LEGAL ENVIRONMENT &

GOVERNMENT

INTERVENTION IN LEGAL

ENVIRONMENT

Prepared By : Amal P James

LEGAL ENVIRONMENT

Legal environment of business means, all factors

which affect business and its working.

Business must be operated under the rules and

regulation of different laws of a country.

These rules & regulations contribute the legal

environment in business.

ROLE OF GOVERNMENT IN THE

CREATION OF LEGAL

ENVIRONMENT The government plays a role in creating the Legal

environment for business.

They implement laws & policies to maintain stability of the economy and at the same time , Keeping a control over the business across the country.

There are laws for production, sales, consumer & Employee welfare and laws regarding tax & Finance.

The government can :

Enact laws against production of certain goods Sale of certain goods Consumption of certain goods Prevent entry of private firms into certain industries

through its Industrial Policy Limit the growth of private firms beyond a certain

limit ( MRTP Acts, Competition Acts etc) Nationalize certain industries whenever necessary

and desirable Formulate and implement various kinds of economic

policies that include fiscal policy, monetary or credit policy, industrial licensing policy, commercial policy, exchange control policy, etc.

The government can :

Besides all these, the government at some occasions becomes a competitor of private firms in input markets. The public sector gets preference in the allocation of scarce resources.

All these measures adopted by the governments amounts to GOVERNMENT INTERVENTION.

Need for Government Intervention

Any economy should ensure that :

All those who are willing to work at prevailing wage rate get employment

All those who are working get paid according to their contribution to the total productivity.

Factors of production are optimally allocated between various industries

The entire population gets sufficient income to cover at least basic requirements of food, shelter and clothing.

Need for Government

Intervention

The world has realized that the free market system has failed to meet the above expectations.

The outcome of the failure of the free system has resulted in the following outcome :

Inequalities of Income and Wealth : The market mechanism finds that Income and wealth get concentrated in a few hands. Those who possess productive resources and mental abilities find it easy to access wealth.

Continued…

Emergence of Monopolies : In a free system, those firms who have exceptional organizational abilities often take over the inefficient ones thereby giving rise to monopolies.

Failure to provide full employment : The market economy does not ensure full employment.

Instability : Balance cannot be achieved with millions of buyers and millions of sellers taking their own independent decisions. This imbalance gives rise to frictional disturbances and cyclical booms and depressions.

Need for Government

Intervention

Wastages of Market economy : Whenever there is a depression in a market system, the resources of production remain unutilized. These productive resources can take care of provide a living for the poor.

Indifference to and sacrifice of social welfare : In a market since the sole aim is to maximize profits, no one pays any heed to social welfare.

Presence of externalities : Diversion between social & private costs and benefits

Poverty in the midst of plenty : In an economy which is based on the principle of private profit maximization, tremendous technological advancement has taken place. This has resulted in tremendous rise in production. But due to institution of private property and the law of inheritance, the rich become richer and poor masses continue to be exploited.

Need for Government

Intervention

Exploitation of backward areas and world rivalry: By their MNC’s and MNE’s and by selling arms and ammunition to poorer and underdeveloped countries, the developed countries keep on exploiting backward countries of African and Asia. These countries also put restrictions on exports from developing countries and inversely try to dump their products in developing countries. This hampers the rapid economic development of developing countries.

GOVERNMENT INTERVENTION IN INDIA

A wide range of measures are in place to stabilize economy and reduce the gap between rich and poor. These measures are :

Fiscal measures : To reduce the fiscal and revenue deficit the government of India has a strong control over its own expenditure. In 1984, the government announced a package programme to curtail public expenditure and to postpone fresh recruitments to government jobs.

Monetary measures : The monetary policy of RBI, consists of extensive use of general and selective control credit. The main thrust has been to restrict the bank credit against the inflation of sensitive goods and to influence the cost and availability of commercial bank credit. The CRR was raised from 6% to 15% to have control over liquidity and expansion and contraction of credit.

GOVERNMENT INTERVENTION

IN INDIA

Supply Management : Supply Management is related to the volume of supply and its distribution system. The government has focused its attention in having greater control over the prices of wheat, rice, sugar, oils and other commodities of mass consumption. Some important measures are :

Fixation of maximum prices : For the elimination of incentives for hoarding and speculative activity of foodgrains the government fixes the maximum wholesale and retail prices of foodgrains. It also fixes minimum procurement price for major crops to protect the interests of farmers.

The system of dual prices : The items of mass consumption are made available to the people below poverty line at subsidized rates.

Increase in the supplies of food grains : The government takes care of additional requirement of food grains through heavy imports in situations of shortage.

GOVERNMENT INTERVENTION

IN INDIA

Adoption of Open General License ( OGL ) import policy for importing sugar and pulses.

Adjustments in trade and tariff policies in the Central Government budgets to ensure that domestic prices of Industrial products remain competitive.

Great reduction in excise duties on a number of items is expected to accelerate the speed of industrial revival and raise industrial growth.

A number of acts of have been formulated to protect the interest of Consumers. Stern action is taken against those found guilty.

A number of acts are also in place to take care of protection of environment, ecology, water and air pollution. Due to the global awareness about environment protection, various incentive schemes for eco – friendly products have been formulated.

POLICIES ADOPTED BY

GOVT.

There are different policies adopted by the

government. They are:

Industrial Approval Policy

Foreign Investment Policy

Fiscal Policy

Foreign Trade Policy

Industrial Approval Policy

The major highlights of Industrial Approval Policy include the following: Industrial Licensing has been virtually abolished in the

Electronics and Information Technology sector except for manufacturing electronic aerospace and defence equipment.

There is no reservation for public sector enterprises in the Electronics and Information Technology industry and private sector investment is welcome in every area.

Electronics and Information Technology industry can be set up anywhere in the country, subject to clearance from the authorities responsible for control of environmental pollution and local zoning and land use regulations.

Foreign Investment Policy

India welcomes investors in Electronics and IT sector. Government of India is striving to bring greater transparency in policies and procedures to provide an investor friendly platform.

A foreign company can start operations in India by registration of its company under the Indian Companies Act 1956. Foreign equity in such Indian companies can be upto 100%.

Government of India facilitates Foreign Direct Investment (FDI) and investment from Non-Resident Indians (NRIs) including Overseas Corporate Bodies (OCBs)

Fiscal Policy

All goods required in the manufacture of ITA-1 items have been exempted from customs duty subject to Actual user condition.

Customs duty on specified raw materials / inputs used for manufacture of electronic components and optical fibres and cables is 0%.

Customs duty on specified capital goods used for manufacture of electronic goods is 0%.

Customs duty on LCD Panels and Set Top Box is 5%.

Parts, components and accessories of mobile handsets including cellular phones are exempted from basic customs duty and excise duty/CVD.

Microprocessors, Hard Disc Drives, Floppy Disc Drives, CD ROM Drives, DVD Drives/DVD Writers, Flash Memory and Combo-Drives are exempted from excise duty.

Foreign Trade Policy

In general, all Electronics and IT products are freely importable, with the exception of some defence related items.

All Electronics and IT products, in general, are freely exportable, with the exception of a small negative list which includes items such as high power microwave tubes, high end super computer and data processing security equipment.

Second hand capital goods are freely importable.

The import of second hand computers including personal computers/ laptops and refurbished/reconditioned spares are restricted for import. However, second hand computers, laptops and computer peripherals including printer, plotter, scanner, monitor, keyboard and storage units can be imported freely

GOVERNMENT

INTERVENTION INTO LEGAL

ENVIRONMENT

PLANNING COMMISSION

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