WADHWA’S List of Selected Questions 5 a ei ee LO TYPE QUESTIONS Ql.1 Write a short note on FDI vs. FI. | MDU BBA 2019 OR Differentiate between FDI and FI. Q1.2 Conceptualize Legal Environment. MDU BBA 2017, 2016 — See tht Q1.3 Conceptualize Mixed Economy. MDU BBA 2017 Q1.4 Explain the factors res ponsible for the growth of public sector in India. Q1.5 Explain the Objectives of S. ecurities Contract (Regulation) Act, 1956, Q1.6 Conceptualize Industrial Sickness. MDU BBA 2018, 2017 ae Q1.7 Explain trade deficit and fiscal deficit, MDU BBA 2019 OR ' * Differentiate between prade Deficit ad Fiscal Deficit. Q1.8 Explain the factors responsible for the ERE of pee mustard pectory FIndian Business Environment 6 SS Q1.9 What do you mean by a Multinational Corporation. Q1.10 Describe Privatization. MDU BBA 2018, 2017 QL11 Explain the benefits of India’s Overseas Investment. Q112 Discuss the role played by MNCs in Indian economy, Q113 Explain the meaning of World Bank. ; MDU BBA 2018 QL14 Explain the meaning of Business Environment. QLI5 Explain Significance of Business Environment. Q1.16 Conceptualize NBFI. MDU BBA 2017 QL17. Explain the objectives of Public Sector. QL18 Explain the measures to correct disequilibrium (deficit) in BOP, QL19 What do you mean by ethics in business? MDU BBA 2019 120 Concsptualize Stock Exchange, MDU BBA 2017 21 Explain Erman! of IMF on Indian business WADHW#’S List of Selected Questions Q1.22 Explain the functions of IMF. Q1.23 Explain SDRs. Q1.24 Explain the importance of BOP. Q1.25 Explain Balance of Trade. Q1.26 Explain the meaning of Development Banks. Q1.27 Conceptualize Balance of Payment. MDU BBA 2017 Q1.28 Define Social Audit. Q1.29 Explain the meaning of liberalization. MDU BBA 2019 QU.30° What is SIDBI? Q1.31 Conceptualize WTO. MDU BBA 2017, 2016 Q1.32 Explain the objectives of economic reforms. Q1.33 Explain the meaning of Globalization. Q1.34 What is NSE? Q2(a) Explain the nature and dynamism of Business Environment. What factors trigger changes in the business environment? MDU BBA 2019Indian Business Environment . 8 ———_——<—<—<——————__..___§ OR Discuss the components and dynamism of business environment. Also explain the basic nature of Indian economy system. MDU BBA 2018 OR Discuss the nature and determinants of business environment. Explain the Indian Economic System. MDU BBA 2017 Q2(b) Explain the nature and types of Indian economic system, Q3.@) Explain the meaning of. Private Sector? Describe the growth of private sector in Indian economy, 2S) Differentiate between the Private Sector and Public Sector Enterprises. 4. Exp ; pet the objectives of public sector enterprises explain the factors responsible for the Srowth of public sector in India. QS. Discuss the concept of social responsibility in janomy. How optimum level of social fan be achieved by an MDU BBA 2018 OR WADHWA’S List of Selected Questions “9 How can a firm determine optimum level of social responsibility? MDU BBA 2016 OR Explain the criteria for determining social responsibilities. Q6. Explain the concept of social responsibility of business. Give arguments for and against social ity of business. ; MDU BBA 2017 Q7. Explain Industrial Licensing Policy adopted by the Government of India. MDU BBA 2019 OR Discuss Industrial Policy Developments. Explain the pattern of Industrial Growth Since 1991. MDU BBA 2017 Q8.(a) Give an overview of the Industrial Licensing * policy. MDU BBA 2016 Q8.(b) Explain the features of New Industrial Policy of India. Q9. Explain the measures taken for liberalization and also explain privatization trends in India.indian Business Environment A Q10. What are SMEs? Explain the different problems that SMEs face in our country. MDU BBA 2019 SEDU BBA 2019 OR Explain the growth of SMEs in India. Discuss is problems faced by SMEs. MDU BBA 2018 OR ss the growth and problems of SMEs. - MDU BBA 2017 is meant by Industrial sickness? ef the remedial measures for Also explain the impact of WADHWA’S List of Selected Questions __ 1 (a) SIDBI (¢) BI () SFCs (g) NABARD Q13. Explain the regulation of Stock Exchange. Qi4(a) Explain different banking sector reforms introduced by the government in India. MDU BBA 2019 OR Describe various banking sector reforms that have taken place in Indian economy. MDU BBA 2018 OR Discuss the various banking sector reforms. Q14.(b) Write a note on banking sector reforms. Discuss the challenges faced by Public Sector Banks. ~ MDU BBA 2017 Q14.(c) Differentiate between Banks and NBFIs. ~ Q15, Discuss the role of SEBI in Indian capitalIndian Business Environment B Describe the role of SEBI in Indian Capital Market. MDU BBA 2017 Qi6. Explain the Types and Changing Structure of non-banking financial institutions. IV ‘QI7{@) Discuss the components of Balance of Payments and describe the causes of deficit in India’s BOP. QI7.(6) Discuss the causes of adverse balance of _ Payments and its measures to correct adverse balance of payments. qi i i: F QI8. Highlight the Indian policies towards foreign direct investment. MDU BBA 2018 OR be is FDI? Explain the Indian Policy towards MDU BBA 2017 19a) Explain the Globalization trends in Indian - Discuss the Positive impact of Cs0n Indian Economy, es” MDU BBA 2017 ions 13 WADHWA'S List of Selected Que: Discuss the positive and negative effects of globalization of Indian economy. Q20.(a) Write a note on the foreign trade policy of the Government. Explain the concept of balance of payment of the country. How is it different from balance of trade? MDU BBA 2019 Q20.(b) What is an MNC? Discuss the role of MNC in Indian economy. MDU BBA 2018 OR What are multinational corporations? Discuss the positive and negative role played by them in the Indian economy. Q20.(c) Discuss the role of the Multinational Corporations. Q21.(a) Explain the functions of IMF and impact of IMF on Indian Business Environment. Q21.(b) Explain the impact of WTO on Indian Business Environment.WADHWA’s Selected Questions and Answers 15 ————— SHORT —- ANSWER TYPE QUESTIONS Q1.1 Write a short note on FDI vs. FII. MDU BBA 2019 : OR Differentiate between FDI and FIL. : Ans. FDI (Foreign Direct Investment) Foreign direct investment is made by foreign companies in order to establish wholly owned companies in another country and to manage them or to purchase shares of companies in another country for the purpose of managing such companies. The main feature of foreign direct investment is that Native companies are set up in India by Foreign companies. In this type of investme: investor who takes risk and is solel: . 1 loss of such company. nt, it is the foreign 'y responsible for profit FI (Foreign Institutional Investors) Foreign institutional investors are those institutional investors which invest in the different country other tha Organizations are based. assets belonging to a nm that where these These are the foreign players investing funds in the financial market of India. They play a big role in the development of our economy. They enhance the flow of Capital into the country and have a positive effect on the Competition in the financial markets.Indian Business Environment Ae FDI vs, FI. Following points explain the difference between the FD] and * FDI is an investment that a parent company makes in a foreign country. On the contrary, FII is an investment made by an investor in the markets of a foreign nation. * The FDI flows into the primary market, while the FII flows into secondary market. * While Flls are short-term investments, the FDI’s are long term investment. * FI can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily, * The Foreign Direct Investment is considered to be ‘more stable than Foreign Institutional Investor. Q12 Conceptualize Legal Environment. MDU BBA 2017, 2016 Ans. Legal Environment 2 Ae SenmeRt consists of “factors “related to _ Planning, ‘nace motion and regulation of business hate ntty or a region. There are. various Acts cae But mended, which specifically Moca te owing ‘ “ee ga enacimen, |ADHWA’s Selected — Soa. Questions and Answers 17 Laws / Acts imparting a particular business. Broad frameworks under which the businesses have to function. Policies related to imports and exports. Special legal provisions relating to procedures, permits, licences, patents, trademarks, etc. , Policies relating to licensing, monopolies, foreign investment and financing of industries. . Policies relating to small scale industries and consumer protection. Policies relating to environmental pollution. Q13 Conceptualize Mixed Economy. MDU BBA 2017 Ans. Mixed Economy The economy that comes into being as a result of synthesis of private sector of capitalism and public sector of socialism is called a mixed economy. Mixed economic system is a fusion of the characteristics of both capitalism and socialism. The chief advantage of the capitalistic or free enterprise economy is that it gives free reign to individual initiative and private enterprises. Socialistic economies, on the other hand, can claim economic justice in their favour. A mixed economy is an ‘attempt to combine the advantages of both these systems into one. It incorporates the features of both. On one hand, a mixed economy allows Private enterprise a free hand; on the other hand, it promotes public sectorAnswers 19 WADHWA’s Selected Questions and Indian Business Environment 18 0 ————$—— a! in the economy. A mixed economic system has, therefore. ‘been defined as a system in which the public sector and the private sector are allotted their respective roles simultaneously in promoting the economic welfare of the ‘community. QL4 Explain the factors responsible for the growth of public sector in India. ‘Ans, Factors Responsible for Growth of Public Sector in India _ Following factors are liable for the growth of public sector in India: 1. Foreign Collaboration 2. Reduction of Economic Inequalities 3. Long Gestation Period 4, Removal of Regional Disparities 1. Foreign Collaboration If an industry calls for external aid and foreign ‘collaboration, then also an enterprise in the public ‘sector is in a favourable position. It can more easily ‘assure @ guaranteed return to the foreign participant. Bese, th counties of the socialist community prefer ‘render technical and financial assistance to the public 2. Reduction of Economic Inequalities Extension ok ‘the public sector is also justified on the ea 4 that itcan serve as an effective means for dealing with the problem of wide economic inequalities. If profits are eamed by public enterprises, such profits can be further diverted for general welfare. Such profits, again, do not lead to private enrichment. ‘Such enterprises can create employment opportunities for the poor unemployed. They also act as model employers and improve the incomes of the employees. Thus the setting up of public enterprises is likely to have a favorable redistributive effect on income and wealth in the society. 3. Long Gestation Period ‘There are certain basic and heavy industries which are highly capital intensive. Such undertakings may give rise to’retums after a long period. Take the case of steel, fertilizers, chemicals, and aluminum, etc. ‘The private sector may not be in a position to wait for a long period. Moreover, such industries enjoy a kind of semi-monopolistic position in the _ economy. Development of private monopoly in such basic industrial activity is not a very rational step. Public sector is justified in this case. 4, Removal of Regional Disparities Public enterprises may be used as a tool for reducing regional disparities in economic development. In India certain states like Orissa, Rajasthan, and Madhya Pradesh etc, are comparatively more backward. Through central government initiative, public sector projects may be sponsored “in such areas. Public sector financialee Indian Business Environment 20 institutions play a central role in promoting industrial ang commercial activities in these backward regions. QLS Explain the Objectives of Securities Contract (Regulation) Act, 1956, Ans. Objectives of Securities Contract (Regulation) Act, 1956 Following are the objectives of this Act: 1. To regulate stock exchanges, 2, To ensure orderly development of stock markets, 3: To ensure proper management of stock exchanges and Clearing corporations of securities. “To prevent undesirable contracts and options in Securities. >: Tomake rules regarding listing of securities 1 : QL6 Conceptualize Industrial Sickness. MDU BBA 2018, 2017 ere if it has incurred cash loss for E 'gement of the bank, if it is li c an ci » Ifit is liable to hao Se Joss in the two following years and ‘ co as of ancl structure Such as current ae tocome 4 indicates signs of worsening WADHWA’s Selected Questions and Answers 21 ———————————$—$—$—$—$—$—[—_————— According to Sick Industries (Special Provisions) Act, 1985, “Sick industrial company indicates an industrial company (registered for not less than 7 years) which is showing acctmulated losses equal to or exceeding its net worth at the end of any financial year and has suffered cash losses “also during that financial year and the immediately preceding year.” Industrial sickness is a natural and universal phenomenon of the industrial economy. The industrial sickness among large, medium and small-scale industrial units is growing since 1980. In fact industrial sickness is related with the operation of market mechanism. The competition among units exposes their strengths and weaknesses and due to weaknesses, the industrial sickness becomes visible to everyone. Therefore, industrial sickness results in great amount of unemployment, wastage of national resources, loss of production of goods and social unrest. Q1.7 Explain trade deficit and fiscal deficit. MDU BBA 2019 Z OR Differentiate between Trade Deficit and Fiscal Deficit. Ans. Trade Deficit A trade deficit is an amount by which the cost of a country’s imports exceeds the cost of its exports. It’s one way of measuring international trade, and it’s also called a negative balance of trade.Indian Business Environment 22 You can calculate a trade deficit by subtracting the total ‘Value of a country’s exports from the total value of its ___imports..A trade deficit occurs when a country does not ‘Produce everything it needs and borrows from foreign ‘states to pay for the imports. That’s called the current "account deficit. : i _ Atttade deficit also occurs when companies manufacture ey ga other countries. Raw materials for manufacturing that “= ‘Overseas to factories count as exports. The " manufactured goods are counted as imports acted from the country’s gross domestic product | though the earnings may. benefit the company’s < price, and the taxes may increase the country's rmed used to refer to the difference mmment’s total revenue and total t financial year. Since the government 2 market to bridge this gap, this also _b borrowings needed by the WADHWA‘: Selected Questions and Answers 23 (GDP) of the country. A recurring high fiscal deficit means that the government has been spending beyond its means. QLs Explain the factors responsible for the growth of private corporate sector. e Ans. Factors Responsible. for the Growth of Private Corporate Sector Following factors are liable for the growth of private sector: 1. Availability of Finance 2. Government Plan Policies 3. Direct Incentives 4. Curb Competition 1. Availability of Finance Various departmental and financial institutions have been set up by the Government to see that industries are not standard of legitimate financial needs. These institutions provide long-térm loans, underwrite their shares and debenture issues, and provide feasibility studies and other services relating to projects. A study of the balance sheet of a large ‘number of companies shows that the oa provided by these institutions has enabled the private sector to grow and prosper. 2. Government Plan Policies a has gained greatly from i snterprise ape ‘The plans have provided the government ple « policies. . : 7—=>——————— Ee Indian Business Environment 24 necessary infrastructure for the development of priva business as well as very big market, : 3. Direct Incentives Private sector has received various direct incentives from the government. The finance set has often contained Various tax concessions such as tax holiday as regards new undertakings, developmental rebate, etc. Income tax Act also provides fiscal incentives to the individual and es Sectors. State finance Acts have provided facilities to industry regarding land, factory, building, and Power etc. 4. Curb Competition Ea eo market has been completely ae policy of developing original ees ca pea banning of such imports as Teena with the products of local industry. icon cha x; paereee Why the private enterprise has eee 800d profits when some~of their standard. QL9 What do Corporation Man bY @ Multinational Ans. Multina “ tional Corporation Multinational zi @ number of plants aboard ugh a large network of fully ‘Markets Owned subsiz et WADHWA’s Selected Questions and Answers 25 ) is the one which A multinational corporation (MNC) it owns or undertakes foreign direct investment, i.e., controls income generation assets in more than one and is doing production of goods or services country, international outside its country of origin, i.e., engages i production. In other words, A corporation incorporated in a foreign country or territory shall be deemed to be multinational corporation if such corporation: a) Is a subsidiary or a branch or has place of business in two or more countries or territories; ) Carries on business or otherwise operations in two or more countries or territories. Q1.10 Describe Privatization. MDU BBA 2018, 2017 Ans. Privatization Privatization refers to any process that reduces the involvement: of the state / public sector in economic activities of a nation. Accordingly, the term privatization is used in two senses: privatization implies the induction Ina narrow sense, ically owned of private ownership in the pub enterprises. implies beside private ownership ¢ Ina broader sense, it i the induction (or even without change of ownership), of private management and control in the public sector enterprises.Indian Business Environment Pendse, Process that reduces the involvement Public sector in the nation’s economic “Privatization ; Of the state oy! activities.» In the words of Dr. A Peter, « tansfer of function or activity or Public to the private sector.” Privatization ig no. " Organization fron, QL Explain the 4 benefits of India’s Overseas WADHWA's Selected Questions and Answers 27 1. Access to New Markets Overseas presence of Indian corporate sector in the form of joint venture / subsidies has helped to increase the market access of Indian corporate sector. Indian companies are getting entry in regulated markets of developed nations which has enabled Indian companies to be Indian MNCs. It has provided opportunities for further growth of Indian Companies. Transfer of Technology By acquiring companies abroad, Indian corporate sector has acquired advanced technologies. It has helped Indian industries to reduce cost of production and improve the quality products. It has also promoted R. & D-(Research and Development) among Indian Industries. n 3. Availability of Fund at Lower Cost The present overseas investment policy has allowed the Indian corporate sector to borrow funds from overseas markets. The companies can raise funds through issue of ADRs, GDRs, FCCBs, external commercial borrowings, etc. Interest rate in overseas markets is comparatively low. Thus, now Indian companies can raise funds from overseas markets at low interest rates. 4, Improvement in Global Image f Overseas presence of Indian business units has enhanced the global image of India. It has enhanced the acceptance of managerial skills of Indian work force. For example, the overseas presence of Indian Information TechnologyWADHWA’Ss Selected Questions and Answers 29 —————— Indian Business Environment 28 this way, their ability and skill to organize and conduct (IT) industry has enhanced the image of our nation their activities on modern lines enhances, ldwide. Pee 4, Solve the Problem of Capital Q1.12 Discuss the role played by MNCs in Indian! MNCs help to solve the problem of capital faced by economy. underdeveloped countries. Underdeveloped countries suffer from lack of capital. Consequently, their rate of Ans. Role played by MNCs in Indian Economy ; oe economic growth is low. By making investment in Following points explain the role played by MNCs in underdeveloped countries, MNCs help them to achieve Indian Economy: the objective of higher economic growth. 1, Increase in Employment 5, Availability of Foreign Exchange 2, Improvement in Infrastructure Multinational corporations bring their capital in foreign 3, Increase in Knowledge currency. It increases the inflow of foreign currency in } domestic country. This increases the availability of 4. Solve the Problem of Capital foreign exchange with the domestic country. It helps the Stee oiroeisn Exchange country to make payment of essential imports. 1. Increase in Employment | Q1.13 Explain the meaning of World Bank. Countries, wherein MNCs establish their subsidiaries, get | ; MDU BBA 2018 employment opportunities. By increasing the investment, | these subsidiaries set up new enterprises. Consequently, | Ans. World Bank eae The - International Bank for Reconstruction and’ Development (IBRD), popularly known as the World Bank, was setup at the same time as the International On of the important role played by the MNCs is the’ Monetary Fund (IMF) at the United Nations, Monetary improvement to the local infrastructure, which is often. and Financial Conference held at Brettonwoods, New . financed by the multinationals itself. Hampshire, in 1944. It began its operations in 1946. 2. Improvement in Infrastructure The World Bank (IBRD) is an inter-governmental 3. Increase i his ed institution, corporate in form, the capital stock of whic! MNCs impart training to local employees in respect of modern management, marketing, finance, export etc. 1Indian Business Environment entirely owned by its member governments. Initially, only nations that were members of the IMF could be members of the World Bank; this restriction on the membership was subsequently relaxed. Q1.14 Explain the meaning of Business Environment, Ans. Business Environment Business environment refers to all those factors that are external to a business unit, but impact business decisions. It involves the sum total of all those factors which influence the business and over which the business has no control. Business environment can be defined as the set of external factors such as the economic factors, socio- cultural factors, government and legal factors, demographic factors which are uncontrollable in nature and affect the business decisions of a firm or company. Business and environment are olosely related to each other. Every business organization has to interact and transact with its environment. The effectiveness of interaction of a business enterprise with its environment Primarily determines the success or failure of a business. The environment imposes several Constraints on the business and has a Considerable impact and influence on the Scope and direction of its activities, Because of the ing environment, business Policies and strategies have to be dynamic in order 13 adjust to the changing environment, 30 L WADHWA’s. ‘Selected Questions and Answers 31 Se Q1.15 Explain Significance of Business Environment. ‘Ans. Significance of Business Environment The following points explain the significance of understanding the business environment: 1. Strategy Formulation 2. Continuous Learning 3, Direction for Growth 4, Customer Focus 5. Change Agent 1, Strategy Formulation Environmental monitoring provides relevant information about the business environment. Such information serves as the basis for strategy making. For example: ITC realized that there is a vast scope for growth in the travel and tourism industry in India and the government is keen to promote this industry because of its employment potential. With the help of this knowledge, ITC planned ‘new hotels both in India and abroad. 2. Continuous Learning Environmental analysis serves as broad based and ongoing education for business executives. It keeps them in touch with the changing scenario so that they are never Caught unaware. With the help of environmental learning, managers can react in an appropriate manner and thereby increase the success of their organizations.Indian Business Environment 32 3. Direction for Growth ‘The interaction with the environment leads opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities. e 4, Customer Focus Environmental understanding makes the management sensitive to the changing needs and expectations of consumers. For example, Hindustan Lever and several * other FMCG companies launched small sachets of shampoo and other products realizing the needs of 5. Change Agent Business leaders act as agents of change. They create a drive for change at the grass root level. In order to decide the direction and nature of change, the leaders needs to understand the goals of people and other environmental forces through environmental scanning. Q1.16 Conceptualize NBFI. MDU BBA 2017 Ans. Non-Banking Financial Institutions (NBFIs) The financial institutions which provide the ‘various banking facilities but are not termed as banks because they do not hold the banking license are known as Non- Banking Financial Institutions, * Non-banking finance companies are governed by the directions issued by Reserve Bank of India, Non-banking | WADHWA’s Selected Questions and Answers finance Eompanies consist mainly of finance companies which carry on hire purchase finance, housing finance, investment, loan, equipment leasing or mutual’ benefit financial companies but do not include insurance or stock exchanges or stock-broking companies. According to the Reserve Bank (Amendment Act) 1997, A Non-banking Finance Company means: a) A financial institution which is a company; b) A non-banking institution which is 2 company and which has its principal business the receiving of deposits under any scheme or arrangement or in any other manner or lending in any manner; ¢) Such other non-banking institution or class of such institutions, as the Bank may with the previous approval of the Central Government specify. Q1.17 Explain the objectives of Public Sector. Ans. Objectives of Public Sector Following are the objectives of public sector: 1. To promote infrastructure facilities for the growth of the economy. 2. To promote redistribution of income and wealth. 3.-To promote balanced regional development. 4, To promote rapid economic development by filling gaps in the industrial structure. 5. To earn return on investment and thus ed resources for economic development. —————==—————S—-—34 Indian Business Environment Q1.18 Explain the measures to correct disequilibrium (deficit) in BOP. ‘Ans, Measures to Correct Disequil sta i be settled by short Jned or prolonged deficit has to Sastsined or reidpletion of capital reserve of foreign loans or dep! psticipe ‘and gold, Following remedial measures are recommended: 1. Export Promotion 2. Depreciation 3. Exchange Control 4. Import 5. Reducing Inflation 6. Devaluation of Domestic Currency Jibrium in BOP 1. Export Promotion Exports should be encouraged by granting various bounties to manufacturers and exporters. At the same time, imports should be discouraged by undertaking the import substitution and imposing reasonable tariffs. 2. Depreciation Like devaluation, depreciation leads to fall in external Purchasing power of home currency. Depreciation occurs in a free market system wherein demand for foreign exchange far exceeds the supply of foreign exchange in foreign exchange market of a country (Mind, devaluation is done in fixed exchange rate system.) WADHW4A’s Selected Questions and Answers 35 a 3, Exchange Control Government should control foreign exchange by ordering all exporters to surrender their foreign exchange to the central bank and then share out among licensed importers. 4. Import Restrictions and Import Substitution are other measures - of correcting disequilibrium. 5, Reducing Inflation Inflation (continuous rise in pricés) discourages exports and encourages imports ‘Therefore, government should check inflation and lower the prices in the country. 6. Devaluation of Domestic Currency It means fall in the external (exchange) value of domestic currency in terms of a unit of foreign exchange which makes domestic goods cheaper for the foreigners. Devaluation is done by a government order. when a country has adopted a fixed exchange rate system. Care should be taken that devaluation should not cause rise in ‘internal price level. Q1.19 What do you mean by ethics in business? MDU BBA 2019 Ans. Ethics in Business Ethics means the set of rules or principles that the organization should follow. Business ethics refers to a FARRIndian Business Environment 36 0 code of conduct that businesses are expected to follow while doing business. ‘Through ethics, a standard is set for the organization to regulate their behavior. This helps them in distinguishing between the wrong and the right part of the businesses, Business ethics compromises of all these values and principles and helps in guiding the behavior in the organizations. Businesses should have a balance between the needs of stakeholders and their desire to make profits. While maintaining these balances, many times businesses are required to do tradeoffs. To combat such scenarios, rules and principles are formed in the organization. This ensures that businesses gain money without affecting the individuals or society as a whole. The ethics involved in the businesses reflect the philosophy of that organization. Every business should Comprise of the ethical principles such as integrity, loyalty, honesty, fairness, respect and concern. Q1.20 Conceptualize Stock Exchange. MDU BBA 2017 Ans. Stock Exchange According to Husband and Dockeray, “Securities of Stock exchange are privately organized markets which are Used to facilitate trading in securities.” According to Securities Contract (Regulation) Act, 1956, “Stock exchange means anybody or individuals whether incorporated or not, constituted for the purpose WADHWA’s Selected Questions and Answers 37 ———————|— Eee of assisting, regulating or controlling the business of buying, selling in securities,” The stock exchange is also known as the ‘aftermarket’, is the financial market where previously issued securities and financial instruments such as stocks, bonds, options and futures are bought and sold. ‘ Thus, stock exchange is an organized market for buying and selling corporate and other securities. Here, securities are purchased and sold out as per certain well-defined tules and ‘regulations. It provides a convenient and secured mechanism or platform for transactions in different securities. Such securities include shares and debentures issued by public companies which are duly listed at the stock exchange; and bonds and debentures issued by government, public corporations and municipal and port trust bodies. Q1.21 Explain the Impact of IMF on Indian business environment. Ans. Impact of IMF on Indian Business Environment India has a strong and positive relationship with the IMP. The fund has provided financial assistance to India, Which has helped in accelerating the growth of the country’s economy. The IMF has praised the country for it was able to avoid the South East Asian Financial Crisis in 1999 and was also able to continue the average rate of growth of its economy. Then the Managing Director of IMF, Rodrigo De Rato came to India in May 2005. The fund said that the38 Business Environment reasons behi ic growth of India are that the punk of tna tas been able t0 maintain, to 4 =e the stability of the rupee and has also aid its monetary policies very skillfully. The IMF Bs suggested that India can become a financial super power by bringing in more monetary and fiscal reforms that will augment its growth rate to 8%. India’s relationship with IMF has moved from strength to strength over the past few years. Actually, India has, from being a borrower, tumed into a creditor to the IMF and has not been taking loans from it. This relationship has been advantageous both for India and the IMF. India is among one of the developing economies that effectively employed the various Fund programmes to fonify its fiscal structure. Through productive meeting with the IMF, India formulated a consistent approach to = expand domestic and global assistance for economic reforms. Whenever India undergoes balance of payment (BOP) Crisis, it sought the help of IMF arid in turn the intemationally recognized reserve willingly helped India tO overcome the difficulties, 1.22 Explain the functions of IME, Ans. Functions of International Monetary Fund (IMF) Following are the functions of IMF: 1. Determination 6 of the ue of Exchange by Every 2. Technical Assistance Cn de di WADHWA’s Selected Questions and Answers 39 =—————— 3. Stabilize Economies 4, Credit Facilities 5. A Central Bank’s Bank 1, Determination of the Rate of Exchange by Every Country When a country lecomes member of the Fund, it has to declare par value of its currency in terms of dollar or gold. This facilitates multilateral convertibility of that currency. But now because exchange rate is determined by market force demand and supply so this function has been dropped. 2. Technical Assistance The IMF is also performing a useful function to provide technical assistance to the member countries. Such ‘echnical assistance is given in two ways, ie., firstly by granting the members countries the services of its Specialists and experts and secondly by sending the, outside experts, 3. Stabilize Economies ‘The IMF has an important function to advise the member Countries on various economic and monetary matters and thereby to help stabilize their economies. 4, Credit Facilities “IMF jis maintaining various borrowing and credit facilities so as to ‘1elp the member countries in correcting disequilibrium in their balance of payments. These credit: Indian Business Environment 40 0 facilities include - basic credit facility, extended fung facility for a period of 3 years, compensatory financing facliy, Lucifer stock facility for helping the primary producing countries, supplementary financing facility, special oil facility, trust fund, structural adjustment facility etc. The Fund also charges interest from the borrowing countries on their credit. 5. A Central Bank’s Bank IMF may be described as a bank of Central Banks of different countries. It collects the resources of the various Central Banks in the same way in which a country’s Central Bank collects cash Teserves of all commercial banks in a country. However, while a central Bank can Contol the credit policy of its member banks, the Fund cannot so control the domes = tic economic and monetary Policies of member nations. Q1.23 Explain SDRs, Ans. Special Drawing Rights (SDRs) SDI ns aed as the Paper Gold sre a form of st a the problem pt eaaey IMF in 1969 to solve 1s unfavourable, then for meeting such deficits in WADHWA’s Selected Questions and Answers 41 ——————————————— accounts of the IMF are kept. They are allocated to the IMF members in proportion to their fund quotas and are used to settle balance of payment deficits between them. Q1.24 Explain the importance of BOP. Ans. Importance of Balance of Payment (BOP) BOP data may be important for any of the following reasons: . The BOP helps forecast a country’s market potential, especially in the short run. 2. BOP is an important indicator of pressure on a country’s foreign exchange rate, and thus .on the Potential of a firm trading with or investing in that country to experience foreign exchange gains or losses. Changes in BOP may signify the impositions (or removal) of foreign exchange controls. , eo . Changes in country’s BOP may also signal the imposition (or removal) of controls over payment of dividends and interest, license fees, royalty fees, or - other cash disbursements to foreign firms or investors, > BOP data can alsé signal increased riskiness of ending to particular countries. Q1.25 Explain Balance of Trade. Ans. Balance of Trade Balance of Trade is merchandize balance. It Tefers to the difference in the value of imports and exports of goods. When the difference in the value of imports and exportsIndian Business Environment 42 SS of only physical goods or visible items is taken ‘account, it is called Balance of Trade. nto, In the words of Benham, “Balance of Trade of a country is the relation over a period between the values of her exports and the value of her imports.” Qi.26 Explain the meaning of Development Banks. Ans. Development Banks Development banks are financial agencies-that provide ‘medium and long-term financial assistance and act as catalytic agents in promoting balanced development of the country. ‘They are engaged in promotion and development of industry, agriculture, and other key sectors. They also Provide development services that can aid. in the eecelerated growth of an economy. Q1.27 Conceptualize Balance of Payment. MDU BBA 20: Ans. Balance of Payment see i WADHWA's Selected Questions and Answers 43 —— eee a) Visible items which include all types of physical goods imported and exported; b) Invisible items which include those services — transport, banking, insurance etc. whose imports and exports are not visible; and ©) Capital transfers which are concerned with capital receipts and capital payments. Q1.28 Define Social Audit. Ans. Social Audit + Social audit is a tool for evaluating how satisfactorily a company has discharged its social responsibilities. Social audit enables the public as well as the company to evaluate the social performance of the company. According to Ahmed Belkaoui, “Social audit much like the financial audit - is an identification and examination Of the activities of the firm in order to assess, evaluate, measure and report their impact on the immediate social environment.” In other words, social audit involves: a) Identification of the firm’s activities having potential social impact; b) Assessment and evaluation of the social costs and social benefits of such activities; ¢) Measurement of the social costs and benefits; and 4) Reporting, that is presenting in a proper format and manner, the social performance of the firm.Indian Business Environment 44 Q1.29 Explain the meaning of liberalization. MDU BBA 2019 ‘Ans, Liberalization Liberalization means to reduce unnecessary restrictions ‘and controls on business units imposed by government, It means procedural simplification, relaxing trade and industry from unnecessary bureaucratic hurdles. Prior to 1991, government had imposed several types of controls on Indian eéonomy, e.g., industrial licensing System, price control or financial control on goods, import license, foreign exchange control, and restrictions ‘on investment by big business houses, etc. According to M. Dhanuja, “liberalization is related to that ‘state of economic conditions in which rules, gulations ‘and controls are eliminated to promote competition.” Q1.30 What is SIDBI? Ans. SIDBI “r a 4 ie small industries and development bank of India S established for the purpose of Providing loan Be Fonotion and development of industries. wine in April, 1990 by the Pete ee under a special Act of the ‘arliament, 48 a wholly-owned Subsidiary of the main motives of SIDBI nt i SSI andtiny industries,“ “° Stengthen and serve SIDBI WADHWA’s Selected Questions and Answers 45 ——————— It is the premier financial agency for the promotion, financing and development of ‘Small Scale Industries’ in India. As it co-ordinates the functions of the institutions engaged in similar activities. SIDBI has taken over the responsibility of administering the Small Industries Development Fund and National Equity Fund from IDBI. Q1.31 Conceptualize WTO. MDU BBA 2017, 2016 Ans. World Trade Organization (WTO) WTO is an international trade organization having set of rules and principles, mutually designed and agreed upon to promote international tradé in general and reduction of tariff barriers and removal of import restrictions in particular. It is a new world trade order or system. In short, WTO is a new globally recognized trade organization with the new name succeeding GATT on renewed agreements and having a new vision and strong enforcement power to promote international trade. WTO consists of a council of goods, a council for services and a council for intellectual property rights. WTO promotes free trade by removing tariff and non-tariff bartiers in international trade. Q1.32 Explain the objectives of economic reforms. Ans. Objectives of Economic Reforms Following are the objectives of economic reforms: 1, Liberalization and opening-up of the economy.Indian Business Environment_____4° _ waphWA’s Selected Questions and Answers _A7 wAHWA's eee 2. Improving availability of resources. 3. Balance between different sectors of the economy. 4. Making the corporate and the public sector more effective. 5. To improve efficiency, productivity and international competitiveness of Indian industries and to impart ‘dynamism to overall growth process. 6. Minimizing the budget deficits by generating more revenue. 7. Minimizing poverty by reducing the rate of unemployment, Q1.33 Explain the meaning of Globalization. Ans. Globalization Globalization refers to the me Process of i i Wot intone huge na ees of integration of the Temoval of all trade Political and geographi i uch unification calls for the ea among countries. Even barriers become irrelevant. For globalization means integration 2 Countries, wit the world economy. According t0 Charles 1; j towards a more ‘i Hill, “Globalization is the shift economy, Gobagreic a and independent world Blobalization of ‘Wo main components — the Production.” ee obalization | of and variety of cross border transactions in goods and services and of international capital flow and also through the more rapid and widespread diffusion of technology.” Q1.34 What is NSE? Ans. National Stock Exchange Established in November, 1992 by sponsorship of Industrial Development Bank of India (DBD) and co- sponsorship of the Life Insurance Corporation of India, the General Insurance Corporation of India, banks and other financial institutions like SBI capital, Stock Holding Corporation. of India etc. the National Stock Exchange started its operations in June, 1994, It is India’s first national online stock market with segments for both debt and equity markets. NSE was set up to establish a nation-wide trading. Its aim was to provide equal access to investors all over the country and to ensure fairness, efficiency and transparency in trading of securities to make Indian securities market confirm to global standards.‘Indian Business Environment 48) Q2(a) Explain the nature and dynamism of Business Favironment, What factors trigger changes in the business environment? MDU BBA 2019 OR Discuss the components and dynamism of business environment, Also, explain the basic nature of Indian economy system. MDU BBA 2018 OR Discuss the nature and determinants of business environment. Explain the Indian Economic System, MDU BBA 2017 Ans. Nature of Business Environment The following points explain the nature of business environment: : 1. Dynamic 2. Uncertain 3. Impact 4. Complex 5. Relative 6. Interdependent 7. Inter Related | qakaiaiaddl WADHWA’s Selected Questions and Answers > ” 49 8. Totality of External Factors . Dynamic Business environment is continuously changing process. Business environment is dynamic as it keeps on changing in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. The various forces in the environment keep on changing from time to time thus making business dynamic and not static. Uncertain Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries. Impact Business environment has both long term and short term impact. Environment therefore has different effects on different firms in the same industry, for example, drugs. Complex . Business environment is complex in nature. Environment consists of a number of factors, events, conditions and influences arising from different sources which impact business thus making the business complex. Relative - It is a relative concept since it differs from country to Country and region to region, Political conditions in theIndian Business Environment 50 ————————————————— USA, for example, differ from those in China or Pakistan, Similarly; demand for sarees may be fairly high in India whereas it may be almost non-existent in France. 6. Interdependent The environment of the business is made of social, economic, legal, cultural, technological, and political factors. These factors of the environment are inter- dependable. The economic status of a country affects the development of technology. A rich country can make sufficient expenses for conducting research and development. 7. Inter-Related The different factors of business environment are co- related. For example, Jet us suppose that there is @ change in the import-export policy with the coming of @ new government. In this case, the coming of new goverment to power and change in the import- export policy are political and economic changes respectively. Thus, a change in one factor affects the other factor. 8. Totality of External Factors Business environment is the sum of all those factors which are available outside the business and over which the business has no control. It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and lege! contlitions. WADHWA’s Selected Questions and Answers 51 ——————————————————— Dynamism of Business Environment . The business environment is dynamic as it keeps on changing in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. The various forces in the environment keep on changing from time to time thus making business dynamic and not static. Business environment demonstrates dynamism as it is uncertain and keeps on changing. For example, change in government policies, change in taste and choice of the consumer, change in technology, etc. Such changes could be triggered by internal or external factors and it can affect the growth, even the survival of business. That is why business environment is called dynamic in nature. Factors that Trigger Changes in the Business Enyironment OR Determinants / Components of Business Environment There are various factors that trigger changes in the business environment. These are also called the determinants of business environment. Following are determinants / components of business environment: A Internal Environment 8. External Environment A. Internal Environment The internal environment is the environment that has a direct impact on the business. The elements of internal environment are within the organizations’ boundaries. eS eee5: Indian Business Environment 2 lS ———— These are inherent to business and are controllable by | bein itself. These can be modified and changeq as and when required. Components of Internal Environment The internal environment includes the following factors | or components: 1. Objectives of the Business | 2, Financial Factors 3. Managerial Policies | 4, Promoter's Vision 5. Company Image and Brand Equity | 6. R&D and Technological Capabilities | 7. Work Environment 8. Physical and Human Resources 9. Labour Management Relationship 10. Morale and Commitment of Human Resources 1. Objectives of the Business Objectives are decided ‘by the business for planniné about what they want to achieve, both in the short icim and the long-term. These objectives help in shaping he decisions that the company: will také in order © achieve the set goals, Decisions are required on * Variety of aspects, 8. Tesource’ requirement, types of ee " services, training needs, and technolos! WADHWA’s Selected Questions and Answers 53 eee 2. Financial Factors Factors, like financial policies, financial Position and capital structure are also important internal environment affecting business performances, Strategies and decisions. 3. Managerial Policies The managerial policy determines thé business capacity Tanges, the company. targets and the behaviour principles in relation to the relevant groups of Tequirements. It regulates handling interest conflicts inside and outside. It serves the consent identification in the value conceptions and interests of all relations with these groups, load-carrying to the enterprises took part °F of its actions groups concerned and the permanent care. : 4. Promoter’s Vision The extent to which the value system is shared by all, in the organization is an important factor contributing to Success. The value system of the founders and those at the helm of affairs has important bearing on the choice of business, the mission and objectives of the organization, business Policies and practices. : 5. 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 or sale Contracts, launching new products, etc. Brand equity is also relevant in several of these cases.CC La EK Indian Business Environment 54 | 6. R&D and Technological Capabilities It determines a company’s ability to innovate ang ‘compete. 7. Work Environment ‘The organization structure, the composition of the board f director, extent of professionalism of management, etc., are important factors influencing business decisions. | 8. Physical and Human Resources ‘The characteristics of the human resources like skill, | quality, moral and commitment, attitude, etc., could | Commbute to the strength and’ weakness of a1 | Sreanization, The involvement, initiative, etc., of people | & fiieent ‘levels may vary from organization © | Organization. t | } or like the amount of sy | :; pport the top managemet | ap uletet levels of employees, sharcholde | Ons and than a Have important influence. on th? WADHWA’s Selected Questions and Answers _55 See B. External Environment The external environment refers to the factors existing outside the business firm. These factors are beyond the control of a company. The external environment “consists of ali the factors which provide opportunities or pose threats to an organization. There are two con:ponents of external environment: 1. Micro Environment 2. Macro Environment » . Micro Environment Micro ‘environment consists of the factors in the company’s immediate environment. The micro factors influence a firm closely, regularly and directly. They affect the performance of a company because they are very intimately linked with the day-to-day working of the company. They need not necessarily influence all the firms in a particular industry in the same way. The Success of a firm can rely heavily on the way any business deals with micro forces at play. Components of Micro Environment The micro environment is composed of the following components: a) Customers b) Suppliers ©) Marketing Inte: nediaries ik d) Competitors .56 jan Business Environment e) General Public ) Customers * The prime task for any business is to attract and retain customers, Retaining the customers helps in ensursn long-term profitability and existence in the maric: Changing tastes and preferences of customers should h< observed as well as forecasted so that corrections can be made in the product / service provided by the company. Customers are the major forces of the environment because any organisation cannot afford to negles! ‘customer interests, They are the backbone of a company and the very reason for the company’s existence. They are the people who pay money in return for products of __ Services that any company offers. necessary nes to the company. The suppliers oe as business I 4 WADHWA’s Selected Questions and Answers _57 aaa service to the ultimate consumer. They can be few or many in number, depending upon the length of distribution chain and the type of distribution system that the company adopts. d) Competitors Competitors are the other business entities that manufacture similar products and compete with a company for market share and turnover. These have to be managed well and market intelligence is required to find about their future plans. The competitors play a major role in making or damaging the fortunes of any company, e) General Public ‘These refer to the immediate physical environment of any organisation. People, who live around an office or a factory area exert considerable influence with regard to disposal mechanisms of waste, production practices employed, noise pollution generated, etc. These people cannot be ignored as they might go as far as possible for getting the business closed down. 2. Macro Environment Macro environment is the larger, uncontrollable environment consisting of societal forces that affect all the other environments. They offer tremendous Opportunities for any business and also present threats that can harm a business in a major way. This environment becomes crucially important to understand gee vile herpes of eee anes eetIndian Business Environment 58 SS Components of Macro Environment Following are the components of macro environment: a) Economic Environment b) Political Environment c) Government Environment @) Financial Environment €) Socio-cultural Environment f) Natural Environment 8) Intemational Environment h) Technological Environment i) Legal Environment J) Demographic Environment a) Economic Environment mic environment consists of macro-level of an organisation, Some of the Specific fact i stage of developmen; of the | The sta development of th nom! n economy, ©8 | underdeveloped, developing economy, \ tors are: * The economic ing; indic Per capita income, at ©8- National income, GDP: ° The type of economic 5 | © capitalism, auc. Prevailing in count”) or mixed econom, y. os WADHWA’s Selected Questions and Answers _59 ———————————————— « Economic policies of the government, e.g. industrial policy, monetary policy, etc. © The general economic condition in the region. b) Political Environment This refers to the political situation that is prevailing in a country at any point of time. These factors consist of the management of the public affairs and their impact on the business of any organisation. Some of the aspects of the political environment are as follows: * The general state of political development. © The degree of politicalisation of business and economic issues. The level of political morality. The law and order situation. © Political stability. * Political ideology and practices of the ruling party. ¢) Government Environment In any type of economy, the government plays 4 vital and influencing role in regulating the business in < country. It sets the general parameters within whict businesses are supposed to function. Some of the specific factors are: © The purposefulness and efficiency of governmen agencies. © The extent and nature of government intervention i. the economy and industry.+ The overall policies of the government regarding development of the industry. ‘© The tenure of the ruling government. © The people comprising the government. @) Financial Environment — Financial environment sets the basis for developmental ‘activity of the business system. There are numerous ‘elements that form a part of this environment. ‘Some of them are as follows: and vision of commercial banks. g) International Environment i: I i WADHWA’s Selected Questions and Answers __61 rr ® Customs and traditions of a place. + Beliefs and value systems. © Family structures. ‘© Degree and rate of urbanisation. f) Natural Environment This environment very often sets the basis of whether it is possible to do a particular business in a place or not. Difference in geographical conditions between markets ‘may sometimes call for changes in the marketing mix. Geographical and ecological factors also influence the location of certain industries. Some of the factors are as given below: 4 % * The climate of a place. © The physical features of the location. © The type of crops grown there. © The water supply conditions. * The soil conditions. * Location of the place. = The world is operating like a global village. Political — boundaries are vanishing and international trade barriers oe have reduced, making trade easier between the | countries. < oo Thus, it becomes imperative for ‘companies to study a wide variety of differences that. exist beryreIndian Business ENVIRON OTE WADHWA’s Selected Questions and Answers _63 countries. Certain factors that need to be studied are ay i) Legal Environment follows: * Legal environment consists of factors related to © The culture of a place. | the planning, promotion and regulation of business ‘© The accepted practices and norms of that country. activities in a country or a region. There are various Acts es that are formulated and amended, which specifically . R relate to particular industries. It includes the following: © Ways of greeting people. * ‘Specific manners and mannerisms. * Specific legal enactments. «Laws / Acts imparting a particular business. * Broad frameworks under which the businesses have to function. Policies related to imports and exports. Special legal provisions relating to procedures, permits, licences, patents, trademarks, etc. Policies relating to licensing, monopolies, foreign investment and financing of industries. © Policies relating to small scale industries and consumer protection. factor: . Policies relating to environmental pollution. | _ j) Demographic Environment This environment deals with the composition and | characteristics of the population of a place. All the — relevant descriptions of the population of a place wil respect to its demographic’ profile will affect business decisions drastically. It would be in the interest of any, firm to consider these aspects in detail before planning : c the strategy. It includes factors such asi ‘Indian Business Environment __- 64 SSS © Family size © Size of population © Educational levels ‘© Economic classification of the population Sex ratio composition of the population © Religion and caste * Life expectancy Indian Economic System An economic system or economy refers to a system it which people organize their activities and for WADHWA's Selected Questions and Answers 65 ————————— Q2(b) Explain the nature and types of Indian economic system, Ans. Nature of Indian Economic System Following are the features or characteristics of Indian economic system: 1, Coexistence of Private and Public Sectors x Reduction in Inequalities of Income » Government Control and Regulation of the Private Sector |. Government is Committed to the Promotion of Public Welfare and Protection of Labour, the Poor and the Marginalized - 5. Control of Monopoly 6. Nationalization of Basic Industries 7. Provisions of Social Welfare Measures 8. Consumer Sovereignty is Protected, but Government Controls Production, ‘Consumption and Distribution 9. Promotion and Economic Development through Planned Efforts - 10. Resources Allocation through the Price ‘System and G Directi 1. Coexistence of Private and Public Sectors In this Indian type of mixed economy, both public and Private sector coexist. Industries in India are broadly divided into two categories, those that are run by the66 ndian Business Environment } eS —————————————— public sector and those that are licensed to be establisheq and run by the private sector. ‘There are other types of organizations that also mp industries such as cooperatives, joint sector and so on, but they constitute a small tiumber ‘and are not very significant. -There are several industries which are owned by the state and by various layers of the government. 2. Reduction in Inequalities of Income One of the important feature and aim of Indian mixed economy along withthe centrally planned economic | model is to take adequate measures to reduce the tremendous “inequalities of income found in the country. Tnequalities of the income and wealth arise due to a | Yaniety of reasons such as inborn differences in the Capabilities of individuals and the Spirit of enterprise, Ticensing system, corrupt. practices prevalent in every 24 of the economy, administrative controls and ons which are the breeding grounds for Ti NemlcsAl riassing’ of wealth, soci differences and ae System) the laws of inheritanc? Gove a cart pee including the one in India mak? only to avoid social Mequalities with the view 1% Social justice, soci # but more so for promoting ee Enhanced production of Providing equalopportuniti¢* WADHWA’s Selected Ques! EEE eed 3. Government Control and Regulation of the ns and Answers _67 Private Sector In a mixed economy as practiced in India, the union government controls the entire economy and regulates the private sector also. The government declared the industrial policy to indicate the respective spheres of the state and the private enterprise. The objectives of the industrial policy are to cover procedures, principles, policies, rules and regulations which control the industrial undertakings and shape the country’s industrial growth. It also incorporates the fiscal and monetary policies, the tariff policy, policies towards Public and private sectors and spells government attitude to external assistance, foreign investments and clarifies issues with respect to import of technology, roles of Cottage and small-scale industries in the development process. 4. Government is Committed to the Promotion of Public Welfare and Protection of Labour, the Poor and the Marginalized In the mixed economy like the one we have in India, the 80vernment is committed to the welfare of the labour, the Poor and the, marginalized. To promote public welfare, it has enacted various laws and launched innumerable schemes. These include quotas in educational institutions, on job Opportunities for scheduled castes and scheduled tribes, Scholarships and freeships, unemployment insurance, old-re Indian Business Environment 68 age pension, the publié distribution system and so on, Labour is being protected by various measures including Factory Acts, Minimum age Act etc. 5. Control of Monopoly Even in mixed economy like the one we have in India, there is a tremendous scope for the emergence of monopolies in several consumer goods industries which face no competition from public sector industries, ‘Though the industrial licensing policy of the Government of India was aimed at curbing the monopolies through the Industrial Development and Regulation Act of 1956, still Several family promoted companies bent these acts to suit their convenience. 1 6. Nationalization of Basic Industries One of the significant features of mixed economy as has been practiced in India is the acknowledged public sector, but if there had been such industries established earlier by Private entrepreneurs, the government had the right ‘0 nationalize them. Though the Indian government had delineated Specific areas where private sector could establish and operate enterprises for the benefit, there had eee Several instances where private sector industries ha been nationalized by the government. The industrial units tribution of ojl, that Were engaged in production 2 ' ailing textile companies and © pacgaee nationalized and were made into publ national i Similarly, 21 major private banks We" ized at different Points of aan WADHWA's Selected Questions and Answers 69 7. Provisions of Social Welfare Measures Governments that have adopted a mixed economy model try to provide social security measures to the vast majotity of its citizens. They adopt such measures as to soften the blow the poor and the marginalized sections of the society suffer because of the inequitable distribution of income and wealth. Generally, a vast majority of people in the developing countries are so marginalized that they cannot afford even the basic necessities of life. Economic policies of governments that aim at control and Tegulations ‘of industries for the benefit of the larger Sections of the society are being twisted, misused and abused by the rich and the influential. Therefore, with a view to ameliorating the conditions of the poor, the government has been continuously adopting a serics of Social welfare measures. The government heavily Subsidizes the goods that the poor buy. : 8. Consumer Sovereignty is Protected, but the Government Controls Production, Consumption and Distribution In the Indian mixed economy pattern, consumers exercise 4 good deal of choices in choosing the goods and Services they want to confine and also in the matter of €mployment. Consumers in India are free as in any free €nterprise economy except for a few products and Services that are under direct government control. There . 8f€ some areas where the government exercises controls. Such as production, consumption and distribution.me jan Business Environment 70 WADHWA’s Selected Questions and Answers _71 a, eS ee nen ee 9, Promotion and Economic Development through 1. Capitalism Planned Efforts Capitalism is a system in which property is privately In a mixed economy, just as in socialism, there is , owned and economic decisions are privately made. centrally planned effort to promote economic | development. This is done.by avoiding wastage and duplication of efforts which are characteristics of capitalistic economy. Besides, the country’s scarce resources are allocated judiciously to ensure that these are used in the most useful, effective and productive Capitalism stands .or an economic organization in which manner, all the means of production are privately owned. In this system, production takes place at the initiative of. individual private entrepreneur, who works largely for his private profits. Government intervention in the “economy In India’s mixed economy, resources are allocated is at the minimum level which is considered necessary through the price systems as well as government for the stability and the growth of the system. directions. In most of the consumer Product industries which have been allocated to the private sector under Indian industrial Policy resolutions, the market system determines prices through the interaction of demand and Supply and also resources are allocated to the most According to R.T. Bye, “Capitalism economy may be defined as that system of economic organization in which free enterprise, c mpetition and private ownership of property generally orevail.” 10. Resources Allocation through the Price System and Government Directions As the’ economy is based on free enterprise and the Government does not interfere, the system has come to - _ be called ‘free market economy’ or ‘market system’ or ‘laissez-faire’. In short, capitalism is a system of €conomic organization “featured by the private desirable and profitable ends, " Ownership and the use of private profit of man-made and Ypes of Indian Economic System : ae The economic system of Features or Characteristics of Capitalism a India is of vari ch as Capitalism, socialism an ee id mixed. These are explained in Following are the characteristics of capitalism: the following points: 1. Capitalism : . 4) Profit Motive 2. Socialism ‘ei b) Consumers’ Sovereignty . Mixed Economy ©) Price Mechanism d) Competitiondian Business Environment 72 WADHWA’s Selected Questions and Answers __73 C—O e))Private Property d) Competition ) Freedom of Enterprise | Competition is one of the most important features of a g) Self-interest or Economic Motivation capitalist economy. It implies the existence of large é number of buyers and sellers in, the market who are a) Profit Motive i motivated by self-interest but cannot influence market In this economy the desire to earn profit is the most | decisions by their individual actions. It is competition important inducement for economic activity. jl | among buyers and sellers that determines the production, consumption and distribution of goods and services. There being sufficient price flexibility under capitalism, prices adjust themselves to changes in demand, in an inducement that the entrepreneur is prepared 10 production techniques, and in the supply of factors of “undertake high risk. Therefore, it can be said that Profit production. Changes in prices, in turn, bring adjustments a the soul of capitalist economy. | in production, factor demand and individual incomes. t entrepreneurs try to start those industries in which they hope to eam the highest profit. Such industries which are ‘expected to go under a loss are abandoned. Profit is such e) Private Property Right of private property is an inherent part of capitalism. ~The right of private property includes three things: © Every individual has the right to accumulate y ull invest their funds in the s and Services which art property; Megane those © An individual is free to use his property according to his will; and © Right of inheritance, i.e., after death of an individual ___ his property goes to his successors. _ Government protects the right to property. However, the 25 "freedom to'use property is subject to government laws and regulations. The right of private property induces the 4 eople to work hard and increase production so that they their property. Right of private property ss the rate of capital formation, = Siie adil Indian Business Environment 74 iden 6 f) Freedom of Enterprise Freedom of enterprise means that there is free choice of ‘occupation for an entrepreneur, a capitalist, and , Jabourer. But this freedom is subject to their ability ang t taining, legal restrictions, and existing market ‘conditions. Subject to these limitations, an entrepreneur is free to set up any industry, a capitalist can invest his ‘capital in any industry or trade he likes, and a person is ‘free to choose any occupation he prefers. It is on account ‘that a capitalist economy is also called a free is individualistic. Each individual is He is motivated by the desire _ 6f the presence of this important feature of freedom of | Self-interest works as an invisible | awit. WADHWA’s Selected Questions and Answers _75. + responsible to the community according to a general plan. ‘All the members of community being entitled to the benefits from results of such socialized planned production, on the basis of equal rights.” According to Leftwitch, “In socialism the role of the state is central. “It owns the means of production and directs economic activity. Under this economic system, governinent appoints a central planning authority that takes all economic decisions, viz.,-what to produce, how much to produce, how to produce, and for whom to produce. Features or Characteristics of Socialism Following are the characteristics of socialism: a) Economic Planning b) Colléctive Ownership ) Elimination of Exploitation 4) No Competition ©) Maximum Social Welfare f) Production for Exchange a) Economic Planning Under socialism, government fixes certain objectives. In order to achieve these objéctives, government adopts. economic planning. All types of decisions regarding the central problems of an economy are taken in the economic plans. There is a Central Planning Authority, who plans for the economy. * éIndian Business Environment 76 ee b) Collective Ownership In socialism, all meats of production are owned by th ‘community, ic., Government, and no individual can hoi Private property beyond certain limit. Therefore, jit jg government who utilizes these resources in the interest of ‘social welfare, ©) Elimination of Exploitation ‘Glass distinctions do not exist in socialism. it automatically follows from the fact that property is ‘Socialized. When no property is privately owned, there of employers or workers. Obviously, a feonomy, there is ‘no cut throat slack of competition as state is the a there is no scope of iment keeps a clos? formulating racteristic of cing system sf socialis WADHWA’s Selected Questions and Answers 77 guarantees freedom of consumption, although this freedom may be limited to the available goods only. But within this limit, the individuals are permitted to spend their income on the items of their preference. 3. Mixed Economy The economy that comes into being as a result of synthesis of private sector of capitalism and public sector of socialism is called a mixed economy. Mixed economic system is a fusion of the characteristics of both capitalism and socialism. The chief advantage - of the capitalistic or free enterprise economy is that it Bives free reign to individual initiative and private enterprises. Socialistic economies, on the other hand, can claim economic justice in their favour. A mixed economy is an attempt to combine the advantages of both these systems into one. It incorporates the features of - both. On one hand, a mixed economy allows private enterprise a free hand; on the other hand, it promotes public sector _ in the economy, A mixed economic system has, therefore, been defined as a system in which the public sector and the private sector are allotted their respective roles simultaneously in promoting the economic welfare of the community. 4 Features or Characteristics of Mixed Economy ~ Following are the characteristics of mixed economy:Oe ee Indian Business Environment 78 b) Categorization of Industrial Undertakings ¢) Profit Motive and Social Welfare @) Economic Planning ¢) Economic Welfare a) Existence of Public and Private Sectors Both public and private sectors exist in this system. Their Tespective roles are well-defined, as also their aims. The Public sector is intended to perform these functions: * To create industrial climate in the economy by Providing necessary infrastructure; ® To initiate and manage those industries which require huge capital investments; . To promote the growth of long-gestation projects; * To promote those industries development : and industrial in those areas that may not offer proper ents to private entrepreneurs. effos ofthe pup, gon PEEEA to supplement the HC sector and to take advantages of the ector, ‘“teated by the public s WADHWA’s Selected Questions and Answers 79 0 ———————— Those fields of production which are the exclusive monopoly of the public sector; © Certain fields may be open to both public and private units of production; « Those areas which are exclusively entrusted to the private sector; © Those joint sector projects in which the state may join hands with the private entrepreneurs. ¢) Profit Motive and Social Welfare Aim of production under mixed economy is to eam private profit as in capitalist economies and to promote social welfare as in’ socialist economies. If the government is convinced that some private industries are working against the interests of the society, it nationalizes them and transfers them to the public sector. d) Economic Planning The Government adopts the instrament of economic planning under mixed economy. This is necessary for the Public sector enterprises which have to work according to some plan and to achieve certain pre-determined Objectives. In the same way, the Private Sector cannot be left to develop in its own way. ¢) Economic Welfare It is the most important criterion of the success of a mixed economy. Public Sector seeks to avoid regional inequalities, provides large employment opportunitiesa Indian Business Environment oo Indian Business EO and often its price policy is guided by considerations of economic welfare rather than by profit motive. Private activities are influenced through monetary and fiscal policies to make them contribute to economic welfare of the society at large level. sniot Cooperative sugar mills in Maharashtra), WADHWA’s Selected Questions and Answers 81 Q3.a) Explain the meaning of Private Sector? Describe the growth of private sector in Indian economy. Ans. Private Sector Private sector refers to that sphere of economy where there is private ownership and control over the means of production. Private owners utilize these means for maximum profits and in order to promote one’s own interests. In short, when the ownership, management and control of business and industrial enterprises are in hands of private entrepreneurs, it is called private sector. In India, private sector can be conveniently divided into three parts: 1. Organized Sector: This includes large scale units and big industrial houses. "2. Unorganized spe This includes individual eG howd Small Scale Units ” | Private sector industries in India inchide individual os: spout enterprises, partnership and Joint stock Se (ie., private corporate industrial sector) “and oe units in the cooperative sector (as, for example, aa 36 © sector enterprises usually have a shorter and in life and they also run big risks But oe rivate sector enterprises score “oO aaa ok in matters of profitability PT caneIndian Business Environment 82 | TT Many a times, ‘owners of private sector enterprise, unite to ean higher monopolistic profits or to influence | politics and economy ofthe country, in their favour, Growth of Private Sector in Indian Economy | Following constraints indicate the growth of private ‘sector in Indian economy: 1. Increase in Employment in the Private Organized Sector ‘ 2, Increase in the Number of Private Sector Companies e in Factor Income Eamed in the Private WADHWA’s Selected Questions and Answers 83 ——————————————— witnessed significant growth. The following table shows the growth of private sector companies in India. ‘Table: Growth of Private Sector Companies in India Year _ | Number of Private Sector Companies| 1957 19.283 1971 30.461 2006 730,817 2007 7.42,009 (Source: Statistical Outline of India, 2008-09; India 2009) 3. Increase in Factor Income Earned in the Private Organized Sector Factor income (in the form of rent, interest, profit and Wages) generated in the private sector has been constantly rising, 4, Growth of Big Business Houses Big business houses have made a substantial progress in India after independence. Various large industrial houses have emerged in India, viz. Tata, Birla, Reliance, Thapar, Singhania, Larsen & Toubro, Modi, Bajaj, ITC, Oswal Agro, DLF etc. There has been significant increase in the assets of big industrial houses in India, 5. Growth of Small-Scale Industries Growth of small-sale units is another important indicator _ Of the private sector. In 1986-87, there were around 15 - lakh small-scale units in the country. In 2007-08, this ~ increased to 133.67 lakh. Between this period, production Value of the small-scale units increased from Rs. 72,250mt. i indian Business Environment £4 | WADHWA’s Selected Questions and Answers _85 - See eee es one ee Private Se Q3.(b) Differentiate between the > Sector , ae and Public Sector Enterprises, ‘Ans. Private Sector Enterprises Private sector refers to that sphere of economy where there is private ownership and control over the means of production. Private owners utilize these means of aximum profits and in order to promote one’s ovn mf, when the ownership, management and control of ; and industrial enterprises are in the hands of| | iblic at large collective) BRS er: the public sector. Public’ enterprise meas} f industrial, agricultu! | enterprises which are owned, managed and controlled by central, state or any local government. Following are the differences between private sector enterprises and public sector enterprises: Private Sector Sec Enterprises « “Enterpris L.Its objective is | 1. Its . maximization of profit. objective is maximum _ of. social welfare and ensures ~ balanced — development, economic 2. It is owned by the] 2.It is owned by the individuals, a a Government. fapital is raised by ‘owners through loans, private sources, and Public issues.’ ~ 3. Capital is raised from government funds and sometimes throu; “members is 50.————~_—lUlt—~— awe: Indian Business. Environment 86 | waDHWA’s Selected Questions and Answers 87 Q4. Explain the objectives of public sector enterprises and also explain the factors responsible for the growth of public sector in India. 6. The minimum umber 6. The minimum number ‘of members required to form a public company sia 7: ‘Ans. Objectives of Public Sector Enterprises Following are the « bjectives of public sector enterprises: . To Set Up Heat y Industry 7. Not restricted. by the|| Articles of Association] | on transfer of shares. . To Perform Welfare Activities . To Promote Economic Equality : . To Promote Regional Equality ). To Promote Self-Reliance |. To Increase Employment company is nol “Tequired to use the 1. 2. 3 4. 5. To Increase Capital Formation 6. 7: word ‘Private’. 8. . To Check Evils of Monopoly ute is present) 9. To Increase the Income of the Government ee od gor making 1. To Set Up Heavy Industry Heavy and key industries need substantial amount of capital which is beyond the capacity of private _ entrepreneurs. To fulfill this requirement, the coven ~ has to set up public enterprises. i: : 2.To Perform Welfare Activities i Tt has become ab st essential forthe welfare state to8 “Environment 88 3. To Promote Economie Equality | , oeey avoid concentration of economic power, i is essential that key industries in the economy are run by the state; as priyate, sector enterprises may result jn ‘concentration of economic power. Thus, public sector | ~ efiterprises help to achieve economic equality. 4. To Promote Regional Equality ‘From the viewpoint of industrial development, there are lots of regional ‘inequalities in India. On the one hand, _ ly developed regions like Maharashtra, West Bengal. On the other Bihar, Jharkhand, an¢ | ekward. Public enterprises cat industrially backward regions. As equality apres. component of capitl deyéloped countries growth, Therefore, uch industries WADHWA’s Selected Questions and Answers __89 SSS 7. To Increase Employment Public sector enterprises-are also expected fo generate employment opportunities in the economy. In these . enterprises, job security is more, so people prefer - employment in public enterprises. 8. To Check Evils of Monopoly Public enterprises are useful with a view of checking the ‘ évils of monopoly growth in private enterprises. . 9. To Increase the Income of the Government ‘Public enterprises are expected to generate income for the government. The government may utilize this income for development programmes of nation. Factors ,Responsible for the Growth of Public » Sector in India ft : Following are the factors that are responsible for the growth of public sector in India: _ 1. Indian Copstitution : souaielin i r ‘Development of Infrastructure, Establishment of a Socialist Society, Risky Enterprises 6 Long Ge Gestation Period ‘ of Regional Differences enbpne Collaboration’ aff gil Sito 2f set S0toA pisreaske tipodian Business Environment : 90 9, Reduction in Economic Inequalities 10. Policy of Economic Planning 1. Indian Constitution A developing country suffers from various economic, social, political and cultural bottlenecks. It does not merely aim at bringing about economic growth within the ‘existing framework. Iis fundamental objective is to lead in a completely new socio-economic order. In India the Directive Principles of State Policy are to serve as the guidelines while framing laws to promote welfare Of the people and ensuring social, economic and political ater supply, 2 ed only when th g countries, 4° ete,, a sizable ot For WADHWA’s Selected Questions and Answers _91 A eS SSS 4, . Long Gestation Period Establishment of a Socialist Society Since 1955, India resolved to establish a socialist pattern of society in. India. The private sector was to play an effective role in it, no doubt. However basic, key and strategic industries which were of vital importance for the economic regeneration of the country were entrusted to the public sector. Gradually, insurance, banking, finance © and many other sectors which were considered vital for the promotion of socialist objectives in the country were brought under the public sector. Risky Enterprises Besides, private entrepreneurs may be introverted to come forward for certain activities where the elements of tisk and uncertainty are too high. For instance, take the case of the exploration of oil and natural gas, generation of atomic energy, etc. Private enterprise is dominated by Short-sighted calculation of cost and profit. It cannot view the social needs’ from an aggregative point of view. Such activities also have to be assumed by the state itself. There are certain basic and heavy industries which are "highly capital intensive. Such undertakings may give rise to returns after a long period. Take the case of steel, fertilizers, chemicals, and aluminum, etc. The private Sector may not be ina position to wait for a long period. Moreover, such industries enjoy a kind of semi- “monopolistic position in the economy. Development of iyate monopoly in such basic industrial activity isan Busnes Envronment 8 not a very rational step. Public sector is justified in this case, 3 7. Removal of Regional Differences __ Public enterprises may be used a5 a tool for reducing "regional disparities i in economic development. In India certain states like Orissa, Rajasthan, Madhya Pradesh, ae re me backward. Through central public sector projects may be in ‘such areas. Public sector financial ‘may play a central role in promoting “ial activities in these backward aio al aid and forcign the public sector easily assure 4 Besides, the to render the public WADHWA’s Selected Questions and Answers _ 93 the poor unemployed. They also act as model employers and improve the incomes of the employees. Thus the setting up of public enterprises is likely to have a ” favorable redistributive effect on income and wealth in the society. 10. Policy of Economic Planning After independence India adopted the planned path to economic development. Under the Five-Year Plan certain objectives were laid down. Targets were fixed. It _ was considered that public sector enterprises would serve as an effective tool for a better and rapid implementation of planned programmes. The public sector is more suitable to achieve the national goals and priorities than the private-sector. ratios sye.te soule’ has eeindian Business Environment 94 QS. Discuss the concept of social responsibility jn Indian economy. How optimum level of social db: responsibility can be achieves Y oan organisation? MDU BBA 2018 OR How can a firm determine optimum level of OR. Explain the criteria for determining social MDU BBA 2016 ition. It is an organ of society and its *4 decisive influence on social welfare. | must Work beyond the narrow ‘Operate in the overall ‘Social responsibility is WADHWA’s Selected Questions and Answers 95 ee According to Keith Davis, “Social responsibility of business implies that the businessman’s decisions and actions are taken for reasons at least partially beyond the firm’s direct economic interest.” According to George A. Steiner, “In real sense, social responsibility implies recognition and understanding of the aspirations of society and determination to contribute towards their achievement.” Therefore, social responsibility of business means responsibilities of business towards customers, workers, shareholders and the community. Social. responsibility of business ‘implies achieving business objectives in an environment of fairness, honesty and courtesy towards our clients, employees, vendors and society at large. Criteria for Determining Social Responsibilities Tt has been established that voluntary assumption of social responsibilities by business is justified on social, economic and moral grounds. However, the difficulty “arises when the concept of social responsibility is put into Practice, Each and every business enterprise has to decide how -Much money and time it should spend in the discharge of "social responsibilities. There is no formula or ideal ‘yardstick by which the social obligations of business may determined. owever, the following policy guidelines may be helpful