BUSINESS ENVIORNMENT

UNIT - 1

1. BUSINESS ENVIORNMENT ANALYSIS:

Business environment analysis is a process of gathering and analyzing data
and conditions outside of a business. It involves identifying and assessing
internal and external factors that positively or negatively affect a business.
This analysis is crucial for a business as it helps to identify how the external
environment contributes to the business's survival, long-term and short-
term future, and operations. The analysis consists of internal and external
factors, and the two common types of methods used are PESTLE and SWOT
analysis. The PESTLE analysis examines high-level trends concerning the
market, customers, technology, and more, while SWOT analysis evaluates a
business' strategic standing based on its internal and external factors. The
process follows a systematic process of identifying and gathering data related
to these factors in order to anticipate and respond to potential impacts. With
these insights, businesses can develop a strategy that takes advantage of
opportunities and reduces threats, which will help in analyzing and
identifying external factors that could impact a business.
2. BUSINESS ENVIORNMENT NATURE:-
The business environment refers to the external and internal factors that
affect the operations of a business. It is the sum total of all the external and
internal factors that influence the functioning of a business. These factors
include customers, suppliers, competitors, technology, government policies,
social and cultural factors, economic conditions, and legal regulations.

The nature of the business environment is dynamic, and it is constantly

changing due to various factors. The external environment is composed of
macroeconomic and microeconomic factors that influence the business
operations. The macroeconomic factors include the state of the economy,
government policies, and political stability, while the microeconomic factors
include customer behavior, supplier behavior, and competition.
The internal environment is composed of the factors within the organization,
such as organizational structure, culture, and management practices. These
factors have a significant impact on the company's operations and can
influence its ability to achieve its goals.
The business environment is critical for any business as it can affect its
performance and competitiveness. A company that understands its business
environment and adapts to the changes can gain a competitive advantage
and succeed in the long run.

3. BUSINESS ENVIORNMENT STRUCTURE AT MICRO AND

MACRO LEVEL:-
The business environment can be classified into two categories: micro and
macro. The micro-environment refers to the internal factors that affect a
company's operations, while the macro-environment refers to the external
factors that affect a company's operations.

Micro-environment:
The micro-environment includes factors that directly affect the operations
of a company. These factors include customers, suppliers, competitors, and
employees. Companies need to be aware of the micro-environment because
it can have a significant impact on their business operations. For example, a
company's reputation can be influenced by customer satisfaction, while
supplier quality can impact product quality and pricing.

Macro-environment:
The macro-environment includes external factors that affect a company's
operations indirectly. These factors include political, economic, social,
technological, environmental, and legal factors. Companies need to be aware
of the macro-environment because it can have a significant impact on their
business operations. For example, economic conditions can affect the
demand for a company's products, while changes in technology can disrupt
an entire industry.
The following is a breakdown of the various factors that make up the micro
and macro-environment:
Micro-environment:
• Customers - their needs, preferences, and behavior
 • Suppliers - their quality, reliability, and pricing
• Competitors - their strengths, weaknesses, and strategies
• Employees - their skills, motivation, and job satisfaction
Macro-environment:
• Political factors - government policies, regulations, and stability
• Economic factors - economic growth, inflation, and unemployment
• Social factors - demographic trends, lifestyle changes, and cultural
norms
• Technological factors - innovations, research, and development
• Environmental factors - climate change, natural disasters, and
sustainability
• Legal factors - laws and regulations, such as labor laws, tax policies,
and intellectual property rights.
Overall, businesses need to understand the micro and macro-environment to
make informed decisions, adapt to changes, and stay competitive.
4. BUSINESSES ENVIORNMENT DETERMINANTS:-
The business environment is influenced by various internal and external factors
that determine the success or failure of a business. Some of the key determinants
of the business environment include:
1. Economic Factors: Economic factors such as inflation, interest rates,
exchange rates, and the level of economic growth can significantly impact
a business. These factors affect the purchasing power of consumers and the
cost of production, which in turn can affect the profitability of a business.
2. Political and Legal Factors: Political stability, government policies, and
regulations can also have a significant impact on a business. These factors
can affect the ease of doing business, the level of competition, and the cost
of compliance with regulations.
3. Technological Factors: Advances in technology can have a significant
impact on a business. New technologies can create new products and
services, increase efficiency, and reduce costs. Failure to keep up with
technological advances can leave a business at a competitive disadvantage.
4. Social and Cultural Factors: Social and cultural factors such as changing
consumer preferences and attitudes, demographics, and lifestyle changes
can significantly impact a business. These factors can create new markets
or make existing markets obsolete.
 5. Environmental Factors: Environmental factors such as climate change,
pollution, and natural resource depletion can have a significant impact on
a business. Businesses that fail to address environmental concerns may
face reputational damage, legal penalties, or decreased demand for their
products or services.
6. Competitive Factors: The level of competition in an industry can also
impact a business. The number and strength of competitors, the ease of
entry into the industry, and the level of product differentiation can all affect
a business's ability to succeed.
5. COUNTRY RISK IN BUSINESS ENVIONMENT IN "International
Business: Competing in the Global Marketplace" by Charles W. L. Hill.
Definition of Country Risk: This subheading may provide an overview of
what country risk is and how it can impact businesses operating in a global
marketplace. It may also discuss different types of country risk such as
political, economic, and social risk.
1. Political Risk: This subheading may focus specifically on political risk,
discussing the different types of political risk, such as expropriation,
corruption, and terrorism. It may also discuss how political risk can
impact businesses and provide examples of businesses that have been
impacted by political risk.
2. Economic Risk: This subheading may focus specifically on economic
risk, discussing the different types of economic risk, such as exchange
rate risk, inflation risk, and interest rate risk. It may also discuss how
economic risk can impact businesses and provide examples of
businesses that have been impacted by economic risk.
3. Social Risk: This subheading may focus specifically on social risk,
discussing the different types of social risk, such as cultural
differences, labor issues, and demographic changes. It may also discuss
how social risk can impact businesses and provide examples of
businesses that have been impacted by social risk.
4. Managing Country Risk: This subheading may discuss strategies for
managing country risk, such as diversification, hedging, and
insurance. It may also discuss the importance of understanding and
assessing country risk before entering new markets.
5. Country Risk and International Business Strategy: This subheading
may discuss how country risk should be taken into account when
developing international business strategies. It may discuss how
different types of country risk can impact different aspects of
 international business, such as market entry, production, and
financing.
6. Country Risk and Investment Decisions: This subheading may discuss
how country risk should be taken into account when making
investment decisions. It may discuss the different types of investment
risk associated with different countries and provide examples of how
businesses have successfully managed investment risk.
7. Country Risk and Globalization: This subheading may discuss the
impact of country risk on the process of globalization. It may discuss
how country risk can create barriers to trade and investment and how
businesses can work to overcome these barriers. It may also discuss
the role of international organizations in managing country risk in the
global marketplace.

CORPORATE ADJUSTMENT
The concept of country risk is discussed in relation to the business
environment. Country risk refers to the potential risks and uncertainties that
a business may face when operating in a foreign country. These risks can
include political instability, economic turmoil, currency fluctuations, and
regulatory changes.
To manage country risk, businesses need to make adjustments to their
corporate strategies. These adjustments may include:
1. Risk Assessment: Businesses need to conduct a thorough risk
assessment to identify potential risks and develop strategies to mitigate
them. This may involve analyzing political, economic, and cultural
factors in the foreign country, as well as assessing the legal and
regulatory environment.
2. Diversification: Businesses can reduce country risk by diversifying
their operations across different countries and markets. This can help
to spread the risk and minimize the impact of any negative events in a
particular country.
3. Local Partnerships: Establishing partnerships with local businesses
and organizations can help to mitigate country risk by providing
access to local knowledge, networks, and resources. This can also help
to build relationships with key stakeholders in the foreign country.
4. Flexibility: Businesses need to be flexible and adaptable to changes in
the business environment. This may involve adjusting product
 offerings, marketing strategies, and supply chain management to meet
local needs and preferences.
5. Contingency Planning: Businesses need to develop contingency plans
to deal with unexpected events or crises in the foreign country. This
may involve developing emergency response plans, securing insurance
coverage, and establishing communication protocols.
6. By adjusting corporate strategies to manage country risk, businesses
can increase their chances of success in the global marketplace.

6. CORPORATE SOCIAL RESPONSIBILITY IN THE

BUSINESS ENVIRONMENT FROM Business Ethics: Ethical
Decision Making and Cases" by O. C. Ferrell, John Fraedrich, and
Linda Ferrell. STATES IN HEADINGS
In "Business Ethics: Ethical Decision Making and Cases" by O. C. Ferrell,
John Fraedrich, and Linda Ferrell, the concept of Corporate Social
Responsibility (CSR) is discussed as follows:
1. The Importance of Corporate Social Responsibility: The book
highlights the growing importance of CSR in the business
environment. CSR refers to a company's responsibility to consider the
impact of its actions on the environment, society, and stakeholders
beyond its shareholders.
2. Stakeholder Theory and Corporate Social Responsibility: The authors
discuss stakeholder theory, which suggests that companies should
consider the interests of all stakeholders, including employees,
customers, suppliers, and the community, in their decision-making
processes. CSR is seen as an important aspect of stakeholder theory,
as it emphasizes a company's responsibility to all stakeholders, not just
its shareholders.
3. Ethical Issues in Corporate Social Responsibility: The book also
examines the ethical issues that arise in the context of CSR, such as
conflicts of interest, bribery, and corruption. The authors emphasize
the importance of ethical decision-making in the context of CSR, as it
can impact a company's reputation and long-term success.
 4. Corporate Social Responsibility and Globalization: The authors also
discuss the impact of globalization on CSR, highlighting the need for
companies to consider the impact of their actions on a global scale.
They suggest that companies should develop global CSR policies that
are consistent with local laws and cultural norms.
5. Implementing Corporate Social Responsibility: The book also
provides guidance on how companies can implement CSR in practice,
including developing CSR policies, measuring and reporting on CSR
performance, and engaging with stakeholders.
Overall, the book emphasizes the importance of CSR in the business
environment and provides guidance on how companies can navigate
the ethical and practical challenges of implementing CSR.

7. CORPORATE GOVERNANCE
Book: "Corporate Governance: Principles, Policies, and Practices" by
R. I. (Bob) Tricker

Definition and Importance of Corporate Governance:

The book begins by defining corporate governance and its importance
in the business environment. Corporate governance is the system of
rules, practices, and processes by which a company is directed and
controlled. It is crucial for creating value and safeguarding the
interests of stakeholders such as shareholders, employees, customers,
and the wider community.
❖ Theoretical Foundations of Corporate Governance:
❖ The book explores the theoretical foundations of corporate
governance, drawing on various disciplines such as economics, law,
and organizational theory. It discusses the agency theory,
stewardship theory, and stakeholder theory, among others, to
explain how corporate governance can be understood and
analyzed.
❖ Corporate Governance Models and Mechanisms:
❖ The book discusses various models and mechanisms of corporate
governance, such as the shareholder model, stakeholder model, and
the board of directors. It explores the roles and responsibilities of
directors, the CEO, and other key actors in the governance of a
company.
❖ Corporate Social Responsibility and Ethics:
❖ The book emphasizes the importance of corporate social
responsibility (CSR) and ethics in corporate governance. It
discusses the social and environmental impact of companies and the
need for ethical behavior in business. It explores how companies
can integrate CSR and ethics into their governance structures and
practices.
❖ International Corporate Governance:
❖ The book examines the global context of corporate governance and
discusses how governance practices vary across countries and
regions. It explores the impact of globalization, cross-border
mergers and acquisitions, and international regulatory frameworks
on corporate governance.
❖ Contemporary Issues in Corporate Governance:
❖ The book concludes by discussing contemporary issues in corporate
governance, such as board diversity, executive compensation, and
shareholder activism. It explores how these issues are changing the
landscape of corporate governance and the challenges and
opportunities they present for companies and their stakeholders.

❖ Overall, the book provides a comprehensive overview of corporate

governance in the business environment, covering a range of
theoretical, practical, and contemporary issues. It offers insights
and guidance for companies, policymakers, and stakeholders
seeking to understand and improve corporate governance
practices.

8. INTERNATIONAL IMPACT ON DOMESTIC

BUSINESS ENVIRONMENT "Global Business Today" by
Charles W. L. Hill and G. Tomas M. Hult FACTORS:-
In "Global Business Today" by Charles W. L. Hill and G.
Tomas M. Hult, the authors discuss the impact of
international factors on the domestic business environment.
Some of the key factors include:

1. Globalization: The authors argue that globalization has had a

significant impact on the domestic business environment, as it
has increased competition, expanded markets, and facilitated
the exchange of ideas and technologies across borders. This has
led to both opportunities and challenges for domestic businesses.
 2. Trade Policies and Agreements: The authors discuss how trade
policies and agreements, such as tariffs, quotas, and free trade
agreements, can impact domestic businesses. Changes in trade
policies can create new market opportunities or barriers to entry
for domestic companies.

3. Technology: The authors highlight the impact of technology on

the domestic business environment, including advances in
communication, transportation, and information technology.
These technologies have facilitated international trade and made
it easier for businesses to operate globally.

4. Political and Legal Factors: The authors argue that political and
legal factors, such as government policies, regulations, and
political stability, can impact the domestic business
environment. Changes in government policies or political
instability can create uncertainty for businesses operating
domestically.

5. Cultural Factors: The authors discuss the impact of cultural

factors on the domestic business environment, including
differences in values, attitudes, and behaviors across countries.
Businesses need to be aware of these cultural differences and
adjust their strategies accordingly to be successful in
international markets.

6. Economic Factors: The authors argue that economic factors,

such as exchange rates, inflation, and economic growth, can
impact the domestic business environment. Changes in these
economic factors can create opportunities or challenges for
domestic businesses.

Overall, the authors argue that the domestic business

environment is increasingly shaped by international factors.
Businesses need to be aware of these factors and adjust their
strategies accordingly to succeed in the global marketplace.
 9. GOVERNMENT IMPACT ON BUSINESS
ENVIRONMENT
The government has a significant impact on the business
environment through various policies and regulations. Some of the
ways in which the government can impact the business
environment include:

1. Fiscal Policies: Governments can use fiscal policies such

as taxation, government spending, and borrowing to
influence the economy and business environment.
Changes in tax rates and government spending can
impact business investment decisions, consumer
spending, and economic growth.

2. Monetary Policies: Governments can use monetary

policies such as interest rates, reserve requirements, and
open market operations to influence the economy and
business environment. Changes in interest rates can
impact borrowing costs for businesses and consumers,
which can affect business investment decisions and
economic growth.

3. Regulations: Governments can create regulations that

impact businesses in various ways, such as health and
safety regulations, environmental regulations, and labor
laws. These regulations can impact business operations,
costs, and competitiveness.

4. Trade Policies: Governments can use trade policies such

as tariffs, quotas, and trade agreements to regulate the
flow of goods and services across borders. Changes in
trade policies can impact the competitiveness of
domestic businesses and their ability to access foreign
markets.
 5. Infrastructure: Governments can invest in
infrastructure such as transportation, communication,
and energy systems, which can impact the business
environment by reducing transportation costs,
improving access to markets, and facilitating business
operations.

6. Political Stability: The government's ability to maintain

political stability can impact the business environment
by creating a favorable environment for business
investment, growth, and development.

Overall, the government has a significant impact on the

business environment through its policies and regulations.
Businesses need to be aware of government actions and adjust
their strategies accordingly to succeed in the marketplace.

UNIT-2

Economic Reforms In post-independent

India
Economic reforms refer to changes in existing rules and regulations concerned with economic
growth. The primary aim of structural reforms and economic reforms in India was to establish
a good economic standing.
The term’ economic reform’ usually refers to changes made to existing laws and
policies. India introduced several Economic Reforms In India to promote economic
stability and improve the economy. The primary aim of these was to establish a good
economic standing and cater to the need for Economic Reforms of the country and its
people. India faced a major crisis in 1991, after which it had to find ways to improve
its economic situation and had to take steps to introduce new reforms. Since India’s
independence, the country’s financial sector has seen significant changes.
 Banking Reforms, 1969:
• The nationalisation of banks is referred to as banking reform.
• Indira Gandhi, India’s only female Prime Minister, took a crucial step in 1969 by nationalisation of
14 banks to meet the growing demand for bank nationalisation.
• The nationalisation of banks resulted in centralisation of banking services, which promoted
uniformity.
• Nationalised Banking services meant that there would not be a monopoly in this sector.
• Along with these benefits, nationalisation made credit accessible for all, not just the privileged
section of society.
• Lack of sufficient credit and inefficient banking sector operation were the reasons for this step.
• As a result, banks can run more efficiently, and the public’s trust in them has grown.
• Several Non-Banking Financial Institutions (NBFIs) and Banking Financial Institutions (BFIs) have
also emerged in this industry.

Abolishing ‘Privy Purse,’ 1971

The ‘Privy Purse’ was a reward or payment made to the royal families of princely states that were
forced to join independent India in 1947.

• This step aimed to take away all the authority from these families by paying or rewarding them.
• Indira Gandhi argued for its elimination in 1971 to promote equal rights for all citizens and lower
the government’s revenue deficit.
• It was a significant setback for the Indian royalty, who now had to pay taxes and were no longer
exempted from the law.

Stopping the ‘Licence Raj,’ 1991

• Before obtaining a licence to operate, a company needed to gain the support of 80 government
companies. This was done to discourage private companies and businesses from being set up.
• Even after acquiring the licence, the companies had to face restrictions.
• In 1991, the Licence Raj was stopped, and private businesses could be set up easily.
• Dr Manmohan Singh, the then-Finance Minister, was instrumental in ending the Licence Raj in
India.
 New Economic Policy, 1991:
• After the crisis of 1991, Economic Reforms In India were introduced to improve the country’s
situation.
• The New Economic Policy of 1991 has three essential components: liberalisation, privatisation,
and globalisation, also known as LPG.
• Increased competition, higher demand, adoption of new technology, development of human
resources and skills, and increased focus on customers have been some of the benefits of these
reforms.
• Since the liberalisation process began, the Indian marketplace has opened up to both private and
public sector enterprises.
• The private sector was encouraged to grow, and only 8 industries were restricted to the public
sector in 1991.
• This growth of the private sector is known as privatisation.
• Slowly, the country began to carry out enterprises with foreign organisations. A change popularly
called globalisation.

Black Money (Undisclosed Foreign Income

and Assets) and Imposition of Tax Act,
2015
• It is an act of the Indian Parliament to combat black money, hidden foreign assets, and income.
• It involves imposing tax and penalties on such income.
• The Lok Sabha passed this Act on May 11, 2015, and the Rajya Sabha on May 13, 2015.
• This law aims to bring income and assets held outside the country back into the country.
• Failure to obey the rules under this Act has serious outcomes, including fines and possibly
imprisonment.

Foreign Direct Investment (FDI) in various

sectors
• Foreign direct investment (FDI) is a useful source of funding for the development of Indian
enterprises and the economy.
• When foreign corporations invest directly in Indian companies, Indian companies benefit.
• At the ‘India ideas’ conference on July 22, 2020, Indian Prime Minister Narendra Modi declared
that India had managed to attract 20% more FDI than it did in 2019.
• Inflows of foreign direct investment into India in 2019-2020 were 74 billion dollars, up 20% from
the previous year.

Goods and Services Tax (GST):

After nearly 20 years of implementation of VAT under the Vajpayee government, Prime Minister
Narendra Modi finally put GST into effect on July 1, 2017. Following are some benefits of GST:

• The establishment of a single national market, a push for the “Make in India” project, increased
investment and jobs, a simplified tax structure, ease of doing business.
• Procedures that are more automated and make better use of information technology.
• Compliance costs are reduced, and agriculture, trade, and industry benefit.
• It benefits small traders and enterprises.
• It removes the application of taxes at every stage of supply.
• Although GST has been criticised, its benefits exceed its drawbacks.

Demonetisation, 2016:
On November 8, 2017, Prime Minister Narendra Modi announced the demonetisation of all Rs.
500 and Rs. 1,000 banknotes. The following are the goals of making such an announcement:

• Reduce the use of black money, increase cash in the banking system, stop the handling of fake
currency, reduce all possible finances for terrorists.
• Many limits were placed on the government’s plan to stifle it. The general public ran into several
issues in meeting the standards on such short notice.
• According to recent estimates, India is still recovering from the demonetisation shock despite the
rise in popularity of digital payments and cashless transactions.

National Institute for Transforming India (NITI) Aayog

• Narendra Modi established the NITI Aayog on May 24, 2014, to replace the long-standing Planning
Commission.
• The goal of this was to fulfil the Need for Economic Reforms.
• The NITI Aayog is the Indian government’s top policy thinktank, offering directional and policy
suggestions.
 Considering ‘start-ups’ as a new business model:

The Indian government’s ‘Start-Up India’ scheme aims to increase employment and income
development in the country. On January 16, 2016, Narendra Modi announced the introduction of
this scheme, which includes the following benefits: –

• The scheme assisted in having a better workflow, financial assistance, easy access to government
bids, and increased networking opportunities.
• Increased competitiveness, higher transparency, comprehensive digitisation, increased
innovation, and increased policy stability have all been achieved due to reforms.

Conclusion

Post-Independence, India faced the responsibility of rebuilding its economy. Thus, reforms such
as the abolition of privy purse and licence raj and banking reforms were introduced. In the 1991
crisis, the Indian government introduced the New Economic Policy 1991, also known as LPG
reforms. In recent times, with the introduction of GST and demonetisation, the country aims to
continue growing on the economic front. With the rapid pace at which changes and developments
occur, one can only hope that the Indian economy and land will continue to grow in the years
ahead.

CURRENT INVESTMENT AND GROWTH OF INDIA

AS PER WORLD BANK, ADB AND IMF PROJECTIONS, INDIA TO REMAIN THE FASTEST
GROWING MAJOR ECONOMY IN THE WORLD DURING 2021-24

INDIAN ECONOMY TO GROW BY 9.2% IN REAL TERMS IN 2021-22

AGRICULTURE TO GROW BY 3.9 % IN 2021-22 IN COMPARISON TO 3.6% IN THE

PREVIOUS YEAR

INDUSTRIAL SECTOR TO WITNESS SHARP REBOUND FROM A CONTRACTION OF 7%

IN 2020-21 TO EXPANSION OF 11.8% IN 2021-22

SERVICES TO CLOCK 8.2% GROWTH IN 2021-22 AFTER A CONTRACTION OF 8.4%

LAST YEAR

FOREIGN EXCHANGE RESERVES STOOD AT US$ 634 BILLION AS ON 31ST

DECEMBER 2021 EQUIVALENT TO OVER 13 MONTHS OF IMPORTS AND HIGHER
THAN COUNTRY’S EXTERNAL DEBT

INVESTMENT IS EXPECTED TO SEE A STRONG GROWTH OF 15% IN 2021-22

CONSUMER PRICE INDEX (CPI) COMBINED INFLATION OF 5.6% IN DECEMBER 2021
IS WELL WITHIN TARGETED TOLERANCE BAND

FISCAL DEFICIT FOR APRIL-NOVEMBER 2021 CONTAINED AT 46.2% OF BUDGET

ESTIMATES

CAPITAL MARKET BOOMS DESPITE PANDEMIC; OVER RS 89 THOUSAND CRORE

RAISED VIA 75 IPO ISSUES IN APRIL-NOVEMBER 2021, MUCH HIGHER THAN IN ANY
YEAR IN THE LAST DECADE

MACRO-ECONOMIC STABILITY INDICATORS SUGGEST INDIAN ECONOMY WELL PL.

FISCAL POLICY
Fiscal policy refers to the use of government spending and taxation to influence the economy. It
involves decisions made by governments about their levels of taxation, government spending, and
borrowing. Fiscal policy can be either expansionary or contractionary, depending on the goals of
the government.

Expansionary fiscal policy involves increasing government spending, decreasing taxes, or both,
with the aim of stimulating economic activity and promoting economic growth. This can be
particularly effective during times of economic recession or slow growth, as increased government
spending can boost demand for goods and services, which in turn can lead to increased
employment and economic growth.

On the other hand, contractionary fiscal policy involves reducing government spending, increasing
taxes, or both, with the aim of slowing down economic growth and controlling inflation. This is
typically used when the economy is growing too quickly, and inflation is becoming a concern.

Fiscal policy can also have distributional effects, as changes in government spending and taxation
can affect different groups of people differently. For example, increasing taxes on high-income
earners and using the revenue to fund social programs can be a way to promote greater income
equality.

Fiscal policy is often used in conjunction with monetary policy, which involves the use of interest
rates and other monetary tools to manage the money supply and influence economic activity.
Together, fiscal and monetary policies can be used to stabilize the economy and promote long-
term economic growth.

MONETARY POLICY
Monetary policy is a tool used by central banks to manage the money supply and influence the
economy's overall level of activity. Central banks use various tools to implement monetary policy,
including setting interest rates, buying or selling government securities, and regulating banks'
reserve requirements.

The primary objective of monetary policy is usually to control inflation, maintain stable economic
growth, and promote employment. To achieve these objectives, central banks typically use
expansionary or contractionary monetary policies.

Expansionary monetary policy involves increasing the money supply by lowering interest rates,
buying government securities, or lowering reserve requirements. The increased money supply
leads to lower borrowing costs, making it easier for businesses and consumers to access credit
and stimulate spending, leading to increased economic growth and employment. However, this
policy can also lead to higher inflation if not implemented cautiously.

Conversely, contractionary monetary policy involves reducing the money supply by raising interest
rates, selling government securities, or increasing reserve requirements. The decreased money
supply leads to higher borrowing costs, which can lead to decreased spending and economic
growth but can help control inflation.

Central banks typically set interest rates to achieve their monetary policy goals. When interest
rates are lowered, it encourages borrowing and spending, which can boost economic activity.
Conversely, when interest rates are raised, it discourages borrowing and spending, which can slow
down economic activity.

Overall, monetary policy is an essential tool for central banks to manage the economy and achieve
their objectives of controlling inflation, promoting economic growth, and maintaining employment
levels. However, the effectiveness of monetary policy depends on various factors, including the
state of the economy, the level of inflation, and the ability of the central bank to implement policy
effectively.

FISCAL AND MONETARY POLICY ENVIORNMENT

Fiscal and monetary policies are two critical tools that governments use to manage their
economies. Fiscal policy refers to the use of government spending and taxation to influence the
economy, while monetary policy refers to the use of interest rates and other monetary tools to
manage the money supply and influence economic activity.

The fiscal and monetary policy environment can have a significant impact on an economy. When
the government implements expansionary fiscal and monetary policies, it aims to stimulate
economic growth and increase employment. This can be achieved by increasing government
spending, lowering taxes, and reducing interest rates. Conversely, contractionary fiscal and
monetary policies aim to slow down economic growth and control inflation. This is achieved by
reducing government spending, raising taxes, and increasing interest rates.

The effectiveness of these policies depends on various factors, including the current state of the
economy, the level of government debt, and the ability of the government to implement these
policies effectively. In general, expansionary policies are more effective when the economy is in a
recession, while contractionary policies are more effective when the economy is growing too
quickly, and inflation is becoming a concern.

The fiscal and monetary policy environment can also affect businesses and consumers. For
example, when interest rates are low, businesses may be more willing to invest in new projects,
while consumers may be more willing to borrow money to make purchases. On the other hand,
when interest rates are high, businesses may be less willing to invest, and consumers may be less
willing to borrow money.

In conclusion, the fiscal and monetary policy environment is an essential aspect of any economy.
Governments use these policies to manage economic activity and promote growth, and the
effectiveness of these policies depends on various factors. Businesses and consumers are also
affected by the policy environment, and it is important to consider the impact of these policies on
different groups within the economy.

Corporate adjustment to interest rate

Interest rates can have a significant impact on businesses, particularly those that rely heavily on
borrowing or have large amounts of debt. Corporate adjustments to interest rates can take many
forms, depending on the nature of the business and the level of interest rate changes.

When interest rates rise, businesses that have large amounts of debt may face higher borrowing
costs, which can reduce their profitability. To adjust to higher interest rates, businesses may
consider several options. For example, they may:

Refinance debt: If interest rates have risen, businesses may consider refinancing their debt to take
advantage of lower rates. By refinancing, businesses can reduce their borrowing costs and
improve their cash flow.

Delay investments: Higher interest rates can make borrowing more expensive, making businesses
think twice before making new investments. Businesses may choose to delay investment decisions
until interest rates become more favorable.

Cut costs: Higher interest rates can reduce profitability, making it essential for businesses to cut
costs wherever possible. This can include reducing staff or scaling back on non-essential
expenses.
Negotiate with lenders: Businesses may negotiate with lenders to try and secure better terms on
their loans, including lower interest rates or longer repayment periods.

Conversely, when interest rates are low, businesses may find it easier and cheaper to borrow,
leading to increased investment and economic growth. Businesses may adjust to lower interest
rates by:

Expanding operations: Lower interest rates can encourage businesses to expand their operations,
invest in new equipment, or hire more staff to meet demand.

Increase borrowing: With lower borrowing costs, businesses may take on more debt to fund
expansion plans or other investments.

Refinance existing debt: With lower interest rates, businesses may consider refinancing existing
debt to reduce borrowing costs and improve cash flow.

Accelerate repayment: Businesses with existing debt may choose to accelerate their repayment
schedules to take advantage of lower interest rates and reduce the overall cost of borrowing.

In conclusion, businesses adjust to changes in interest rates by considering various options,

depending on their specific circumstances. The ability to adjust to changing interest rates
effectively can be critical to the success and sustainability of a business.

INFLATIONARY ENVIORNMENT AND COORPORATE

ADJUSTMENT
In an inflationary environment, businesses must adjust their operations to cope with rising costs
and maintain profitability. Inflation can lead to higher costs for inputs such as raw materials, labor,
and energy, which can reduce a company's profit margins. As such, businesses must adapt to
changing economic conditions to remain competitive and profitable.

One way businesses can adjust to an inflationary environment is by increasing their prices to reflect
higher costs. However, this approach can be risky, as higher prices may lead to a reduction in
demand. To minimize the impact of inflation on profitability, businesses may consider the following:

Cost-cutting measures: Businesses may look to reduce costs by streamlining operations,

improving efficiency, and finding alternative suppliers for raw materials. This can help offset the
impact of inflation on profit margins.

Increasing productivity: Companies can improve productivity by investing in new technology or

equipment, reorganizing work processes, or increasing employee training. This can help reduce
costs and improve competitiveness.
Negotiating with suppliers: Businesses can negotiate with suppliers to secure better deals on
inputs such as raw materials, energy, or transportation. This can help offset the impact of inflation
on costs.

Raising prices selectively: Businesses may selectively raise prices on certain products or services
to offset higher costs. They may also explore other pricing strategies such as bundling, volume
discounts, or promotional pricing to remain competitive.

Investing in research and development: Companies can invest in research and development to
find new products or services that are more cost-effective to produce. This can help improve
competitiveness and reduce the impact of inflation on profitability.

In conclusion, an inflationary environment can create challenges for businesses as they strive to
maintain profitability in the face of rising costs. By adjusting operations, reducing costs, and
investing in new technologies, businesses can remain competitive and adapt to changing
economic conditions. Ultimately, businesses that can navigate inflationary environments effectively
are better positioned for long-term success.

COMPETITION BUSINESS ENVIORNMENT

Competition is a critical aspect of the business environment, as it creates incentives for companies
to innovate, improve efficiency, and provide better products or services to customers. The
competitive environment can be influenced by several factors, including market size, market
concentration, entry barriers, customer preferences, and technological advancements.

Market size refers to the total demand for a product or service in a given market. A large market
size implies more significant opportunities for companies to compete and capture a share of the
market. Market concentration, on the other hand, measures the number and size of companies in
a given market. A high level of concentration, where a few large companies dominate the market,
can create challenges for smaller firms to compete.

Entry barriers are factors that limit the ability of new firms to enter a market. Examples of entry
barriers include high capital requirements, legal regulations, and economies of scale. These
barriers can limit competition and lead to higher prices for consumers.

Customer preferences and technological advancements can also impact the competitive
environment. Companies that can identify and respond quickly to changes in customer preferences
and adopt new technologies can gain a competitive advantage over their rivals.

In a competitive business environment, companies must continually strive to improve their

products, services, and operations to remain competitive. Failure to do so can result in lost market
share and declining profitability. Ultimately, the business environment rewards companies that can
adapt to changes and provide value to customers.
COMPETITION ACT, 2002
The Competition Act, 2002 is an Indian law that regulates competition in the country. It was
enacted by the Indian Parliament to promote fair competition in markets and to prevent anti-
competitive practices. The act replaced the Monopolies and Restrictive Trade Practices Act, 1969.

The main objectives of the Competition Act, 2002 are to:

1. Prohibit anti-competitive agreements

2. Prohibit abuse of dominant position
3. Regulate combinations (mergers, acquisitions, amalgamations, etc.)
4. Promote and sustain competition in markets
5. Protect the interests of consumers

The Competition Commission of India (CCI) is the regulatory body that is responsible for
enforcing the provisions of the act. The CCI has the power to investigate and penalize
companies that engage in anti-competitive practices, such as price-fixing, bid-rigging, and
market sharing.

The act also provides for the establishment of the Competition Appellate Tribunal (CAT), which
hears appeals against the orders of the CCI. The CAT has the power to set aside, modify, or
confirm the orders of the CCI.

Overall, the Competition Act, 2002 is an important law that helps to promote competition and
protect consumers in India.

INTELLECTUAL PROPERTY PROTECTION REGIME

The Intellectual Property Protection Regime refers to the set of laws and regulations that protect
various forms of intellectual property (IP) such as patents, trademarks, copyrights, industrial
designs, geographical indications, and trade secrets.

Intellectual property protection is important as it encourages innovation and creativity by providing

legal recognition and protection to the creators of new ideas and products. It enables individuals
and businesses to benefit from their creations and investments by providing a legal framework to
prevent unauthorized use, copying, and exploitation of their IP.

In India, the laws that govern the Intellectual Property Protection Regime include:

1. The Patents Act, 1970

2. The Trade Marks Act, 1999
3. The Copyright Act, 1957
4. The Designs Act, 2000
5. The Geographical Indications of Goods (Registration and Protection) Act, 1999
6. The Protection of Plant Varieties and Farmers' Rights Act, 2001
The enforcement of these laws is the responsibility of various government bodies such as the
Controller General of Patents, Designs, and Trademarks; the Copyright Office; and the
Geographical Indications Registry.

India is also a member of several international treaties and agreements that govern intellectual
property rights, such as the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS) under the World Trade Organization.

Overall, the Intellectual Property Protection Regime in India provides a framework for the protection
and enforcement of intellectual property rights, which is crucial for promoting innovation, creativity,
and economic growth.

1. Patents: Patents protect inventions and give the holder exclusive rights to make, use, and
sell the invention for a certain period of time.
2. Trademarks: Trademarks protect distinctive signs, such as logos and brand names, used
in commerce to identify and distinguish goods and services.
3. Copyrights: Copyrights protect original literary, artistic, musical, and other creative works,
giving the owner exclusive rights to reproduce, distribute, and perform the work.
4. Trade secrets: Trade secrets protect confidential information that gives a company a
competitive advantage, such as customer lists, manufacturing processes, and research
and development.
5. Industrial designs: Industrial designs protect the visual appearance of a product or its parts.
6. Geographical indications: Geographical indications protect the names of products that
originate from a specific geographical location and have certain qualities or characteristics.

RESEARCH and DEVELOPMENT ENVIORNMENT

Research and Development (R&D) environment refers to the conditions, policies, and resources
that are necessary to support scientific and technological innovation. It encompasses a range of
factors, including funding, infrastructure, intellectual property protection, regulatory frameworks,
and collaborations.

The quality of the R&D environment is a key factor in determining the level of innovation that can
be achieved in a particular country or region. A supportive R&D environment can foster creativity,
attract talent, and promote entrepreneurship, while a hostile or inadequate R&D environment can
stifle innovation and hinder economic growth.

Some of the key elements of a supportive R&D environment include:

1. Funding: Adequate funding for R&D is essential for supporting scientific and technological
innovation. This funding can come from government, industry, or other sources, and can
be used to support basic research, applied research, or development activities.
 2. Infrastructure: Adequate infrastructure, including laboratory facilities, equipment, and IT
resources, is necessary to support R&D activities. This infrastructure should be accessible
and available to researchers and innovators across a range of disciplines.
3. Intellectual property protection: Strong intellectual property protection is essential for
incentivizing innovation and allowing innovators to benefit from their work. This includes
patent protection, copyright protection, and other forms of legal protection for intellectual
property.
4. Regulatory frameworks: Regulations and policies can have a significant impact on the R&D
environment. A supportive regulatory framework can encourage innovation while ensuring
that new products and technologies are safe and effective.
5. Collaborations: Collaboration between researchers, institutions, and industries is important
for fostering innovation and sharing knowledge. Collaboration can take many forms,
including partnerships, joint ventures, and knowledge-sharing networks.

Overall, a supportive R&D environment is critical for promoting scientific and technological
innovation, which can drive economic growth, create new industries, and improve the quality of life
for people around the world.

CONSUMER PROTECTION AND MARKETING

DECISIONS
Consumer Protection and Marketing Decisions are closely linked, as marketing decisions can
impact consumer welfare and well-being. Here are 8 subheadings that further explain this
relationship:

1. Ethical Marketing: Ethical marketing involves promoting products and services in a way
that is truthful, transparent, and respectful of consumer rights. This can include avoiding
deceptive advertising, ensuring product safety, and providing accurate and complete
information to consumers.
2. Consumer Rights: Consumer rights refer to the legal and ethical protections that
consumers have against unfair, deceptive, or unsafe business practices. These rights
include the right to safety, the right to information, the right to choose, and the right to be
heard.
3. Product Quality: Product quality is an important factor in consumer protection, as
consumers have the right to expect products that are safe, effective, and of a certain
standard. Marketers have a responsibility to ensure that the products they promote meet
these expectations.
4. Pricing Strategies: Pricing strategies can impact consumer welfare, as unfair or deceptive
pricing practices can harm consumers. Marketers must ensure that their pricing strategies
are transparent and fair, and that consumers are not misled by pricing information.
5. Advertising and Promotion: Advertising and promotion can have a significant impact on
consumer behavior, and marketers have a responsibility to ensure that their advertising is
 truthful and not misleading. This includes avoiding false or exaggerated claims, and
ensuring that consumers have access to accurate and complete information.
6. Consumer Education: Consumer education is an important aspect of consumer protection,
as it can help consumers make informed decisions and avoid scams and other fraudulent
practices. Marketers can play a role in consumer education by providing accurate and
complete information about their products and services.
7. Product Safety: Product safety is an important aspect of consumer protection, as unsafe
products can harm consumers and damage brand reputation. Marketers have a
responsibility to ensure that the products they promote are safe and meet regulatory
standards.
8. Consumer Complaints and Redress: Consumer complaints and redress mechanisms are
important for protecting consumer rights and ensuring that businesses are held
accountable for unfair or deceptive practices. Marketers must have systems in place to
address consumer complaints and provide redress when necessary.

FINANCIAL ENVIRONMENT WITH ITS FACTORS

The financial environment refers to the conditions, trends, and factors that affect the
financial system, including financial markets, institutions, and instruments. The
following are some of the factors that influence the financial environment:

1. Economic Conditions: The overall state of the economy, including factors such
as inflation, interest rates, GDP, and unemployment, has a significant impact
on the financial environment. For example, if interest rates rise, borrowing
becomes more expensive, and businesses may find it harder to obtain
financing.Government
2. Policies: Government policies, such as fiscal and monetary policies, can also
have a significant impact on the financial environment. For example, changes
in tax laws or interest rates can have a ripple effect on financial markets and
institutions.
3. Globalization: The increasing interconnectedness of the global economy
means that events in one part of the world can have a significant impact on the
financial environment in other parts of the world.
4. Technological Innovation: Advances in technology have revolutionized the
financial sector, leading to new financial products and services, such as mobile
banking and online trading platforms.
5. Demographics: Changes in demographics, such as population growth and
aging, can have a significant impact on the financial environment. For example,
an aging population may lead to changes in investment patterns and demand
for financial products and services.
6. Social and Political Factors: Social and political factors, such as changes in
consumer behavior and political instability, can also impact the financial
 environment. For example, a sudden shift in public opinion towards a particular
industry or product can lead to changes in investment patterns and demand.
7. Environmental Factors: Increasing concern about the impact of climate change
has led to a growing demand for sustainable investments, which are
investments that take into account environmental, social, and governance
(ESG) factors. This has led to the growth of the green finance industry and
increased interest in ESG investing.

Overall, the financial environment is a complex and dynamic system that is influenced
by a wide range of factors. Understanding these factors is crucial for investors,
financial institutions, and policymakers to make informed decisions and navigate the
ever-changing financial landscape.

UNIT-3
INDUSTRIAL GROWTH SCENARIO:
The industrial growth scenario refers to the trends and patterns in the development of
industrial sectors within a particular economy or region. The industrial sector is
typically characterized by the production and distribution of goods and services using
advanced technology and skilled labor.

The growth of the industrial sector can have a significant impact on the overall
economic growth and development of a country or region. Here are some factors that
contribute to the industrial growth scenario:

1. Technological advancements: The growth of industries is heavily reliant on the

adoption of advanced technologies that improve production efficiency, reduce
production costs, and enhance product quality. Innovations such as
automation, robotics, and artificial intelligence are transforming the industrial
landscape and improving the overall growth scenario.
2. Access to capital: The availability of capital is critical to the growth of industries.
Capital is required to fund research and development, purchase new equipment
and machinery, and expand production capacities. Access to capital can be
facilitated through government policies and initiatives, as well as private sector
investments.
3. Skilled labor: The growth of industries is also dependent on the availability of a
skilled workforce. The demand for skilled labor is increasing as industries
become more technologically advanced and specialized. Government initiatives
to promote vocational education and training can help to address skill
shortages and improve the industrial growth scenario.
4. Infrastructure: The availability of quality infrastructure is essential to support the
growth of industries. Good transportation networks, reliable power supply, and
 efficient communication systems can enhance the efficiency and
competitiveness of industrial production.
5. Government policies: The role of government policies and initiatives cannot be
overstated in the industrial growth scenario. Governments can play a vital role
in creating an enabling environment for industries to thrive, through measures
such as tax incentives, regulatory frameworks, and investment in infrastructure.

In conclusion, the industrial growth scenario is a critical component of overall

economic growth and development. It requires a combination of factors, including
technological advancements, access to capital, skilled labor, infrastructure, and
government policies, to ensure sustained growth and competitiveness of industries.

INDUSTRIAL POLICY DESIGN

Industrial policy refers to government interventions aimed at promoting industrial
development and competitiveness. Industrial policy design involves the development
and implementation of policies and strategies that can enhance the competitiveness
of a country's industrial sector. Here are some important aspects of industrial policy
design:

1. Identification of strategic sectors: The first step in industrial policy design is to

identify strategic sectors that are critical for the country's economic growth.
These sectors may include manufacturing, agriculture, services, and other areas
that have the potential for growth and development.
2. Developing targeted policies: Once the strategic sectors have been identified,
policies can be developed to promote their growth. These policies may include
tax incentives, subsidies, research and development funding, infrastructure
development, and trade policy measures.
3. Encouraging innovation: Innovation is a key driver of industrial growth, and
industrial policy design should include measures to promote innovation. These
may include funding for research and development, the creation of technology
parks, and the development of intellectual property laws.
4. Promotion of exports: Industrial policy should also include measures to
promote exports. This may include export subsidies, trade missions, and the
development of export infrastructure.
5. Fostering partnerships: Public-private partnerships can be an effective way to
promote industrial growth. Industrial policy design should encourage such
partnerships, including joint ventures between local and foreign firms.
6. Regional development: Industrial policy design should also take into account
regional disparities in industrial development. Policies should be developed to
promote industrial development in economically disadvantaged regions.
 7. Monitoring and evaluation: Finally, industrial policy design should include
mechanisms for monitoring and evaluating policy effectiveness. This will allow
policymakers to adjust policies as needed to ensure their continued success.

In summary, industrial policy design involves identifying strategic sectors, developing

targeted policies, promoting innovation and exports, fostering partnerships,
promoting regional development, and monitoring and evaluating policy effectiveness.

PUBLIC SECTOR REFORMS

Public Sector Undertakings
• In India, a government-owned corporation is termed as a public sector
undertaking (PSU).
• This term is used to refer to the companies in which the government (either the
federal, Union Government or the many state or territorial governments, or
both) own a majority (51 percent or more) of the company equity.
• Public Sector Undertakings are a major part of the Indian economy that comprises
public services and enterprises and it provides services that benefit the entire
society.
3 Major Classifications of Public Sector

• The public sector can be classified into:-

▪ Departmental Undertaking – Directly managed by concerned ministry or
department. (e.g. Railways, Posts, etc.)
▪ Non-Departmental Undertaking – PSU (e.g. HPCL, IOCL, etc.)
▪ Financial Institution (e.g. SBI, UTI, LIC, etc.)
• The rationale behind the establishment of PSU’s was Industrialisation and the
establishment of Capital Goods Industries and Basic Industries. The organizations
that are not a part of the public sector are termed as private sector that works to raise
profit for the organization.
Objectives of Setting up Public Sector Unit (PSU)

• To create an industrial base in the country

• To generate a better quality of employment
• To develop basic infrastructure in the country
• To provide resources to the government
• To promote exports and reduce imports
• To reduce inequalities and accelerate the economic growth and development of
a country.
Why the PSEs (Public Sector Enterprises)
 • Public enterprise help in rapid economic growth
• It creates the necessary infrastructure for economic development.
• To earn return on investment and generate resources for development.
• To promote redistribution of income and wealth.
• To generate employment opportunities.
• To promote balanced regional development.
• To assist the development of small-scale industries.
• To earn foreign exchange for the economy.
Role of Public Sector in the Upliftment of Society

• Public sector & capital formation – This sector has been a major reason for the
generation of capital in the Indian economy. A large amount of the capital comes
from the Public sector Units in India
• Creation of Employment opportunities – Public sector has brought about a major
change in the employment sector in the country. They provide a lot of opportunities
under various domains and thus helps in uplifting the Indian economy and society.
• Development of Different Regions – The establishment of major factories and
plants has boosted the socio-economic development of different regions across the
country. Inhabitants of the region are impacted positively concerning the availability
of facilities like electricity, water supply, township, etc.
• Upliftment of Research and Development – Public sector units have been
investing a lot to introduce advanced technology, automated equipment, and
instruments. This investment would result in the overall cost of production.
Public Sector Undertakings (PSU) – Problems

• The major problems of PSUs can be stated below:

▪ Inappropriate investment decisions
▪ Improper Pricing Policy
▪ Excessive overhead cost
▪ Lack of Autonomy & Accountability
▪ Overstaffing
▪ Trade Unionism
▪ Under Utilization of capacity

Need for Public Sector Reforms

• Lack of competition: In Public Sector Enterprises, the level of profit is low as

compared to the private sector, this was due to lack of competition and over
protection to PSEs.
• Over employment: The man power of Public Sector Enterprises has been much
more than required which led to the problem of inefficiency and disguised
unemployment in PSEs
 • Long gestation period: For the completion of any project, the Public Sector
Enterprises normally takes much more time than expected.
• Over capitalization: In many cases, the actual cost of the planned project exceeds
the original cost due to mismanagement and Bureaucratic hurdles.
• Inefficient management: Lack of management and planning in Public Sector
Enterprises has created many issues and challenges for Public Sector Enterprises.
• Absence of appropriate pricing policy and fulfilling of social objectives has
marred Public Sector Enterprises with inefficiency and lack of competitiveness
• Lack of efficient and trained staff: Lack of skilled manpower in the Public Sector
Enterprises is also one the important issue due the which the production and
efficiency have decreased
Industries reserved for PSU’s prior to July 1991

• Arms and ammunition and allied items of defence equipment

• Atomic energy
• Iron and steel
• Heavy casting and forging of steel items
• Heavy plant and machinery required for iron and steel production, for mining, for
machine tool manufacturing, such other industries as may be specified by the central
government.
• Heavy electrical plant including large hydraulic and steam turbines
• Coal and lignite
• Minerals oils
• Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.
• Mining and processing of copper, lead, zinc, tin molybdenum and wolfram
• Minerals specified in the schedule to the atomic energy
• (control of production use) order 1953.
• Aircraft
• Air transport
• Rail transport
• Ship building
• Telephones and telephone cables, telegraph and wireless apparatus (excluding radio
receiving sets)
• Generation and distribution of electricity
Industries reserved for PSU’s since July 1991

• Arms and ammunition and allied items of defence equipment, defence aircraft and
warship
• Atomic energy
• Coal and lignite
• Mineral oils
 • Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond
• Mining of cooper, lead, zinc, tin, molybdenum and wolfram
• Minerals specified in the schedule to atomic energy
• (control of production and use) order, 1953
• Railway transport
Industries reserved for PSU’s since December 2002

• Atomic energy
• Minerals specified in the schedule to atomic energy (control of production and use)
order, 1953
• Railway transport
• Arms and ammunition

Categories of Public Sector Enterprises in India

MAHARATNA CPSEs

• The “Maharatna” category for CPSEs was introduced in 2009 with objective to
empower mega CPSEs to expand their operations and emerge as global giants or
become Indian Multinational Companies (MNCs).
• CRITERIA
▪ Having Navratna status.
▪ Listed on Indian stock exchange with minimum prescribed public shareholding under
SEBI regulations.
▪ Average annual turnover of more than Rs. 25,000 crore, during the last 3 years.
▪ Average annual net worth of more than Rs. 15,000 crore, during the last 3 years.
▪ Average annual net profit after tax of more than Rs. 5,000 crore, during the last 3
years.
▪ Should have significant global presence/international operations.
• MAHARATNA PSEs
▪ Bharat Heavy Electricals Limited
▪ Coal India Limited
▪ GAIL (India) Limited
▪ Indian Oil Corporation Limited
▪ NTPC Limited
▪ Oil & Natural Gas Corporation Limited
▪ Steel Authority of India Limited
NAVRATNA CPSEs

• The Government had introduced the Navratna scheme, in 1997, to identify CPSEs
that had comparative advantages and to support them in their drive to become global
giants.
 • CRITERIA
▪ The Miniratna Category – I and Schedule ‘A’ CPSEs, which have obtained
‘excellent’ or ‘very good’ rating under the Memorandum of Understanding system in
three of the last five years, and have a composite score of 60 or above in the six
selected performance parameters, namely:
o Net Profit to Net Worth (Maximum: 25)
o Manpower cost to cost of production or services (Maximum: 15)
o Gross margin as capital employed (Maximum: 15)
o Gross profit as Turnover (Maximum: 15)
o Earnings per Share (Maximum: 10)
o Inter-Sectoral comparison based on Net profit to net worth (Maximum: 20)
• NAVRATNA CPSEs (16 in Number)
▪ Bharat Electronics Limited (BEL)
▪ Container Corporation of India Limited
▪ Engineers India Limited
▪ Hindustan Aeronautics Limited
▪ Hindustan Petroleum Corporation Limited
▪ Mahanagar Telephone Nigam Limited
▪ National Aluminium Company Limited
▪ National Buildings Construction Corporation Limited
▪ NMDC Limited
▪ Neyveli Lignite Corporation Limited
▪ Oil India Limited
▪ Power Finance Corporation Limited
▪ Power Grid Corporation of India Limited
▪ Rashtriya Ispat Nigam Limited
▪ Rural Electrification Corporation Limited
▪ Shipping Corporation of India Limited
MINIRATNA CPSEs

• The CPSEs that have shown profits in the last continuous three years and have
positive net worth can be considered eligible for grant of Miniratna status.
Presently, there are 71 Miniratnas in total. The Miniratnas are divided into two
categories (I and II).
▪ Category One: The PSUs that have made profits in the previous three years or have
generated a profit Rs 30 crore or more in one of the preceding three years
▪ Category Two: The PSUs that have made profits in the preceding three years and
have a positive net worth in all three preceding years.
• CRITERIA
▪ The CPSEs which have made profits in the last three years continuously and
have positive net worth are eligible to be considered for grant of Miniratna status
 • MINIRATNA CPSEs
▪ In 2002, there were 61 government enterprises that were awarded Miniratna
status. However, at present there are 71 government enterprises that were
awarded Miniratna status.

What is the economic reform policy for the public sector?

• The public sector policy followed by the government at present including

disinvestment programmes were launched after the New Industrial Policy of
1991. The New Industrial Policy, which acts as core policy behind economic
reforms, has brought extensive changes in the working of Public Sector
Undertakings (PSUs).
• The changes made by the Industrial Policy 1991 on PSUs were several, starting from
sectors where the PSUs to be concentrated, removal of reservation for PSUs in most
sectors, their restructuring by adopting market oriented practices, selling of loss
making PSUs, reduction of government ownership through disinvestment etc. The
sum of these reform was that the PSUs are no more occupying the commanding
heights of the economy, rather they have to compete with the private sector on an
equal footing.
• First of all, the public sector policy of the 1991 industrial policy has identified
strategic areas and non-strategic areas for the public sector. The government
decided to concentrate only on the strategic sector by withdrawing the public sector
from most of the non-strategic sectors. Adding efficiency and infusing competitive
business practices became the main solution to control the losses of the
PSUs.
• The following are the main reform measures introduced for the PSUs as part of the
1991 industrial policy.
▪ The public sector will focus on strategic, high-tech and essential infrastructure
areas.
▪ PSUs which are chronically sick are to be considered for reconstruction
▪ To encourage resource mobilization in PSUs, a part of the shareholding of
PSUs will be given to the mutual funds, financial institutions and general
public and to the workers (often this is described as disinvestment policy).
▪ Board of PSUs will be made more professional and given more powers.
▪ The PSU management will be given autonomy and for this the government will sign
Memoranda of Understanding with the PSU Boards.
• Following are the main areas to be engaged by the Public Sector under the 1991
industrial Policy:
▪ Essential infrastructure goods and services.
▪ Exploration and exploitation of oil and mineral resources.
▪ Technology developments and building of manufacturing capabilities in
areas which are crucial in the long term development of the economy and where
private sector investment is inadequate.
▪ Manufacture of products where strategic consideration predominate such as defense
equipment.
 ▪ The public sector policy and disinvestment of PSEs are derived from the
Industrial Policy of 1991. It has introduced a restructuring plan and changed role for
PSEs.
• Strategic and non-strategic areas for public sector
▪ On 16th March 1999, the Government classified the Public Sector Enterprises
into strategic and non-strategic areas for the purpose of disinvestment. It was
decided that the Strategic Public Sector Enterprises would be those in the areas
of:
o Arms and ammunitions and the allied items of defence equipment, defence
aircrafts and warships
o Atomic energy (except in the areas related to the generation of nuclear power and
applications of radiation and radio-isotopes to agriculture, medicine and nonstrategic
industries)
o Railway transport.
▪ All other Public Sector Enterprises were to be considered non-strategic. For the
non-strategic Public Sector Enterprises, it was decided that the reduction of
Government stake to 26% would not be automatic and the manner and pace of doing
so would be worked out on a case-to-case basis.
▪ A decision in regard to the percentage of disinvestment i.e., Government stake going
down to less than 51% or to 26%, would be taken on the following considerations:
o Whether the industrial sector requires the presence of the public sector as a
countervailing force to prevent concentration of power in private hands, and
o Whether the industrial sector requires a proper regulatory mechanism to
protect the consumer interests before Public Sector Enterprises are privatized.

Impact of Public Sector Reforms

• Public Sector Reforms have an impact in following sectors

▪ Research: There has been increased in research and development activities after
Public Sector Reforms to make Indian PSUs globally competitive.
▪ High-level networks: The schemes like Digital India, optical fiber network, etc. have
contributed to an increase in communication networks and efficiency.
▪ Consultancy: Consultancy services have been mushrooming in the country which is
the result of Public Sector Reforms.
▪ Training: There has been a focus on skill development to cater to the needs of the
Public Sector in order to make it more competitive.

PRIVATE SECTOR REFORMS

Liberalisation
• Liberalization of the economy means its freedom from direct or physical controls
imposed by the government.
 • After launching its First Five Year Plan (April 1, 1951), India started its journey to
economic development treading the path of the socialistic pattern of
society. Between 1st to 6th five-year plans, the public sector was assigned the
primary role in the process of growth and development. For example, the setting
up of BHEL in the 1960s and NTPC in the 1970s.
• The private sector was to play only a secondary role. Industry and trade were
subjected to many restrictions including quotas of production and permits of export
and import. The focus was on protecting the domestic industry from
international competition.
• However, the growth of private monopolies was to be curbed. It is not denying the
fact that initially, the policy of licenses, permits, and quotas yielded some good
results, but the end result was disappointing. While public sector enterprises
became the breeding centers of corruption and inefficiencies, the private sector (in
the absence of competition), failed to diversify or modernize.
• The cumulative effect was that our economy started slipping into stagnation, and by
the end of June 1991, we landed into an unprecedented economic crisis. The
situation was so alarming that our reserves of foreign exchange almost dried up and
were barely enough to pay for two weeks’ imports. New loans were not available.
• The following observations highlight the seriousness of the situation and the need for
economic reforms:
▪ Fiscal Deficit: Fiscal deficit was estimated to be 5.4 percent of GDP in 1981-82 to
shot up 8.4 percent of GDP in 1990-91
▪ Balance Of Payments (BoP) Crisis: In 1980-81, the balance of payments on the
current account was adverse to the tune of Rs. 2,214 crore and in 1990-91 it rose to
Rs. 17,367 crore. Foreign loans which were 12 percent of GDP (gross domestic
product) in 1980-81, rose to 23 percent of GDP in 1990-91. Accordingly, the burden
of foreign debt service increased tremendously. In 1980-81, foreign debt service
constituted 15 percent of our export earnings while in 1990-91, it rose to 30 percent.
This caused a severe depletion in our Forex reserves and crises of confidence in the
international foreign exchange market
▪ Gulf Crisis: On account of the Iraq war in 1990-91, prices of petrol shot up. India
used to receive a huge amount of remittances from Gulf countries in foreign
exchange. In the wake of war, this took a serious hit. The Gulf crisis thus further
deepened the BoP crises.
▪ Fall in Foreign Exchange Reserves: In 1990-91, India’s foreign exchange reserves
fell to such a low level that there were not enough to pay for an import bill of
even 10 days. In such a state of crisis, the government had to helplessly resort
to the policy of liberalization as advised by the World Bank.

Why India waited till 1991 to open its doors?

• India after independence put barriers on foreign trade and investments as it was felt
that it was necessary to protect the producers within the country from foreign
competition. It was felt that imports would not have allowed these industries to come
up.
• Strict restrictions were imposed, except on essential items like petroleum products,
capital goods, and fertilizers, etc. This is in tune with the protection offered by the
developed countries also, during their early stages of development.
• Situation during the 1980s till 1991
 ▪ There is a feeling that the mixed economy framework followed since independence
resulted in the establishment of a variety of rules and laws, which ultimately resulted
in permit license raj.
▪ During 1990/1991 government was not in a position to make repayments on its
borrowings from abroad.
▪ In 1990-91, India’s foreign exchange reserves fell to such a low level that these were
not enough to pay for an import bill of even 10 days. Forex reserves that were Rs.
8,151 crore in 1986-87, declined sharply to Rs. 6,252 crore in 1989-90.
▪ Government’s expenditure was much higher than revenue during the
1980s and continued spending on development programs did not generate additional
revenue.
▪ Government could not sufficiently generate income from internal sources like
taxation. Larger share of expenditure has gone to areas like the social sector and
defense.
▪ In 1951, there were just 5 enterprises in the public sector in India but in March 1991,
their number multiplied to 246. Several thousand crores of rupees were invested in
their expansion. In the initial 15 years, their performance was encouraging but
thereafter most of these started showing losses. Because of their poor
performance, public sector undertakings degenerated into a liability.
▪ Money borrowed from foreign Governments/ multinational institutions was
spent for meeting the consumption needs of the government.
▪ At one stage, there was not sufficient foreign exchange to pay the interest that needs
to be paid to international lenders.
▪ India approached international financial institutions like IBRD, IMF for loans
and while granting loans, the international agencies wanted India to liberalize
and open up the economy by removing restrictions on the private sector and at
the same time reduce the role of the government in many areas.
▪ This ultimately led to the New Economic Reforms of 1991

Globalisation and Liberalisation

• The process of removing barriers of trade is called liberalisation and removal of

trade barriers results in the phenomenon of globalisation. Globalization is primarily
economic phenomenon, involving the increasing interaction, or integration, of
national economic systems through the growth in international trade,
investment, and capital flows.
• Liberalisation was introduced to end up the trade restrictions and open up various
sectors of economy.
• There were some measures in 1990 in areas of industrial licensing, export import
policy, technology up gradation, fiscal policy and foreign investment, but they were
not sufficient.
• Under New Economic Policy 1991, major reforms were initiated, which were
comprehensive.

Features of Liberalisation

• Industrial Sector Reforms under Liberalization:

▪ Scenario till 1991:
o Industrial licensing under which every businessman had to get permission from
the government officials to start a firm or close a firm.
o Government permission was also required to decide the number of goods that could
be produced
o The private sector was not allowed in many industries
o Some goods could be produced only in small scale industries
o The government used to control prices and distribute selected industrial products,
which led to corruption.
▪ Scenario since 1991:
o Many of the restrictions as stated above were removed.
o Industrial licensing was removed for almost all the products except for the following
five industries: (a) liquor, (b) cigarette, (c) defense equipment, (d) industrial
explosives, and (e) dangerous chemicals.
o Under the new industrial policy, the number of industries reserved for the public
sector was reduced from 17 to 8. In 2010-11, the number of these industries was
reduced merely to two viz. (i) Atomic energy, and (ii) Railways.
o Many production areas which earlier were reserved for SSI (small-scale industries)
were de-reserved. Forces of the market were allowed to determine the allocation of
resources (rather than the directive policy of the government).
o In many industries, the market has been allowed to determine the prices.
• Financial Sector Reforms (major reforms since 1991):
▪ Liberalization implied a substantial shift in the role of the RBI from ‘a regulator’ to
‘a facilitator’ of the financial sector.
▪ Private sector banks like ICICI, Kotak, HDFC, etc, both domestic and international,
were established.
▪ Gradually FDI and FPI limits were increased in various sectors.
▪ Banks were allowed to generate resources from India and abroad
▪ Several reforms were brought in insurance, money and capital markets, etc.
▪ New institutional regulators and structures such as SEBI, BSE, NSE, PFRDA,
and IRDA were erected in the face of new realities of the Indian financial sector.
• Tax Reforms (major reforms since 1991):
▪ Since 1991, there has been a continuous reduction in the taxes on individual
income.
▪ It was felt that high rates of income tax were an important reason for tax evasion and
hence moderate tax rates in income tax, as well as corporate tax, are
introduced.
▪ Many procedures have been simplified
▪ Reforms have been introduced in indirect taxes and the most recent one is
Goods and Service Tax (GST).
• Foreign Exchange Reforms:
▪ Rupee was devalued against foreign currencies. It was done basically to increase
exports and ultimately to build up foreign exchange reserves
 ▪ Devaluation of the Indian rupee against foreign currencies increased the supply of
foreign exchange into the Indian economy.
▪ Subsequently, demand, and supply of foreign exchange determined exchange rates
and Government’s intervention is quite minimal in this aspect. Rarely RBI intervenes,
which is known as ‘managed float’.
• Trade and investment policy reforms:
▪ Gradually quantitative restrictions on imports were eased.
▪ Import licensing was abolished except in the case of hazardous and
environmentally sensitive industries.
▪ Quantitative restrictions on imports of manufactured consumer goods and agricultural
products were also fully removed from April 2001.
▪ Export duties have been removed to increase the competitiveness of the Indian
goods in the international markets.
▪ FDI/FPI liberated gradually.
• Disinvestment
▪ Disinvestment and Privatization are two different terms in a technical sense, though
both involve the sale of the Government’s share in the Public Sector
Undertakings. The term privatization is used for a stake sell in which there is a
transfer of 51% or more equity to the private players. In disinvestment, the
government sells only a part of the equity which is essentially less than 51% so
that ownership and management rights can behold by the Government itself.
▪ The method of disinvestment in India changes from time to time, mostly depending
on the party at the center.
▪ There are primarily 2 different approaches to disinvestments
o Minority Disinvestment: Minority disinvestment in PSUs is such that, at the end of
it, if the government of India retains a majority stake (typically more than 51%)
in the company, it ensures management control.
o Strategic Sale: It is the sale of a substantial portion of government
shareholding, 50 percent or higher, in a PSU, along with the transfer of
management control. It is in contrast with the minority sale where shares in an
enterprise are sold as public offers. Here management goes out of the government’s
hands and the government becomes a minority stakeholder.

Privatisation
• Privatization means a transfer of ownership, management, and control of
public sector enterprises to the private sector. It is of two types:
▪ Privatisation by the withdrawal of the government ownership and
management i.e. coming out of majority control of public sector companies.
▪ Privatisation by the outright sale of public sector companies.
• Most of the profitable undertakings were originally formed during the 1950s and
1960s when self-reliance was an important element of public policy. They were set
up with the intention of providing infrastructure and direct employment to the
public.
 • Subsequently, the government gave more managerial and operational autonomy by
declaring them as Navaratnas, Minratnas etc. However, the privatization of public
sector enterprises could not take place on the desired lines, and probably this is one
of the failures of the Government’s New Economic Policy of 1991.

Globalisation
• Globalization is seen as a process defining the growing interdependence between
various economies of the world. The term is also used specifically for economic
globalization which stands for aligning regional economies with the global
economies through the vehicle of trade, FDI, the flow of capital, technological
advancement, and also wide-scale migration.
• It was only after the economic liberalization in 1991, Indian economy tasted the
freedom of trade induced by globalization in a real sense.
• Globalisation is the outcome of the policies of liberalization and privatization.
• It is the free movement of trade, investment, people, services, and technologies
across the countries boundaries (with some controls).
• It is a complex phenomenon and various commercial activities are being undertaken
in places, where it is cheaper to do so.
• It has led to the greater interdependence and integration of economic activities
across the globe.
• It involves the creation of networks and activities transcending economic, social, and
geographical boundaries. Thus, happening in one country can be influenced by
happening in another country.
• The complex web of globalization can be understood by the fact that today company
like Apple does its R&D work in the USA, manufactures its components in China,
imports some accessories from Thailand, assembles its components in Poland, and
have its call centers in India.

Outsourcing- An offshoot of Globalisation

• Outsourcing occurs when a company retains another business to perform

some of its work activities. These companies are usually located in foreign
countries with lower labour costs and a less strict regulatory environment.
• Companies hire regular services from external sources mostly from other countries.
The services are mainly backend computers related such as BPOs, KPOs.
• Outsourcing has intensified in recent times because of the advent of Information and
Communication Technologies (ITC).
• The low wage rates and availability of English-speaking skilled manpower in
India have made it a destination for global outsourcing in the post-reform
period of India.

Advantages of Globalisation

• Globalisation has increased the competition in various sectors of the economy which
has resulted in increased productivity of domestic industries (partially true in our
country)
• Globalisation has improved quality and lowered the prices for various products.
• Globalisation has offered wider choices to consumers.
• The standard of living has become higher in the era of globalization due to an
increase in income and opportunities for a larger section of people in the society.
• Globalisation attracts the entry of foreign capital along with foreign updated
technology which improves the quality of production.
• Globalisation has led to the immense proliferation of IT industry.
• Globalisation has benefited local companies supplying raw materials to big
industries. It has resulted in the growth of Indian industries from local to global,
some of which have become big MNCs.
• There is substantial improvement in FPI and FDI. In 1990-91 both FPI and FDI
put together was just 100 million dollars. During 2015-16, the FDI flows alone are
around 40 billion dollars.
• Foreign exchange reserves in 1990-91 came down to almost half a billion dollars and
at present, they are 373 billion dollars.
• GDP growth rate prior to 1980 was known as the Hindu rate of growth and was
around 3%. But, after liberalization it grew drastically as shown in the table below:
 • Most of the GDP growth is mainly due to the growth in the service sector.
• Because of globalization, Indian companies made footprints abroad like TATAs
acquisition of Tetley, Corus, and NatSteel as well as acquisitions by companies like
VSNL.

Disadvantages of Globalisation

• Globalisation made disparity between rural and urban Indian joblessness,

growth of slum capitals and threat of terrorist activities. Well-off sections in
urban areas are mostly benefitted.
• Globalization increased competition in the Indian market between foreign
companies and domestic companies. Some small producers were decimated due
to global competition. Several industries like the manufacturing of batteries, plastic
toys, tyres, MSMEs, etc were shut down, which led to joblessness.
• More employment is being created a flexible/temporary basis due to
competition/ uncertainty.
• Indian manufacturing sector as a whole suffered but the services sector benefitted.
• Domestic industries also suffered due to subsidies provided to local industries in
some countries.
• Reform led growth has not created sufficient employment and though growth
is substantial, employment generation has not been in commensuration with
growth.
• Public investment in the agriculture sector mainly especially in infrastructure
like irrigation, power, roads, market linkages, R&D was reduced in the reform
period and this was the biggest drawback of economic reforms.
• Because of global competition, certain MSMEs were completely eliminated. The
classic example is Toys.
• Because of the reform in the power sector, there was a steep hike in power
tariff and it impacted certain section of society. E.g. suicide of Sircilia power looms.
• Small and marginal farmers have been affected adversely due to which there has
been increasing incidence of suicides of cotton farmers in the Deccan part of country.
• Industrial sector also suffered because products that were manufactured in India
were not world class and cheaper imports replaced the demand for domestic
goods.
• Due to globalization only few sectors attracted investment and infrastructure still
remained inadequate across the country.
• Protectionist policies adopted by developed countries have not resulted in
level playing field and affected the export income of developing countries like India.
• Because of the reduction in tariff and because of the pressure from multilateral
lending institutions, overall there is the negative impact on development and
welfare expenditure.

PUBLIC PRIVATE PARTNERSHIP

What is PPP?

• PPP is a long term relationship between public and private sectors, involving the
sharing of risks and rewards of multi sector skills, expertise and finance to deliver the
desired outcomes.
• Large-scale government projects, such as roads, bridges, or hospitals, can be
completed with private funding through public-private partnerships.
• These collaborations thrive when private-sector technology and innovation are
combined with public-sector incentives to complete work on time and within budget.

Features of PPP

• The private sector is in charge of carrying out or operating the project, and it
bears a significant percentage of the project's risks.
• During the project's operating life, the public sector's responsibility is to
supervise the private partner's performance and enforce the contract's
requirements.
• The costs of the private sector may be recovered in whole or in part from
charges connected to the use of the project's services, as well as through payments
from the public sector.
• Payments in the public sector are dependent on contract performance standards.
• Although this is not always the case, the private sector frequently contributes the
majority of the project's capital costs.

Advantages
Advantages of PPP

• India has a significant infrastructure need, as well as a funding gap. PPPs can help
to meet both the need and the funding gap. PPP projects frequently involve the
private sector arranging and financing.
• This relieves the public sector of the need to meet financing needs through its
own revenues (taxes) or borrowing and it is advantageous in countries where the
public sector's ability to raise capital is limited, such as India.
• PPPs can enable more infrastructure investment and increased access to
infrastructure services by shifting financial responsibility away from the public sector.
• The allocation of risk, as well as the associated performance rewards and
penalties, create incentives in the PPP contract that encourage the private partner
to achieve efficiency at each stage of the project and to implement efficiency
improvements wherever possible.
• The public sector can limit its own exposure to cost escalation by shifting risk to
private partners.
• PPPs can be structured to create a whole-of-life focus, in which the private
partner designs the project to account for the link between construction and
operation in order to reduce costs over the life of the project.
• The release of information into the public domain, for use in the media and by
interested and concerned individuals, NGOs, and private sector
participants themselves, is critical to increasing transparency and reducing
opportunities for corrupt practices.
• A well-designed public-private partnership (PPP) process can bring procurement
out from behind closed doors. The PPP tendering and awarding process should
be based on open competitive bidding in accordance with international best
practices.
Limitations
Limitations of PPP

• The PPP project must be well-defined, including risk allocation and a clear
statement of the service output requirements. The long-term nature of PPP
contracts necessitates more advanced planning and specification of contingencies.
• Tendering and negotiating is an expensive process. Typically, transaction
advisors and legal experts will be required.
• PPPs frequently cover a long period of service provision (eg. 15-30 years, or the
life of the asset). Any agreement that extends so far into the future is bound to be
fraught with uncertainty.
• If the public sponsor's requirements or the conditions confronting the private
sector change during the life of the PPP, the contract may need to be modified to
reflect the changes.
• This can result in significant costs for the government, and the benefit of
competitive bidding to determine these costs is usually not available.
o This issue can be mitigated by selecting relatively stable projects as
PPPs and specifying how future contract variations will be handled and priced
in the original contract terms.
• Once in the construction and operation phases, the public success of the PPP will be
determined by the sponsor's ability to monitor performance against standards
and enforce contract terms.
• A project should ideally be procured as a PPP based on a clear demonstration that
it provides value for money (VFM) when compared to public sector procurement.
• However, demonstrating value for money in advance is difficult due to
uncertainties in predicting what will happen over the course of the project and a lack
of information about comparable previous projects.

Models
Models of PPP

• BOT(Build Operate Transfer): This is a traditional PPP model in which the private
partner is responsible for designing, building, operating (during the contracted
period), and transferring the facility back to the public sector.
• BOO(Build Own Operate): Under this model, the private party will own the newly
constructed facility.
• BOOT(Build Own Operate Transfer): In this variant of BOT, the project is
transferred to the government or a private operator after a predetermined period of
time.
• BOLT(Build Operate Lease Transfer): In this approach, the government grants a
concession to a private entity to build (and possibly design) a facility, own the facility,
lease the facility to the public sector, and then transfer ownership of the facility to the
government at the end of the lease period.
• DBFOT(Design Build Operate Transfer): In this model, the private party is solely
responsible for the project's design, construction, financing, and operation during the
concession period.
• LDO(Lease Develop Operate): In this type of investment model, either the
government or a public sector entity retains ownership of the newly created
infrastructure facility and receives payments from the private promoter under a lease
agreement.
• Operation and Maintenance Contract (O&M): Under this model, a private-sector
partner operates a publicly-owned asset for a set period of time. The assets remain
in the hands of the public partner.
Kelkar Committee
Kelkar Committee on PPP

• The Kelkar committee to evaluate PPP in India was formed to study and assess the
existing public-private partnership (PPP) model in India.
• The committee was formed by the Indian government and is led by Vijay Kelkar.
• The committee was established in the aftermath of India's 2015 Union Budget by
Arun Jaitley, the country's then-finance minister. It consisted of ten people.

Terms of Reference of the Committee

Terms of Reference of the Committee

• Review of PPP policy experience, including variations in contract content and

difficulties encountered with specific variations and conditions.
• Risk analysis in PPP projects in various sectors, as well as the existing
framework for sharing such risks between the project developer and the government,
with the goal of recommending the best risk-sharing mechanism.
• Propose design changes to PPP contractual arrangements based on the
foregoing and international best practices, as well as our institutional context.
• Measures to strengthen government capacity for the effective implementation of
PPP projects.

Recommendations
Recommendations of this committee

• The establishment of 3P India.

• The case-based risk allocation formula for various project participants.
• Establishment of independent regulatory agencies.
• An amendment to the Prevention of Corruption Act to distinguish between
errors of judgment and willful corrupt practices.
• Use the PPP model for the airport, port, and railway projects.
• Banks and other financial institutions should be permitted to issue zero-coupon
bonds.
• A consortium's number of banks should be limited.
• Banks improve their risk assessment and evaluation capabilities.
• Specific guidelines for the encashment of bank guarantees.
• To provide for the monetization of completed projects.
• Make a procedure for resuming stalled projects.
• PPP should only be used for large projects.
• Development of a built-in mechanism for renegotiation.
• Concession agreements in various sectors will be reviewed as models.
• Public sector undertakings should be discouraged from participating in PPP road toll
collection.
• Establishment of an Infrastructure PPP Project Review Committee
(IPRC) comprised of a finance and economics expert, a lawyer, and at least one
related technocrat with at least 15 years of experience.
• Establishment of an Infrastructure PPP Adjudication Tribunal (IPAT) led by a
former Supreme Court/High Court Judge and comprised of at least one technical and
financial expert each.

New projects, particularly large-scale transit projects, are important for increasing
mobility and a series of changes in land-use patterns. PPPs have the potential to
improve and accelerate the delivery of infrastructure projects. Currently, PPP contracts
are more concerned with financial benefits. Before implementing this model, a
thorough evaluation of the efficacy and likely benefits of increasing private sector
participation in metro rail projects is required. In its document 'Strategy for New India
@75,' NITI Aayog set a target of 36% investment by 2022-23, up from 28% in 2017-
2018. A lot of measures will be required to boost both private and public investment in
order to increase the rate of investment (gross fixed capital formation as a share of
GDP).

OPERATING ENVIORNMENT FOR SMEs

SMES stands for Small and Medium-sized Enterprises. They are businesses that
typically have fewer than 500 employees and annual revenue of less than a certain
threshold depending on the industry and country. In many cases, SMES are considered
the backbone of the economy and are responsible for creating jobs and driving
innovation. They can be found in a wide range of industries, including manufacturing,
services, and technology, among others. SMES are often subject to different
regulations and policies than larger corporations due to their size and resources.

SMEs conditions

SMEs can face a variety of conditions and challenges, which can vary depending on
their industry, location, and other factors. Some common conditions that SMEs may
face include:

Limited financial resources: SMEs often have limited access to capital, which can make
it challenging for them to invest in new equipment, hire additional staff, or expand
their operations.

Limited market share: SMEs may face competition from larger, established businesses
that have more resources and a larger market share.

1. Limited management resources: Many SMEs have limited staff, which can make
it challenging to manage multiple functions of the business, such as marketing,
accounting, and operations.
2. Limited access to technology: SMEs may not have access to the latest
technologies, which can limit their ability to compete with larger businesses and
keep up with changing market demands.
3. Regulatory and legal requirements: SMEs are often subject to the same
regulations and legal requirements as larger businesses, which can be
challenging to navigate and comply with given their limited resources.
 4. Despite these challenges, SMEs often have greater flexibility and agility than
larger businesses, which can allow them to respond more quickly to changes in
the market and take advantage of new opportunities.

Financial assistance providence

There are various financial assistance options available for SMEs, depending on their
specific needs and circumstances. Some common terms for financial assistance for
SMEs include:

1. Business loans: SMEs may be able to obtain loans from banks or other financial
institutions to finance their operations or invest in new equipment or projects.
2. Grants: Some governments, non-profit organizations, and other entities may
offer grants to SMEs to support specific types of projects or initiatives.
3. Equity financing: SMEs may be able to raise capital by selling shares of their
business to investors.
4. Angel investors: Angel investors are individuals who provide funding to startups
or small businesses in exchange for equity ownership.
5. Venture capital: Venture capital firms provide funding to startups and early-
stage businesses in exchange for equity ownership.
6. Crowd funding: SMEs can raise funds from a large number of individuals
through crowd funding platforms.
7. Factoring: Factoring involves selling outstanding invoices to a third-party
company in exchange for immediate cash.

These are just a few examples of the financial assistance options available to SMEs. It's
important for SMEs to carefully consider their options and choose the type of financing
that best meets their needs and goals.

SMES BUDGET
The budget for Small and Medium Enterprises (SMEs) can vary depending on a number of
factors, such as the size of the business, industry, location, and growth stage. However, here
are some general guidelines for budgeting for an SME:

1. Fixed costs: These are the costs that don't vary with the amount of goods or services
produced, such as rent, salaries, utilities, insurance, and taxes. Allocate a portion of your
budget for these expenses, and make sure they're covered before anything else.
2. Variable costs: These costs vary with the amount of goods or services produced, such
as raw materials, production costs, and marketing expenses. Estimate how much you'll
need to spend on these items, and factor them into your budget accordingly.
3. Capital expenditures: These are expenses for equipment or other assets that will be
used in the business for an extended period of time. Plan for these costs by creating a
capital expenditure budget and spreading the costs out over several months or years.
4. Contingency funds: Unexpected expenses can arise at any time, so it's a good idea to
set aside some funds for emergencies. Aim to have at least three months' worth of
expenses saved in case of unexpected events like a downturn in sales or unforeseen
expenses.
5. Overall, a well-planned and managed budget is crucial for SMEs to stay on track and
achieve their financial goals. Be sure to regularly review your budget and adjust it as

necessary to ensure your business stays on a sustainable financial path.

Trends in infrastructure development and policy

Here are some current trends in infrastructure development and policy:

1. Sustainable infrastructure: There is an increasing focus on building sustainable

infrastructure that minimizes environmental impact and enhances resilience to
climate change. Governments and private sector investors are increasingly
incorporating environmental, social, and governance (ESG) factors into
infrastructure development and investment decisions.
2. Digital infrastructure: The COVID-19 pandemic has accelerated the shift
towards digital infrastructure, including investments in 5G networks,
broadband, and data centers. Governments are increasingly prioritizing the
development of digital infrastructure as a key component of economic
competitiveness and national security.
3. Private sector participation: Governments are increasingly partnering with the
private sector to finance and deliver infrastructure projects. Public-private
 partnerships (PPPs) are becoming more common, particularly in emerging
markets where governments may lack the resources or expertise to deliver
large-scale infrastructure projects.
4. Infrastructure as a service: There is a growing trend towards the delivery of
infrastructure services through cloud-based platforms and other as-a-service
models. This is particularly evident in the transport and energy sectors, where
digital platforms are enabling new business models and service delivery
models.
5. Integrated infrastructure: Governments are increasingly adopting integrated
approaches to infrastructure development, which consider the
interdependencies between different infrastructure sectors such as transport,
energy, water, and telecommunications. Integrated approaches are seen as a
way to enhance efficiency, reduce duplication, and improve overall
infrastructure performance.

These trends are likely to continue shaping infrastructure development and

policy in the years ahead, as governments and investors seek to build more
sustainable, efficient, and resilient infrastructure systems.

ADVANTAGE INDIA
ROBUST
DEMAND

*India is the export hub for software services. The Indian IT outsourcing service market is
expected to witness 6–8% growth between 2021 and 2024.

*India‘s IT and business services market is projected to reach US$ 19.93 billion by 2025.

COMPETITIVE
ADVANTAGE

*In September 2021, India moved up two spots to 46 in the Global Innovation Index (GII) 2021,
due to successful advancements in services that are technologically dynamic and can be traded
internationally.
 POLICY
SUPPORT

*Government is promoting necessary services and will charge zero tax for education and health
services under the GST regime.

*In October 2021, the government announced a new helicopter policy to build dedicated hubs
and corridors, the policy will boost helicopter services in the country.

INCREASING
INVESTMENTS

*The Indian services sector was the largest recipient of FDI inflows worth US$ 96.76 billion
between April 2000-June 2022.

*According to the IVCA-EY monthly PE/VC roundup, October 2022 recorded investments worth
US$ 3.3 billion across 75 deals, including six large deals worth US$ 2.2 billion. Exits were
recorded at US$ 1.6 billion across 15 deals in October 2022.

Current trend in INDIA service

sector
The service sector in India is one of the fastest-growing sectors and
contributes significantly to the country's economic growth. Here are some
current trends in the Indian service sector:

1. Digital transformation: The COVID-19 pandemic has accelerated the

adoption of digital technologies in the service sector. Companies are
increasingly adopting digital channels for service delivery and customer
engagement, leading to a rise in e-commerce, online education, digital
healthcare, and other digital services.
2. Rising demand for healthcare services: With an aging population and
increasing lifestyle diseases, the demand for healthcare services in India
is on the rise. The healthcare sector is expected to grow at a rapid pace,
with increased investment in healthcare infrastructure, telemedicine,
and digital health services.
3. Growth in financial services: The financial services sector in India is
expanding rapidly, driven by increasing financial inclusion, digital
payments, and the emergence of new fintech players. The sector is
expected to grow at a compound annual rate of over 20% in the next
few years, according to some estimates.
 4. Outsourcing services: India is a leading destination for outsourcing
services, particularly in the IT and business process outsourcing (BPO)
sectors. The outsourcing industry in India is expected to grow in the
coming years, driven by increasing demand from global clients for cost-
effective and high-quality services.
5. Increasing focus on sustainability: There is an increasing focus on
sustainability in the Indian service sector, with companies adopting
green technologies and sustainable business practices. This trend is
particularly evident in the hospitality and tourism sectors, where
companies are investing in renewable energy, water conservation, and
waste management initiatives.
6. These trends are expected to shape the Indian service sector in the
coming years, with companies focusing on digital transformation,
sustainability, and innovation to drive growth and competitiveness.

INDUSTRIAL RELATION

Industrial relations refer to the relationships between employers, employees,

and their representatives in the workplace. This includes the way in which
these parties interact with each other, negotiate agreements, and resolve
disputes.

The study of industrial relations encompasses a wide range of topics, including

employment contracts, labor law, collective bargaining, workplace health and
safety, employee rights, and workplace governance. It is an interdisciplinary
field that draws on theories and methodologies from economics, law,
sociology, psychology, and political science.

Effective industrial relations are essential for maintaining a productive and

harmonious workplace. This involves creating a positive work environment,
ensuring fair treatment of employees, and promoting effective communication
between all parties. Effective industrial relations can also help to prevent labor
disputes and strikes, which can be costly and disruptive for both employers
and employees.

In summary, industrial relations are the relationships between employers,

employees, and their representatives, which are essential for maintaining a
productive and harmonious workplace.
CAUSES IF INDUSTRIAL DISPUTES

There can be various causes of industrial disputes, some of which

are:

1. Wages and Benefits: One of the primary causes of industrial

disputes is related to wages and benefits. Employees may demand
better salaries, bonuses, or other benefits, and if employers fail to
meet their expectations, it can lead to disputes.
2. Working conditions: Disputes may arise due to poor working
conditions, such as inadequate safety measures, lack of job
security, and long working hours. Employees may demand better
working conditions, and if employers do not address their
concerns, it can lead to disputes.
3. Unfair Labor Practices: Unfair labor practices such as
discrimination, harassment, or retaliation against employees who
engage in union activities can cause industrial disputes.
4. Management Decisions: Disputes can arise due to management
decisions such as layoffs, restructuring, and mergers. Employees
may feel that they are being unfairly treated, and if their concerns
are not addressed, it can lead to disputes.
5. Political Issues: Political issues such as government policies and
regulations, changes in labor laws, or trade disputes can also cause
industrial disputes.
6. Communication and Negotiation Breakdowns: Communication and
negotiation breakdowns between management and employees can
lead to industrial disputes. Lack of transparency and trust can
exacerbate these problems.

In summary, industrial disputes can have various causes related to

wages and benefits, working conditions, unfair labor practices,
management decisions, political issues, and communication and
negotiation breakdowns. It is essential to identify and address
these causes to prevent disputes and promote a harmonious
workplace.

PRESENT STATE OF INDUSTRIAL RELATION

 1. The COVID-19 pandemic has had a significant impact on industrial
relations, with many workers losing their jobs or experiencing changes in
their working conditions. It has also highlighted the importance of
workplace health and safety and the need for effective communication
between employers and employees.
2. Technological advancements have transformed the nature of work, with
many jobs being replaced by automation and artificial intelligence. This
has led to concerns about job security and the need for reskilling and
upskilling of the workforce.
3. The gig economy and the rise of independent contractors have challenged
traditional employment models and raised questions about worker rights
and protections.
4. The push for diversity, equity, and inclusion (DEI) in the workplace has
become increasingly important, with employers facing pressure to create
more equitable and inclusive workplaces.
5. Union membership and collective bargaining have declined in many
countries, particularly in the private sector. However, there have also
been renewed efforts to organize workers and strengthen collective
bargaining rights.
6. There has been a growing focus on corporate social responsibility (CSR)
and the need for companies to consider their impact on society and the
environment.

In summary, the present state of industrial relations is influenced by various

factors, including the COVID-19 pandemic, technological advancements, the gig
economy, DEI, declining union membership, and CSR.

UNIT-4

BOP SCENARIOS TRENDS WITH DATA OF INDIA

Here are some recent trends related to BOP scenarios and data for India:

1. Trade Surplus: India has been experiencing a trade surplus since the
COVID-19 pandemic hit in early 2020. According to data from the
Reserve Bank of India, India's trade surplus in 2020-21 was $98.6 billion,
up from $58.5 billion in 2019-20. This increase in trade surplus was
primarily due to a decline in imports.
 2. Foreign Investment: India has been attracting significant foreign
investment in recent years, particularly in the technology and e-
commerce sectors. According to data from the Department for
Promotion of Industry and Internal Trade (DPIIT), FDI inflows into India
increased by 13% in the 2020-21 fiscal year, reaching a record high of
$81.7 billion.
3. Capital Flight: India has experienced some capital flight in recent years,
with investors pulling out of the country due to concerns over
economic growth and policy uncertainty. According to data from the
RBI, net FPI (Foreign Portfolio Investment) outflows from India in 2020-
21 were $6.8 billion, down from $14.7 billion in 2019-20.
4. Exchange Rate Changes: The Indian rupee has been relatively stable
against the US dollar in recent years. However, there have been some
fluctuations in the exchange rate due to various factors such as global
economic conditions, domestic economic policies, and geopolitical
developments.
5. Tourism: The COVID-19 pandemic has had a significant impact on
India's tourism industry, with a sharp decline in the number of foreign
tourists. According to data from the Ministry of Tourism, the number of
foreign tourist arrivals in India in 2020 was 2.4 million, down from 10.9
million in 2019.

In summary, India has experienced a trade surplus, attracted significant

foreign investment, experienced some capital flight, had relatively stable
exchange rates, and seen a decline in tourism due to the COVID-19 pandemic.
However, it is important to note that these trends can be subject to change
depending on various domestic and global factors.