Ashok D GaurAsst. Prof.

C.P Patel & F.H Shah Commerce College, Anand

UGC NET Coaching Class

May 2014

Unit: 1 Business Environment

Syllabus : Business Environment

• Meaning • Elements of Business Environment • Economic environment, • Economic Policies,• Economic Planning • Legal environment of Business in India, • Competition policy, • Consumer protection, • Environment protection• Policy Environment: Liberalization Privatization and globalization, • Second generation reforms, • Industrial policy and implementation• Industrial growth and structural changes

Meaning • The term ‘business environment’ connotes external forces, factors

and institutions that are beyond the control of the business and they affect the functioning of a business enterprise.

• These include customers, competitors, suppliers, government, and the social, political , legal and technological factors etc.

• While some of these factors or forces may have direct influence over the business firm, others may operate indirectly.

• Thus, business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business. It may also be defined as the set of external factors, such as economic factors, social factors, political and legal factors, demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm

Types of BE

• Confining business environment to uncontrollable external factors, it may be classified as

(a) Economic environment; and

(b) Non-economic environment• The economic environment includes economic conditions,

economic policies and economic system of the country.• Non-economic environment comprises social, political, legal,

technological, demographic and natural environment.• All these have a bearing on the strategies adopted by the firms

and any change in these areas is likely to have a far-reaching impact on their operations

Economic Environment(a) Economic Conditions: • The economic conditions of a nation refer to a set of economic factors that have great

influence on business organizations and their operations. • These include gross domestic product, per capita income, markets for goods and services,

availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.

(b) Economic Policies: • All business activities and operations are directly influenced by the economic policies

framed by the government from time to time. • Some of the important economic policies are:

(i) Industrial policy

(ii) Fiscal policy

(iii) Monetary policy

(iv) Foreign investment policy

(v) Export –Import policy (Exim policy)

(c) Economic System: The world economy is primarily governed by three types of economic systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.

Important Economic Policies

(i) Industrial policy: The Industrial policy of the government covers all those principles, policies, rules, regulations and procedures, which direct and control the industrial enterprises of the country and shape the pattern of industrial development.

(ii) Fiscal policy: It includes government policy in respect of public expenditure, taxation and public debt.

(iii) Monetary policy: It includes all those activities and interventions that aim at smooth supply of credit to the business and a boost to trade and industry.

(iv) Foreign investment policy: This policy aims at regulating the inflow of foreign investment in various sectors for speeding up industrial development and take advantage of the modern technology.

(v) Export–Import policy (Exim policy): It aims at increasing exports and bridge the gap between expert and import. Through this policy, the government announces various duties/levies. The focus now-a-days lies on removing barriers and controls and lowering the custom duties.

Non-Economic Environment

(a) Social Environment• The social environment of business includes social factors like

customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms.

• For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc.

• Due to increase in literacy rate the consumers are becoming more conscious of the quality of the products. Due to change in family composition, more nuclear families with single child concepts have come up. This increases the demand for the different types of household goods. It may be noted that the consumption patterns, the dressing and living styles of people belonging to different social structures and culture vary significantly

Political Environment

• This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms.

• The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors. Further, ideology of the political party also influences the business organization and its operations.

• You may be aware that Coca-Cola, a cold drink widely used even now, had to wind up operations in India in late seventies.

• Again the trade union activities also influence the operation of business enterprises. Most of the labour unions in India are affiliated to various political parties. Strikes, lockouts and labour disputes etc. also adversely affect the business operations. However, with the competitive business environment, trade unions are now showing great maturity and started contributing positively to the success of the business organization and its operations through workers participation in management.

Legal Environment• This refers to set of laws, regulations, which influence the business organizations

and their operations. Every business organization has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include:

(i) Companies Act, 1956

(ii) Foreign Exchange Management Act, 1999

(iii) The Factories Act, 1948

(iv) Industrial Disputes Act, 1972

(v) Payment of Gratuity Act, 1972

(vi) Industries (Development and Regulation) Act, 1951

(vii) Prevention of Food Adulteration Act, 1954

(viii) Essential Commodities Act, 2002

(ix) The Standards of Weights and Measures Act, 1956

(x) Monopolies and Restrictive Trade Practices Act, 1969

(xi) Trade Marks Act, 1999

(xii) Bureau of Indian Standards Act, 1986

(xiii) Consumer Protection Act, 1986

(xiv) Environment Protection Act

(xv) Competition Act, 2002

Other legal environment

(i) Provisions of the Constitution: • The provisions of the Articles of the Indian Constitution,

particularly directive principles, rights and duties of citizens, legislative powers of the central and state government also influence the operation of business enterprises.

(ii) Judicial Decisions: The judiciary has to ensure that the legislature and the government function in the interest of the public and act within the boundaries of the constitution. The various judgments given by the court in different matters relating to trade and industry also influence the business activities.

Technological Environment

• Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products.

• For example, in USA and many other countries electrical appliances are designed for 110 volts. But when these are made for India, they have to be of 220 volts.

• In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.

• It may be noted that scientific research for improvement and innovation in products and services is a regular activity in most of the big industrial organizations. Now a days infact, no firm can afford to persist with the outdated technologies.

Demographic Environment

• This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services.

• For example a country where population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production.

• Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area. For example, the business units from America, Canada, Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and reads them accurately will find opportunities knocking at its doorsteps.

Natural Environment

• 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. Business is greatly influenced by the nature of natural environment.

• For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input.

• Further, government’s policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility on the business sector.

Economic Environment

• Classification of economic environment of basis of ownership

A) Capitalistic Economy

B) Socialistic Economy

C) Mixed Economy• Classification of economic environment of basis level

of economic development

A) Economic indicator ( GDP, GNP, Income distribution ,inflation rate interest rate unemployment and FER ,PPP

ECONOMIC POLICY• MACROECONOMIC POLICY changes from

time to time, impact business conditions more directly.

• Its objectives is to stimulate or maintain growth, achieve economic stability,I ncrease employment, stabilize balance of payment and make the economy more competitive.

• the countries which borrow heavily from multi lateral institutions like IMF and WORLD BANK often have to adjust their policy structure to the lending criteria and condition imposed by these institutions.

TYPES OF ECONOMIC POLICY

1. MONETARY POLICY2. FISCAL POLICY3. INDUSTRIAL POLICY4. TRADE POLICY

MONETARY POLICY

• IT IS FORMULATED AND EXECUTED BY RESERVE BANK OF INDIA.

• IT REFERS TO THAT POLICY BY WHICH CENTERAL BANK OF COUNTRY CONTROLS:

1. SUPPLY OF MONEY

2. COST OF MONEY OR RATE OF INTEREST WITH A VIEW TO ACHIEVE PARTICULAR

OBJECTIVES.

• ACCORDING TO D.C ROWAN “THE MONETARY POLICY IS DEFINED AS DISCRETIONARY ACT

UNDERTAKEN BY THE AUTHORITIES DESIGNED TO INFLUENCE :

• THE SUPPLY OF MONEY

• COST OF MONEY OR RATE OF INTEREST

• THE AVAILABILITY OF MONEY

• FOR ACHIEVING SPECIFIC OBJECTIVES.”

• MAIN OBJECTIVE OF THIS POLICY IS :

• TO ACHIEVE PRICE STABILITY,

• FINANCIAL STABILITY

• ADEQUATE STABILITY OF CREDIT FOR GROWTH

FISCAL POLICY• IT IS RELATED TO INCOME AND EXPENDITURE OF GOVERNMENT.

• IT REFERS TO BUDGETARY POLICY OF GOVERNMENT.

• IT IS OF GREAT IMPORTANCE FOR BOTH DEVELOPED AS WELL AS DEVELOPING COUNTRIES.

• IT IS AN INSTRUMENT FOR PROMOTING ECONOMIC GROWTH,EMPLOYMENT,

SOCIAL WELFARE ETC.

• IT HAVE A GREAT BEARING ON ECONOMIC EQUALITY AND ECONOMIC GROWTH OF THE

COUNTRY.

• ACCORDING TO ARTHUS SMITHIES,”FISCAL POLICY IS A POLICY UNDER WHICH THE

GOVERNMENT USES ITS EXPENDITURE AND REVENUE PROGRAMMES TO PRODUCE

DESIRABLE EFFECT AND AVOID UNDESIRABLE EFFECTS ON THE NATIONAL

INCOME,PRODUCTION AND EMPLOYMENT”.

INDUSTRRIAL POLICY• IT MEANS THOSE PRINCIPLES AND ACTIVITIES WHICH ARE PERSUED AND PERFORMED TO

HELP INDUSTIALISE A COUNTRY.

• IT INCLUDES RULES, REGULATION, PRINCIPLES AND PROCEDURES TO REGULATE

THE INDUSTRIAL UNDERTAKING OF A COUNTRY IN THE DESIRED DIRECTION TO ACHIEVE

BROADER OBJECTIVES LIKE:

INDUSTRIAL DEVELOPMENT

ECONOMIC DEVELOPMENT

BALANCED REGIONAL DEVELOPMENT

INCREASE IN EMPLOYMENT ETC

• INDUSTRIAL POLICY IS AN INSTRUMENT WITH THE HELP OF WHICH THE STATE

PARTICIPATES IN THE GROWTH PROCESS.”

• IT INCLUDES POLICY REGARDING LABOUR AND CAPITAL ,COTTAGE AND SMALL SCALE

INDUSTRIES, FOREIGN CAPITAL AND PROTECTION ETC.

• IT IS FULLY CONTROLLED AND REGULATED BY THE GOVERNMENT.

TRADE POLICY

• BASIC OBJECTIVE OF TRADE POLICY IS TO

PROMOTE EXPORTS,REGULATE

IMPORTS,IMPROVE TERMS OF TRADE,ENHANCE

EXPORT COMPETITIVENESS AND CREATE

CONDITIONS OF EXPORT -LED GROWTH.

• THIS POLICY IS OF UTMOST IMPORTANCE TO

EXPORTERS AS IT HAS A MAJOR IMPACT ON

TRANACTION COSTS AND EFFICIENCY OF

TRADE TRANSACTIONS

Planning• The Planning Commission was set up in March 1950.

• The main objective 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 utilisation of resources and determining priorities.

• Jawaharlal Nehru was the first Chairman of the Planning Commission.

Plan Target Actual

First Plan (1951 – 56) 2.9% 3.6%

Second Plan (1956 – 61) 4.5% 4.3%

Third Plan (1961 – 66) 5.6% 2.8%

Plan Holiday

Fourth Plan (1969 – 1974) 5.7% 3.3%

Fifth Plan (1974 – 79) 4.4% 4.8%

Sixth Plan (1980 – 85) 5.2% 6.0%

Seventh Plan (1985 – 90) 5.0% 6.0%

Eighth Plan (1992 – 97) 5.6% 6.8%

Ninth Plan (1997 – 2002) 6.5% 5.4%

Tenth Plan (2002 – 2007) 8.0% --

First Five Year Plan(1951-55)

Total budget: 206.8 billion (INR) or USD$23.6 billion.

Objectives the standard of living Community and agriculture

development Energy and irrigation Communications and transport Industry Land rehabilitation Social services Target of GDP growth 2.1 per

year Achieved had been 3.6% per

year

ACHIEVEMENTS

GDP 3.6% per year Evolution of good irrigation

system

improvement in roadscivil aviation railwaysTelegraphs posts manufacture of fertilizerselectrical equipment 

Disadvantages

• development of only a few industries• private industry had not developed

Second Five Year Plan(1956-1961)

OBJECTIVES To increase by 25% the national

income To make the country more

industrialized To increase employment

opportunities so that every citizen gets a job

Development of Mining and industry Community and agriculture

development Power and irrigation Social services Communications and transport Miscellaneous

ACHIEVEMENTS

5 steel plants

a hydro-electric power project 

production of coal increased

more railway lines

Land reform measures

improved the living standards of the people

The large enterprises in seventeen industries were nationalized

Disadvantages eliminate the importation of consumer goods high tariffs Low quotas or banning some items

altogether License were required for starting new

companies This is when India got its License Raj, the

bureaucratic control over the economy When a business was losing money the

Government would prevent them from shutting down

OBJECTIVES More stress to agriculture

subsidies  Sufficient help

Effective use of country's resources 

To increase the national income by 5% per year

To increase the production of agriculture so that the nation is self sufficient in food grains

To provide employment opportunities for every citizen of the country

To establish equality among all the people of the country

Third Five Year Plan (1961-1966)

ACHIEVEMENTS Decentralization

Organizations formed Panchayat Zila Parishads

Laid emphasis on oil conservation irrigation Afforestation dry farming

Many fertilizer  and cement plants were built

Green Revolution

PMs

Jawaharlal Nehru

Gulzarilal Nanda

Lal Bahadur Shastri

Problems faced

• Sino Indian War, India witnessed increase in price of products. The resulting inflation

4th Five Year Plan(1969 to 1974)

OBJECTIVES• to reform and restructure

govts expenditure agenda( defense became one major expense)

• To facilitated growth in exports

•  to alter the socio economic structure of the society

ACHIEVEMENTS• Great advancement has

been made with regard to India's national income

• considered as one of the emerging powers

• served as a stepping stone for the economic growth

• Food grains production increased 

problems

• a gap was created between the people of the rural areas and those of the urban areas. 

• Due to recession, famine and drought, India did not pay much heed to long term goals

Fifth Five Year Plan 1974 to1979

OBJECTIVES To reduce social, regional, and

economic disparities To enhance agricultural

productivity To check rural and urban

unemployment To encourage self-employment Production support policies in

the cottage industry sector To develop labor intensive

technological improvements

PROBLEMS The international economy was

in a trouble  Food, oil, and fertilizers where

prices sky-rocketed Several inflationary pressures

ACHIEVEMENTS Food grain production was above

118  million tons due to the improvement of infrastructural facilities

Bombay High had  shot up the commercial production of oil in India

Problems faced

• The world economy was in a troublesome state• This had a negative impact on the Indian

economy• Prices in the energy and food sector

skyrocketed and as a consequence inflation became inevitable

Sixth Five Year Plan 1980 to1985

OBJECTIVES To improve productivity level To initiate modernization for

achieving economic and technological self-reliance

To control poverty and unemployment

To develop indigenous energy sources and efficient energy usage

To promote improved quality of life of the citizens

To introduce Minimum Needs Program for the poor

To initiate Family Planning 

ACHIEVEMENTS  Speedy  industrial development Emphasis on the information

technology sector self sufficiency in food science and technology also made

a significant advance several successful programs on

improvement of public health government in the Indian

healthcare sector Government investments  in the

Indian healthcare sector

Problems faced

•  During this time the Prime Minister was Rajiv Gandhi and hence industrial development was the emphasis of this plan some opposed it specially the communist groups, this slowed down the pace of progress.

Seventh Five Year Plan 1985 to 1989

OBJECTIVES Anti-poverty program Improved facilities for education to

girls The government undertook to increase

productivity of

Oilseeds,Fruits,VegetablesPulses,cereals,FishEgg,Meat,milk.

Communications Emergence of informatics, and

hooking up of telecommunications with computers

Transport  inland waterways, product

pipelines, civil aviation, coastal shipping

ACHIEVEMENTS Social Justice Removal of oppression of

the week Using modern technology Agricultural development Anti-poverty programs Full supply of food, clothing,

and shelter Increasing productivity of

small and large scale farmers Making India an

Independent Economy

Problems

• 1989-91 was a period of political instability in India and hence no five year plan was implemented

• In 1991, India faced a crisis in foreign exchange(Forex) reserves

Eighth Five Year Plan 1992 to1997

OBJECTIVES• Prioritize the specific sectors which

requires immediate investment• To generate full scale employment• Promote social welfare measures like

improved healthcare, sanitation, communication and provision for extensive education facilities at all levels

• To check the increasing population growth by creating mass awareness programs

• To encourage growth and diversification of agriculture

• To strengthen the infrastructural facilities

• To place greater emphasis on role of private initiative in the development of the industrial sector

ACHIEVEMENTS• Rise in the employment level• Poverty reduction• Self-reliance on domestic resources

• Self-sufficiency in agricultural production

• GDP Growth Per Annum 5.6

Ninth Five Year Plan1997 to 2002

OBJECTIVES to prioritize rural development to generate adequate employment

opportunities to stabilize the prices to ensure food and nutritional

security to provide for the basic

infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy

to check the growing population increase

to encourage social issues like women empowerment

to create a liberal market for increase in private investments

ACHIEVEMENTS•  A combined effort of public,

private, and all levels of government

• ensured the growth of India's economy.

• Service sector showed fast growth rate

Tenth Five Year Plan(2002-2007) OBJECTIVES

To transform the country into the fastest growing economy of the world targets an annual economic growth of 10% Human and social development The social net Industry and services:

Industry,Minerals,Energy,Information technology,Tourism,Real estate,Construction,Internal tradeForests and environmentScience and technologySpecial area programs

schooling to be compulsory for children

Eleventh Five-Year Plan (2007–2012)

INCOME AND POVERTYAccelerate growth rate of GDP from 8% to 10%

and then maintain at 10% in the 12th plan in order to double per capita income by 2016-17.

Increase agricultural GDP growth rate to 4% per year.

Reduce educated unemployment to below 5%.Raise real wage rate of unskilled workers by

20%

Eleventh five year plan

OBJECTIVES• Income & Poverty• Education • Health • Women and Children • Infrastructure • Environment

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• There are Short Term and Medium Term Challenges

• Short Term : Reverse the current growth slowdown : 5.5 percent in 2012-13,

Aim for 6.5 to 7 percent in 2013-14

• Longer Term : Get back to high growth. This requires accelerating from 5.5% in 2012-13 to over 9% in last two years

• This is very difficult, especially given the global situation

Twelfth Plan Strategy

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• Inclusiveness is a multi-dimensional concept :

Reduce poverty

Improve regional equality across states and within states

Improve conditions for SCs, STs, OBCs, Minorities

Generate attractive employment opportunities for youth

Close gender gaps

• Twelfth Plan lists 25 monitorable indicators

Growth must not only be rapid, but also more inclusive

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• Average GDP Growth of 8 percent• Agriculture Growth of 4 percent• Reducing head-count poverty by 10 percentage point• Generating 50 million work opportunities• Eliminating gender and social gap in education• Reducing IMR to 25, MMR to 100 and TFR to 2.1 • Enhance infrastructure investment to 9% of GDP• Achieve universal road connectivity and access to power

for all villages• Access to banking services for 90 percent households • Major welfare benefits and subsidies via Aadhaar

25 Monitorable Targets, e.g.

• Twelfth Plan sets ambitious targets for Flagship Programmes in areas of Health, Education, Rural infrastructure, Livelihood Development etc.

• Too much focus on the level of expenditure in these programmes. Not enough on effectiveness in terms of end results

• Implementation in the field is the responsibility of State Government agencies. However, programme guidelines are set by the Central Government

• There are demands for greater flexibility from states. We are responding as follows : Guidelines are being made more flexible to meet the

requirements of individual States 10% flexi-fund within each scheme for innovations

Effectiveness of Plan Programmes

CONSUMER PROTECTION ACT

Consumer Protection Act

• Enacted by the Parliament in 1986• To provide for better protection of interest of

consumers. • To make provisions for the establishment of

Consumer Councils and other authorities for the settlement of consumer disputes.

Who is a Consumer?

• Consumer is one who – Buys any goods for a consideration and includes a

hire-purchaser;– Any user of such goods for consideration but

excludes one, who obtains for re-sale or for commercial purposes;

– Hires a service for consideration and includes a beneficiary of such service, if availed of with the approval of the hirer.

Deficiency - Service

• ‘Deficiency’ means – a fault, imperfection, shortcoming or inadequacy in quality,

nature, or manner of performance than is required.

• ‘Service’ includes – service in connection with banking, financing, insurance,

transport, processing, supply of electrical and other energy, boarding or lodging, housing construction, entertainment, amusement or purveying of news and other information

– but does not include any service free of charge or under a personal contract.

What is a Complaint?

• An allegation in writing by a complainant that:– An unfair or restrictive trade practice is practised by trader

or service provider– Goods bought or to be bought or services hired or to be

hired suffered from any deficiency– Trader or service provider has charged excess price– Goods and services are hazardous or are likely to be

hazardous to life and safety.

Who is a complainant?• A consumer• Any voluntary consumer association registered under

the Companies Act or any other law• Central or State Government, if it makes a complaint• One or more consumers having same interest• In case of death of a consumer, his legal heir or

representative.

A Consumer Dispute arises when a complaint is denied or disputed.

Machinery under the Act

• Central Consumer Protection Council – to be established by Central Government

• State Consumer Protection Council – to be established by State Government

• District Consumer Protection Council – to be established by State Government for every

district

Consumer Dispute Redressal Machinery

• There are Consumer Fora at the District, State and National level– District Forum – At the District level– State Commission – At the State level– National Commission – At the National level

Pecuniary Jurisdiction

• Forum where complaints can be entertained – Depends on value of goods and service and compensation claimed

• Limits are :– District Forum

• not exceeding Rs.20 lakhs

– State Commission • exceeds Rs.20 lakhs but does not exceed Rs.1 Crore

– National Commission • exceeds Rs.1 Crore.

• Territorial Jurisdiction lies in the court of the place – Where the opposite party resides or carries on business or

personally works for gain– Where the cause of action wholly or partly arose

Disposal of disputes

• District Forum may– ask the opposite party to remove the defect,– replace the goods with new goods and free from defect– to return to the complainant the price of goods or– to pay any amount as compensation

• Appeals to be preferred within thirty days – from the order of the District Forum to the State Commission and – from the order of the State Commission to the National Commission

• Can entertain appeals beyond thirty days – on sufficient cause shown for the delay

It has to be disposed within ninety days from its admission.

What are the rights of a ‘consumer’?

– Protection from hazardous goods and services– Information about the quality, quantity, purity,

standard and price– Access to a variety of goods and services at

competitive prices.– Assurance that his interest will be considered at

appropriate fora– The right to consumer education

Policy Environment: Liberalization Privatization and globalization

THE NEW INDUSTRIAL POLICY- 1991• July 1991,India has taken a series of measures to structure the

economy and improve the BOP position. The new economic policy introduced changes in several areas.

The policy have salient feature which are: -

1.Liberlisation (internal and external)

2.Extending Privatization

3.Globalisation of the economy

Which are known as “LPG”. (liberalization privatization globalization)

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Reasons for implementing LPG Excess of consumption and expenditure over revenue

resulting in heavy govt. borrowings. Growing inefficiency on the use of resources. Over protection to industries. Mismanagement of the firm and the economy. Increase in losses for public sector enterprises. Various distortion like poor technological

development, shortage of foreign exchange and borrowing from abroad.

Low foreign exchange reserves. Inflation

Liberalization Liberalization is a very broad term that usually refers to fewer

government regulations and restrictions in the economy. Liberalization refers to the relaxation of the previous government

restriction usually in area of social and economic policies. When government liberalized trade , it means it has removed the tariff ,subsidies and other restriction on the flow of goods and services between the countries.

The Path of liberalization• Relief for foreign investors• Devaluation of Indian rupees• New industrial Policy• New trade policy• Removal of import Restrictions• Liberalization of NRI remittances• Freedom to import technology• Encouraging foreign tie-ups• MRTP relaxation• Privatization of public sector

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Advantages of liberalization

• Industrial licensing• Increase the foreign

investment. • Increase the foreign

exchange reserve. • Increase in consumption

and Control over price.• Check on corruption.• Reduction in dependence

on external commercial borrowings

Disadvantages of Liberalization

• Increase in unemployment.

• Loss to domestic units.• Increase dependence

on foreign nations • Unbalanced

development

Advantages & Disadvantages of liberalization

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Privatization Privatization means transfer of ownership and/or management

of an enterprise from the public sector to the private sector .It also means the withdrawal of the state from an industry or sector partially or fully.

Privatization is opening up of an industry that has been reserved for public sector to the private sector.

Privatization means replacing government monopolies with the competitive pressures of the marketplace to encourage efficiency, quality and innovation in the delivery of goods and services.

NEED Though the PSUs have contributed heavily to develop the industrial base of the

country, they continue, even today, to suffer from a number of shortcomings which are identified below very briefly :-

• A sizable number of PSUs have been incurring and reporting losses on a continual basis. Consequently, a large number of PSUs have already been referred of loss giving units;

• Multiplicity of authorities to whom the PSUs are accountable;• Delay in implementation of projects leading to cost escalation and other consequences;

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• Ineffective and widespread inefficiency on management;• With a view to provide opportunities for more and more

unemployed youths, more number of people, than required, were recruited and therefore, many PSUs are over-staffed resulting in lower labour productivity, bad industrial relations, etc.;

• A number of sick companies (40 companies) which were in the private sector was taken over by public sector mainly to protect the employees. These sick units are causing a big drain on the resources of the state; etc.

Different Ways in privatization• Liberalization Approach• Relative Share Enlargement Approach• Association of Private Sector Management Approach• Transfer of Minority Equity Ownership Approach• Transfer of Complete Ownership Approach

Advantages and disadvantages

• Privatization helps to reduce the burden on Govt.

• It will help profit making public sector unit to

modernize and diversify their business.

• It will help in making public sector unit more

competitive.

• It will help to improving the quality of decision

making, because the decisions are free from any

political interference.

• Privatization may help in reviving sick units which

are the liability of the public sector.

• Industrial growth.

• Increase the foreign investment.

• Increase in efficiency.

• Industrial sickness.

• Lack of welfare.

• Class struggle.

• Increase in inequality

• Opposition by employees.

• Problem of financing.

• Increase in unemployment.

• Ignores the weaker sections.

• Ignores the national

importance

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Examples of privatization in India

• Lagan Jute Machinery Company Limited (LJMC)• Videsh Sanchar Nigam Limited (VSNL)• Hindustan Zinc Limited (HZL)• Hotel Corporation Limited of India (HCL)• Bharat Aluminum Company limited (BALCO)

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Globalization Globalization implies integration of the economy of

the country with the rest of the world economy and opening up of the economy for foreign direct investment by liberalizing the rules and regulations and by creating favorable socio-economic and political climate for global business.

According to IMF: -”The growing economic interdependence of countries worldwide through increasing volume and variety of cross border transaction in goods and services and of international capital cash flows, and through the more rapid and widespread diffusion of technology.”

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Features of Globalization

• Opening and planning to expand business throughout the world.

• Erasing the difference between domestic market and foreign market.

• Buying and selling goods and services from/to any countries in the world.

• Locating the production and other physical facilities on a consideration of the global business dynamics ,irrespective of national consideration.

• Basing product development and production planning on the global market consideration.

• Global sourcing of factor of production i.e. raw-material, components , machinery, technology,finance etc. are obtained from the best source anywhere in the world.

• Global orientation of organizational structure .and management culture

Foreign market entry strategies Exporting Licensing/Franchising Contract manufacturing Management contract Assembly operations Fully owned manufacturing facilities Joint venturing Merger and acquisition Strategic alliance Countertrade

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Negative effects of Globalization• Loss of domestic industries• Exploits Human resource• Decline in income• Unemployment• Transfer of natural resources• Lead to commercial and political colonism• Widening gap between rich and poor• Dominance of foreign institutions

Conclusion Economic liberalization has increased the responsibility and role of

the private sector. At the same time, it has reduced the control of the government on economy affairs. It is expected that the reforms would liberalize the Indian economy enough to create a conducive environment for rapid economic development.

LEGAL ENVIRONMENT OF BUSINESS

Law is an instrument of social justice of the state that seeks to provide justice, stability and security in the society. .It assures uniform application of the laws by regulating the behavior and interactions of individuals against each other. Law is the command of the sovereign.. and it’s body of rules recognized and enforced by courts of law. Law is a rule relating to the actions of human beings. .

Purpose of Law

• To maintain status quo in society ensuring stability and security of social order, enable individuals , maximum of freedom to assert themselves and determine the sphere within which the existence and activity of each individual will be secure and free

Sources of Law

• Formal sources- law derives its force and validity from the time immemorial

Legal sources- statues , precedents, legislation

•

Historical sources- juristic writings, literary works, commandments of the god

•

Legislations- Parliament, state assemblies

73

Negative effects of Globalization• Loss of domestic industries• Exploits Human resource• Decline in income• Unemployment• Transfer of natural resources• Lead to commercial and political colonism• Widening gap between rich and poor• Dominance of foreign institutions

Conclusion Economic liberalization has increased the responsibility and role of

the private sector. At the same time, it has reduced the control of the government on economy affairs. It is expected that the reforms would liberalize the Indian economy enough to create a conducive environment for rapid economic development.

Legal environment of business1. Indian contract act 1872

2. Indian sale of goods act 1930

3. Indian partnership act 1932

4. Industrial dispute Act 1947

5. Minimum wages act 1948

6. Indian companies act 1956

7. Foreign exchange regulation act

(FERA ) 1973

8. Foreign exchange management act

1999

9. Monopolies and restrictive trade

practice act 1969

10. Consumer protection act 1986

11. Indian income tax act 961

12. Central excise act 1944

13. Security exchange board of India act

1992

14. Banking regulation act 1949

15. Chartered accountant act 1949

16. Information technology act 2000

17. competition act 2002

18. right to information act 2005

19. Micro, Small and Medium Enterprises

Development Act,2006

20. Commissions for Protection of Child

Rights Act,2005

LEGAL ENVIRONMENT• It refers to the legal systems obtaining in the country. It

refers to the rules and laws that regulate behavior of individuals & organization.

• There are four basic legal systems prevailing around the world:

1. Islamic law: It is derived from the interpretation of the Quran and practiced in Muslim majority countries.

2. Common law: It is prevalent in countries which are under British influence.

3. Civil or code law: It is derived from roman law, practiced in German, non Marxist &non Islamic countries.

4. Marxists law: It has takers in communists countries.

THE CONSTITUTION OF INDIA

• Right to Equality Right to FreedomRight against ExploitationRight to Freedom of Religion Cultural and Educational RightsRight to Constitutional Remedies --1.habeas corpus, 2.mandamus, 3.prohibition, 4.quo warranto and 5.certiorari,

FUNDAMENTAL DUTIES

• Fundamental duties.—It shall be the duty of every citizen of India—• (a) to abide by the Constitution and respect its ideals and institutions, the

National Flag and the National Anthem;• (b) to cherish and follow the noble ideals which inspired our national struggle for

freedom;• (c) to uphold and protect the sovereignty, unity and integrity of India;• (d) to defend the country and render national service when called upon to do so;• (e) to promote harmony and the spirit of common brotherhood amongst all the

people of India transcending religious, linguistic and regional or sectional diversities; to renounce practices derogatory to the dignity of women;

• (f) to value and preserve the rich heritage of our composite culture;• (g) to protect and improve the natural environment including forests, lakes, rivers

and wild life, and to have compassion for living creatures;• (h) to develop the scientific temper, humanism and the spirit of inquiry and

reform;• (i) to safeguard public property and to abjure violence;• (j) to strive towards excellence in all spheres of individual and collective activity

so that the nation constantly rises to higher levels of Endeavour and achievement.

• National law is the law of the land. The constitution of India is the supreme law of the nation. It provides the rights, duties, and the liberties of the citizens. The laws made by the state exercising their legislative powers under the constitution have to be in consonance with those of the supreme law

• International law

While the national law is the law of a nation ,also known as municipal law, International law is the law of nations. Where as International law is the body of rules which are legally binding on states in their intercourse with each other. International law is considered to be a weak law because it is not founded on the sovereign authority

• International law has witnessed a great impetus in the present scenario than ever before.1.Human rights and their violation2.filing of pleadings, adducing evidence, oral arguments before International court of justice, Hague (The de facto (de jure) capital of the Netherlands) 3.contracts entered by transnational companies, Intellectual property rights,4. issues like nuclear deals, poverty, maritime, air, space laws, refugees problem, border disputes, bilateral agreements, extradition treaties, UNO, Amnesty international, UNESCO,WTO,W.B,IMF, Curbing terrorism, global peace. etc.,

Mercantile law

• Merchants have their separate courts called – courts of piepoudrous (courts of Speedy justice) and the courts were incident to fairs and market places.The common law courts in England envying the jurisdiction exercised by these non-official courts, grappled it.The source of mercantile law is LEX MERCATORIA, (an unwritten law) consisted of only the customs and usages or practices of the trade

Justice delivery system in India

• Supreme courtHigh courtSubordinate courts-----

• Civil courts-Metropolitan, City civil courts, Court of small causesCriminal courts-District, Sessions, Magistrate courts

Justice delivery system in IndiaTribunals Central administrative Tribunals Industrial Tribunals Labor Tribunals. Consumer dispute redressal Tribunals

Civil Law & Criminal law

• It governs the litigation arising between individuals over properties, monetary affairs, partnership, accident cases etc,The Nature of penalty is civil in nature. Liability to compensate the affected party will be in the monetary form

• In criminal cases, the government for violation or injury to public rights files suits. The State takes initiative to file the case. Criminal law governs cases arising out of theft ,murder, cheating etc., The nature of punishment is monetary and imprisonment, and capital punishment in rare cases.

Competition Act 2002:

1) Post 1991 policy of Liberalization, Privatization and Globalization introduced.

2) MRTP Act was found inadequate to meet the challenges of a modern globalize economy.

3) Government of India in October 1999 appointed a high level Committee on Competition Policy and Law (the Raghavan Committee) to advise on the competition law in consonance with international developments.

COMPETITION ACT

2) The broad objectives of the Competition Act, as laid down in its preamble are:• "to prevent practices having adverse effect on competition, to promote

and sustain competition in markets, to protect the interest of the consumers and to ensure freedom of trade carried on by other participants in markets in India“

• Competition Act, 2002 notified in Gazette in January, 2003. Preamble's stated

objectives is to establish the commission which has the duty to:

1) Eliminate practices having adverse effect on competition2) Promote and sustain competition3) Protect consumers interests4) Ensure freedom of trade carried on by other participants in markets, in India.

THE COMPETITION ACT,2002

1) Acting on the report of the Committee, the Government of India passed the Competition Act in the year 2002; to which the president accorded assent in 2003.

• It was subsequently amended by the Competition (Amendment) Act,2007.

COMPETITION ACT, 2002

1) It prohibits Anti-Competitive Agreements (Sec 3)

2) It regulates Acquisitions, Mergers and Combinations (Sec 5 & 6)

3) It prohibits Abuse of Dominant Position (Sec 4)

4) It mandates Competition Advocacy (Sec 49)

Salient Features Of New Competition Policy

1) The Industries (Development and Regulation) Act, 1951 may no longer be necessary except for location (avoidance of urban-centric location), for environmental protection and for monuments and national heritage protection considerations, etc.

2) The Industrial Disputes Act, 1947 and the connected statutes need to be amended to provide for an easy exit to the non-viable, ill-managed and inefficient units subject to their legal obligations in respect of their liabilities.

3) The Board for Industrial Finance & Restructuring (BIFR) formulated under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 should be abolished.

Contd..

3) World Trade Organizations (WTO)

• There should be necessary provision and teeth to examine and adjudicate upon anti-competition practices that may accompany or follow developments arising out of the implementation of WTO Agreements.

• Particularly, agreements relating to foreign investment, intellectual property rights, subsidies, countervailing duties, anti-dumping measures, sanitary and psytosanitary measures, technical barriers to trade and Government procurement need to be reckoned in the Competition Policy/Law with a view to dealing with anti-competition practices. The competition law should be made extra territorial.

Contd..

4) MRTP Act

• The MRTP Act extends to the whole of India except the state of Jammu and Kashmir. This law was enacted:

• Brief on The MRTP Act, 1969• Post independence, many new and big firms have entered the

Indian market. They had little competition and they were trying to monopolize the market. The Government of India understood the intentions of such firms. In order to safeguard the rights of consumers, Government of India passed the MRTP bill. The bill was passed and the Monopolies and Restrictive Trade Practices Act, 1969, came into existence. Through this law, the MRTP commission has the power to stop all businesses that create barrier for the scope of competition in Indian economy.

Competition Policy

• Monitoring business activity to act in the consumer’s interest:– Competition Commission – investigates mergers, takeovers, anti-competitive

behaviour– Office of Fair Trading (OFT) – ensuring efficient operation of markets within the

law– Regulation of former nationalised industries – OFTEL, OFWAT, OFRR,

OFGEM, etc.– Advertising Standards Authority (ASA) – legal, decent, honest

• Forms of anti-competitive behaviour– Price fixing– Cartels– Collusion– Predatory or destroyer pricing– Distribution agreements– Insider dealing/trading

Self Regulation

• Where business/industry monitors its own behaviour – often through an agreed code of practice. e.g.– PCC – Press Complaints Commission– Portman Group – alcoholic drinks industry– FSA – Financial Services Authority– BMA – British Medical Association

• Media Association

The Environment

(Protection) Act – 1986.

An Act to provide for the protection and improvement of environment and formatters connected therewith.

Whereas the decisions were taken at the United Nations Conference on the Human Environment held at Stockholm in June, 1972, in which India participated, to take appropriate steps for the protection and improvement of human environment.The Environment (Protection) Act 1986 was introduced after the

Bhopal gas tragedy during Rajiv Gandhi was the Prime Minister of our country(sec.2a):-

Environment it includes water, air and land and the inter relationship which exists between water, air and land and human being, other living creatures, plants, micro organisms and property.

Law for Environmental Protection

• International concern for environmental protection

– International concern for Sustainable Development

– UN conference on Human Environment and Development-Stockholm-1972

– Result-Stockholm Declaration on the Human Environment

• Report of the world commission on Environment and Development-1987-Brundtland

Commission

• Sustainable Development Concept

• Cocoyoc Declaration on Environment and Development-1970

– Indian constitution Article 51 (c ) provides that India shall respect International treaties

– Devolves duty on the citizen also to preserve the nature

– Article 48 A puts duty on the state regarding the protection of Environment

RTI, MUMBAI / DAY 1 / Slide 1.4.1

laws

• The wildlife(Protection) Act, 1972• The National environment tribunal Act, 1995• The Environmental Protection Act, 1986• The Bio-Diversity Act, 2002• Are the other related environmental

legislations.

Measures by Central Government

Power of entry and inspection (sec--10). Establishment of environmental laboratories (sec-12). Preventing emissions in excess of standards (sec-7). Report of analysis (sec-14). Procedure for handling hazardous substance (sec-8). Power to take sample and procedure (sec-11). Appointment of government analyst (sec-13). Penalty (sec-15). Duties of persons creating environmental pollution (sec-9).

continue