by the operations of the trade cycles may also cause
disequilibrium in the country's balance of payments. For example, if there occurs a business
recession in foreign countries, it may easily cause a fall in the exports and exchange earning
of the country concerned, resulting in a disequilibrium in the balance of payments.
6. Inflation
An increase in income and price level owing to rapid economic development in
developing countries, will increase imports and reduce exports causing a deficit in balance of
payments.
7. Poor Marketing Strategies
The superior marketing of the developed countries have increased their surplus. The poor
marketing facilities of the developing countries have pushed them into huge deficits.
8. Flight of Capital
Due to speculative reasons, countries may lose foreign exchange or gold stocks
People in developing countries may also shift their capital to developed countries to
safeguard against political uncertainties. These capital movements adversely affect the
balance of payments position.
9. Globalization
Due to globalization there has been more liberal and open atmosphere for
international movement of goods, services and capital. Competition has been increased due to
the globalization of international economic relations. The emerging new global economic
order has brought in certain problems for some countries which have resulted in the balance
of payments disequilibrium.
Correction measures of BoP Account
The monetary methods for correcting disequilibrium in the balance of payment are as
follows:-
1. Deflation
Deflation means falling prices. Deflation has been used as a measure to correct deficit
disequilibrium. A country faces deficit when its imports exceeds exports. Deflation is brought
through monetary measures like bank rate policy, open market operations, etc or through
fiscal measures like higher taxation, reduction in public expenditure, etc. Deflation would
make our items cheaper in foreign market resulting a rise in our exports. At the same time the
demands for imports fall due to higher taxation and reduced income. This would build a
favorable atmosphere in the balance of payment position. However Deflation can be
successful when the exchange rate remains fixed.
2. Exchange Depreciation
Exchange depreciation means decline in the rate of exchange of domestic currency in
terms of foreign currency. This device implies that a country has adopted a flexible exchange
rate policy.
3. Devaluation
Devaluation refers to deliberate attempt made by monetary authorities to bring down
the value of home currency against foreign currency. While depreciation is a spontaneous fall
due to interactions of market forces, devaluation is official act enforced by the monetary
authority. Generally the international monetary fund advocates the policy of devaluation as a
corrective measure of disequilibrium for the countries facing adverse balance of payment
position. When India's balance of payment worsened in 1991, IMF suggested devaluation.
Accordingly, the value of Indian currency has been reduced by 18 to 20% in terms of various
currencies. The 1991 devaluation brought the desired effect. The very next year the import
declined while exports picked up.

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4. Exchange Control
It is an extreme step taken by the monetary authority to enjoy complete control over
the exchange dealings. Under such a measure, the central bank directs all exporters to
surrender their foreign exchange to the central authority. Thus it leads to concentration of
exchange reserves in the hands of central authority. At the same time, the supply of foreign
exchange is restricted only for essential goods. It can only help controlling situation from
turning worse. In short it is only a temporary measure and not permanent remedy.
5. Monetary Measures
Reduction in Money Supply
Devaluation
Exchange Control
6. Trade Measures
Export Promotional Measures
Import Control Measures
7. Miscellaneous Measures
Loans in foreign currencies
Attracting NRI Deposits
Development of Tourism

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 UNIT – IV
India’s Trade Policy
Trade policy defines standards, goals, rules and regulations that pertain to trade
relations between countries. These policies are specific to each country and are formulated by
its public officials. Their aim is to boost the nation‘s international trade. A country‘s trade
policy includes taxes imposed on import and export, inspection regulations, and tariffs and
quotas.

Objectives of Trade Policy

• To appreciate trade with other countries.
• To defend regional market existing in the country.
• To expand the export of specific product as this would facilitate in growing regional
market.
• To preclude the imports of specific goods for giving safety to developing key industry
or newborn industries etc.
• To promote the imports of capital goods for accelerating the economic
• development of the country.
• To hold and reverse the imports of goods which encourage unfavorable balance of
payments.
• To manage the export or import of goods and services for attaining the preferred rate
of exchange.
• To inscribe into trade settlement with foreign countries for steadying the global trade.

Bilateral and Multilateral Trade Agreements

Trade agreements are either bilateral, involving only two countries, or multilateral, involving
more than two countries. They are usually intended to lower trade barriers between participating
countries.
India has bilateral agreements with the following countries and blocs: ◦
 SAFTA (Bangladesh, Bhutan, the Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan)
 ASEAN (ASEAN–India Free Trade Area)
 European Union (final stage)
 Sri Lanka
 Singapore
 Thailand (separate from FTA agreement with ASEAN)
 Malaysia (separate from FTA agreement with ASEAN)
 Japan
 European Free Trade Association (EFTA) (negotiation ongoing)
 Canada (negotiation ongoing)
 South Korea
 Japan
A multilateral trade agreement involves three or more countries who wish to regulate
trade between the nations without discrimination. They are usually intended to lower trade
barriers between participating countries and, as a consequence, increase the degree of
economic integration between the participants. Multilateral trade agreements are considered
the most effective way of liberalizing trade in an interdependent global economy.

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International Business Environment: Nature
Environment means surroundings. International Business Environment means the
factors/activities those surround/encircle the International Business. In other words, business
environment means the factors that affect or influence the MNCs and transactional
companies.
Factors that affect International Business include Socio Cultural factors (S),
Technological factors (T), Economic factors (E), Political/Government factors (P),
International factors (I) and Natural factors (N).

(a) Socio – Cultural Factors

Socio Cultural Factors in various countries of the globe affect the International
Business. These factors includes:
 Attitude of the People to work
 Attitude to Wealth
 Family
 Marriage
 Religion
 Education
 Ethics
 Human Relations
 Social responsibilities etc
 Prescriptive it prescribed the kinds of behaviour considered acceptable in the
society.it limits product choices to those which are socially acceptable.
 Socially Shared culture is based on social interaction and creation. In fact, it is out of
necessity.
 Learned culture is acquired through learning but not inherited genetically. If a person
absorbs or learns the culture of the society where he is raised, that learning called
socialization or enculturation.
 Subjective culture is subjective in the sense that people of different cultures have
different ideas about the same object.
 Cumulative uncertainty of rains, crops and there by income in developing countries
over the year resulted in the culture of saving for to the next year.

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  Dynamic culture is not immune to change. It goes on changing. New ideas are added
and old ideas are dropped. The present generation youth previous generations.
Cultural Attitude and International Business
• Dressing habits, life styles eating habits and other consumption patterns priority of
needs are dictated/influenced by culture.
• Chinese eat fish stomachs and bids nest soup.
• Japanese each uncooked sea foods
• Iraqis eart dries, salted locusts and snakes while drinking.
• The French eat snails
• Americans and Europeans eat mostly non-vegetarians.
• Indians eat mostly vegetarians
Cultural Universals
The cultural universe enables the businessman to market the products in many foreign
countries with modifications
(b) Technological Factors
(c) Economic Factors
(d) Political Environment
WTO:
The World Trade Organization (WTO) is the only global international organization
dealing with the rules of trade between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world‘s trading nations and ratified in their
parliaments. The goal is to help producers of goods and services, exporters, and importers
conduct their business.
Functions of WTO
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing countries
• Cooperation with other international organizations
General Council Functions
• To act as Dispute Settlement Body
• To serve as Trade Review Mechanism
• To establish Goods Council, Services Council and TRIPS council as subsidiary
bodies.
• To supervise on a regular basis the operations of the revised agreements and
ministerial declaration relating to goods, services and TRIPs
GATT vs. WTO
GATT WTO
 GATT was adhoc and provisional • WTO and its agreements are
 GATT had contracting parties permanent
 GATT System allowed existing • WTO has members
domestic legislation to continue even • WTO does not permit this
if it violated a GATT agreement • WTO is more powerful, settlement
 GATT was less powerful, dispute mechanism is faster, very difficult to
settlement system was slow block the rulings.

Uruguay Agreement

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  Liberalization of Trade in Manufactures it is sought to be achieved mostly reduction
of tariffs and phasing out of non-tariff barriers.
 Expansion of Tariff Bindings commitment not to exceed a particular level of tariff
 Reduction Tariff Rates
 Expansion of Duty Free Access
Non-Tariff Barriers
• In the area of NTBs, the agreements to abolish Voluntary Export Restrains (VERs).
• VERs means it is a restriction set by a government on the quantity of goods that can
be exported out of a country during a specified period of time.
• To phase out the Multifibre Arrangements (MFA)
• MFA means The agreement imposed quotas on the amount that developing countries
could export in the form of yarn, fabric and clothing to developed countries.
Liberalization of Agricultural Trade
• Tariffication means the replacement of existing non-tariff restrictions on trade.
• Tariff Binding Commitment not to increase a rate of duty beyond an agreed level.
• Tariff Cuts
Reduction in subsidies in Domestic Support
• Prohibited Subsidies those contingent upon export performance or the use of domestic
instead of import goods
• Actionable Subsidies those that have demonstrably adverse effect other member
countries.
• Non-Actionable Subsidies

Trade Related Intellectual Property Rights (TRIPS)

The TRIPS Agreement is an international agreement administered by WTO that sets down
minimum standards for many forms of Intellectual Property (IP) regulations. The Agreement,
which came into effect on 1st January, 1995 is till date the most comprehensive multilateral
agreement on IP. The Agreement covers the following areas of IP:
 Copyrights and Related rights (i.e. the rights of performers, producers of sound
recordings and broadcasting organizations)
 Trademarks (including service marks)
 Geographical Indications (including appellations of origin)
 Industrial Designs Patents (including the protection of new varieties of plants)
 Layout-designs of Integrated Circuits
 Undisclosed Information (including Trade Secrets and Test Data)
Trade Related Investment Measures (TRIMS)
Trade Related Investment Measures refers to certain conditions or restrictions
imposed by government in respect of Foreign Investment in the country.
(a) Local Content Requirements (a certain amount of local inputs be used in products
(b) Trade balancing requirements (import shall not exceeds a certain production of
exports).
(c) Trade and foreign Exchange balancing requirements
(d) Domestic Sales Requirements (a company shall sell a certain proportion of its output
locally)
General Agreement on Trade in Services (GATS)
The General Agreement on Trade in Services (GATS) is a treaty of the WTO that
entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty
was created to extend the multilateral trading system to service sector, in the same way
the (GATT) provides such a system for merchandise trade.

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Four Modes of Supply
• Mode – I: Cross Border Supply (trans border data flows, transportation
services)
The flow of electronic data across political boundaries, such as between states or countries,
a process which can cause legal conflicts,
such as who owns a particular piece of information, and who may use it.
• Mode – II: Commercial Presence (Having an office, branch, or subsidiary in a
foreign country. )
• Mode – III: Consumption Abroad
• Modes of supply in services trade.
• The means through which services are traded.
• There are four modes of supply, which include:
• (Mode 1), Cross-border trade
• (Mode 2), Consumption abroad
• (Mode 3) Commercial presence, and
• (Mode 4) Temporary movement of natural persons
• Mode – IV: Movement of Personnel

Disputes Settlement Mechanism of WTO

The WTO Dispute Settlement Mechanism is a significant improvement over the
GATT. Some of the WTO members believe that the other members are violating trade in
rules any of the agreements mentioned so far.
WTO Dispute Settlement Flow Chart

Consultations 60 Days

Panel 9 Months

Appellate Body 90 Days

Implementation 15 Months
Step – I: Consultations
• Indicates reasons for the request: identification of
– the measures
– legal basis for complaint
Notified to DSB (Dispute Settlement Body) and circulated to all Members. To ―accord
sympathetic consideration to and accord adequate opportunity for consultation.‖ confidential,
only between the Members concerned
If consultations fail to resolve the matter within 60 days from receipt of request Or if
no response or no entering into consultations A request for establishment of a panel can be
made.
Step – II: Panel
Request for establishment: must ―identify the specific measures at issue and provide a brief
summary of the legal basis of the problem sufficient to present the problem clearly‖

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 Establishment at the latest at the second DSB meeting at which the request is made;
decided by negative consensus.
Panel Composition
• Well-qualified government and/or non-governmental individuals‖
• Secretariat proposals
• Indicative list of panelists
• Nomination by Director General
Step – III: Appellate Body
7 members to have recognized authority and expertise in international trade law
members unaffiliated with any government.
Step – IV: Implementation
Member must bring the measures into conformity with its WTO obligations. Member
must inform DSB of its intentions in for implementation of the recommendations

Dumping and Antidumping Measures

Dumping means selling the product at below the on-going market price and/or at the
price below the cost of production. Haberler defines ″ the sale of goods abroad at a price
which is lower than the selling prices of the same goods at the same time in the same
circumstances at home, taking account of difference in transport costs.″
Types of Dumping
1. Intermittent Dumping When the production of a product is more than the demand in
the home country, the stocks piled up even after sales. In such a case the producer
sells the remaining stock in foreign countries at low prices without reducing the price
in domestic countries.
2. Persistent Dumping The monopolist sells the remaining production in foreign
countries at a low prices continuously.
3. Predatory Dumping The monopolist sells the product in a foreign market at a low
price initially with a view to drive away the competitors and increase the price after
the competitors leave the market.
Effects of Dumping
Importing Country (IC)
• IC experiences the decline in sales and profits
• It changes the preferences of consumer in the domestic country.
• It increases the deficit of the balance of BOP.
• The IC can benefit from dumping by imposing anti-dumping tariffs.
Exporting Country (EC)
• The consumer of EC pays high prices when the consumer of foreign country pays
lower price.
• The EC finds market for the excess production.
Objectives of Dumping
• To Enter the Foreign Market
• To Sell surplus production
• To Develop Trade Relations
An anti-dumping duty is a protectionist tariff that a domestic government imposes on
foreign imports that it believes are priced below fair market value.
Tariff Duty The importing country imposes high rates of import tariffs on dumping, So that
the price of the dumping goods would be either equal to or more than that of the domestics
goods.
Import Quota The importing country in addition to tariff duty, restricts the volume of
imports. This measures reduces the dumping.
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Import Embargo The importing country bans the import of particular goods or all the goods
from the dumping country. This is a retaliatory measure against dumping.
Voluntary Export Restraint The exporting countries realizing the negative effects of
dumping, Voluntarily come for bilateral agreements to avoid dumping.

UNIT – V
Special features of the SICA (special provisions) 1985
In the wake of sickness in the country‘s industrial climate prevailing in the eighties,
the Government of India set up in 1981, a Committee of Experts under the Chairmanship of
Shri T.Tiwari. To examine the matter and recommend suitable remedies therefore. Based on
the recommendations of the Committee, the Government of India enacted a special
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legislation namely, the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)
commonly known as the SICA.
Applicability of the Act
• (a) pertaining to industries specified in the First Schedule to the Industries
(Development and Regulation) Act, 1951, (IDR Act) except the industries relating to
ships and other vessels drawn by power and;
• (b) not being "small scale industrial undertakings or ancillary industrial undertakings"
as defined in Section 3(j) of the IDR Act.
• (c) The criteria to determine sickness in an industrial company are
(i) the accumulated losses of the company to be equal to or more than its net worth i.e. its
paid up capital plus its free reserves
(ii) the company should have completed five years after incorporation under the
Companies Act, 1956
(iii) it should have 50 or more workers on any day of the 12 months preceding the end of
the financial year with reference to which sickness is claimed.
(iv) it should have a factory license.
Genesis of SICA
• Industrial sickness had started right from the pre-Independence days.
• Government had earlier tried to counter the sickness with some ad-hoc measures.
• Nationalization of Banks and certain other measures provided some temporary relief.
• RBI monitored the industrial sickness.
• A study group, came to be known as Tandon Committee was appointed by RBI in
1975.
• In 1976, H.N. Ray committee was appointed.
• In 1981, Tiwari Committee was appointed to suggest a comprehensive special
legislation designed to deal with the problem of sickness laying down its basic
objectives and parameters, remedies necessary for revival of sick Units.
Suggestions of Tiwari Committee
• Need for a special legislation
• Need for setting up of exclusive quasi-judicial body.
• Thus the SICA came into existence in 1985 and BIFR started functioning from 1987

Board for Industrial and Financial Reconstruction (BIFR)

' The Government of India has set up a Board for Industrial and Financial
Reconstruction (BIFR) in pursuance of section 4 of SICA, 1985. The principal objectives of
the Board briefly are:
i. to evaluate the techno-economic viability of sick industrial companies with a view
to either rehabilitating them or closing down
ii. ii. to stop continued drain of public as well as private resources and iii. to
safeguard employment as far as possible.
The BIFR became functional w.e.f., 15 May 1987. The Board has been given wide-
ranging powers for reconstruction, revival or rehabilitation of sick industrial companies. In
cases where rehabilitation is not Found feasible, the Board is empowered to order it's winding
up.
Constitution of the BIFR
Section 4 of Sick Industries Company Act provides that the Board shall consist of a
Chairman and not less than two and not more than fourteen other members to be appointed by
the Central government. The decision of the Board is taken in Benches, each of which
consists of not less than two members.
BIFR Procedures
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Reporting Sickness to the BIFR
Registration of Reference and Enquiry by the BIFR
Result of Enquiry
(a) Opportunity for Self-revival: Section 17(2)
(b) Rehabilitation under an Operating Agency: Section 17(3)

Consumer protection Act 1986

The Consumer Protection Act, 1986 was enacted in 1986. The act received the President‘s
accent on 24-12-1986.Accordingly, Chapter I, II and IV were made applicable with effect
from 15th April, 1987. Chapter – III with effect from 1st July, 1987. The act is extend to
whole of India except of Jammu and Kashmir.
The provisions of the Act were amended in 1993 vide the Consumer Protection
(Amendment) ordinance, 1993 promulgated by the President of India on June 18, 1993. The
Consumer Protection Act, 1986 extends to the whole of India except the State of Jammeu and
Kashmir. The act applies to all goods and services, unless otherwise notified by the Central
Government.
Section 1(4) provides that, save as otherwise expressly provided by the Central
Government by Notification this Act shall apply to all goods and services.
Machinery for Redressal of Consumer Grievances
The Consumer Protection Act, 1986, made provisions for the establishment of
appropriate machinery for the settlement of consumer disputes and redressal of grievances at
various levels,
(a) District level
(b) Sate level
(c) National
These bodies are called quasi-judicial bodies.
(a) District Forum
The district forum is the forum established by the State Government in each District
by notification. The District forum consists of a person who is qualified to be the judge of
District Court, nominated by the State Government. He shall be the president. It also
comprises two other members, who shall have the knowledge and experience of atleast ten
years in dealing with problems of economics, law, commerce and industry. One of the two
members shall be a woman.
The age of the members shall not be less than 35 years and possess a degree from a
recognized university. Every member of the District Forum shall hold office for a term of 5
years or up to the age of 60 years, whichever is earlier.
(b) State Commission
The State Commission is headed by a person who is a judge of a High Court. Every
member of the commission shall hold office for a term of 5 years till they attain the age of 67
years whichever is earlier. a person who is or has been a Judge of a High Court, appointed by
the State Government, who shall be its President: not less than two, and not more than such
number of members, as may be prescribed, and one of who shall be a woman, who shall have
the following qualifications, namely:-
(i) be not less than thirty-five years of age;
(ii) possess a bachelor‘s degree from a recognized university; and
(iii) be persons of ability, integrity and standing, and have adequate knowledge and
experience of at least ten years in dealing with problems relating to economics, law,
commerce, accountancy, industry, public affairs or administration:
(c) National Commission
The National Commission is the highest authority to settle the consumer disputes in
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the country. The President and all the members are appointed by the Central Government.
a person who is or has been a Judge of the Supreme Court, to be appointed by the
Central Government, who shall be its President, not less than four, and not more than such
number of members, as may be prescribed, and one of whom shall be a woman, who shall
have the following qualifications, namely :-
(i) be not less than thirty-five years of age;
(ii) possess a bachelor‘s degree from a recognized university; and
(iii) be persons of ability, integrity and standing and have adequate knowledge and
experience of at least ten years in dealing with problems relating to economics, law,
commerce, accountancy, industry, public affairs or administration:

Environmental laws (pertaining to the control and prevention of Air and Water
pollution)
The Constitution of India clearly states that it is the duty of the state to ‗protect and
improve the environment and to safeguard the forests and wildlife of the country‘. The
Department of Environment was established in India in 1980. This later became the Ministry
of Environment and Forests in 1985.
The Air (Prevention and Control of Pollution) Act, 1981
Decisions were taken at the United Nations Conference on the Human Environment held in
Stockholm in June, 1972, in which India participated, to take appropriate steps for the preservation of
the natural resources of the earth which, among other things, include the preservation of the quality of
air and control of air pollution. The Act was came into existence on 29th March, 1981.
Object & Scope
• An Act to provide for the prevention, control and abatement of air pollution, for the
establishment, with a view to carrying out the aforesaid purposes, of Boards, for
conferring on and assigning to such Boards powers and functions relating thereto and
for matters connected therewith.
• It extends to the whole of India.

A State Board constituted under this Act shall consist of the following members,
namely:
(a) a Chairman, being a person, having a person having special knowledge or practical
experience in respect of matters relating to environmental protection, to be nominated
by the State Government:
Provided that the Chairman may be either whole-time or part-time as the State
Government may think fit;
(b) such number of officials, not exceeding five, as the State Government may think
fit, to be nominated by the State Government to represent that government;
(c) such number of persons, not exceeding five, as the State Government may think
fit, to be nominated by the State Government from amongst the members of the local
authorities functioning within the State;
(d) such number of non-officials, not exceeding three, as the State Government may
think fit, to be nominated by the State Government to represent the interest of
agriculture, fishery or industry or trade or labour or any other interest, which in the
opinion of that government, ought to be represented;
(e) two persons to represent the companies or corporations owned, controlled or
managed by the State Government, to be nominated by that Government;
9[(f) a full-time member-secretary having such qualifications knowledge and
experience of scientific, engineering or management aspects of pollution control as
may be prescribed, to be appointed by the State Governments
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Central Board
No State Board shall be constituted for a Union territory and in relation to -a Union
territory, the Central Board shall exercise the powers and perform the functions of a State
Board under this Act for that Union territory. Provided that in relation to any Union territory
the Central Board may delegate all or any of its powers and functions under this section to
such person or body of persons as the Central Government may specify.
The Water (Prevention and Control of Pollution) Act 1974
The Water (Prevention and Control of Pollution) Act was enacted in 1974 to provide for
the prevention and control of water pollution, and for the maintaining or restoring of wholesomeness
of water in the country. The Act was amended in 1988. The Act was came into existence on 23rd
March, 1974. The act was extended to whole of India.
The Scope and Objectives of the Act
The main objectives of the Water Act are to provide for prevention, control and abatement of water
pollution and the maintenance or restoration of the wholesomeness of water. It is designed to
assess pollution levels and punish polluters.

The Essential Commodities Act 1955

The Act has come into effect from 01-04-1955 and extends to the whole of India. The
Essential Commodities Act, 1955 has been enacted to provide, in the interest of the general
public, for the control of production, supply and distribution of trade and commerce in
certain commodities.
Section 2 of the act defies certain terms as under: Essential Commodities means any
of the following classes of commodities:
(a) Cattle Fodder including oil cakes and other concentrates.
(b) Coal including coke and other derivatives
(c) Component parts and accessories of automobiles
(d) Drugs
(e) Foodstuffs, including edible oilseeds and oils
(f) Iron and steel
(g) Paper including newsprint, paperboard and straw board
(h) Petroleum and Petroleum Products
(i) Raw cotton
(j) Raw Jute
(k) Any other class of commodity which the Central Government may by notified order
• Food crops Food crops include crops of sugarcane.
• Sugar
(a) Any form of sugar containing more than 90% sucrose
(b) Khandasari sugar or bura sugar or crushed sugar

Powers of the Central Government

Section 3 to 6 of the Act give powers to the CG regarding the control, production,
supply, distribution of essential commodities.
(a) For regulating by licences, permits or otherwise the production or manufacture of nay
essential commodity.
(b) For bringing under cultivation any waste or arable land
(c) For controlling the price at which essential commodity may be bought or sold.
(d) For prohibiting the withholding from sale of any essential commodity ordinarily kept
for sale.
(e) For collecting any information or statistics with a view to regulating or prohibiting
any of the aforesaid matters.

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(f) It may be notes that the person selling the essential commodity in compliance with the
order made for this purpose.
(g) Imposition of duties on State Government (Section 4) May confer powers and
impose duties on the state government or its officials for this purpose.
(h) Delegation of Powers (Section 5) the CG may also delegates its powers in relation to
the order issued by it regarding production distribution etc.

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