BUSINESS ENVIRONMENT

UNIT – 1
BUSINESS AS A SOCIAL SYSTEM

Business is an integral part of social system and it is influenced by other elements of society

which, in term, is affected by the business. Today the whole society is a business environment.

Davis and Blomstorm point out that in taking an ecological view of business in a systems

relationship with society; three ideas are significant in addition to the systems idea.

The three ideas are:

1. Values

2. Viability

3. Public visibility

1. VALUES:

Business like other social institutions, develops certain belief systems and values for which they

stand, and there beliefs and values are a source of institutional drive. These values drive from a multitude

source, such as the mission of business as a social institution, the nation in which business is located, the

type of industry in which it is active and the nature of employees. These values become guides for

employee’s decisions in the interface of business. Second, they become strong motivators for people in a

business.

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2.Mission and Objectives : The business domain of the company, priorities,

direction of the development, business philosophy business policy etc are
guided by the mission and objective of the company.

Example: Ranbaxy’s thrust in to the foreign markets and developments have been driven by its mission –

“to become a researcher based international pharmaceutical company.”

3. MANAGEMENT STRUCTURE AND NATURE

The organizational structure, the composition of board of directors, extent of professionalization

of management etc, are important factors influencing business decisions. Some management structures

and styles delay decision making while some other facilitate quick decision making.

The Board of Directors being the highest decision making body which sets the direction for the

development of the organization and which oversees the performance of organization, the quality of the

Board is a very critical factor for the development and performance of company.

4. INTERNAL POWER RELATION

Factors like the amount of support the top management enjoys from the different levels of

employees, share holders, and Board of Directors have important influence on the decision and their

implementation. The relationship between the members of the board and between chief executive and the

Board are also critical factors.

5. HUMAN RESOURCES

The characteristics of the human resources like skill, quality, morale, commitment, attitude etc.,

could contribute to the strength and weakness of the organization.

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6. COMPANY IMAGE AND BRAND EQUITY

The image of the company matters while raising finance, forming joint ventures or other

alliances, soliciting marketing intermediaries, entering purchase on sale contracts, launching new

products etc. Brand equity is also relevant in several of these cases.

7. OTHER FACTORS
A) Research and development determine a company’s ability to innovate and
compete.
B) Marketing – quality of marketing men, brand equity, distribution network
have direct effect on marketing.
C)FINANCE 0 financial policies; financial position and capital structure are
also affecting business performances.
D) Physical Assets – production capacity, technology, distribution logistics
EXTERNAL ENVIRONMENT FACTORS
It consists of 2 types.
1. Micro environment
2. Macro environment
I. Micro Environment

The micro environment is also known as the task environment and operating environment became

the micro environment forces have a direct bearing on the operations of the firm.

These include the factors like …

1. SUPPLIERS
An important force in the micro environment of a company is the suppliers,
i.e. those who supply the inputs like raw materials and components to the
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company. The importance of reliable source of supply is for the smooth

functioning of business.

It is very risky to depend on a single supplier became of skills, lock out or any other production

problem with that supplier may seriously affect the company. Hence multisource of supply often helps

reduce risks.

2. CUSTOMERS

A business exist only became and its customers. A company may have different categories of

customers like individuals, households, industries and other commercial establishment and govt. and

other institution.

3. COMPETITORS

A firm’s competitors include not only other firms which market the same products but also all

those who compete for the discretionary income of the consumers.

4. MARKETING INTERMEDIARIES

The immediate environment of the company may consist of number of marketing intermediaries

which are “firms that aid the company in promoting, selling and distributing its goods to final buyers.”

The marketing intermediaries includes middlemen such as agents and

merchants who “help the company find customers or close sales with them.”
5. FINANCIERS

Another important micro environmental factor is the financier of the company. Besides the

financing capabilities, their policies and strategies, attitudes, ability to provide non financial assistance etc

are very important.

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6. PUBLICS

“A public is any group that has an actual or potential interest in an impact on an organizations

ability to achieve its interests.” Media publics, citizen action publics and local publics are some examples.

MACRO ENVIRONMENT

It is also called as general environment and remote environment. The macro environment is

generally uncontrollable than micro environment, the success of the company depends on its adaptability

to the environment.

The important macro environment factors as follows:

I. TECHNOLOGICAL ENVIRONMENT

Technology is one of the important determinants of success of a firm as well as economic and

social development of nation. It includes both hardware and software to solve problems and promote

progress.

1. Innovative drive of company

The term innovation means introduction of new product, the use of new method of production.

“The technical, industrial and commercial steps which leads to marketing of new products and to

commercial use of new technical process and equipment.”

2. Customers Needs / Expectation

Technological orientation and R&D effects of a company may also be influenced by the customer

needs and expectation. In several cases the customer and the supplier have a collaborative relationship to
develop the product or solutions. If the customers are highly demanding, companies would be compelled

to be innovative.

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3. Demand conditions

The size of demand influences the choice of the technology . The size of demand influences the

choice of the technological scale. Fast growing trend of demand would encourage development of

technology of large scale.

4. Suppliers offering
Many times technological changes are encouraged by the suppliers of a
company, like a capital goods supplier etc.
5. Competitive dynamics
Competition compels the adoption of the best technology and constant
endeavor to innovate.
6. Substitutes
Emergence of new substitutes or technological improvements or substitutes
which alter technological change.
7. Social forces
Certain social forces like pretext against environment pollution or other
ecological problems demand for eco-friendly products.
8. Research organization
The technological environment of business is enriched by researched
organizations which develops new technologies and provide other technical inputs.
9. Govt. policy

The govt. contributes to the development to the technology by its own direct involvement by

establishing research organization and funding R & D. The govt. may encourage private R & D by

various incentives.

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II. DEMOGRAPHIC ENVIRONMENT

The importance of demographic factors to business is clear from the facts that “Management is

men” & “Market is people.” i.e., Management in Men, Material, Machinery and Money, and market is
people in the sense that the demand depends on the people and their characteristics – the number, income

levels, tastes and preferences, beliefs, attitudes and sentiments.

Important demographic bases of market segmentation include the

following:1. Age structure

2. Gender

3. Income distribution

4. Family size

5. Occupation

6. Education

7. Social class

8. Religion

9. Race

10. Nationality

Demographic factors such as size of population, growth rate, age composition, ethnic, density of

population, rural – urban distribution, nature of family have very significant implication for business.

III. ECONOMIC ENVIRONMENT

Business partners and strategies are influenced by the economic
characteristics. The economic environment includes the structure and nature of the
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economy, the stage of development of economy, economic resources, level of
income, global economic linkages, economic policies etc.
1. Nature of the Economy

The general level of development of the economy has lot of implication for business – it has

significant bearing on the nature and size demand, govt. policies affecting business. The widely used

method of classification of the economies is on the basis of per capita income. Accordingly the low

income, middle and high income economies.

 Low income economies are economies with very low per capita income. High income economies

are economies with very rich income per capita. Middle income economies are sub divided into lower

middle and upper middle income where income per capita is neither very high nor low.

2. Structure of the economy

Factors such as contribution of different structure like primary (agricultural), secondary

(industrial) & tertiary (secondary) sectors, large, medicine, small sectors to economy. These factors and

the nature of each sector have business implication. For example, India is one of the largest producers of

agricultural products, because of the small and fragmented nature of land holdings, efficient collection

and processing of products become difficult. The land holding pattern also makes productivity

improvements difficult.

3. Economic policies
There are several economic policies which can have very great impact on
business. Important economic policies are
a) Industrial policy

It defines the scope and role of different sectors like private, public, joint and cooperative. It may

influence the location of industrial undertakings. Choice of technology, state of operation, product mixes

etc.

b) Trade policy

It can affect the fortunes of firms. For example a policy of protecting the home industry may

greatly help the import competing industries, while liberation of the impart policy may create difficulties

for such industries. This mean the firm should come up with quality, cost, and marketing and after sales

service etc.

c) Foreign exchange policy

Exchange rate policy and policy in respect of cross border movement of
capita are important for business.
d) Foreign investment and technology policy
 Foreign investment and technology policy will increase domestic competition at the same time it

would benefit many domestic firms – by permitting global sourcing of capital and technology, by

increasing the quantity and quality of domestic supply of many goods and services.

e) Fiscal policy

Govt. strategy in respect of public expenditure and revenue can have significant impact on

business. The pattern of public expenditure may affect the develop of industries. Such as govt. often use

tax incentives or disincentives to encourage or discourage certain activities. For ex: when industry suffers

from recession, a reduction of taxes like excise duty or sales tax may help improve the demand.

f) Monetary policy

The central bank, by its policy towards the cost and availability of credit, can significantly

influence savings, investments and consumer spending in economy. For example – 1% reduction in cash

reserve ratio will significantly increase loan able funds with commercial banking systems.

IV. NATURAL ENVIRONMENT

The natural environment ultimately is the source and support of everything
used by business – every raw material, energy resource, life sustaining factor etc.

The natural environment determines what can be got done in a society and how institution can

function. Resource availability is the fundamental factor is the development of business in the society.

Thus geographical and ecological factors, such as natural endowments, weather and climatic

conditions, topographic factors, vocational aspects in the global context etc., are all relevant to business.

1.Geographical factors: differences in geographical condition between

markets may sometimes call for changes in the market mix. It influences
the location of some industries.
E.g. Industries with material index tend to be located near the raw material
sources.

2. Climatic and weather conditions: It affects the location of certain industries like cotton textile

industry. Topographic factors may affect the demand pattern in some cases. E.g. in hilly areas Jeeps are

greater demand than cars.

 Weather and climatic factors affect the demand of certain types of products. E.g. in region where

temperature is very high in summer, there is good demand for desert coolers.

Weather and climatic factors can affect the demand pattern of clothing, building materials, food,

medicines etc. further, weather and climatic conditions may call for modification to the products,

packaging storage conditions etc.

3. Ecological factors: It assumes great importance, the depletion of natural resources, environmental

pollution another disturbance of the ecological balance have carried great concern, govt. policies aimed as

preservation of environment purity and ecological balance, conservation of non-replenish able resources

have resulted additional responsibilities and problems for business.

CORPORATE SOCIAL RESPONSIBILITY

The important generally accepted responsibilities of the business to
different sections of the society are described below.
1. Responsibility to shareholders

The responsibility of a company to its shareholders, who are owners is a primary one. The fact

that the investments in the business should be recognized. To protect the interests of the shareholders and

to provide a reasonable dividend, the company has to strengthen and consolidate its position.

2. Responsibility to employees
The success of an organization depends to a very large extent on the morale
of the employees and their whole hearted co-operation.
The responsibility of the organization to the workers include –
1. The payment of fair wages
2. The provision of best possible working condition
3. Establishment of fair working standards and norms
4.The provision of labor welfare facilities to the extent possible and desirable
5. Arrangements for proper training and education of the workers
6. Reasonable chances and proper system for accomplishment and promotion
7. Proper recognition, appreciation and encouragement of special skills and
capabilities of workers.
8. The installation for efficient grievance handling system
9. An opportunity for participating in managerial decisions to the extent
desirable.
3. Responsibility to consumers

The customer is the foundation of business and keeps it in existence. It has been widely

recognized that customer satisfaction shall be the key to satisfying the organizational goals. Some
important responsibilities of business to customers are –1. To improve the efficiency of the functioning of

business so as to increase

productivity and reduce prizes, improve quality, smoothen the distribution

system to make goods easily available.
2. To do research and development, to improve quality and introduce better of
new products.
3. To take the steps to remove the imperfection in the distribution system

including black marketing or anti-social elements.

4. To supply goods at reasonable prizes

5. To ensure that the product supplied has no adverse effect on the customer.

6.To provide sufficient information about the product including adverse effects,

risks and care to be taken while using the products.

7. To avoid misleading the customers by improper advertisement.

8. To provide opportunity for being heard and to redress genuine grievances.

9. To understand customer needs and to make necessary measures to satisfy these

needs.
4. Responsibility to community
A business has a lot of responsibility to the community around its location
and to society. The responsibilities include –
1. Taking appropriate steps to prevent environmental pollution and preserve

ecological balance.

2. Rehabilitating the population displaced by operate of the business

3. Assisting in the overall development of locality

4. Taking steps to conserve scares resources and developing alternatives

5. Improving the efficiency of the business operation

6. Contributing to research and development

7. Develop of backward areas

8. Promotion of small scale industries

9. promotion of education and population control

10. Contribution to the national effort to build up a better society

BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY
BUSINESS ETHICS

The term business ethics refers to the system of moral principles and rules of conduct applied to

business. This means that the business should be conducted according to certain self-recognized moral

standards. Business, being a social organ, shall not conduct itself in a way detrimental to the interests of

society and the business sector itself. A profession is bound by certain ethical principles and rules of

conduct which reflect its responsibility, authority and dignity. The professionalization of business

management, should therefore, be reflected in the increasing acceptance of business ethics.

NOTE: In the 1930’s Rotary International developed the code of ethics that is still used extensions. It uses

4 questions that are called the 4 way of ethical behavior for any business forces –

• Is it truth?

• Is the fair to all concerned?

• Will it build goodwill and friendship?

• Will it be beneficial to all concerned?

LIST OF IMPORTANT ETHICAL PRINCIPLES THAT A BUSINESS

SHOULD FOLLOW:
1. Do not deceive or cheat customers by selling substandard or defective products

by under measurements or by any other means.

2. Do not resort to hoarding, black marketing or profiteering.

3. Do not destroy or distort competition

4. Ensure sincerity and accuracy in advertising, labeling and packaging.

5. Do not tarnish the image of competitors by unfair practices.
6. Make accurate business records available to all authorized persons.
7. Pay taxes and discharge other obligation promptly
8. Do not farm cartel agreements, even informal, to control production, price etc
to the common detriment.
9. Refrain from secret kickbacks on payoffs to customers, suppliers,
administrators, politicians etc.
10. Ensure payment of fair wages to and fair treatment of employees.
ISSUES IN CORPORATE GOVERNANCE
 Corporate governance is defined as the process and structures by which business and affairs of

corporate sector is directed and managed. The concept of corporate governance primarily hinges on

complete transparency, integrity and accountability of the management.

Corporate governance is concerned with the values, vision and visibility. It is about the value

orientation of organization, ethical norms its performances, the direction of development and visibility of

its performances and practices.

Objectives
1. To build up an environment of trust and confidence amongst those having
completing and conflicting interest.
2. To enhance shareholders value and protect the interest of other shareholders by
enhancing the corporate performances and accountability.

- Transparency

- Accountability

- Investor protection

- Societal needs
- Value creation for stakeholders
ECONOMIC ROLE OF GOVERNMENT

The government plays an important role in almost every national economy of world. Business

fortunes and strategies are influenced by the economic characteristics and economic dimension. The

government normally plays four important roles in an economy. They are,

1. Regulatory Role

Government regulation of the business may cover a broad spectrum extending form entry into

business to the final results of business. The reservation of industries to small scale, public and co-

operative sectors, licensing system etc., regulate the entry. Regulations of product mix, promotional

activities etc., amount to regulation of conduct to business. The state also regulates relationship between

enterprises.

2. Promotional Role
 The promotional role played by the government is very important is developed as well as in

duping countries. In developing countries, where the infrastructural facilities for development are

inadequate and entrepreneurial activities are scarce, the promotional role of the govt. assumes

significance. The state will have to assume direct responsibility to build up and strengthen infrastructure

such as power, transport, finance, marketing, institutions for training and other promotional activities.

The promotional role of the state also encompasses the provisions of fiscal,
monetary and other incentives and development of priority sectors and activities.

3. Entrepreneurial Role

Entrepreneurial role includes establishing and operating business enterprises and bearing risks. A

number of factors such as socio-political ideologies, dearth of private entrepreneurship, absence of

inadequate competition in certain segments and resultant exploitations of consumers have contributed for

the growth of state owned enterprises.

4. Planning role
State plays an important role as planner.
GLOBAL ENVIRONMENT

Globalization is an attitude of mind – which views the entire world as a single market so that the

corporate strategy is based on the dynamics of the global business environment.

Globalization encompasses the following:

1. Expanding business globally
2. Giving up distinction between domestic and foreign market and developing
global outlook of business.
3. To maximize profit
4. For growth
Essential conditions for globalization
1.Business freedom: There should not be necessary govt. restriction like import
restriction, foreign investments etc.
2. Facilities: Enterprise can develop globally from home country bare depends on
facilities available like the infrastructural facilities.
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3. Govt. support: Govt support can encourage globalization, like infrastructural
facilities, R & D support, financial market reforms.

4. Resources: It decides the ability of firm to globalize. Resourceful companies may find it easier to thrust

ahead in global market. Resources include finance, R&D, company and grand image, HR etc.
5. Competitiveness: A firm may drive a competitive advantage from any one or more of the factors such as

low costs and price, product quality, product differentiation, technology superiority, marketing strength

etc.

How to go global?
Important foreign market entry strategies –
1.Exporting: Exporting the most traditional mode of entering global market.

2. Licensing & franchising: It involves minimal commitment of resources and effort on the part of

international marketer, are easy way of entering foreign markets. Finalizing is a form of licensing in

which a parent company grants another independent entity the right to do business.

3. Contract manufacturing; a company doing international marketing contracts with firms in the foreign

countries to manufacture the products while retaining the responsibility of marketing the product.

4. Management contracting: In this supplier brings together a package of skills

that will provide an integrated service to clients without risk on owner.
5. Turnkey contracts – A turnkey contracts is an agreement by seller to supply
a buyer with a facility fully equipped and ready to be operated.

6. Wholly owned manufacturing facilities: It provides the firm with complete control over production and

quality. It does not have risk in the development.

7.Assembly operations: Assembly facilities in foreign markets are very ideal

when there are economies of scale in the manufacture. When an assembly

operations are labour intensive and labour is cheap in foreign country.

8. Joint ventures: Joint venture is a very common strategy of entering foreign market. Any form of association

which implies collaboration for more than a transitory period is a joint venture. A joint venture may

brought about by a foreign investor buying an interest in a local company.

9.Third country location: Third country location is also an entry strategy,

when there is no commercial transaction between two nations for some reasons, a firm in one of their

nations which wants to enter the other market will have to operate third country base.
10. Mergers and acquisitions: It have very good market entry strategy as well as expansion strategy. It

provides instant access to markets and distribution network.

11. Strategic alliances: It is also used as market entry strategy it is also known as coalition, this strategy seeks

to enhance the long term competitive advantage of the firm by farming alliance with competitors.

12. Counter trade: It is a form of international trade in which certain export and
import transaction are directly linked with each other.
Types of Mergers
1.Horizontal Merger: Takes place where the two margin companies’ products
similar product in the some industry. E.g. in 1998 – combination of
Chrysler cooperation and similar sense to create Dainles Chrysler.

2. Vertical Merger: Occur when two firms each working at different stages in the production of the same good

combine. E.g. General Motors acquisition of fisher body company (an auto parts manufacturer).

Conglomerate Mergers: takes place when two firms operate in different industries.
E.g. Acquisition of Montgomery Ward and Co., (a retailer) by Mobil Oil
Company)

UNIT – 2
ECONOMIC STRUCTURE OF INDIA

Mixed economy of India consists of public and private sector. Policy on the public sector has

been guided by the Industrial Policy Resolutions 1956 and 1991 which gave a strategic role in the

economy. India was based agrarian economy with weak industrial base, low level savings and

investments and near essence of infrastructural facilities.

Public sector

The object of accelerating the pace of eco-development and the political ideology, gave the public

sector a dominant role in the industrial development of the nation led to rapid growth of the State Owned

Enterprises (SOEs) sector in India.

 These enterprises came to cover a wide spectrum of activities in basic strategic industries like

steel, coal, minerals and metals, petroleum, heavy engineering, chemicals, fertilizers and pharmaceuticals

etc., on one hand and consumer goods, trading and marketing activities, transportation, services, contracts

and consultancy services, tourist service, financial services, development of small industries etc., on the

other.

Objectives:
It was promoted as an instrument for implementation of the govt.’s socio-
eco policies.
1. To help in the rapid eco growth and development and industrialization of the
country and create the necessary infrastructure for economic development.
2. To earn return on investment and thus generate resources for development.
3. To promote redistribution on income & wealth
4. To create employment opportunities
5. To promote balanced regional development
6. To assist the development of small scale and ancillary industries
7. To promote import substitution, save and earn foreign exchange for the
economy.
Growth & performance of public enterprise

The Industrial Policy Resolution of 1948 made it clear that the manufacture of arms and

ammunitions, the production & control of atomic energy and the ownership and management of railway

transport would be the exclusive monopoly of the company. After 6 months industries were coal, iron and

steel, aircraft manufacture, ship building, manufacture of telephone, telegraph and wireless apparatus,

excluding radio receiving sets and mineral oils.

IP of 1956: All the industries of basic & strategic importance or in the

nature of public utility services should be in public sector.

At the beginning of the 1990, public sector was dominant in many industries. Entire output in

case of petroleum, lignite, copper & primary lead, about 98% of zinc with 90% of coal, more than ½ of

steel and aluminium and 1/3rd of fertilizers.

PSEs as a whole have made huge profits mainly because of the enormous profits made by several

public sector monopolies. Many of the loss making PSE have been either in non-priority sectors or in the

sectors where the private sector has proved to be more efficient.

Agri commodities like wheat and paddy have procurement prices fixed for
them.
Minimum Support Prices: for barley, gram, moong, urad, mustard, ground nut,
sunflower seed, soyabean and cotton (kapas).
Statutory Minimum Price: for sugarcane, jute and tobacco.
Trends in Service Sector:

As an economy develops the share of the primary sector in the GDP and employment declines

and those of other sectors increase. The service sector is the largest and fastest growing sector. The

service sector now contributes more than 60% of the world GDP.

1980 – 1990, the average annual growth rate of value added in the service sector in the

developing economics was 3.5% compared to the GDP growth rate of 3%.

1990-98 – 3.7% & 3.3%

The service sector of India grew at 6.9% and 7.9% during the above periods, compared to the

corresponding GDP growth rates of 5.8% and 5.9%. The share of services in the GDP of India increased

from 39% 1980 to 46% 2000.

The growing importance of services is reflected in the international trade too. Between 1970 and

1990 international trade is services increases by an average of 12% & 8% during 1990-97.

The growth rate of trade in services has been faster than that of goods. Growth in services and in

additions the electronic commerce has added to the new trade pattern. Exports of commercial services

have been borrowing on every continent throughout the 1990s.

Services are used in production of goods and other services. Due to

competition in services there is reduction of prices and improvement in quality.
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Contribution of service to value added as % of GDP.
Region/country
1980
1990
1999
World
56
60
61
High Income Economics
59
64
64
Low and Middle Income economies
(developing countries)
42
46
54
India
39
42
46
Trends in GDP

Govt. expenditure as % of GDP

10% in 20th century

20% in 1960

50% in 1995
In developing countries, the central govt. expenditure was nearly 15% of
GDP.

1960 in 1990 it was double of 1960.

1997 – 1998 – Economy growth

2001 – 4.4% total industrial stood at 2.7%

2002-03 – 4.0%

2002 – 03 – 5.7% increase

Consumer durables has a negative growth of 6.3%, 2003-04 – 8.5%
industrial production by 7.0%.
Unit – III
Monetary and Fiscal Policy
Monetary and Fiscal policy are two powerful instruments of economic
management. Why? Necessary? In free enterprise economy.
1. Prices in free market fluctuate (govt. debits and credits)
2. Balance of payment is in disequilibrium
3. Involuntary unemployment
4. Inequality in distribution of income and wealth
5. Sluggish economic growth
I. The Monetary Policy
Def: Hary G. Johnson: Policy employing the central banks control of the supply of
money as an instrument for achieving the objective of general economic policy.

According to economists:

Monetary policy is the changes in the supply of money.

Credit policy is the changes in the supply of credit (different in broader sense)

Both policies

1. Central Bank administers both

2. Instruments of control are some at aggregate level

3. Determines the supply of money as well as the supply of bank credit

Main objectives are:

1. Maximum feasible output
2. High rate of economic growth
3. Fuller employment
4. Price stability
5. Greater equality in the distribution of income and wealth
India’s Taxation Policy 1950-1990
 Was formed primarily to meet the financial needs of the country in the post- independence period.

The problem faced was how to mobilize adequate financial resources to finance the development

programmes chalked out in 5 year plans. Financial resources has to be increased 4 times, so that rate of

capital formation could be stepped up from 5% of national income to say 20%. The known source of

development finance taxation, domestic borrowing, external borrowing on foreign aid had the potentials

of yielding adequate development finance. Taxable potential was very low as income was low and per

capita borrowing was lower. The repayment near slow. So taxation policy was formulated.

Revenue function

Revenue collection is the primary objective of India’s tax policy. The state and central

government levies taxing power extensively and intensively. The taxes imposed are from 1950,

1. estate duty 2. Wealth tax 3. Gift tax

New in 1950
4. Expenditure tax
5. Capital gains tax

A tax rates were imposed on direct indirect taxes. Central Excise duty is imposed on all imaginable non-

agriculture products. High import duty is imposed on almost all items of exports.

Estate government imposes tax on

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1) Agricultural income tax on large holding tax

2) Surcharge of cash crops
3) Profession tax

4) Tax on urban property

5) Sales tax on motor spirit

6) Motor vehicle tax

7) Tax on passengers and goods, entertainment

Industrial Finance
Sources of finance for small and medium scale industries
 Both medium and small scale industries require capital for plant and machinery, production and

final disposal. The capital varies in rural areas they have to borrow from money lenders or land owners

and pay high interest rate. In urban areas, capital is better mobilized. The banks charge rate of interest

often ranging between 24 to 36% and not be able to raise necessary capital.

a) Loans by Commercial Banks

For long time CBs did not bother small and medium scale industries. SBI with RBI took the

initiative of setting up a pilot scheme for the provision of credit for small scale industries. The schemes

was extended to all branches of SBI. Others CBs were slow in lending by March 1966 they had made

advances amount to Rs. 90 crores to small units with nationalization more advance to S & M industries.

b) Credit Guarantee Scheme for S & M I

Came into force in July 1980. this is a important phase, the objective of the scheme was to

provide a measure of protection to specified banks irrespective of their loans to small borrowers in the

priority sectors of S & MI. the administration was with RBI, but was transferred to the Deposit Insurance

& Credit Guarantee

Co-op (DICGC). This operates 5 schemes – 4 for small borrowers and one for S & MI. The advances to

small borrowers is Rs. 25,600 crores. 515 Credit institute are participating in the 5th scheme.

c) National Small Industrial Co-op. (NSIC)

Was set up in February 1955, for the purpose of assisting, financing,
protecting and promoting the S / I in India.

Functions are

1. To secure govt. order for output of SI unit.

2. To provide financial, technical and other assistance to fulfil orders.

3. To secure coordination between large and small scale industries to enable small scale. In order to

manufacture ancillaries and component parts required by the large-scale industries.

 4. To underwrite and guarantee loans from banks and other credit institute.
It also introduced hire purchase of machineries on easy payments. It conducts
surveys and secures contracts from central government.
SIDBI

Set up by Govt. of India under a Special Act of the Parliament in April 1990 as wholly owned

subsidiary of SIDBI. It has taken over the outstanding portfolio of IDBI relating to the small scale sector

worth over Rs. 4,000 crores. Authorised capital of SIDBI is Rs. 250 crores – which can be increased to

Rs. 1,000 crores.

Role:
1. Principal interest for SBI
2. Coordinate functions of other banks and financial institutions

3. Administer small industries for fund and national equity fund.

Functions:
1. Refinances loans and advance extended by primary lending institute and
provide resources support system.
2. Rediscount on discounts bills arising from sale of machinery.

3. Grants direct assistance as well as refinance loans extended by primary lending institute for financing

export of products manufactured by last for industrial concerns in SSI.

4. Extends financial support to state small industries development corporation for providing scarce raw

materials to marketing the end products of industrial units in the SSI.

5. Provided financial support to NSIC for providing leasing, hire purchase and
marketing support to IU.

SIDBI was set up to ensure larges flow of financial assistance to SSI. Technical upgradation and

modernization of existing units, expanding channel for marketing.

Mission:

1. Stimulate the promotion of new industries

2. Assist the expansion and modernization

3. Furnish technical and managerial aid

1. Long term or medium term loans, both rupee loans and foreign currency
loans.
 2. Participates in equity capital and in debenture and underwrites new issues
of shares and debenture.
3. Guarantees loans from other private investment sources.
4. Provides financial services such as deferred capital, leasing credit,
instalment sale, asset credit and venture capital.

5. The total financial assistance amounted to Rs. 12,480 crores in 1955 up to March 1990. While its

disbursement amounted to Rs. 8090 crores. This consisted of foreign currency, loans, rupee loans,

guarantee and subscription of shares and debentures.

Commenced leasing operation in 1983. It provide leasing assistance for computerization,

modernization / replacement, equipment of energy conversation, export orientation and pollution control

etc.

In 1977, KICI promoted the housing development finance corporation

(HDFC). Apart from HDFC, other institute are
1. CRISIL – Credit Rating Information Services of India Ltd set up ICICI in
association with UTI to provide credit rating services to corporate sector.

2. Technical Development and Information Company of India Ltd (TDICI) promoted by ICICI to finance the

transfer and upgradation of technical provide technical information/

3. Programme for the Advancement of Commercial Tech (PACT) set up with a grant of us $ 10 M provided

by US AID to assist market oriented R & D activity, jointly undertaken by Indian companies, ICICI has

undertaken the administration and management.

4. Programme for acceleration of commercial energy research (PACER), funded by US AID with a grant of

US 40 M to support selected research and technical development proposal in Indian energy sector.

UTI – Unit Trust of India

UTI was formally established in February 1964, to extend facilities of investment in equity

capital of companies, by the large and growing number of small investors in the middle income group of

the community.
 Initial capital was 5 Crores which was subscribed fully by RBI, the LIC, the SBI and scheduled

banks and other financial institutions. The management and direction is entrusted in the hands of the trust

and in hands of Board of Trustees.

Primary objective: [two fold]

1. Stimulate and pool the savings of the middle and low income group.
2. Enable them to share the benefits and prosperity of the reply granting
industrialiszation in the country.
It could be achieved in three fold:
1. By selling units of the trust among as many investors as possible in
different parts of the country.
2. By investing the sale proceeds of the unit and also the initial capital fund of
Rs. 5 crores in industrial and corporate securities.
3. By paying divides to those who have bought the units of the trust.

Industrial Reconstruction Bank of India (IRBI)

Was set up in 1971 April an institution named IRCI – Industrial Reconstruction Corporation of

India under Indian Companies Act to look after “sick” industries and for speedy reconstructions and

rehabilitation and developing infrastructure facilities like transport and marketing etc.

On August 1984, the Govt. of India passed and act converting the IRCI into Industrial

Reconstruction Bank of India (IRBI). IRBI was established in March 1985, for revival, assisting and

promoting industrial development and rehabilitating industrial concern. IRBI extends credit to sick small

scale units emphasis on continuous modernization, improve productivity and upgrade technology.

Export – Import Bank of India

Commonly known as Exem Bank, was set up on January 1982 to take over operations of the

internal financial wing of the IDBI (to provide financial assistance to exporters and importers). It provides

refinance facilities to CB’s and FI against export – import.

Capital Resources

Authorized capital of Exim Bank is Rs. 200 crore and paid up capital is Rs. 100 Cr. Wholly

subscribed by the Central Govt. can raise currency from govt. and foreign currency from other countries.

Functions:
 1. Financing for exports and imports of good and services

2. Financing for exports & imports of machinery

3. Financing of joint ventures in foreign countries

2. Presently 9 lending operations are undertaken:

1. Loans to Indian companies

a) Direct financial assistance to exporters

b) Technical consultancy services

c) Oversees investment
d) Pre-shipment credit
2. Loans to foreign govt. companies & PI are provided under:
a) Overseas buyers credit scheme
b) Lifes of credit to foreign govts and relending facility to banks
overseas.
c) Overseas Investment
d) Pre-shipment credit

3. Loans to cities in India include

a) Export bills re discounting schemes of short bills

b) Refinance of export credit.

IDBI – Industrial Development Bank of India

Set up 1947 to provide long term finance in industry. Till 1976 it was a wholly owned subsidiary

of the RBI. In 1976, IDBI was delinked from RBI and was taken over the Govt. of India.

Functions of the IDBI

1.Direct Assistance: By way of projects loans, underwriting of a direct

subscription to industrial securities, soft loans, technical refund loans and equipment finance loans. It

subscribes to purchase and underwrite the issue of stocks, shares and bonds or debentures.

2. Indirect Assistance:
1. Can refinance term loans to industrial concerns repayable within 3 to
25 years given by the IFCI and State finances.
 Modernisation has number of adverse effects your society. Films have immoral effect on society.

There is concentration of economic power in few hands.

Govt. policy till 1991

India was following a very restrictive policy town foreign capital and technical. Important of

technical was consider on merits it substantial exports were guaranteed over a period of 5 to 10 years and

reasonable proposals for exports. Govt. was issued lists where lists of industries were,

a) i) Foreign investment may be permitted

b) Only foreign tech collaboration (but no foreign investment) may be
permitted.

Tech collaborations were to be considered on the basis of annual royalty payments which were

linked with the value of actual production, % of royalty depended on production and limit to 5 years

(payment).

The Foreign Exchange Regulation Act (FERA) 1973 served as a tool for implementing the

national policy on foreign private investment in India. FERA empowered RBI to regulate or exercise

direct control over the activities of foreign companies and foreign nationals in India. RBI has given

general permission to hold title of immovable properties.

New Policy

The industrial policy statement of July 24, 1991, which observes that while freeing the Indian

economy from official controls, opportunity for promoting foreign investment in India shall also be fully

exploited has liberalized the Indian policy towards foreign investment and tech.

The new policy has also made the import of capital goods automatic provided the foreign

exchange requirement for such import is ensured through foreign equity.

Silent Feature
1. FDI is eligible for automatic approval.
Unit Dec. 1996, only 36 industries were eligible for automatic approval of FDI
upto to 5!% of the total equity.
Now there are different types industries depending on the ceiling of foreign
equity participation.
1. Industries in which FDI does not exceed
Statistic:
1. Definition, scope and application, classification and tabulation, histogram,

standard deviation, strawness, correlation, Regression.

2. Probability multiple and partial correlation pass on distribution

3. Hypothesis or anova

Segmenting Consumer Market

1. Geographic

a) Region

b) Urban, suburban, rural

c) Climate

d) Cety size

e) Population Density
2. Demographic
Income
I Stage – single or mallied head, under increase no
children
Age
II stage – married head, under 40 young children with
or without older children
Education
III Stage – married head, under 40, older children
Stage in life cycle
IV stage – married head, 40 or older, no children under
20
Social class
 V Stage – head living along over 40, no children
Sex
Occupation
Religion
Race

3. Psychographic Bases: How people act

Different to measure
a) Personality
b) Life style
c) Readiness to buy
Segmenting Industrial market:

1. Kind of business activity

2. Users geographical location

3. Usual purchasing procedure

4. Six of user: Give lower prices to those buyers who buy in large quantities.

Direct foreign investment in India is adversely affected by the following

factors –

1. The public sector was assigned as monopoly or dominant position in most important industries, and

therefore, the scope of private investment, both domestic and foreign was limited.

2. When the public sector needed foreign investment, there was a marked

preference for the foreign govt. sources.

3. Foreign investment was normally permitted only in high technology industries.

4. Foreign equity participation was normally subject to 40%.

5.Payment of dividends abroad, repatriation of capital etc., as well as inward

remittances was subject to stringent laws like Foreign Exchange Registration
Act (FERA) 1973. These discourage foreign investments.
6. Corporate taxation was high and tax laws and procedures were complex.
These factors either limited the scope of foreign investment in India.
INDIAN INVESTMENT IN FOREIGN COUNTRIES

Until 1991, India companies made very little investments abroad. Although Govt. of India’s

policy had been one of the encouraging foreign investments by Indian companies, subject to certain
conditions, several factors like domestic economic policy and domestic economic situation were deterrent

to foreign investments by Indian companies.

By restricting the areas of operations and growth, the govt. policies seriously constrained the

potential of Indian companies to make a foray into the foreign countries through investment. Added to

this was the attraction of protected domestic market which was, in many cases, a seller’s market and this

made Indian

companies to ignore foreign markets.

Indian companies have established subsidiaries and joint ventures in a
number of countries in different manufacturing and service sectors.

The new economic policy of India is expected to encourage foreign investments by Indian

companies. The curbs on growth, even by mergers and acquisition, have been removed, financing

restriction has been based, areas of business opened to private companies have been substantially

enlarged and foreign tie up policies have been liberalized.

Further, the domestic market is becoming increasingly competitive. All these factors should

encourage the Indian companies to invest in other countries and to take advantage of the economic

liberalization in many countries.

GATT
General Agreement on Trade and Tariffs
The predecessor of WTO was born in 1948, as a result of the international
desire to liberalize trade.
Objectives

The primary objective of GATT was to expand international trade by liberalizing trade so as to

bring about all round economic prosperity. And the other important objectives are

1. Raising the standard of living

2. Ensuring full employment

3. Developing full use of resource of the world

4. Expansion of production and international trade

Rules of GATT
1. Any proposed change in tariff, or other type of commercial policy of a member country should not be

undertaken without consultation of other parties to the agreement.

2. The countries that adhere to GATT should work towards the reduction of tariffs and other barriers to

international trade, which should be negotiated within the framework of GATT.