BUSINESS ENVIRONMENT notes

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

BUSINESS ENVIRONMENTBusiness Environment mainly refers to external forces that impact

business. Such forces include political-legal ,technological ,cultural ,economic and physical.

Factors under External EnvironmentAll the factors that provides opportunities or pose threats to an organization make up

its external environment. DEMOGRAPHIC ENVIRONMENT SOCIAL ENVIRONMENT CULTURAL ENVIRONMENT POLITICAL ENVIRONMENT ECONOMIC ENVIRONMENT FINANCIAL ENVIRONMENT TRADE ENVIRONMENT TECHNOLOGICAL ENVIRONMENT LEGAL ENVIRONMENT REGULATORY ENVIRONMENT TAX ENVIRONMENT ETHICAL ENVIRONMENT

External environment consists of 1. Micro Environment 2. Macro Environment

1. Micro Environment Micro environment is called as the task environment and operating

environment. Micro environment forces have a direct bearing of the operation of the firm. These factors are present in companies environment and affect on the

performance of the companies. Includes – suppliers ,marketing intermediaries .competitors,customers and

public.

Micro environment are more intimately linked to company than macro. Suppliers :

o Those who supply inputs,raw material and components o Uncertainty in supply compels high inventory cost.o India maintains stocks of 3 to 4 months were as Japan

maintains for few hours.o Eg : Nirma –believes of the logic that captive production plant

for raw material is best for cost control.(backward integration)o Co feel outsourcing is more beneficialo Risk to depend on single suppliero Globally companies are resorting to partenering relationship

marketing.

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Customers: o Business exists because of customerso Monitoring customers sensitivity is perquisiteo The choice of customer by the firm can be on

a. Relative profitabilityb. Dependabilityc. Stability of demandd. Growth prospects

o Today customer is global customer as exposed to global products.

Competitions: o Competition includes not only with competitors of same

product but all those who compete for discretionary income of consumers.

o Eg : the competiton for T V firm may not be only from other T V manufacturing but also from 2wheelers , refrigerators,cooking ranges,stereo sets etc,bank schemes.

o To influence basic desire of customero Generic competition: If the customer decides to spend

discretionary income on recreation , he come across alternatives like, TV ,stereo ,2 in 1,3 in 1 P C etc.

o It is competition among alternative.

Marketing Intemediary: o Firms that aid the company in promoting,selling and

distributing its grads to final buyers.o Includes middlemen,agents,merchants,distribution

firms,warehouses,transportation firms,marketing,financial intermediaries ,insurances etc.

Financiers o Financiers of the companyo Their financial capability,policies, strategies.attitudes,ability to

provide non financial assistance.

Public o Public is any group that has actual or potential interest I or

impact on organizations ability to achieves its interest.o Media publics,citizens action publics,local publics

etc,consumers publics o Issues against companieso Tarnishing the image by media o Environmental pollutiono Chills labour,sweat labour,cruelty against animals.

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2. Macro Environment Macro environment consists of larger societal forces that affect on companies

micro environment. Micro environment forces have a direct bearing of the operation of the firm. These factors are present in companies environment and affect on the

performance of the companies. Includes – suppliers ,marketing intermediaries .competitors,customers and

public.

Factors under Internal Environment The internal environment comprises the resources ,synergy and distinctive

competencies of a firm.These together determine its organizational capability in terms of its strengths and weaknesses existing in the different functional areas – marketing, operations,personnel,financial,technical,etc.

Needless to mention that internal environment is constantly influenced by the external environment.

STRATEGY STRUCTURE MARKETING CAPABILITY OPERATION CAPABILITY PERSONNEL CAPABILITY FINANCIAL CAPABILITY TECHNICAL CAPABILITY

The factor which have bearing on the strategy and decision making are Value system

Value system by founder has important bearing ono Choice of business o The missiono Objective of the organizationo Business policies and practices

If value system is shared by all in firm contributes to the success. The value system of JRD TATA and its acceptance ,voluntarily

incorporated to social responsibility to consumer,employees,shareholder,society and people.

EID PARRY group was taken over by MURUGAPPA group,profitable liquor business sold off to PARRY ;did not fit into value system of the MURUGAPPA GROUP.

VALUE system and ethical standards are evaluated by many companies in selection of suppliers,distributors and collaborations

Value ,governance , and excellance of Infosys ltd o I nfosys tech ltd ,IT consulting and software services to future

1000 Co,employ more than 3000 people key growth principle of the corporate governance

a. Best practicesb. Financial marketsc. Human capital

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o Core values: to achieve objective in an fair environment,honesty,transperancy,courtesy towards customers,employers,vendors and society.

o Activities benchmaked to Global practiceso Firms quality control and project management helped in

achieving total quality management accredation o Feedback from process audit helped foe reengineering the

internal processes.o International accounting practices followedo Infosys published all financial reports according to US and

Indian accounting practices.o Best practices captured through knowledge management

systems and gives experience.o The 1st Indian registered direct listing on US marketo NASDAQ trading began in Maech 1999.o Viewed it as to achieve more liquid currency through stock

options (ESOP)o Attracting best employee and future acquisitiono Presence on NASDAQ would give comfort and confidence to

customers.o Provides innovative compensation and benefitso Pioneered the concept of employee stock qwnership plan in

India.o Offer benefits of traning ,asset

acquisition ,loans,housing,personnel assistance services.o Combination of stock options and bemnefits allows infosys to

attract top talent to contribute to the growh.o Won 1st national corporate governance award 1999 instituted by

ministry of finance and sponsered by the UTI.

Mission and Objective Mission and objective guides

o The business domain of the Co .o Prioritieso Direction of developmento Business philosophyo Business policyo Eg Ranbaxy thrust in foreign market and development is driven

by mission “ To become a research based international paramaceutical company.

o Eg : Arvind mills Mission:- “To achieve global dominance in select business to build core competencies through continuous product and technical innovation and focus on cost effectiveness”.

Management structure and natureo Composition of board of directors o Extent of professionalismo Quality of the board in critical factorso Shareholding pattern could have important managerial implication

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o Eg WIPRO majority of shares held by promoterso Financial institution have large share holdingo The stand of nominees of financial institution can be decisive factors

Internal power relationshipso The amount of support the top management enjoys from

Employees of different level Share holders Board of directorsHas impact on decision making.

Relationship between members of BOD and between chief executive and the board is important.

Human Resourceso Characters like skills quality morals commitment attitude etc.o The involvement ,initiative of people varies in different organizationo The organization culture and qverall environment is responsible.o John towers M.D of Rovers group found Japanese firm with 30000 employees

and 30000 process improvers.o Western firms 2000 process improvers and 2800 workerso India?

Company image and brand equityo Co image matters while raising finance,forming joint venture

alliance ,soliciting,marketing intermediaries.entering purchase or sale contracts,launching new product.

Miscellaneous Factorso Other factors contribute to the success failure of business or influence

decision making are Physical asset and facilities :-production

capacity,technology,distribution logistics,quality production. R & D of technological Capabilities:-to innovate and compete Marketing resources Financial factors:- financial policies ,financial position,capital

structure etc.

Environmental study confer several benefits: Broad strategies are developed Action plans to cope with technological changes may be evolved Counter strategies to outsmart competitors Keep managers on toes.

Limitations of Environmental Analysis

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Environmental analysis often has debilitating impact on business Fails to foresee future accurately Does not guarantee organizational effectiveness Too much reliance on analysis makes a manager become complacent.

Domestic Environment Economic conditions

o Good export marketo But recession in other country can increase the impot threat and dumping

International political factors can affect business like o Waro Political tensions o Uncertaintieso Strained political relationso All may eliminate sanction

Development in info and common technology facilitieso Cross border spread of cultureo Influence attitudeo Aspirationso Tastes,preferences ,customs.o Traditions and values.

Global Environment Domestic business is affected by global factors Global environment refers to

o WTO principles and agreementso International environmento Treatieso Agreementso Declarationo Protocolso Economic and business conditionso Sentiments in others countrieso Developments like hike in oil prices

o WTO principles and regulation have for reaching impact on Indian business Product patent acceptance – impact on pharma industry The import and investment ,liberalization have charges competitive

environment in India.o Global interdependence

Eg American Co CISCO,LUCENT,INTEL have impact on INFOSYS,WIPRO,HCL

o Hit on share market affects Job market

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Reduction in job Less intake by institution 2-3 % earning dip.

COMPETITIVE STRUCTURE OF INDUSTRIES

MICHAEL PORTERS MODEL OF STRUCTURAL ANALYSIS OF INDUSTRIES

5 BASIC FORCESo Rivalry among existing firms

Firms in industries are mutually dependent Common competitive actions

Price changes Promotional measures Customer service Warranties Product improvement New product launch Channel promotion

No’s of factors which influence rivalry No ‘s of firms ,their market share,strength State of growth of industries Fixed and storage exists Indivisibility of capacity augmentation

o Efforts to increase sales to achieve capacity utilization,during economies of scale

Product standardization and switching cost When product of different firms are standerdised-

price ,distribution ,after sales service,credit are important variable of competition.

Absence of switching cost are important

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Strategic stake More rivalry of no of firms have high stake inachieving

success Exit barriers

High compensation of labour Emotional attachment etc

Switching costs: Cost of retaining employees Cost of new ancillary equipment

Expected retaliation Potential entrants expection about the reaction of existing

competitors.

o Threat of new entrants Growing industry face threat of new entrant But can have entry barriers Competition is high if industry is more profitable Entry barriers are as follows

Govt policyo Prior to liberalizationo Reservation of industrieso Product for public sector o Industrial licensingo Regulations under MRTP ACTo Import restrictiono Restriction on foreign capital and technology

Economies of scaleo Keeps out small playerso Restricts large players because of risk of large stake

Cost disadvantage and learning and experience curveo Cost advantage by established firmso Proprietory product technology,experience and learning

curve,removable access to material.location.govt subsidies.

Product differentiationo Brand image ,customer loyalty,product attributes.

Monopoly elementso Proprietary product /technologyo Monopolization / control on raw materials ,distribution

channels etc. Capital requirement

o High capital intensive is barrier to small firm.

o Threat of substitutes Important forces power of substitute

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Direct impact on the price Low manufacturing cost / sub standard quality

o Bargaining power of suppliers Determinants are

Extent of concentration and demination in supplier industries Importance of product to the buyer and vice versa Extent of substitutability Switching costs

o Bargaining power of buyers Buyers are potential competitors May intergrate backwards –environmental awareness Buyers compete by

Forcing down prices Bargain for high quality and more service

LIMITATION OF PORTERIAN MODEL Provides useful framework for analysis of nature of competition in the industry but

have shortfalls if competition is driven by innovation.

COMPETITORS ANALYSISNecessary for formulating right strategies and determining position of the firm

Basic questions of competitors analysis areo Who are competitors of the firm?o What are their current strategies?o What are their future goals and strategies?o What drives the competition?o Where is the competitor vulnerable?o How others are likely to respond to the strategies of different firmso Porters framework suggestion

Future goals Current strategies Assumptions Capabilities

VALUE CHAIN Porter: value chain important determinant of competitive advantage. Value is amount buyer willing to pay for product Value chain displays total value activities and margins Primary activities

o Inbound logisticso Operationso Marketing and saleso Services

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Evaluation and Control

Implementation

Choice of strategy

Consideration of strategic alternatives

Determination of vision

SWOT analysis

Establishing Objective


Support activitieso Procurement o Tech developmento HRMo Firm infrastructure and Management

ENVIRONMENTAL ANALYSIS AND STRATEGIC MANAGEMENT SWOT (STRENGTH WEAKNESSES OPPORTUNITIES and THREATS) plays

vital role in environmental analysis and strategic management. Strategy is defined by Glueck as “Unified ,comprehensive and integrated plan relating

to strategic advantage of firm to challenge environment” Strategic management is defined as “ Set of decisions and action which leads to

development of an objective strategy to help achieve corporate objective “ Strategic management process is explained as under

Eg where the Raymond wants to be :o Gautam Hari Singhania CMD o Turnover 1374 Croreso SWOT analysis o Sold filament yarn, cement ,steelo Strengthen with buy back shares Rs 158 Croreso 27% - 31% holdingo Claims among top 3 fabric bonds of the world

Well international product life cycle Japan started exporting to US

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o Compact fuel efficient carso Small screen TV o Low horse power tractors

P & G Vs Hindustan Lever.

Strategic Alternatives Question

o Why should Co go for this Business?o If same Business what way?

Manufacturing completely Establish manufacturing in free areas EPZ ,SEZ Establish in foreign country Manufacturing components at home and assemble foreign Enter into licencing / franchising etc

Strategy development process.

Implementation Formulation of good strategy

o Corporate level strategyo SBU level strategy(operating division)o Functional level strategy

Evaluation .

ENVIRONMENTAL ANALYSIS AND FORECASTING

Strategic business decisions need o Clear identification odf relevant variables o Detailed and indepth analysis of them

Eg what impact and implication of liberalization on organization Means – what are the threats and opportunities posed by the

liberalization So through analysis of environment is needed

Stages of environmental analysis

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o Scanning the environment to detect warning signals Scanning is process of analyzing environment for the identification of

the factors which impact on business Identification of emerging trends Identifying the process or indicators of potential environment changes

and issues Drawing attention to possible changes and events well before

occurrence Scanning is exploratory and involves wide examination.

o Monitoring specific environment trends Entails perspective follow up and indepth analysis of relevant

environmental changes or trends More focused and systematic effort than scanning Eg emergent lifestyle pattern may include

Changes in entertainment Education Consumption Wok habit Domicile- location preference

Output of monitoring A specific description of environmental pattern forecast Identification of trends for further monitoring Identification of pattern requiring further analysis.

o Forecasting the direction of future environment changes Anticipating the future for threats and opportunities and formulating

strategic plan.

o Assessing current and future environment changes for organizational implication.

To assess the impact of environmental factors on organization business Involves drawing up implication possible impacts.

APPROACHES TO ENVIRONMENTAL ANALYSIS

BROADLY 2 APPROACHES

OUTSIDE – IN (MACRO) APPROACH Take broad view of business environment Useful when many variable play a role Scenarios allow integration of multiple variables Scenario is description of events may occur in future and their consequences for the

organization. STEPS TO DEVELOP SCENARIOS

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o Identify strategic environmental issue,prioritise it according to importanceo Select most important issues

List organizational assumptions to these issues Identify possible assumptions variations

o Prepare preliminary description of these issues ,include the key economic,social ,political and cultural influences that affect them.

o Draw out implication of the issues for organizational perfoemance What firm has done and what can be done for these issues ? Identify where management has control and which management cannot

control?o Develop detailed description of future with present scenarioso Discuss the scenarios with top management and refine them?o Develop contingency action plans for each scenario?

INSIDE –OUT (MICRO) APPROACH Takes narrow view of environment Forecast immediate future of the environment Determine the implication of it for industry and firm.

TECHNIQUES FOR ENVIRONMENT ANALYSIS WILLIAM GLUECK

o Verbal and written infoo Search and scanningo Spyingo Formal forecasting.

STEPS IN ENVIRONMENT FORECASTING

Identification of relevant environmental variableso Not relevant to all industries and firmso Pearce and Robinson point out to limit the variables

Include all variables that have significant impact .delete variable with little impact.

Disregards major disaster Aggregate when possible into gross variables eg bank loans If value of one variable is dependant on value of other.

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Collection of informationo After determination of key variables o Connect the informationo Involves identification of sources of info o Determining type of info to be collected o Selection of method of data collection o Collection

Selection of forecasting techniqueo Depends on usefulness of forcast o Technique depends on

Consideration of nature of forecast decision Amount of accuracy of info available Accuracy required Time available Quantitative technique Vs qualitative technique.

TYPES OF FORECAST Economic forecast

o Important economic factors are General economic condition GDP growth rate Per capita income Distribution of income Structural changes in GDP Investment and output trends in sectors / industries Prices trends Trade and BOP trends

o The macro economic forecasts serve base for the industry and company forecast

o Sources are for short ,median and long term forecast International organization like World Bank ,IMF,UN,WTO. Regional organizations Asian development bank

o When reliable forecast is not available from secondary source,firm has to make own forecast.

o Reliable forecast give useful picture of future scenarioo Eg power development would indicate

Scope of investment in power sector Prospects of related industries like generators ,transformers ,cables

switchgears, electric goods etc Rural electrification will indicate demand for pump set and consumer

durableso Short term economic forecast useful for demand and sales forecast and

marketing strategies formulationo Quanti method ,econometric method,time series,trends.judgement method

used.

SOCIAL FORECAST

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Important factors o Population growth / declineo Age structure of population o Ethnic composition of populationo Occupation of populationo Rural urban distribution of population o Migrationo Factors related to familyo Lifestyle,income levels,expenditure paternso Social attitudeso A wealth of published and unpublished data of forecast and social trend is

availableo UN and its organs,WORLD BANK,academic organization govt organization

are sources.o Data is available regarding future trends in birth / death rate,population

size,age structureo Social trends are vital for business strategieso Social trends are vital for business strategieso Quantitative techniques- series analysis , econometric methods,dolphin

methods are usedo Scenario building is useful.

POLITICAL FORECASTo Political shift (1980-USSR and Eastern Europe)o Change in internal political power structure (China)o Political alliance and political structure,ideologies has implications on

businesso Political forecast covers

Industrial policy Commercial policy Fiscal policy

TECHNOLOGICAL FORECASTo Innovation and technical development alter usiness environmento Technological forecast includes

Innovation Pace and extent of diffusion and penetration of technology

o Technology is one component in world competitive reporto Technology vision 2020 for India o Technology info ,forecasting and assessment council (TIFAC) established in 1988 in India.o Brainstorming and Delphi methods are popular

TECHNIQUES FOR ENVIRONMENT FORECASTING ECONOMETRIC TECHNIQUE

o Establishing relationship between 2 or more variables Multiple regression analysis Time series analysis

TREND EXTRAPOLATIONo Time series models

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o Past is prologue to the futureo Simple linear relationshipo Non-linear relations

SCENARIO DEVELOPMENTo Royal Dutch Shell’s anticipation of crash in oil prices in futureo If projects emergence of future conditions and it consequenceso Eg Developing alternative scenario by planning commission of India o Drawn different alternative scenarios for

Growth rates of different sectors Poverty ratio

METHODS OF SCENARIO BUILDING PREMISSING METHOD

o Series of premises are drawn up from which projectionof futureo Scenarios is madeo This consist basic assumptions about certain variables,current trends etco Focus on few tendencies,its evolution

SYSTEM DIAGRAM METHODo It explores policy and strategy options based on present system.o Eg newspaper firm think of entering other media

CRITICAL SITE METHODo Based on scenario projection on the policy making structure of organizationo Focus on the critical sites related to the business

Eg meeting of board of co National convention Meeting of policy decision making body of political party Meeting of bodies like OPEC or WTO.

NEWS PAPER HEADLINE METHODo Scenario writer post one or more hypothetical headlines for future dateo Writes possible development and chart out strategy.

LOGICAL POSSIBILITY METHODo Based on already developed scenarioo This is supplement to the earlier

JUDGEMENT METHODo On opinions

BRAIN STORMING

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o Creative method of generating ideas and forecasto Group of knowledge people are asked to generate ideas ,discuss and make

forecasto Popular techniques for technological forecasting

DELPHI METHODo More systematic than brain stroming o Panels of experts opines on subject o Can be semi structure quetionaire or interviewo RAND corporation formed this tech of for formation of OPEC on oil supplies

and prices

STATEGIC ISSUES ANALYSISo Qualitative tech f used for assessing emerging atrtegies environment issueso Consists systematically monitoring ,social ,regulatory,political changes.

ECONOMIC ENVIRONMENTINCLUDE:

STRUCTURE AND NATURE OF ECONOMY THE STAGES OF DEVELOPMENT OF ECONOMY ECONOMIC RESOURCES THE LEVEL OF INCOME

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DISTRIBUTION OF INCOME AND ASSETS GLOBAL ECONOMIC LINKAGES ECONOMIC POLICIES

THE NATURE OF THE ECONOMY Countries different regions within country show great difference General level of economic development has lot of implication on business Has significant bearing of nature and size demand ,government policies etc Widely used method of classification of economies is on the basis of per capita

income (ie average annual income of peron) Low income and middle income economies are developing All oil eporters are not developed economies.UAE,KUWAIT, they are high income

economies. Industrial economies are developed economies. Some criteria for developed economy

a. Sectorial distribution of incomeb. Employment generationc. Social development indicatorsd. Use of modern and sophisticated tech etce. Innovationf. Diffusion of new ideas and technologyg. Low share of primary sector h. Market friendly economic policiesi. Open trade and investment policyj. Democratic rightsk. Competition and consumer choice

Low income is indication of deprivation of people Prevents access to basis necessities and morden amenities Developing economy

a. Shows the inequality in distribution of incomeb. Large portion of population lives in abject povertyc. Characterized by high birth and population growthd. High death rate than developed countriese. Prevalence of rudimentary and traditional methods and obsolete technology

Least developed economya. Low GNP per capitab. Land locked remote insularityc. Desertificationd. Natural disasterse. Eg Bangladesh,Butan,Nepal,Maldives,Mali,Uganda,Myanmar,Sudan,Zambia,

Zimbabwe.

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Developing with rapid industrialisationa. Eg Hong Kong ,South Korea,Singapore,Taiwan.

New industrialized economya. Show high growth rate overlog seriesb. High per capita incomec. Impressive exportd. These economies are in “Transition Economies”.e. Former communist and socialist economiesf. USSR / CIS and East European countries

Income is not only criterion for economic growth and development Increase in income is indication growth But development has qualitative dimensions

a. Distribution of income b. Standard of livingc. Composition of outputd. Character of working conditione. Overall economic welfaref. Eg countries where income and investment are steady increasing the prospects of

business are bright.

STRUCTURE OF THE ECONOMY

PRIMARY ,SECONDARY AND TERTIARY SECTORSLARGE ,MEDIUM,SMALL, TINY,SECTORS

INTEGRATION IS IMPORTANT WITH WORLD

Some economies still based on primary sector

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But service sector contributes 60% of the world GDP Service sector of India grew at 6.9% and GDP growth was 46% in 2000 The growth in the trade of service increased tremendously

ECONOMIC POLICIES HAVE GREAT IMPACT ON Industrial policy Trade policy Foreign exchange policy Monetary policy Fiscal policy Foreign investment Technology policy

INDUSTRIAL POLICYa. DEFINE the scope and role of different sectors like

private,public,joint and co operative or large ,medium,small,tinyb. It may influence the location of industry

Choice of technology Scale of operation Product mix etc

o India ,liberalization ushered in 1991 Pre liberalization

a. The scope of large private sector was limitedb. The development of 17 most important industries was reserved for

state.c. For another 12 major industries state had to play major role d. Remaining industries,co operative,joint sector and SSI were getting

preferential treatment over large entrepreneurse. Production of large no of items was reserved for manufacturing of

SSIf. In private sector entry and growth was regulated by licencing and

MRTPg. Govt policies thus limited the scope of private businessh. Govt policy was constraint and registered growthi. 1991 has wide openj. But few industries for the private sectorsk. Changed the business environmentl. Expanded business opportunitiesm. Increased competitionn. Thus was exist and entry of many old and new players.

TRADE POLICYa. Significantly affects the formation of the firmb. Restrictive impot policyc. Policy of protecting home firmsd. May help the impot competing firme. But liberalization of import may create difficulties to themf. Trade policy often integrated with industrial policyg. As part of economic liberalization ,WTO compliance ,India has liberalized h. Companies face growing international competition in the domestic truf

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FOREIGN EXCHANGE POLICYa. Exchange rate policy and policy on respect of cross border movement of capitalb. Abolition of exchange control allows cross border movement of capital.

FOREIGN EXCHANGE AND TECHNOLOGIACAL POLICYa. Till 1980- foreign capital and technology were under restriction in developing

and socialist/ communist countriesb. Restriction on foreign capital affect growth plan of firm ,establishing joint

venturesc. Huge investment in infrastructure and vital sector can change environment eg:

China.d. Liberal foreign investment and technology can increase domestic competition e. Permits global sourcing of capital and technologyf. Increases quality / quantity domestic supply and services

FISCAL POLICYa. Govt strategy of public expenditure and revenue have impact on business.b. Pattern of expenditure affects the developmentc. In tax policy,govt can use tax incentive or disincentives to encourage activities

a. When industry suffers recession,reduction of taxes like excise duties, sales tax may help improve demand.

b. Reduction of rate of direct tax ,personal income tax and corporate tax may increase disposable income,result increase in demand .

d. Govt or State may offer different fiscal incentive to two industries.

MONETARY POLICYa. The Central bank ,by its policy towards cost and availability of credit can

influencea. Savingsb. Investmentsc. Consumer spendings

b. depending on the conditions of economy and general economic policy of Govt RBI may adopt an expansionary or contractionary or neutral monetary policy

c. eg :1% point reduction Ithe cash reserve ratio or statutory reserve ratio will signify increase in the ratio will have opposite effect

d. monetary policy also effects the exchange rate of the currency.

ECONOMIC CONDITIONS Economies pass through boom and recession Boom is 1. High level of output 2. Employment and rising demand and prices Economies of oil exporting countries depends on extent of crude oil prices Economic condition related to major crops

o Eg :1997-2000 fall in coconut priceso Loss of 10000 croreso Rubber farmers

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Steel prices south east asian crisis 100% surge by Indian companies in US and Europe.

U S economy account for ¼ of global economy Thus trends in US affects the growth trend of global economy The balance of payment position of the country influence the economic policies and

business environment. a/c surplus encourage the Govt to liberalise the import and capital movement. India export performance is affected by 2 kinds of factors

o EXTERNAL FACTORS The rate of growth of the economies of the importing countries The rate of growth of the world trade The rate change in the price level in the importing country

o INTERNAL FACTORS The rate of growth of the Indian economy The rate of change in the domestic price level

Major factors real exchange rate of exports (RERX)

FACTORS OF ECONOMIC ENVIRONMENT STRUCTURE AND NATURE OF ECONOMY

a. Level of development of the economyb. Sectoral comppsition of outputc. Intersectoral linkages

ECONOMIC CONDITIONSa. Income levelsb. Distribution of income

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c. GDP trendsd. Sectoral growth trendse. Demand and supply trendsf. Prices trendsg. Trade and BOP trendsh. Foreign exchanges reserve position i. Global economic trends

ECONOMIC POLICIESa. Industrial policyb. Trade policyc. Monetary policyd. Fiscal policye. Foreign policyf. Foreign investment and technology policy

GLOBAL LINKAGESa. Magnitude and nature of cross border: trade flows : financial flowsb. Membership of WTO ,IMF ,WORLD BANK,TRADE BLOCS ETC.

CHANGING BUSINESS ENVIRONMENT OF INDIA

JULY 1991 GOI changed policy of macro economic crisis Serious economic imbalance before the period Imbalance due to

o Constant rise in fiscal deficito Higher export growtho Constant balance of payment crisiso Deficit in current account

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o 1991 US – IRAQ war , India faced oil crisis o Foreign exchange reserve down to Rs 2400 crores equivalent to 3 weeks

imports

Actions by GOVTo Govt pledged a part of gold reserve to meet foreign liabilitieso Govt arranged loan from IMF in short termo Long term initiated for reaching reform programme include

Changes in trade policy economic policy Structural reforms Restoration of fiscal balance to contain inflation

The economic reforms changes undertaken as followso Abolition of licensingo Abolition of FERA and leberalising MRTPo High% of foreign holdingo Privatization of oil sector ,telecom, aviation,banking,mining.o Move autonomy to public sectoro Lowering corporate taxes ,excise duties, import dutieso Taxing serviceso Dechannelisation of importso No export subsidieso Offering global patent protection o Converstibility of rupee in stageso Opportunity to Indian Co ‘s becoming globalo Financial sector with interest deregulation and capital market reforms o Subsidy interesto More liberalization on F II normso Privatization of various infrastructureo Setting up of various regulatory bodies TRAI,SEBI.IDRAo New sea port policies export import policieso More financial sector reforms

THE ANALYSIS OF TYPES OF CHANGES BROUGHT IN THE ECONOMIC MANAGEMENT

PRE REFORM STAGE ECONOMIC REFORM STAGE

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CLOSED ECONOMY OPEN ECONOMY

PUBLIC SECTOR IN COMMANDING HEIGHT MARKET DETERMINED GROWTH

IMPORT SUSTITUTION EXPORT SUBSTITUTION

LICENSE DOMINATED DELICENCED ,DEREGULATED

STATE INTERVENTION SELECTIVE INTERVENTION

ADMINISTERED PRICE MARKET DETERMINED PRICE

DEFICIT HAS NO PERIL CONTAIN DEFICIT

NATURAL MONOPOLY COMPETITIVE ENVIRONMENT

RESTRICTION ON FDI AND MNC’S FDI AND MNC’S WELCOMED

HIGH TAX REGIME LOWER AND TAX REFORMS

CREDIT MARKET,STATE CONTROLLED DEREGULATED CREDIT NORMS

Govt abolished the practice of multiplicity of agencies network Co act has been changed to create room for merger and amalgamation Banks and PSU’s have been more freedom Attempts to create vibrant capital market Easy access to ADR / GDR market Set up of various regulatory bodies to control unfair competition in trade and pricing Private agencies invited for infrastructure building.

GLOBALISATION AND ITS IMPACT ON INDIAN BUSINESSGlobalization

International interaction Any international trade or exchange with massive dimension Removes dichotomy between domestic and international market Greater interaction,more robust,measurable development,superseding the national

economy and enmerging single economy

Globalization implies expansion of business internationally removal of domestic market and foreign market,locating and positioning or organizing market,physical production facilities with an eye on global business,whatever be the regional consideration.

For this factors of production to be sourced Finance and technology to be outsourced Production planning should be on global market consideration Organizational ethos,management culture should follow global vision, international

norms etc European union ,atlantic and pacific economies have achieved full integration in

terms of

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o Capital movemento Trade movemento Migration level

Customer in globalization process are equidistant no customer as Japanese ,American or Indian.

INDIAN SCENARIO Indian corporate sector needs proactive approach Should set up manufacturing unit abroad,sales office,staff Some firms are dishonest,do not disclose info Outlook is conservative Lack innovative ideas,proper ethics Need quality and cost improvement Should adopt Mckinseys 7 s framework

o Aditya Birla Group 1st established manufacturing abroado Tata Tetley merger greater access to European maketso Joint ventures by Dr Reddy’s La,Ranbaxyo Investment in foreign market should be allowed after capital market is

matured

CORPORATE GOVERNANCE The ways in which suppliers of finance to corporation exercise control and ensure accountability of company so as to assure themselves best possible return on investment.

GOOD CORPORATE GOVERNANCE ASSURES Flourish the corporate More employment Wealth and satisfaction Improved std of living

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HOW CORPORATE GOVERNANCE INTERACTS VARIOUS PARAMETERS

STRUCTURE OF

FINANCIERSCHANNELS OF

CONTROL OBJECTIVES LEGAL AND REGULATORY FRAMEWORK

EQUITY HOLDERS:1.LARGE SHAREHOLDERS2.IDENTITY OF SHAREHOLDERS

DEBT HOLDERS :1.LARGE DEBT HOLDERS2.IDENTITY OF DEBT HOLDERS

Board of Directors managerial incentives commitment and trustDisciplines1 . market for shares2 . takeover mechanism

Share holders’profit maximization1 . profit2 . growth3 . stability

Ddisclosure rulesAuditing rulesDebt covenantsBankruptcy rules

According to Jayanti and Subrata Sarkar CG is concerned with

o Overseeing ,strategic direction ,socio economic ,cultural contact externalities faced by institution

Has to be identified with Traditional and cultural heritage

CORPORATE GOVERNANCE got formal shape after MAY 1991 Great Britian committee setup under chairmanship of Sir Ardian Cadbury Recommendation were about BOD Chairman and chief executive should not be same person Relation between BOD and executives should be professional Info about audit fee to be made open Regular retention of auditors Non executive directors should act independently on

strategies,performanceallocation of resources and designing code of conduct

India 1st organized step was taken by CII a committee was formed under Rahul Bajaj

RECOMMENDATION Any listed company with 100 Crs turnover should be professionally

competent,independent. Non executive board directors should be atleast 30% Key info should be reported about

o Quaterly results of Coo Performance,inrenal audit reports etc

Kumar Mangalam Birla report under aegis of SEBI 2002 finance minister –Jaswant Singh formed Naresh Chandra committee on audit

and governance

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MAJOR RECOMMENDATION 50% Seats on BOD of Co with paid up capital 10 Crs and above ,turnover 50 Crs goto

to independent Directors Nominees of financial institution cannot be counted as independent directors Setting up of quality review boards for ICAI,ICSI,ICWAI Annual account of the Co should be certified by CEO or CFO Amendments in Co act to order compliance with audits and provide powers to attach

bank account Beefing up staff and infrastructure in D .Co affairs Prohibiting audit firms to provide non audit services

INDIA UNDER ECONOMIC REFORMSINDIA economic reforms:-OPENING OF THE ECONOMY

Started in 1991 /economic reforms/liberalization Policies relating to industrial licensing,trade,foreign investment undergone changes

eg: BANKING SECTOR,CAPITAL MARKETS Structural adjustments

o Subsidies,price environmento The public sectors changed

THE NEW ECONOMIC POLICIESREFORMS CLASSIFIED INTO 2

Liberalisation measures Macro economic reforms and structural adjustments

THE ECONOMIC POLICIES LIBERALISATION MEASURES

o NEW INDUSTRIAL POLICY Liberalisation of industrial licensing FERA liberalization MRTP liberalization Curtailment of public sector

o NEW TRADE POLICY Lowering of import tariffs Abolition of import license A more open exim regime

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Convertibility of rupee Encouragement to export Arrangement to foreign investment Integrating India economy with the global economy

MICROECONOMIC REFORMS AND STREET ADJUSTMENTSo MACRO ECONOMIC REFORMS AND STREET ADJUSTMENTS

Fiscal and monetary reforms Banking sector reforms Capital market reforms

o STUCTURAL ADJUSTMENT Phasing out subsidies Dismantling of process controls Introduction of market driven price environment Public sector restructuring and disinvestment Exit policy

LIBERALISATION MEASURESINDUSTRIAL POLICY LIBERALISATION

SUBSTANTIATE CHANGES INTRODUCED Foreign investment Technology import FERA AND MRTP relaxed Role of public sector curtailed

THE NEW INDUSTRIAL POLICY

LIBERALISATION OF INDUSTRIAL LICENSING DE-LICENSING DE-CONTROL DE-REGULATION BROAD BANDING ABOLITION OF REGISTRATION

INDUSTRIES needs license at present Alcohol

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Cigarettes Industrial explosives Hazardous chemicals Defence Atomic energy

Industrial registration scheme abolished.

FERA LIBERALISATION LIBERALISATION OF FOREIGN INVESTMENT IMPORT

MRTP LIBERALISATION ABOLITION OF THRESHOLD ASSETS LIMIT NO MRTP CLEARANCE

CURTAILMENT OF PSU’S NEED FOR EXPANSION,MERGERS SEVERAL INDUSTRIES RESERVED FOR PSU OPEN TO PRIVATE ONLY 8 CRORE INDUSTRIES REMAIN RESERVED PURVIEW OF BIFR EXTENDED TO THE PUBLIC SECTOR

FERA LIBERALISATION / FERA ENCOURAGEMENT(a) Automatic clearance for foreign equity upto 51%100% equity holding allowed in select projectElectronic hardware technology park attract FDI

(b) Expansion of automatic clearance route48 industries become eligible for 51% equityForeign equity FDI for drugs and pharma raised to 74%

(c) Automatic clearance for capital goods and tech imports and royalty paymentsGovt withdrew restrictions on divedend repatriation by foreign investors

(d)removal of restriction on functioning of Indian co boardsEg overseas investments liberalized

Investment through ADR/GDR without govt approvalIndian co may invest abroad upto 50 millions annually

(f)ECB liberalized: liberalization commercial borrowings for corporates(g)FEMA replace FERA:at the end of 1999:FEMA bill,preservation of money laundering bill(h)MRTP liberalization

No MRTP clearance required for investment applications No approval for new undertaking /expansion /takeover.

(i)Curtailment of PSU and enlargement of private PSU –arms and ammunition,atomic energy,railways,mining and coal.

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SICA-sick industrial company act extended to public sector

TRADE POLICY LIBERALISATION / NTP Free trade and more open exim regime Import liberalized and de-channelised Licenses abolished,tariffs lowered Phasing out or relying on exchange of exchange roles Tariffs and exchange rate will e instruments of control Exports encouraged

o Incentives for exportso Abolition of export dutieso Cheaper export credit and cuts in import dutieso Duty draw back scheme

Rupee made convertible: full convertibility on trade account 1993-94 EPCGS /EOU/EPI/FTZ : export promotion capital goods scheme

MACRO ECONOMIC REFORMS AND STRUCTURAL ADJUSTMENTS

MACRO ECONOMIC REFORMS STRUCTURAL ADJUSTMENTS

FISCAL REFORMS

BANKING REFORMS

CAPITAL MARKET REFORMS

MARKET DRIVEN PRICE

PUBLIC SECTOR RESTRUCTURING

EXIT POLICY

Reduction of fiscal deficit

Reforms of tax system

banks to operate as commercial institution

phasing out priority sector

abolition of CCI and introduction of free pricing

phasing out of subsidies

dismantling of price controls

no new PSU no ex pension of PSU

with govt equity budgetary support for

PSU to be phased out

Support to VRS

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Interest rate reforms

Inflation control

lending deregulation of

deposit interest rates

operational freedom in lending rates

adherence to norms on capital adequacy ,recognition and provision for bad debt

disinvestment in public safir banks

permission for new private sector banks

strengthening of SEBI

opening up of Indian capital market to FII

allowing privte sector into mutual funds

allowing Indian NBFCS to align with global finance Co

allowing Indian firms to raise capital abroad

axe on fertilizer subsidies

abolition of sugar subsidies

axe on petrol prod subsidies

partial decontrol and parallel markets of kerosene and LPG

abolition of export subsidy

steel price decontrol

preference to PSU ingovt tenders abolished

disinvestment of govt equity in PSU

Sick PSUs to be reffered to BIFR

ENVIRONMENT PROTECTION AND ENVIRONMENT LAW

1972 – United Nation Conference on Human Environment At stockhold UN- Secretary General –declared that “ inhibitants of the world have perhaps ten years left

to improve human environment. Bhopal Gas Tragedy gave impetus to this issue through (air (P an CP)act and water CP and

CPD Act were existed Environment protection enacted as response to gas tragedy.

1992-THE EARTH SUMMIT – THE RIO DECLARATION Problems of ozone depletion Global warming Water pollution

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ENVIRONMENT GOVERNANCE IN INDIA – SINCE 1972 The 42nd amendment 1976 article 48A was added to directive principles of the state policy To protect and improve environment and forecasts Article S I S (8) – fundamental duties- impose responsibility on citizens Article 253 states- parliament has power to make law for whole or any part of India

OTHER ACTS The Indian forecast act 1927 The factories act 1948 The atomic energy act 1962 The insecticides act 1968 Wildlife (protection)act 1972 The water (P and CP) act 1974 The water (P and CP) cess act 1977 The forest conservation act 1980

FOR ADEQUATE ENVIRONMENT PROTECTION WE SHOULD HAVE1) ENVIRONMENT PROTECTION AGENCY

Social control over environment pollution 2C all areas of pollution each area separate department. Agency lay down uniform national standards Every industry should prepare environment impact statement

2) EFFECT SANCTION BY LAW TO ENFORCE AGENCY3) PEOPLE PARTICIPATION AS WATCH DOG

The environment protection act permits individual to file criminal action in court of law.

National environment engineering institutute (NEERI) National institute of occupational health (NIOH)

4) ENVIRONMENT COURT :- A forum where activist and polluters come together and enforcement can be brought by

NATIONAL EFFORTS AT ENVIRONMENT PROTECTION1) 42ND AMENDMENT : ARTICLE 48A-CONSTITUTIONAL OBLIGATION,51A –

FUNDAMENTAL DUTY.2) National committee on environment planning and co ordination NCEPC – after

Stockholm conference on planning,projects,ecosystem etc.3) Tiwari committee – 1980 by government

a. Review of Actsb. New legislationc. Introduction of environmentin concurrent list

i. Suggested :nodal agency formationii. Carrying environment appraisal for projects

iii. Conservation of eco-systems4) 1980 – formation of institution and board

a. Central pollution board and state pollution board

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b. Central forestry boardc. Forest survey of India,wildlife institute of Indiad. National wasteland development boarde. National museum of natural history

ISO 14000 AND ENVIRONMENT MANAGEMENT SYSTEMINTERNATIONAL STANDARDS ON ENVIRONMENT MANAGEMENT COVERS Environment management systems Environment auditing Environment labeling Environment performance evaluation Life cycle assessment

ISO 14000 SINGLE SHOULD MANAGEMENT SYSTEM ALLOWS Effective management of environment responsibilities

o Liabilitieso Costso Documents to governmento Promote concern for society.

TECHNOLOGICAL ENVIRONMENT1) ENGINEERING INDUSTRY – largest segment of Indian industry ,divided into

a. Electrical :- depends on investment in power industryb. Non electrical:- driven by industrial investment

2) Always demand for equipments in following sectorsa. Cementb. Chemicalc. Steeld. Textilee. Powerf. Petrochem

3) To sustain growth of 7.8% we need investment of 10% o GDP or $50bn per year

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4) India strong base of engineering and capital goods base5) Both sectors serve wide cross section of industry

a. Consumer durable ,chemical ,petrochem,fertilizers,defense equipment,power,oil and gas ,mining,nuclear etc.

6) Deregulation in power derive higher growth eg ABB and BHEL derive 60% to 69% revenue from suppliers

7) Govt increased focus on infrastructure helped L&T like 35% sales from infrastructure like engineering design and construction. i.e construction of hospital ,IT parks,express ways,SEZ,ports,bridges etc

8) Recent budget govt had outlined Rs 100 bn for investing

J K GALBRITH DEFINES TECHNOLOGY1) Systematic application of scientific or other organized knowledge to practical tasks

a. Technology has developed beyond anbody’s comprehensionb. Enabled man to conquer

i. Distance ii. Control birth rate

iii. Save livesiv. Generate ,preserve and distribute energyv. Discovered new materials and substitute to the existing one

vi. Substitute mental work to computersvii. Probe deep into seas and space research

viii. Provide lot of leisure and infinitum2) 1983-termed as year of scientific success

a. Scientist put a billion dollar technology into spaceb. Produced world’s 1st test tube tripletsc. Obtained evidence of another solar systemd. Japan marketed artificial blood systeme. Breakthrough of genetic engineering to cure dwarfismf. U S physicist stripped of electrons from uranium atom and exposed bare nucleusg. Doctors confronted with AIDS

So technology for some is WONDER,HORRORS,BLESSINGS. Eg automobile ,T V have mixed reaction Hydrogen bomb ,nerve gas,submarine ,gun proved horror Pencillium , open heart surgery,birth control pills proved wonders

INTERFERENCE BETWEEN TECHNOLOGY AND BUSINESS

TECH REACHES PEOPLE THROUGH BUSINESS

INCREASED PRODUCTIVITY SPEND ON R&D

CHANGING TECHNOLOGY

RISE AND DECLINE OF PRODUCT

EXPECTATION OF CONSUMERS

B U S I N E S S

SOCIAL CHANGE

JOBS BECOME MORE

TECHNO STUCTURE

PROFESSIONAL MANAGERS

REGULATION AMD

SYSTEM COMPLEXITY

DEMAND FOR CAPITAL

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INTELLECTUAL OPPOSITION

THE SEMANTICS – SCIENCE AND TECHNOLOGYSCIENCE – refers to systematic body of knowledge and when this knowledge is put into practice,it becomes technology. Awareness in science develops new technology

DIFFERENCES IN SCIENCE AND TECHNOLOGY

FEATURES SCIENCE TECHNOLOGY1) IN PERSUIT OF KNOWLEDGE SOCIO-ECONOMIC GAINS

2) PEOPLE INVOLVED

SCIENTIST ENGINEERS

3) AGENCIES INVOLVED

RESEARCH INSTITUTION AND UNIVERSITIES

ESTABLISMENTS

4) FUNDING MOSTLY GOVERNMENT INDUSTRIES5) MOTIVATION TO SATISFY CURIOSITY TO BRING OUT NEED SATISFYING

PRODUCT6) DOMAIN PUBLIC PRIVATE /SECRET7) IMPACT DISCONTINUOUS CONTINUOUS8) TIME SPAN UNCERTAIN EVOLUTIONARY

TECHNOLOGY REACHES PEOPLE THROUGH BUSINESS : Business is institution through which man expects new discoveries to convert it into

goods and services. Managers of organization pool necessary resources,work on new discoveries to

convert into products The new discoveries are ideas in mind sketches on papers ,mock models in

laboratories,but business for institution. All activities like printing ,housing , education , TV are dependent to work

productivity. Society depends on business for goods and services 50% growth of developed nations is because of technical .progress achievements Increase productivity It head to spend on R & D Phillips spends 6.9% of total turnover on R & D – 15 Cr Siemens -9% of worlds sales Bayers – 6% of domestic sales Bosch group 6.7% of sales ONGC .5% OF NET TURNOVER BHEL 4.5% OF NET TURNOVER IOC 0.1% OF NET TURNOVER AERONAUTICS 3.5% OF NET TURNOVER

TECHNOLOGY IS CHANGING :

DECLING GROWTH IN BASE BUSINESS

INCREASING EMPHASIS ON TECHNOLOGICAL

WHATDEVELOPMENT IN NEW TECHNOLOGY

VITALITY OF VENTURE MARKETS WHERE

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INVESTMENT BY COMPANIES

DEVELOPMENT OF INTERNATIONAL COMPETITION

HOW

High expectation of consumers Job trends to become more intellectual Increased regulation and stiff opposition

o By product technical advance attracts imposition by govt and stiff opposition of public.

o Govt is empowered to investigate and ban the products (harmful) which hurt the sentiments of society.

FMRAI – FEDERATION OF MEDICAL REPRESENTATIVE OF INDIA.o Gained result of banning the sale of harmful drugs and sales promotion of

advertisement of infant formula through mass media. Technical advancement invites opposition as it is threat to society,privacy and human

race Opposition for – high rise building ,plants ejects harmful effluents,setting up of

hydroelectric plant

STATUS OF TECHNOLOGY IN INDIAGovt of India set-up R & D establishments

Space research centres Medical research centers Agricultural research centers Oil exploration research centers 4700 intermediate / junior colleges 144 universities 44 deemed universities 500 or more science and technical institution 1080 inhouse R&D labs Dept of science and technology.

POLITICAL AND GOVERNMENT ENVIRONMENTPolitics often determines economic and business policiesDemock observe – 2 most important institution (1) Business (2) Politics

POLITICAL ENVIRONMENT INCLUDES FACTORS1) Characteristics of political parties2) Policies of political parties3) Nature of constitution and govt system4) Govt environment encompassing economic,business policies and regulations

Peter Druker – “Even within transational economic units,national politics over rule economic rationality.”

Major economic policies are political decisions

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Economic policy of ruling party is important eg politicians lobby over fixed vs mobile services.

FUNCTIONS OF STATE:

VIEW :- “Government that governs is the best.”

Countries transmitting from mark to market

Adam Smith wealth of nations-says “Economic growth and welfare are best achieved by the free market mechanism and state should confined to core functions( law and order,defense).

STATE AND GOVERNMENT SOME CONCERNSSTATE : Set of institutions possesses means of legitimate coercion over defined territory population ,society.monopolies rule making through organized government.

GOVT : process of governing ,to exercise power condition of ordered rule. People who fill the position of authority in the state . Manner ,method or system of governing in the society.

Government consists of 3 sets of power with assigned role.1. Legislature – role is to make law2. Executive – implementin the law3. Judiciary – responsible for interpreting and applying the law

1. PARLIAMENTORY SYSTEMa. Executive continuance depends on support of legislatureb. Member of executive are members of legislaturec. Prime minister powerful memberd. Important decision are taken collectively

2. PRESIDENTIAL SYSTEMa. Executive position is independent of legislature b. Member of executive not normally members of legislaturec. Ultimately decision making lies with one person the president

2nd CLASSIFICATION ON DISTRIBUTION OF POWER BETWEEN LEVELS OF GOVERNMENT

1) Unitary state : authority to make law is vested in the supreme legislature whose jurisdiction covers whole country. Local legislature may exist,but with the sufferance of the national legislature.

2) Federal state : local legislature are guaranteed measure of autonomous decision making authority.

3) Confederation – groupof sovereign states each state remain sovereign

POST WORLD WAR SCENARIO Importance of public policies Macro economic policy Oil shocks GDP Expenditure Communism

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FUNCTION OF STATEAddressing market failure Improving equity

Minimal functions

Providing pure public goodsDefenceLaw and orderProperty rightsMacro economic managementPublic health

Protecting the poorAntipovertyProgrammeDisaster relief

IntermediateFunction

Addressing externalities

Regulating monopoly

Overcoming imperfect information

Providing social insurance

Basic educationEnvironmental protection

UtilityRegulationAntitust policy

InsuranceFinancial regulationConsumer protection

Redistributive pensionFamily allowanceUnemployment insurance

Activist function

Co ordinating private activity.fostering markets,cluster initiatives

Redistribution asset.redistribution

(ADOPTED FROM WORLD BANK)

ECONOMC ROLE OF GOVERNMENT In any economy susbstantial share of any product goes to satisfy public wants Market mechanism cannot alone perform all economic function Public policy is needed to guide,correct and supplement it So it is realized that public sector is a significant degree,a technical rather than

ideological issues.

GOVERNMENT PLAY AND IMPORTANT ROLE OF Regulation Promotion Entrepreneurship Planning

1) REGULATORY ROLEa. Covers broad spectrum from entry into business to final resultsb. Reservation of industries to sectorsc. Licensing systemd. Regulation of product mixe. Promotional activitiesf. Celings on prfit margins,divedend etcg. Restriction on intra corporate investment,interlocking of directors,appointment of

sole selling agentsh. Control through fiscal monetary incentives

2) PROMTIONAL ROLEa. Infrastructure facilities

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i. Power ,transport ,finance market,institutions for trainingii. Various incentives through policies

3) Entrepreneursial rolea. Establishing and operating business interprisesb. Public sector development

i. Capital intensive projects,like steel ,capital goods,petrochem,fertilizers

4) PLANNING ROLEa. State as plannerb. 5 year planning

INDIAN ECONOMIC REFORMS

REGIME1) NATIONAL DEMOCRATIC ALLIANCE (NDA)

a. Measure in electricity billb. Amendment in labour lawsc. Mamta banarjee,self styled oppositiond. Chandra Babu Naidu CO/ AP, vision and ideology

2) GOVERNMENT AND LEGAL ENVIRONMENTa. Laws relating to consumer interestb. Restraining children in commercial adsc. Cigarette smokingd. Statutory controls.

THE CONSTITUTIONAL ENVIRONMENT The socio economic and political objects of Indian republic Basic guiding principles of state functioning are clearly laid down Impermeable to the constitution Fundamental rights Directive principles of state policies The responsibility is bestowed on state by constitution

PREAMBLE- The people of India have solemnly resolved to constitute India into a Sovereign,socialist,secular,democratic republic to secure all its citizens – justice, liberty,equality,fraternity.

THE FUNDAMENTAL RIGHTSa. Right to equalityb. Freedomc. Against exploitationd. To freedom of religione. Cultural and educationf. Constitutional remedies

FUNCTIONA AND POWERS OF PARLIAMENT As other parliamentary democracies,parliament of India has the caedinal functions of

o Legislation

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o Overseeing administrationo Passing of budgeto Ventilation of public grievanceso Development of planso Internal relationso National policies

Power distributed in between union and states Parliament is vested with powers to impeach the president and remove judges,chief

election commissioner,comptroller and auditor general according to laid down procedure Incase of money bill,will of lok sabha prevails The parliamentary committees for both houses The appointment ,term of office ,function and procedure of conducting business as per

norms Parliamentary committee 2 kinds

o Standing committees :Elected or appointed every year or periodically Committee on estimates Public accounts Public undertaking Keep vigil on government expenditure and performance

o Ad hoc committee : appointed when need arises

FUNDAMENTAL DUTIES42ND amendment of the constitution,1976 for

To abide by constitution To define the country and render national services To promote harmony and spirit of brotherhood

THE DIRECTIVE PRINCIPLE Unique feature of Indian’s constitution They are in nature of directions to the legislature and expenditure These directions are not justiceable,but counts cannot avoid taking cognizance of it. They are imperative basis of state policy and constitution directs the state to apply it

SIGNIFICANT DIRECTIVE PRINCPLES The state shall strive to promote the welfare of people State shall minimize In equalities in income,facilitate opputunities State shall direct policy towards securing

o Rights of peopleo Equal opportunity to material resourceso Operation of economic systemo Equal pay for allo Health and strength of workers

Article 39 legal system to promote justce and equal opportunity, legal aid Article 40 village panchayat Right to work sickning and disablement act 41 Maternity relief 42

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SEPARATION OF POWERSIDEA that – that government functions must be bated on a tripartite division of

legislature,executive and judiciary.tech organ should be separate,distinct and sovereign in its own allocated sphere.

DIVISION OF POWERSITEMS FOR LEGISLATION AMONG THREE LISTS

1) UNION LIST2) STATE LIST3) CONCURRENT LIST

THE CONSTITUTIONAL ENVIRONMENT

CONSTITUTION

JUDICIARY EXECUTIVE LEGISLATURE

CENTRAL LIST CONCURRENT LIST STATE LIST

CENTRAL GOVT STATE GOVT LOCAL GOVT

BUDGET DIRECT INVOLMENT IN BUSINESS

POLICIESGUIDELINESCODESLAWS

DEVELOP/PROMOTIONALORGANISATIONS(EG DEVELOPMENTAL BANKEXPORT DEVELOPMENTAUTHORITIES)

REGULATORYORGANISATIONS

(EG SEBI,TRAI)

GOVT EXPANDS CONTROL ON VARIOUS SEGMENTS OF ECONOMY THE industries (development and regulation)act The companies act Capital issues control act Securities (contract regulation act) Monopolies and restriction trade act Essential commodities act Prevention of black marketing and maintaining of supplies of essential commodities act Foreign xchange regulation act –FEMA 2000 Imports and export act Provides govtOTHER ACTS (INDUSTRIAL AND LABOUR LAWS) TO REGULATE

Employer employee relations Working conditions Wages Bonus Labour welfare Social security etc

COMMERCIAL BANKING SECTORACT TO CONTROL EFFECTIVELY BY RBI

BANKING CO ACT 1949 AMENDMENTS 1956,62,63 SEBI

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