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MS-03
Economic and Social Environment
MS-03/TMA/SEM-I/2013
All Blocks
Note: Attempt all the questions and submit this assignment on or before 30th April, 2013 to the
coordinator of your study center.
FOR EXAMPLE: when the government tries to impose a high tax rate on corporate profits,
many business concerns try to evade tax by under-reporting their profits. It is interesting to note
that the same environment may act both as stimulant and as a constraint stimulating for some
and constraining for others. A high tax rate increases the propensity to evade taxes; it induces the
corporate tax-payer to restrict his output, sales or profits. At the same time, this very situation
provides an opportunity to the tax consultant for thriving business. A good amount of managerial
skill and dexterity is required in adjusting to the environment. The managers must have a
thorough knowledge, understanding and comprehension of their immediate business
environment. With experience and maturity, the alert managers acquire the skill to deal with the
environment. When an environment repeats itself, the experienced managers effectively display
their "capability" to take of it. When the changing dimensions of the environment establish a
sudden departure from the past trends and tendencies, the managers are called upon to
demonstrate their "capability" to deal with the situation or risk and uncertainty. The environment
thus poses, challenge for the management. The managerial efficiency and/or effectiveness is a
measure of adaptability to the existing business environment.
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Present Economy System of China: The World Bank's chief economist Justin Lin in
2011 stated that China, which became the world's second largest economy in 2010, may become
the world's largest economy in 2030, overtaking the United States, if current trends continue.
Challenges include income inequality and pollution. The Standard Chartered Bank in a 2011
report suggested that China may become the world's largest economy in 2020. A 2007 OECD
rapport by Angus Maddison estimated that if using purchasing power parity conversions, then
China will overtake the United States in 2015. James Wolfensohn, former World Bank president,
estimated in 2010 that by 2030 two-thirds of the world's middle class will live in China.[The
Director of the China Center for Economic Reform at Peking University Yao Yang in 2011
stated that "Assuming that the Chinese and U.S. economies grow, respectively, by 8% and 3% in
real terms, that China's inflation rate is 3.6% and America's is 2% (the averages of the last
decade), and that the renminbi appreciates against the dollar by 3% per year (the average of the
last six years), China would become the world's largest economy by 2021. By that time, both
countries' GDP will be about $24 trillion."
In 2011, the IMF warned that government controlled banks could be building up imbalances that
could hamper growth and leave the system "severely impacted" In 2011, the IMF predicted that
China's GDP (purchasing power parity adjusted) would overtake that of the United States in
2016. The state favours state-owned enterprises despite lower productivity; this crowds out
competition, in a phenomenon known as Guo jin min tui.
From 2011 onward, however, China has been experiencing a slowing of its growth that throws
all of the above calculations into doubt. Ray Dalio, founder of the worlds largest hedge fund,
told the Council of Foreign Relations that he foresaw Chinese GDP falling to 4-5% due to failure
to switch successfully from the export-driven model to more consumption.
In 2012, Amnesty International reported that forced evictions that resulted from a construction
boom caused by excessive stimulus spending were a serious threat to China's social and political
stability. Due to the corruption and political uncertainties of the one-party state and the limited
economic freedom in an economy dominated by large state owned enterprises, many skilled
professionals are either leaving the country or preparing safety nets for themselves abroad.
Corruption continued to grow worse in the PRC as it dropped from 75th to 80th place in
Transparency International's index of state corruption. As a result of the labor shortage, increased
wages and tighter scrutiny of business practices, manufacturing began to migrate back to the
United States from China
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3.
Name and briefly describe a sick unit with which you are familiar or
identify one such unit and briefly attempt the following:
a)
Factors which caused sickness, including management failures
and the present position.
Example
A power manufacturer has a capital of Rs 100 crore and in the first year it incurs a loss of Rs 50
crore, bulk of it thanks to huge start-up expenses that it is unable to capitalise in his books of
account.
It would be unfair to brand it sick especially if there is nothing inherently wrong in its business
plan and it is sure of turning the corner in a couple of years.
One may still contend that on the touchstone of accumulated losses, the moratorium period of
five years has been retained. They may buttress their argument by pointing to absence of
provisions similar to those contained in Section 43C of the Income-Tax Act which albeit in a
totally different context says that if a company has been in existence for lesser number of years,
the average figure would be found out by aggregating the total income for the years the company
was in existence and dividing the same by those many number of years.
Industrial sickness specially in small-scale Industry has been always a demerit for the Indian
economy, because more and more industries like cotton, Jute, Sugar, Textiles small steel and
engineering industries are being affected by this sickness problem.
As per an estimate 300 units in the medium and large scale sector were either closed or were on
the stage of closing in the year 1976. About 10% of 4 lakhs unit were also reported to be ailing.
And this position also remain same in the next decades. At the end of year 1986, the member of
sick units in the portfolio of scheduled commercial banks stood at 1.47,740 involving an out
standing bank credit of Rs. 4874 crores.
Where the total number of large Industries which are sick were 637 units at the end of year 1985
increased to 714 units in the end of next year 1986.
Likewise on the other hand the number of sick small scale units were also increased 1.18 lacks at
the end of 1985 to 1.46 lakhs at the end of 1986.
The bank amount which was outstanding in case of large industries for the same period also
increased from Rs.2,900 crores to Rs. 3287 crores at the end of year 1986
Dues of Small Scale sector also increased from Rs.1071 crores to Rs.1306 at the end of the year
1986. Of the 147, 740 sick industrial units which contains large medium as well as small scale
involving the total bank loan (credit) of Rs. 4874 at the end of the year 1986.
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of funds for a nation, such as exports or the receipts of loans and investments, are recorded as
positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are
recorded as negative or deficit items. When all components of the BOP accounts are included
they must sum to zero with no overall surplus or deficit. For example, if a country is importing
more than it exports, its trade balance will be in deficit, but the shortfall will have to be
counterbalanced in other ways such as by funds earned from its foreign investments, by
running down central bank reserves or by receiving loans from other countries.
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That said, there are infinitely more merits than demerits to going becoming convertible on the
capital account. The As far as the demerits are concerned, they are only demerits so only as long
as the financial system and government accounts are shoddy. If they it become world class
financial system, the it can easily manage volatility can be managed without any problem.
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5.
Collect data on foreign technical and financial collaborations for the last ten years
and write a detailed note on the annual trends of these collaborations.
b)
Discuss the
privatization.
various
organizational
measures
which
promote
Solution: (i) Ownership measures: By the extent of ownership transferred the degree of
privatisation is judged form the public enterprises to the private sector. Ownership almost
transferred to a separate, co-operative or corporate sector. This can have three forms:
(a) Entire Denationalisation implies 100% transfer of ownership of a public enterprise to private
sector.
(b) Joint venture implies partial transfer of a public enterprise to the private sector. It can have
various variants 25% transfer to private sector in a joint venture implies that majority
ownership and control remains with the public sector. 51% transfer of ownership to the private
sector shifts the balance in optimum to the private sector, through the public sector retains a
substantial stake in the undertaking. 74% transfer of Ownership to the private sector implies a
dominant share being transferred to private sector. In such a situation, the private sector is in a
better position to change the character of the enterprise.
(c) Liquidation implies sale of assets to a person who may use them for the same purpose or
some other purpose. This solely depends on the preference of the buyer.
(d) Workers co-operative is a special form of denationalisation. In this form, ownership of the
enterprises is transferred to workers who may form a co-operative to run the enterprise. In such a
situation, relevant provision of bank loans is build to enable workers to buy the shares of the
enterprise. The burden of running the enterprises rests on the workers in workers co-operative.
The workers become entitled to ownership dividend besides achieving wages for their services.
Organisational measures involve a variety of measures to limited state control. They added:
(a) In their day-to-day commands a structure of holding company almost designed in that the
government limits its control to top-level big decisions and leaves a sufficient degree of
autonomy for the operating companies. A big company like the Somnath enterprises of India
limited (SEIL) or Raghvan Heavy Electrical Limited (RHEL) may acquire a holding company
status, thereby transferring a number of functions to its smaller units. In this way, a decentralised
pattern of management emerges.
(b) Leasing: In this arrangement, the government agrees to transfer the use of assets of a public
enterprise to a private bidder for a specified period, say of 5 years. While entering into a lease,
the bidder is required to give an assurance of the quantum of profits that would be built available
to the state. This is a kind of tenure ownership. The government reserves the right to review the
lease to the same person or to grant the lease to another bidder depending upon the circumstances
of the cases.
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