BUSINESS: CONCEPT AND MISSION

INTRODUCTION:

Human beings are continuously engaged in some activity or another to satisfy their unlimited
wants. Every day we come across the word 'business' or 'businessman' directly or indirectly. The
business has become an essential part of the modern world.

DEFINITION;

According to Dicksee, "Business refers to a form of activity conducted with an objective of

earning profits for the benefit of those on whose behalf the activity is conducted."

Lewis Henry defines business as, "Human activity directed towards producing or acquiring
wealth through buying and selling of goods."

Features of Business

Characteristics or features of the business are discussed in the following points:-

1. Exchange of goods and services
All business activities are directly or indirectly concerned with the exchange of goods or
services for money or money's worth.
2. Deals in numerous transactions
In business, the exchange of goods and services is a regular feature. A businessman
regularly deals in several transactions and not just one or two transactions.
3. Profit is the main objective
The business is carried on with a motive to earn a profit. The profit is a reward for the
services of a businessman.
4. Business skills for economic success
Anyone cannot run a business. To be a good businessman, one needs to have good
business qualities and skills. A businessman needs experience and skill to run a business.
5. Risks and Uncertainties
Business is subject to risks and uncertainties. Some risks, such as risks of loss due to fire
and theft can be insured. There are also uncertainties, such as loss due to change in demand or
fall in price cannot be insured and must be borne by the businessman.
6. Buyer and Seller
Every business transaction has a minimum of two parties that is a buyer and a seller.
Business is nothing but a contract or an agreement between buyer and seller.
7. Connected with production

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 The business activity may be connected with the production of goods or services. In this
case, it is called as industrial activity. The industry may be primary or secondary.
8. Marketing and Distribution of goods
The business activity may be concerned with marketing or distribution of goods in which
case it is called a commercial activity.
9. Deals in goods and services
In business there has to be dealings in goods and service.
Goods may be divided into following two categories:-
1. Consumer goods : Goods which are used by final consumer for consumption are
called consumer goods e.g. T.V., Soaps, etc.
2. Producer goods : Goods used by producer for further production are called
producers goods e.g. Machinery, equipments, etc. Services are intangible but can be exchanged
for value like providing transport, warehousing and insurance services, etc.
10. To satisfy human wants
The businessman also desires to satisfy human wants through the conduct of business. By
producing and supplying various commodities, businessmen try to promote consumer's
satisfaction.
11. Social obligations
Modern business is service-oriented. Modern businessmen are conscious of their social
responsibility. Today's business is service-oriented rather than profit-oriented.
Nature and Purpose of Business :
The nature of business is best understood on the basis of its characteristics or features which are
as follows:
1. Business is an economic activity
2. It includes the activities of production or purchase and distribution.
3. It deals in goods and services.
4. It implies regularity of transactions.
5. It aims at earning profits through the satisfaction of human wants.
6. It involves risk; it is not certain that adequate profit will be earned.
7. It creates utilities.
8. It serves a social purpose by improving people’s standard of living.
Objectives Of Business :

Success in business depends on proper formulation of its objectives. Objectives must be

clear, and attainable. Thus, the objectives of business may be classified as –
(a) Economic objectives

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 (b) Social objectives
(c) Human objectives
(d) National objectives
(e) Global objectives

Significance of Business in Modern Society/Importance of Business:

Business is an integral part of modern society. It is an organized and systematized activity for
profit. It is concerned with activities of people working towards a common goal. The modern
society cannot exist without business. The need and importance of business in society can be
described as follows:
1 . Improvement in standard of living: Business helps people in general to improve their
standard of living.
2 . Proper utilization of resources: It leads to effective utilization of the scarce resources of
society. It provides facility of mass production.
3 . Better quality and large variety of goods and services: It involves production, purchase
and sale of goods and services for price. Customer’ satisfaction is the backbone of modern
business. Services such as supply of water, electricity etc. may be considered highly significant
for the community
4 . Creates utilities:
Business makes goods more useful to satisfy human wants. It adds to products the utilities of
person, time, place, form, knowledge etc. Thus, people are able to satisfy their wants effectively
and economically.
5 . Employment opportunities:
It provides employment opportunities to large number of people in society.
6 . Workers’ welfare:
Business organizations these days take care of various welfare activities for workers. They
provide safer and healthier work environment for employees.

1.1 BUSINESS CONCEPT

Definition: A business concept is a statement that describes the reach and reason of existence of
a given business idea. In other words, it sums up the crucial elements that define the business.

Generally there are two concepts of business. They are as follows:

Traditional concept:
The traditional concept explains that the purpose of business is to earn profit through
the production and marketing of products. products may be different types.for exampllle
physical goods, services, ideas and information etc,. the main motto of business is to maximize
profit only as per the traditional concepts.
Modern concept:
Consumer satisfaction is the central point of the modern concept of business. profit can
be earned by maintaining social responsibility. it strives to include every aspect of human
civilization. it views the modern business as a socio-economic institution that is always
responsible for society.

BUSINESS MISSION

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A Mission Statement defines the company’s business, its objectives and its approach to reach
those objectives. A Vision Statement describes the desired future position of the company.
Elements of Mission and Vision Statements are often combined to provide a statement of the
company’s purposes, goals and values. However, sometimes the two terms are used
interchangeably.

Goal

 A goal is a broad primary outcome.

 A strategy is the approach you take to achieve a goal.

 An objective is a measurable step you take to achieve a strategy.

PURPOSE OF HAVING A BUSINESS MISSION

1. Mission statements guide the company forward
2. Mission statements focus your energy and attention
3. Mission statements spark new ideas
4. Mission statements shape company culture
5. Mission statements send out a powerful message to the public
6. Mission statements drive action

2. BUSINESS ENVIRONMENT

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A. External Micro- Environment
Micro environment includes those players whose decisions and actions have a direct impact on
the company. Production and selling of commodities are the two important aspects of modern
business. The various constituents of micro environment are as under:

a. Suppliers of inputs :
An important factor in the external micro environment of a firm is the supplier of its inputs such
as raw materials and components.

b. Customers :
The people who buy and use a firm’s product and services are an important part of external
micro environment. Since sales of a product or service is critical for a firm’s survival and growth,
it is necessary to keep the customers satisfied.

c. Marketing intermediaries :
In the firm’s external micro environment, marketing intermediaries play an essential role of
selling and distributing its products to the final customers. Marketing is an important link
between a business firm and its ultimate customers.

d. Competitors :
Different firms in an industry compete with each other for sale of their products. This
competition may be on the basis of pricing of their products and also non- price competition
through competitive advertising such as sponsoring some events to promote the sale of different
varieties and models of their products.
e. Publics :
Finally, publics are an important force in external micro environment. Public, according to
Philip Kotler, “is any group that has an actual or potential interest in or impact on the company’s
ability to achieve its objective.” Environmentalists, media groups, women’s associations,
consumer protection groups, local groups, citizens association are some important examples of
publics which have an important bearing on the business decisions of the firm.

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B. External macro environment :
Apart from micro environment, business firms face large external environmental forces. An
important fact about external macro environmental forces is that they are uncontrollable by the
management. Because of the uncontrollable nature of macro forces a firm has to adjust or adapt
it to these external forces. These factors are:
a. Economic Environment :
Economic environment includes all those forces which have an economic impact on business.
Accordingly, total economic environment consists of agriculture, industrial production,
infrastructure, and planning, basic economic philosophy, stages of economic development, trade
cycles, national income, per capita income, savings, money supply, price level and population.

b. Political-legal Environment :
The political- legal environment includes the activities of three political institutions, namely,
legislature, executive and judiciary which usually play a useful role in shaping, directing,
developing and controlling business activities. In order to attain a meaningful business growth, a
stable and dynamic political-legal environment is very important.
c. Technological Environment : Technology implies systematic application of scientific or other
organised knowledge to practical tasks or activities. Business makes it possible for technology to
reach the people in proper format. As technology is changing fast, businessmen should keep a
close look on those technological changes for its adaptation in their business activities.

d. Global or International Environment :

The Global environment plays an important role in shaping business activity. With the
liberalisation and globalisation of the economy, business environment of an economy has
become totally different wherein it has to bear all shocks and benefits arising out of global
environment.

e.Socio-cultural Environment :
Finally, the social and cultural environment also influences the business environment indirectly.
These includes people’s attitude to work and wealth, ethical issues, role of family, marriage,
religion and education and also social responsiveness of business.

f. Demographic environment :
The demographic environment includes the size and growth of population, life expectancy of the
people, rural-urban distribution of population, the technological skills and educational levels of
labour force. All these demographic features have an important bearing on the functioning of
business firms.

g. Natural Environment :
The Natural environment influences business in diverse ways. The natural environment is the
ultimate source of many inputs such as raw materials and energy, which firms use in their
productive activity. In fact, the availability of natural resources in the region or country is the
basic factor in determining business activity in it. The natural environment which includes
geographical and ecological factors such as minerals and oil reserves, water and forest resources,
weather and climatic conditions and port facilities are all highly significant for various business
activities.

h. Ecological environment :

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 Due to the efforts of environmentalists and international organisations such as the World Bank
the people have now become conscious of the adverse effects of depletion of exhaustible natural
resources and pollution of environment by business activity. Accordingly, laws have been passed
for conservation of natural resources and prevention of environment pollution. These laws have
imposed additional responsibilities and costs for business firms.

Internal Environment :
The factors in internal environment of business are to a certain extent controllable because the
firm can change or modify these factors to improve its efficiency. However, the firm may not be
able to change all the factors.

The various internal factors are:

a. Value system : The value system of an organisation means the ethical beliefs that guide the
organisation in achieving its mission and objectives. It is a widely acknowledged fact that the
extent to which the value system is shared by all in the organisation is an important factor
contributing to its success b. Mission and objectives : The business domain of the company,
direction of development, business philosophy, business policy etc are guided by the mission and
objectives of the company. The objective of all firms is assumed to be maximisation of profit.
Mission is defined as the overall purpose or reason for its existence which guides and influences
its business decision and economic activities.

c.Organisation structure :
The organisational structure, the composition of the board of directors, the professionalism of
management etc are important factors influencing business decisions. An efficient working of a
business organisation requires that the organisation structure should be conducive for quick
decision-making.

d. Corporate culture :
Corporate culture is an important factor for determining the internal environment of any
company. In a closed and threatening type of corporate culture the business decisions are taken
by top level managers while the middle level and lower level managers have no say in business
decision making. This leads to lack of trust and confidence among subordinate officials of the
company and secrecy pervades throughout the organisation. This results in a sense of alienation
among the lower level managers and workers of the company. In an open and participating
culture, business decisions are taken by the lower level managers and top management has a high
degree of confidence in the subordinates.

e. Quality of human resources :

Quality of employees that is of human resources of a firm is an important factor of internal
environment of a firm. The characteristics of the human resources like skill, quality, capabilities,
attitude and commitment of its employees etc could contribute to the strength and weaknesses of
an organisation. Some organisations find it difficult to carry out restructuring or modernisation
plans because of resistance by its employees f. Labour unions : Labour unions collectively
bargains with the managers for better wages and better working conditions of the different
categories of workers etc. For the smooth working of a business firm good relations between
management and labour unions is required.

g. Physical resources and technological capabilities :

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Physical resources such as plant and equipment and technological capabilities of a firm
determine its competitive strength which is an important factor for determining its efficiency and
unit cost of production. Research and development capabilities of a company determine its
ability to introduce innovations which enhances productivity of workers.
FEATURES OF BUSINESS ENVIRONMENT
On the basis of the above discussion the features of business environment can be summarised as
follows.
(a) Business environment is the sum total of all factors external to the business firm and that
greatly influence their functioning.
(b) It covers factors and forces like customers, competitors, suppliers, government, and the
social, cultural, political, technological and legal conditions.
(c) The business environment is dynamic in nature, that means, it keeps on changing.
(d) The changes in business environment are unpredictable. It is very difficult to predict the
exact nature of future happenings and the changes in economic and social environment.
. (e) Business Environment differs from place to place, region to region and country to country.
Political conditions in India differ from those in Pakistan. Taste and values cherished by people
in India and China vary considerably
IMPORTANCE OF BUSINESS ENVIRONMENT
(a) Determining Opportunities and Threats:
(b) Giving Direction for Growth:
(c) Continuous Learning:
(d) Image Building
(e) Meeting Competition
(f) Identifying Firm’s Strength and Weakness:.

3.ECONOMIC ENVIRONMENT:
The term economic environment refers to all the external economic factors that influence
buying habits of consumers and businesses and therefore affect the performance of a company.
These factors are often beyond a company’s control, and may be either large-scale (macro) or
small-scale (micro).
Macro factors include:
• Employment/unemployment
• Income
• Inflation
• Interest rates
• Tax rates
• Currency exchange rate
• Saving rates
• Consumer confidence levels
• Recessions
Micro factors include:
• The size of the available market
• Demand for the company’s products or services

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 • Competition
• Availability and quality of suppliers
• The reliability of the company’s distribution chain (i.e., how it gets products to
customers)
While companies often can’t control their economic environment, they can evaluate economic
conditions before choosing to enter a particular market or industry or pursue other strategies.
ECONOMIC ENVIRONMENT
The survival and success of each and every business enterprise depend fully on its economic
environment. The main factors that affect the economic environment are:
(a) Economic Conditions: The economic conditions of a nation refer to a set of economic
factors that have great influence on business organisations and their operations. These include
gross domestic product, per capita income, markets for goods and services, availability of
capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All
these help in improving the pace of economic growth.
(b) Economic Policies: All business activities and operations are directly influenced by the
economic policies framed by the government from time to time. Some of the important economic
policies are:
(i) Industrial policy
(ii) Fiscal policy
(iii) Monetary policy
(iv) Foreign investment policy
(v) Export –Import policy (Exim policy)
© Economic System: The world economy is primarily governed by three types of economic
systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has
adopted the mixed economy system which implies co-existence of public sector and private
sector.

4. SOCIAL RESPONSIBILITY OF BUSINESS

The social responsibility of business means various obligations or responsibilities or duties that a
business-organization has towards the society within which it exists and operates from.

Social Responsibility towards Different Interest Groups

(i) Responsibilities towards Consumers

(a) Production of safe items by maintaining quality standards
(b) Being truthful in advertising
(c) To follow fair trade practices.

(ii) Responsibilities towards Employee

(a) Providing fair compensation and benefits
(b) Providing good and safe working conditions
(c) To give them opportunities to participate in decision making

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(iii) Responsibilities towards the Owners / Shareholders / Investors

(a) To ensure safety of investment

(b) To ensure fair and regular return on investment

(c) To ensure appreciation of investment by proper utilisation of resources

(iv) Responsibilities towards the Government

(a) To abide by rules, regulations and laws

(b) To pay taxes and duties on time

(c) To help in solving social problem

(v) Responsibilities towards the Community

(a) To protect the environment from all types of pollution

(b) To provide more employment opportunities

(c) To help the weaker section of the society

(vi) Responsibilities towards Suppliers

(a) To ensure regular payment to the supplier

(b) To adopt fair dealing with the suppliers

(c) To protect and assist small scale suppliers by placing order with them

5. CORPORATE SOCIAL RESPONSIBILITY

Definition: Corporate Social Responsibility (also known as CSR, corporate conscience, and
corporate citizenship) is the integration of socially beneficial programs and practices into a
corporation's business model and culture. CSR aims to increase long-term profits for online and
offline businesses by enabling them to become more efficient and attract positive attention for
their efforts.

Facets of CSR

In his 1991 article "The Pyramid of Corporate Social Responsibility," Dr. Archie B. Carroll, a
business management author and professor, identifies four areas that make up a corporate social
responsibility pyramid: legal, economic, ethical and philanthropic. This pyramid has become
widely used and is meant to explain the main areas that a business's duties to its stakeholders fall
under.

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Carroll's CSR Pyramid is a simple framework that helps argue how and why organisations
should meet their social responsibilities.

The key features of Carroll's CSR Pyramid are that:

 CSR is built on the foundation of profit – profit must come first

 Then comes the need for a business to ensure it complies with all laws & regulations
 Before a business considers its philanthropic options, it also needs to meet its ethical
duties

The four responsibilities displayed on the pyramid are:

ECONOMIC

 This is the responsibility of business to be profitable

 Only way to survive and benefit society in long-term
 It is important to maintain a strong competitive position
 It is important to maintain a high level of operating efficiency

LEGAL

 This is the responsibility to obey laws and other regulations

 E.g. Employment, Competition, Health & Safety

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  It is important to comply with various federal, state, and local regulations
 It is important to be a law-abiding corporate citizen

ETHICAL

 This is the responsibility to act morally and ethically

 With this responsibility, businesses should go beyond narrow requirements of the law
 It is important to recognize and respect new or evolving ethical moral norms adopted by
society
 E.g. Treatment of suppliers & employees

PHILANTHROPIC

 This is the responsibility to give back to society

 The responsibility is discretionary, but still important
 E.g. charitable donations, staff time on projects
 It is important to provide assistance to private and public educational institutions
 It is important to assist voluntarily those projects that enhance a community’s quality of
life.


Evaluating Carroll's CSR Pyramid

Strengths

 The model is easy to understand

 Simple message – CSR has more than one element
 Emphasises importance of profit

Weaknesses

 Perhaps too simplistic?

 Should ethics be at the top?
 Businesses don’t always do what they claim when it comes to CSR

Need for CSR

• To fulfill long run self interest of the organisations.
• To establish a better public image.
• To avoid misuse of resources.
• To minimize environmental damage.

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 • For economic and social welfare of the community.
Importance of CSR
The importance of CSR increases with globalization as both investors andcustomers have
become very sensitive to societal and environmental issues.
• CSR helps business organisations to:
 increase the branding of the organisation. 
 Impulse their relationship with local communities.
 Building a good corporate image for themselves.
 CSR minimizes the negative impact of business activities and create wealth and
value for shareholders and community as a whole

Benefits of corporate social responsibility for businesses

The potential benefits of CSR to companies include:

 better brand recognition

 positive business reputation
 increased sales and customer loyalty
 operational costs savings
 better financial performance
 greater ability to attract talent and retain staff
 organisational growth
 easier access to capital

6. PROFESSIONALISM IN INDIA

PROFESSION:

A profession is an occupation founded upon specialized educational training, the purpose of

which is to supply disinterested objective counsel and service to others, for a direct and definite
compensation, wholly apart from expectation of other business gain.

PROFESSIONAL

A person who is paid for getting Involved in a particular profession in order to earn a living as
well as to satisfy the laws of that profession can be understood as a Professional.
PROFESSIONALISM:

"the conduct, aims, or qualities that characterize or mark a profession or a professional person;"

Professionalism is also about the qualities and behaviours you exhibit, and the manner in which
you conduct yourself during your business affairs.

True professionals possess a number of important characteristics that can apply to virtually any
type of business.

 Appearance

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 A professional is neat in appearance. Be sure to meet or even exceed the requirements of
your company's dress code, and pay special attention to your appearance when meeting
with prospects or clients, and take your cue from the way they dress.

 Reliability

As a professional, you will be counted on to find a way to get the job done. Responding
to people promptly and following through on promises in a timely manner is also
important, as this demonstrates reliability. It’s about meeting expectations, which requires
effective communication skills. Never assume. Clarify everything, especially when things
change, to make sure you are always on the same page as your customer, and to eliminate
nasty surprises.

 Competence

Professionals strive to become experts in their field, which sets them apart from the rest
of the pack. This can mean continuing your education by taking courses, attending
seminars and attaining any related professional designations.

 Ethics

Professionals such as doctors, lawyers and public accountants must adhere to a strict code
of ethics. Even if your company or industry doesn't have a written code, you should
display ethical behaviour at all times.

 Maintaining Your Poise

A professional must maintain his poise even when facing a difficult situation. When you
are challenged or questioned you need to be able to state your case in a calm and
structured manner and keep it factual, clean and to the point. This is where people with a
high Emotional Intelligence (EQ) gain the most respect. There is nothing like losing your
cool or airing personal emotional baggage in a tense situation to destroy your integrity,
credibility and reputation.

 Phone Etiquette

Your phone etiquette is also an important component of professional behaviour. This means
identifying yourself by your full name, company and title when you place a call. Be sure not
to dominate the conversation and listen intently to the other party.

 Written Correspondence

During written or email correspondence, keep your letters brief and to the point. Your
tone should be polite and formal without being "stuffy." Remember that your written
correspondence is a paper trail and record of your transactions with your clients, so take
care of what you say and how you say it. Use your spell checker! And remember email
etiquette 101 - never, ever write in capital letters in an email, no matter how frustrated
you are. This only effect this has is on your character.

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  Organisational Skills

A professional can quickly and easily find what is needed. Your work area should be neat
and organised, and your briefcase should contain only what is needed for your
appointment or presentation.

 Accountability

Professionals are accountable for their actions at all times. If you make a mistake, own up
to it and try to fix it if possible. Don't try to place the blame on a colleague. If your
company made the mistake, take responsibility and work to resolve the issue. Sometimes
a compromise is necessary, you take it on the chin, learn from it and move on.

unit-2

NON-ECONOMIC ENVIRONMENT:

Non-Economic Environment means those surroundings or factors or elements under which the
business institutions of any country have to function. In other words, the non-economic
environment includes all those elements or factors, which the business organization have to keep
in view to establish and operate. These are physical, social, cultural, political, legal, technical,
educational, historical, moral, environmental and international, etc.

Following are the characteristics of a non-economic environment:

 These are related to non-economic factors or elements.

 These are dynamic and changeable.
 Business institutions can make changes in their objectives, policies, methods, functions,
and strategies, according to the non-economic environment.
 These are more important even than the economic factors.
 The non-economic environment is closely related to human qualities, social customs, and
traditions, political situations and historical coincidences, etc.

POLITICAL ENVIRONMENT:

 Political Environment plays a very crucial role in the regulation of business.

 The political environment majorly affects the way in which a business operates. But
many a time it becomes an obstacle in the working of the businesses.

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  The political environment with respect to Business Environment includes all the rules and
regulations, laws and the role of the government in the day to day functioning of the
organisations.

MEANING:

Government actions which affects the operations of a company or business. These actions
may be on local, regional, national or international level. Business owners and managers
pay close attention to the political environment to gauge how government actions will
affect their company.

What Political Factors Affect Business Environment

With a change in administration policies, there arise political factors that can change the entire
business scenario. These changes can be economic, legal or social and can include the following
factors:

 Tax and economic policies: Increasing or decreasing rate of taxes is a good example of a
political component. Government regulations may raise the tax rate for some businesses
and can lower the same for others due to specific reasons. This decision will directly
impact businesses. This is why maintaining a strategy which can deal with such situations
is very important.
 Political stability: Lack of political stability within a country can significantly impact the
operations of a business. This can especially be true for businesses that are operating on
the global scale. For instance, a hostile takeover can take over a government. Eventually,
such a situation will lead to looting, riots and general disorder within the environment.
Such situations can disrupt business operations and activities which can have a major
impact on its bottom line.
 Foreign Trade Regulations: Every business has a need to expand business operation to
other countries. However, political background of a country can influence the desire for a
business to expand its operations. Tax policies that are particularly controlled by the
government can induce a particular business to expand operations in different regions
whereas; other tax policies can hinder the process of business expansion for some
industries. Government initiatives, which have been designed to support local businesses,
might work against international companies when the question is of their competitiveness
in a foreign region.
 Employment Laws: Employment laws are made to protect the rights of employees and
include every aspect of employer/employee relationship. Employment law is an aspect that
is very complex and involves several pitfalls as well. When businesses’ are in touch with
the latest developments in this law, they can manage to take their business in the right
direction however, those who get it wrong needs to be completely prepared for the
expensive results it will generate. In modern corporations, employees are almost 98% of
the company for the accomplishments or lack thereof and any changes within employment
law will, of course, have a great impact on the business operations.

LEGAL ENVIRONMENT

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 The legal environment of business refers to the code of conduct that defines the legal
boundaries for business activity. To understand these boundaries, it is essential to first
have a basic understanding of the law and how it affects businesses and business
practices. The nature of business spans over a number of legal realms, all of which are
continuously influenced by the needs and demands of the business community,
consumers, and the government.
Nature of legal environment
 The basic legal environment of business is governed by state, country and international
laws. This includes laws on what can or can not be produced or sold, consumer and
employee protection laws, tax and other financial laws, as well a many rules and
regulations with regards to business ethics, when and how to seek legal advice in case of
disputes.

1.Laws on Production or Sales

The production or sale of certain goods is prohibited, or at least severely restricted in
many countries. This includes, among others, selling of dangerous drugs, guns and
explosives etc

2.Consumer Protection
Most countries have laws ensuring customers are being treated fairly by
businesses. This includes the act regulating weights and measurements, ensuring that
goods sold actually are the weight or size they are sold at, and the Trade Description Act,
making misleading descriptions of products illegal
Other laws include the Consumer Credit Act, ensuring consumers
are aware of loan durations, interest rates etc when taking out a loan, as well as receiving
copies of credit agreements, and the Sale of Goods Act, making it illegal to sell faulty
or damaged goods. The return of goods and refunds, etc, are also governed by laws

3.Employee Protection
Laws to protect employees include laws against unfair discrimination based on race,
color, religion, sex, or age; laws against unfair dismissal and sexual or other harassment;
health and safety laws and laws regulating minimum wages.

4.Tax and Financial Laws

These laws vary between countries, but generally regulate accountancy practices, interest
rates on loans, taxes etc. Businesses are expected to provide sufficient documentation of
income and expenditure.

DEMOGRAPHIC ENVIRONMENT:
The demographic factors of the market in which an organization operates, and which are used to
segment the target population for effective marketing.

four major characteristics of the demographic environment that business strategists use to
determine the competitiveness of the company.

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Population Size
Some businesses require a minimum volume of potential customers for the business model to make
sense. Therefore, any changes in the population size can have a critical impact on the business.
Some such changes in the population size are:
 Increase/decrease in the population’s birth rate
 Changes in the average family size
 An overall increase/decrease in the population size
 Impact of a fast-growing population on the natural resources/food
These changes can have important implications for businesses dependent on the population size as
an important demographic characteristic.
Geographical Distribution
Over the years, an organization’s target population might shift from one region of a country to
another for various reasons. Hence, it is important to consider the following issues:
 The company’s location remains attractive to the population
 If the population shift affects the quality of the available workforce, then the company
must consider relocation
 At all times, the organization must endeavour to adapt its functions to the geographical
shifts of the population
Ethnic Mix
There are times when the ethnic mix of the population undergoes a change. This can affect the
definition of the organization’s potential customers and also impact the workforce. These are some
issues that need consideration:
 Understanding the implications of changes in the ethnic mix of the target population on
the design and delivery of products/services
 Is the modification of existing products/services sufficient? Or, should the organization
design new ones?
 Are the current employees ready to accept a more culturally diverse workforce?
 A strategic plan to help the organization take advantage of the increased heterogeneity in
the workforce
Income Distribution
For any business, understanding the purchasing power of its target population is essential for
designing products/services. Any changes in income distribution in the population usually leads to
changes in saving and spending patterns.

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Hence, organizations must track these changes to identify opportunities and use them to their
benefit.

The Demographic Variables That Affect a Business

There are a number of demographics that can affect a business.
 Influence of Income on Business
 Age Variables that Impact Business
 Geographic Region Variables
 Education Level as a Variable
 Obtaining Demographic Information

TECHNOLOGICAL ENVIRONMENT

External factors in technology that impact business operations. Changes in technology affect how
a company will do business. A business may have to dramatically change their operating strategy
as a result of changes in the technological environment.
The main features of technological environment are as follows :

 Technological environment is a component of macro or indirect action environment.

 Technological environment changes very fast.
 Technological environment affects the manner in which the resources of the economy are
converted into output.
 Technological environment is self reinforcing. An invention in one place leads to a
sequence of inventions in other places.

WHAT ARE TECHNOLOGICAL FACTORS?

In PESTLE analysis, technological factors are variables which relate to the existence,
availability, and development of technology. This could include things from
computational power to engine efficiency.
HOW DO TECHNOLOGICAL FACTORS AFFECT BUSINESS?
 Automation —
The automation of many unskilled tasks can allow companies to replace human
production lines with entirely machine ones. This can reduce costs for manufacturers,
distributors, supermarkets, and many other different businesses. On the flip side, the
gradual increase in job automation might not be such a great thing for job search firms.
 internet connectivity —
It’s undoubtable that in recent years global internet connectivity has been on the
rise. This presents an even larger market for many companies who use the internet to
connect with their customers. On the flip side though, a global rise in internet
connectivity might mean less interest in traditional communication means, which is a

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 negative consequence for some — telephone service providers will have to change their
offerings to stay relevant, while paper-and-ink printing companies might receive less
business.

TECHNOLOGICAL FACTORS AFFECTING APPLE

 Competitors find little struggle in recreating many of Apple’s products.
 Growing demand for mobile technology will make the personal computer a less attractive
product.
 Apple’s quite restricting native Operating Systems can limit the scope of what is possible
on their devices.
 Growing numbers of cybercriminals could jeopardize Apple’s reputation for safety and
security.

NATURAL ENVIRONMENT:

The natural environment is another important factor of the macro-environment. This

includes the natural resources that a company uses as inputs that affects their marketing
activities. The concern in this area is the increased pollution, shortages of raw materials and
increased governmental intervention. As raw materials become increasingly scarcer, the ability to
create a company's product gets much harder. Also, pollution can go as far as negatively
affecting a company's reputation if they are known for damaging the environment. The last
concern, government intervention can make it increasingly harder for a company to fulfill their
goals as requirements get more stringent.

The impact of natural environment of business may be described under the following heads:
 Source of Raw Materials: Natural and physical environment provides the raw materials
required for the functioning of industries. For example, iron and steel industry cannot
function without ore and other necessary minerals. In fact, the mines, flora, fauna, land mass,
nature of soil, etc. serve as the basis of production function.
 Mainstay of Agriculture: People and business both require several types of agricultural
items for their survival and growth. Agriculture largely depends on nature. Cultivation of
crops and raising of livestock are directly dependent on soil. The types of crops that can be
grown in an area depend upon climate and soil.
 Location of Industry: Heavy industry has to be located near the source of raw materials.
For example. India’s iron and steel industry is concentrated in the regions which are rich in
the deposits of iron ore and coal. Extractive industries such as mining, oil drilling, stone
quarrying, etc. depend on the availability of minerals deposited by nature. Industrialists don
not like to set up factories in areas which are climate affect the location of certain industries
like cotton textiles and watch manufacturing.
 Employment Generation: Existence of minerals and other natural resources alone does
not guarantee economic prosperity of people. Proper exploration and utilisation is necessary.
Exploitation and utilization of natural resources provides jobs to millions.
 Foreign Exchange Earner: A country can export its surplus natural resources like
minerals and oils and thereby earn valuable foreign exchange. Arabian countries have
become affluent by exploiting their oil resources gifted by nature. In fact the genesis of
international trade lies in the natural environment. Trade between nation is the outcome of

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 geographical differences. Due to natural factors some regions are more suitable for
production of certain goods, e.g., tea and coffee in India, Petroleum in Middle East, dairy
products in Denmark and so on.
 Basis of Transportation and Communication: Business depends upon transportation
and communication facilities which in turn are largely dependent on geographical factors.
Uneven land surface, deserts, oceans and forests are barriers in transportation and
communication, Though modern technology has enabled man to overcome these barriers, the
costs increase tremendously. Even today business activities do not flourish in areas which by
nature lack efficient transportation and communication systems.
 Key to Human Life: Business can prosper only when people are healthy and happy.
Nature serves not only as a store house of raw materials, it also provides the physical and
biological conditions within which people can live in a healthy and happy manner. Almost
every commodity which we consume and produce has existed originally in the natural
environment. Nature is also the source of almost all the energy used in production and
distribution. Nature has is a symbiotic link between man and nature. In fact, earth is so
crucial to mankind that out Vedas and seers suggest worship to the Mother Earth.
 Demand Pattern: Demand pattern depends upon topographical and weather conditions.
For example, jeeps may be in greater demand than cars in hilly areas with a difficult terrain.
Similarly, woolens are in demand in cool areas while coolers and air conditioners are more in
demand in high temperature regions. Natural environment may also call for modifications in
product mix, packaging and storage systems.

POLLUTION:

What is Pollution?

“Pollution is the introduction of substances (or energy) that cause adverse changes in the
environment and living entities .”
Pollution need not always be caused by chemical substances such as particulates (like smoke and
dust). Forms of energy such as sound, heat or light can also cause pollution. These substances
that cause pollution are called pollutants.

Types of Pollution
As stated before, there are different types of pollution, which are either caused by natural events
(like forest fires) or by man-made activities (like cars, factories, nuclear wastes, etc.) These are
further classified into the following types of pollution:

 Air Pollution
 Water Pollution
 Soil Pollution
 Noise Pollution

Besides these 4 types of pollution, other types exist such as light pollution, thermal pollution and
radioactive pollution. The latter is much rarer than other types, but it is the deadliest.

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Air pollution refers to the release of harmful contaminants (chemicals, toxic gases, particulates,
biological molecules, etc.) into the earth’s atmosphere. These contaminants are quite detrimental,
and in some cases, pose serious health issues. Some causes that contribute to air pollution are:

 Burning fossil fuels

 Mining operations
 Exhaust gases from industries and factories

The effects of air pollution vary based on pollutant. But generally, the impact of air pollution
range from:

 Increased risk of respiratory illness and cardiovascular problems

 Increased risk of skin diseases
 May increase the risk of cancer
 Global warming
 Acid rain
 Ozone depletion
 Hazards to wildlife

Water pollution is said to occur when toxic pollutants and particulate matter are introduced into
water bodies such as lakes, rivers and seas. These contaminants are generally introduced by
human activities like improper sewage treatment and oil spills. However, even natural processes
such as eutrophication can cause water pollution.
Other significant causes of water pollution include:

 Dumping solid wastes in water bodies

 Disposing untreated industrial sewage into water bodies
 Human and animal wastes
 Agricultural runoff containing pesticides and fertilisers

Soil pollution, also called soil contamination, refers to the degradation of land due to the
presence of chemicals or other man-made substances in the soil. The xenobiotic substances
alter the natural composition of soil and affect it negatively. These can drastically impact life
directly or indirectly. For instance, any toxic chemicals present in the soil will get absorbed by
the plants. Since plants are producers in an environment, it gets passed up through the food
chain. Compared to the other types of pollution, the effects of soil pollution are a little more
obscured, but their implications are very noticeable.
Some of the common causes of soil pollution are:

 Improper industrial waste disposal

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  Oil Spills
 Acid rain which is caused by air pollution
 Mining activities
 Intensive farming and agrochemicals (like fertilisers and pesticides)
 Industrial accidents

Noise pollution refers to the excessive amount of noise in the surrounding that disrupts the
natural balance. Usually, it is man-made, though certain natural calamities like volcanoes can
contribute to noise pollution.
In general, any sound which is over 85 decibels is considered to be detrimental. Also, the
duration an individual is exposed plays an impact on their health. For perspective, a normal
conversation is around 60 decibels, and a jet taking off is around 15o decibels. Consequently,
noise pollution is more obvious than the other types of pollution.
Noise pollution has several contributors, which include:

 Industry-oriented noises such as heavy machines, mills, factories, etc.

 Transportation noises from vehicles, aeroplanes, etc.
 Construction noises
 Noise from social events (loudspeakers, firecrackers, etc.)
 Household noises (such as mixers, TV, washing machines, etc.)

Noise pollution has now become very common due to dense urbanisation and industrialisation.
Noise pollution can bring about adverse effects such as :

 Hearing loss
 Tinnitus
 Sleeping disorders
 Hypertension (high BP)
 Communication problems

TRADE UNIONS: OBJECTIVES, FUNCTION, FORMATION, REGULATION, RIGHTS

AND LIABILITIES!
“A trade union is a combination of persons. Whether temporary or permanent, primarily for the
purpose of regulating the relations between workers and employers or between workers for
imposing restrictive conditions on the conduct of any trade or business and includes the
federations of two or more trade unions as per Sec. 2 (6) Trade Unions Act, 1926.

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“A Trade Union is an organisation of workers, acting collectively, who seek to protect and
promote their mutual interests through collective bargaining”.

Objectives:
Following are the objectives of trade unions:
1. Ensure Security of Workers:
This involves continued employment of workers, prevent retrenchment, lay off or lock-outs.
Restrict application of “fire” or dismissal or discharge and VRS.

2. Obtain Better Economic Returns:

This involves wages hike at periodic intervals, bonus at higher rate, other admissible allowances,
subsidized canteen and transport facilities.

3. Secure Power To Influence Management:

This involves workers’ participation in management, decision making, role of union in policy
decisions affecting workers, and staff members.

4. Secure Power To Influence Government:

This involves influence on government to pass labour legislation which improves working
conditions, safety, welfare, security and retirement benefits of workers and their dependents, seek
redressal of grievances as and when needed.

Functions of a Trade Union:

The important basic functions of unions listed by National Commission on labour are:

(i) To secure fair wages to workers.

(ii) To safeguard security of tenure and improve conditions of service.

(iii) To enlarge opportunities for promotion and training.

(iv) To improve working and living conditions.

(v) To provide for educational, cultural and recreational facilities.

(vi) To co-operate in and facilitate technological advance by broadening the understanding of

workers on its underlying issues.

(vii) To promote identity of interests of workers with their industry

Characteristics of Trade Union:

1. A union normally represents members in many companies throughout the industry or
occupation.

2. A union is fundamentally an employer regulating device. It sharpens management efficiency

and performance while protecting the interests of the members.

3. A union is a part of the working class movement.

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4. A union is a pressure organisation originating in the desire on the part of a group with
relatively little power to influence the action of a group with relatively more power.

5. A union is a political institution in its internal structure and procedures.

Types:
There are four main types of trade unions.

These are:
i. Craft unions:
These represent workers with particular skills e.g. plumbers and weavers. These workers may be
employed in a number of industries.

ii. General unions:

These unions include workers with a range of skills and from a range of industries.

iii. Industrial unions:

These seek to represent all the workers in a particular industry, for instance, those in the rail
industry.

iv. White collar unions:

These unions represent particular professions, including pilots and teachers. Unions in a country,
often belong to a national union organisation. For example, in India, a number of unions belong
to the All India Trade Union Congress (AITUC).

This is the oldest and one of the largest trade union federations in the country. A number of them
also belong to international trade union organisations such as the International Confederation of
Free Trade Unions, which has more than 230 affiliated organisations in 150 countries.

Limitations and problems of trade unions in India

1. Low representation

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 Only a small portion of the total workforce represents trade unions. In the unorganized sectors,
unionization is not common. Immature trade unionism is a curse, in sectors like agriculture.
2. Small size and rising number.
Number of trade unions is increasing very much. Separation of existing unions in to two or
more segments is the prime reason for this mushroom like formation of new ones. These newly
formed small unions face up to problems of feeble financial and managerial position, weedy
combined bargaining power, inter-union rivalry etc.
3. Penetration of Politics.
Infiltration of politics is a serious problem which troubles trade unionism in India. As an after
effect of this, political enmity is stretched to trade unions, and each political party tries to have
its own trade unions.
4. Outside leadership.
Majority of the outside leaders of trade unions perceive the union as a mean for fulfilling
their personal ends. It causes a number of problems like inter-union rivalries, misdirection and
misuse of trade union movement etc.
5. Inadequate funds.
Because of the low income of the Indian working class and the small number of members,
the funds of the unions are very meager.

UNIT -3

SOCIAL CHANGE:

According Fictor "Change means variations from previous state or mode of existence".

Social change is any alteration in the cultural, structural, population, or ecological characteristics
of a social system.

Definition of Social Change

Ginsberg (By social change I understand a change in the social structure).

Kingsley Doris "By social change is meant only such alternations as occur in social organization
i.e. the structure & functions of society".
Merril & Elbridge "Social change means, that large no. of persons are engaging in activities
that differ from those which they or their immediate fore-fathers engaged in some time before."
M.D.Jenson – Describes –Social change as "modification in ways of doing & thinking of
people."

Characteristics of Social change

1. Social change is universal or it is an essential law.

2. Change with diff. in speed & form simple society … change was slower.

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 3. Change is unpredictable in general Revol is a process of social change. What speed & in
what form the change takes place is not easily predictable.
4. Social change is change in community
5. Social change generally changes in direction. There are 3 patterns of social change.
i. linear failure change generally leads to progress (change for good) can't cycle –car
– train –plain
ii. Fluctuating change – the change may be upward & downward. The demographic
change is such also economic change,
iii. Cyclical change – the change is in a cycle. Fashion, sometimes also in economical
aspect (Karl max gave this idea. He says earlier there was no private property & we
may go back to it).

Factors of Social change

 Demographic factors
 Natural factors

 Technological factors

 Cultural Factors

WAVE FRONT ANALYSIS

The world has not swerved into lunacy, and that, in fact, beneath the clatter and jangle of
seemingly senseless events there lies a startling and potentially hopeful pattern... The Third Wave
is for those who think the human story, far from ending, has only just begun" (Toffler 1980, 1).

Civilization can be divided into three major phases:

1. First Wave: the agricultural revolution

2. Second Wave: the industrial revolution
the information age
3. Third Wave:
(just now beginning)

Each wave, or civilization phase, develops its own "super- ideology," or Zeitgeist, with which it
explains reality and justifies its own existence. This ideology impacts all the spheres which make
up a civilization phase:

 technology
 social patterns
 information patterns

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  "power" patterns

THE FIRST WAVE

 The agricultural revolution took thousands of years to play out.

 Extent of spread: "Today the First Wave has virtually subsided. Only a few tiny tribal
populations, in South America or Papua New Guinea, for example, remain to be reached
by agriculture" (Toffler 1980, 13).
 "..land was the basis of economy, life, culture, family structure, and politics" (Toffler
1980, 21).
 "..life was organized around the village."
 "..a simple division of labor prevailed and a few clearly defined castes and classes: a
nobility, a priesthood, warriors, helots, slaves or serfs. In all of them, power was rigidly
authoritarian. In all of them, birth determined one's position in life."
 ".. the economy was decentralized, so that each community produced most of its own
necessities" (Toffler 1980, 21).
 The First Wave was dominant until around 1650-1750.

THE SECOND WAVE

 The industrial revolution took three hundred years to mature.

 Extent of spread: "..having revolutionized life in Europe, North America, and some other
parts of the globe [the western Soviet Union, Japan, Hong Kong, Singapore, Taiwan,
Australia, New Zealand, South Korea, and parts of mainland China]... continues to spread
as many countries, until now basically agricultural, scramble to build steel mills, auto
plants, railroads.." (Toffler 1980, 14). "In all, industrial civilization embraces roughly one
billion human beings--one fourth the population of the globe" (Toffler 1980, 24).
 "Industrialism was more than smokestacks and assembly lines. It was a rich, many-sided
social system that touched every aspect of human life and attacked every feature of the
First Wave past... it put the tractor on the farm, the typewriter in the office, the
refrigerator in the kitchen. It produced the daily newspaper and the cinema, the subway
and the DC-3... It gave us Bauhaus buildings and Barcelona chairs, sit-down strikes,
vitamin pills, and lengthened life spans. It universalized the wristwatch and the ballot
box" (Toffler 1980, 22).
 The Civil War was fought over who would rule the continent: farmers or industrialists.

RESULTS OF ALL THESE FACTORS:

 The spread of literacy

 Improvement of roads and transport
 A widening split between consumer and producer
 A new social character: industrial man

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  Dependence of survival on money
 Creation of the nuclear family
 Factory-like schools
 Man's image of the world controlled by mass media
 Most people work for a big corporation
 Successive generations grew taller than their parents
 Nakedness came to be regarded as shameful--invention of nightclothes
 Eating became technologized--diffusion of forks and other specialized table implements
 Damage to the earth's fragile biosphere
 Enslavement of Indians -- imperialism
 Massification of war -- unleashed the atom

THE THIRD WAVE -- THE NEW SYNTHESIS

 The newest wave--called the technetronic age by Zbigniew Brzezinski, called the post-
industrial society by Sociologist Daniel Bell, often commonly called the information
age--should take only a few decades to mature.

To see the new, emerging, patterns we must resist two powerful Second Wave forms of thinking:
1. Analysis. We cannot see the future in the same way we solve problems--by dismantling
problems into their component parts. We must practice, instead, synthesis.
2. Linearity. We must resist the temptation to be seduced by straight lines. Tomorrow will
not be just an extension of today. Trends, no matter how powerful, do not continue in a
straight line.

The new technologies of the Third Wave will bring:

 Diversified, renewable, energy sources. (Ex. -- bio-electronics, piezo-electronics, new
computer systems which shut everything down for nano-seconds between actual activity.)
 Methods of production which make factories and assembly lines obsolete.

This change will driven by two factors:

 the rise of dynamic new industries based on scientific breakthroughs: quantum
electronics, information theory, molecular biology, oceanic, nucleonics, ecology, and the
space sciences
 Enhanced manipulative abilities via computers, data processing, aerospace, sophisticated
petrochemicals, semiconductors, advanced communications, solid-state physics, systems
engineering, artificial intelligence, fuzzy logic, polymer chemistry.

INDIVIDUAL TRAITS WHICH WILL BE VALUED IN THE COMING THIRD WAVE

CIVILIZATION:

29
  The society will not be child-centered; motherhood will be diminished.
 Parents will be less permissive.
 Children will be given growing responsibility from an early age.
 Education will become interspersed and interwoven with work, and will be more spread
out over a lifetime.
 On the job, the ability to accept responsibility, to adapt swiftly to change, and to be
sensitive to your fellow workers will be prized.
 Successful people will be complex and individualistic.
 Blind obedience on the job will be penalized. Independent thinking, questioning of
authority, talking back will be rewarded.
 Self-reliance, and the ability to do things with one's own hands will become prestigious.

THIRD WAVE PRACTICES

 "For Third Wave civilization, the most basic raw material of all--and on that can never be
exhausted--is information... With information becoming more important than ever before,
the new civilization will restructure education, redefine scientific research and, above all,
reorganize the media of communication... Instead of being culturally dominated by a few
mass media, Third Wave civilization will rest on inter- active, de-massified media,
feeding extremely diverse and often highly personalized imagery into and out of the
mind- stream of the society.
 The giant centralized computer with its whirring tapes and complex cooling systems--
where it still exists--will be supplemented by myriad chips of intelligence, embedded in
one form or another in every home, hospital, and hotel, every vehicle, and appliance,
virtually every building-brick. The electronic environment will literally converse with us"
(352).

 "To operate these factories and offices of the future, Third Wave companies will need
workers capable of discretion and resourcefulness rather than rote responses. To prepare
such employees, schools will increasingly shift away from present methods still largely
geared to producing Second Wave workers for highly repetitive work" (353).

Business Implications of The Third Wave

 Time moves faster
 Compete on information
 Seek digital processes
 Place and Distance don't matter
 Avoid inventory, bricks, and mortar
 Build information and relationships
 Use the web for two-way communications

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  The information gained in a transaction may be more profitable than the transaction

CULTURAL LAG

Cultural Lag is the notion that culture takes time to catch up with technological
innovations, and that social problems and conflicts are caused by this lag.

2. Dr. James W. Woodward explained that when the material conditions change,
changes are occasioned in the adaptive culture, but these changes in the adaptive culture
do not synchronize exactly with the change in the material culture, this delay is the
culture lag.

3. The term was coined by sociologist William F. Ogburn in his 1922 work Social
change with respect to culture and original nature.

4. Cultural Lag Theory suggests that a period of maladjustment occurs when the non-
material culture is struggling to adapt to new material conditions.

i. Material culture includes all of the physical objects that

people create and give meaning to. For example, cars, clothing, schools and
computers. An object only becomes part of culture after meaning have been given
to it. A computer has no meaning until it is used as a tool.

ii. Non-material culture consists of thoughts and behaviour

that people learn as part of the culture they live in. It includes politics, economics,
language, rules, customs, family, religion or beliefs, values, and knowledge.

5. Cultural Lag theory resonates with the ideas of Technological Determinism, in that
it assumes that technology has independent effects on society at large.

6. Ogburn posited four stages of technical development: invention, accumulation,

diffusion, and adjustment.

7. Invention is the process by which new forms of technology are created. Inventions
are collective contributions to an existing cultural base that cannot occur unless the
society has already gained a certain level of knowledge and expertise in the particular
area. Accumulation is the growth of technology because new things are invented more
rapidly than old ones are forgotten, and some inventions (such as writing) promote this
accumulation process. Diffusion is the spread of an idea from one cultural group to
another, or from one field of activity to another, and as diffusion brings inventions
together, they combine to form new inventions. Adjustment is the process by which the
non-technical aspects of a culture respond to invention, and any retardation of this
adjustment process causes cultural lag.

COMMUNITY DEVELOPMENT

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 A community is a social unit (a group of living things) with commonality such
as norms, religion, values, customs, or identity. Communities may share a sense
of place situated in a given geographical area

COMMUNITY DEVELOPMENT

Community development is a process where community members come together to take

collective action and generate solutions to common problems. Community wellbeing (economic,
social, environmental and cultural) often evolves from this type of collective action being taken
at a grassroots level. Community development ranges from small initiatives within a small group
to large initiatives that involve the broader community.
Effective community development should be:
 a long-term endeavour
 well-planned
 inclusive and equitable
 holistic and integrated into the bigger picture
 initiated and supported by community members
 of benefit to the community
 grounded in experience that leads to best practices
Community development is a grassroots process by which communities:
 become more responsible
 organize and plan together
 develop healthy lifestyle options
 empower themselves
 reduce poverty and suffering
 create employment and economic opportunities
 achieve social, economic, cultural and environmental goals
Community development seeks to improve quality of life. Effective community development
results in mutual benefit and shared responsibility among community members. Such
development recognizes:
 the connection between social, cultural, environmental and economic matters
 the diversity of interests within a community
 its relationship to building capacity
Community development helps to build community capacity in order to address issues and take
advantage of opportunities, find common ground and balance competing interests. It doesn’t just
happen – capacity building requires both a conscious and a conscientious effort to do something
(or many things) to improve the community.

CONSUMERISM
Consumerism can be defined as an economic and social ideology and order that encourages
consumption or acquisition of goods/services in a never-ending cycle. Consumerism encourages
purchasing and consumption of goods and services in excess of a person’s basic needs.
In economics, the term consumerism is used to refer to economic policies which encourage
consumption.

Benefits of consumerism
1. Economic growth:

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Consumerism drives economic growth. When people spend more on goods/services produced in
a never-ending cycle, the economy grows. There is increased production and employment which
leads to more consumption. The living standards of people are also bound to improve because of
consumerism.
2. Boosts innovation and creativity:
Since consumers are actively looking for the next-best products/services to buy,
producers/manufacturers are under constant pressure to innovate. As consumers access better
goods/services, living standards improve.

Cons of consumerism
1. Environmental degradation:
Increasing demand for goods put extensive pressure on natural resources such as water and raw
materials. Consumerism also results in the excessive use of energy. Consumerism also
encourages the use of chemicals which are known to degrade the environment. In a nutshell,
consumerism does more harm than good to the environment.
2. Moral degradation:
Increasing consumerism tends to shift away societies from important values such as integrity.
Instead, there is a strong focus on materialism and competition. People tend to buy goods and
services they don’t need so that they can be at par or at a higher level than everyone else.
3. Higher debt levels:
Consumerism also increases debt levels in a society. The number of people taking short term
loans such as payday loans to buy luxury goods has increased drastically. Many short-term loans
aren’t channeled into constructive use today.
4. Mental health problems:
Consumerism increases debt levels which in turn results in mental health problems like stress
and depression. Trying to follow the latest trends when you have limited resources can be very
exhausting to the mind and body. Consumerism forces people to work harder, borrow more and
spend less time with loved ones. Consumerism gets in the way of fruitful relationships. It affects
the overall well-being of people negatively in the long run since research has proven that people
don’t get valuable and long-lasting fulfilment from materialism.
CULTURAL DYNAMICS:
CULTURE:

 “Culture, or civilization, is that complex whole which includes knowledge, belief, art,
law, morals, custom, and any other capabilities and habits acquired by man as a member
of society.”
 The book defines culture as, “a society’s shared and socially transmitted ideas, values and
perceptions, which are used to make sense of experience and generate behavior and are
reflected in that behavior (147).”

 Culture is universal among all human groups and even exists among some primates.

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Culture has five basic characteristics: It is learned, shared, based on symbols, integrated, and
dynamic. All cultures share these basic features.

 Culture is learned. It is not biological; we do not inherit it. Much of learning culture is
unconscious. We learn culture from families, peers, institutions, and media. The process
of learning culture is known as enculturation. While all humans have basic biological
needs such as food, sleep, and sex, the way we fulfill those needs varies cross-culturally.
 Culture is shared. Because we share culture with other members of our group, we are able
to act in socially appropriate ways as well as predict how others will act. Despite the
shared nature of culture, that doesn’t mean that culture is homogenous (the same). The
multiple cultural worlds that exist in any society are discussed in detail below.

 Culture is based on symbols. A symbol is something that stands for something else.
Symbols vary cross-culturally and are arbitrary. They only have meaning when people in
a culture agree on their use. Language, money and art are all symbols. Language is the
most important symbolic component of culture.

 Culture is integrated. This is known as holism, or the various parts of a culture being
interconnected. All aspects of a culture are related to one another and to truly understand
a culture, one must learn about all of its parts, not only a few.

 Culture is dynamic. This simply means that cultures interact and change. Because most
cultures are in contact with other cultures, they exchange ideas and symbols. All cultures
change, otherwise, they would have problems adapting to changing environments. And
because cultures are integrated, if one component in the system changes, it is likely that
the entire system must adjust.

IMPACT OF CULTURE ON BUSINESS:

IN NOTES

UNIT- 4

ECONOMIC SYSTEMS

An economic system is a means by which societies or governments organize and distribute

available resources, services, and goods across a geographic region or country. Economic
systems regulate factors of production, including capital, labor, physical resources,
and entrepreneurs. An economic system encompasses many institutions, agencies, and other
entities.

Every economic system looks at three or four basic questions:

 What to produce.
 How to produce and how much.

34
  Who receives production’s output.
 How change is going to be effected and accommodated.

Types of Economic Systems

Economic systems can be categorized into four main types: traditional economies, command
economies, mixed economies, and market economies.

1. Traditional economic system

 The traditional economic system is the most traditional and ancient types of economies in
the world. Vast portions of the world still function under a traditional economic system.
These areas tend to be rural, second- or third-world, and closely tied to the land, usually
through farming. In general, in this type of economic system, a surplus would be rare.
Each member of a traditional economy has a more specific and pronounced role, and
these societies tend to be very close-knit and socially satisfied. However, they do lack
access to technology and advanced medicine.

2. Command economic system

 In a command economic system, a large part of the economic system is controlled by a
centralized power. A command economy is capable of creating a healthy supply of its
resources, and it rewards its people with affordable prices. This capability also means that
the government usually owns all the critical industries like utilities, aviation, and railroad.

 In a command economy, it is theoretically possible for the government to create enough

jobs and provide goods and services at an affordable rate. However, in reality, most
command economies tend to focus on the most valuable resources like oil.

3. Market economic system

 In a free market economy, firms and households act in self-interest to determine how
resources get allocated, what goods get produced and who buys the goods. This is
opposite to how a command economy works, where the central government gets to keep
the profits.
 There is no government intervention in a pure market economy (“laissez-faire“).
However, no truly free market economy exists in the world. For example, while America
is a capitalist nation, our government still regulates (or attempts to control) fair trade,
government programs, honest business, monopolies, etc.
 In this type of economy, there is a separation of the government and the market. This
separation prevents the government from becoming too powerful and keeps their interests
aligned with that of the markets.

4. Mixed system
 A mixed economy is a combination of different types of economic systems. This
economic system is a cross between a market economy and command economy. In the
most common types of mixed economies, the market is more or less free of government
ownership except for a few key areas like transportation or sensitive industries like
defense and railroad.

35
  However, the government is also usually involved in the regulation of private businesses.
The idea behind a mixed economy was to use the best of both worlds – incorporate
policies that are socialist and capitalist.
 To a certain extent, most countries have a mixed economic system. For example, India
and France are mixed economies.

ROLE OF GOVERNMENT IN ECONOMIC DEVELOPMENT:

Governments are playing a vital role in the development of under-developed economies.

Their role is all the more remarkable in the following respects:

(i) Comprehensive Planning:
In an under-developed economy, there is a circular constellation of forces tending to act and react
upon one another in such a way as to keep a poor country in a stationary state of under-
development equilibrium. The vicious circle of under-developed equilibrium can be broken only
by a comprehensive government planning of the process of economic development. Planning
Commissions have been set up and institutional framework built up.

(ii) Institution of Controls:

A high rate of investment and growth of output cannot be attained, in an under-developed
country, simply as a result of the functioning of the market forces. The operation of these forces
is hindered by the existence of economic rigidities and structural disequilibria. Economic
development is not a spontaneous or automatic affair.

(iii) Social and Economic Overheads:

In the initial phase, the process of development, in an under-developed country, is held up

primarily by the lack of basic social and economic overheads such as schools, technical
institutions and research institutes, hospitals and railways, roads, ports, harbours and bridges, etc.
To provide them requires very large investments.

Such investments will lead to the creation of external economies, which in their turn will provide
incentives to the development of private enterprise in the field of industry as well as of
agriculture. The Governments, therefore, go all out inbuilding up the infrastructure of the
economy for initiating the process of economic growth.

(iv) Institutional and Organisational Reforms:

It is felt that outmoded social institutions and defective organisation stand in the way of
economic progress. The Government, therefore, sets out to introduce institutional and
organisational reforms. We may mention here abolition of zamindari, imposi¬tion of ceiling on

36
land holdings, tenancy reforms, introduction of co-operative farming, nationalisation of
insurance and banks reform of managing agency system and other reforms introduced in India
since planning was started.

(v) Setting up Financial Institutions:

In order to cope with the growing requirements for finance, special institutions are set up for
providing agricultur¬al, industrial and export finance. For instance, Industrial Finance
Corporation, Industrial Development Bank and Agricultural Refinance and Development
Corporation have been set up in India in recent years to provide the necessary financial-
resources.

(vi) Public Undertakings:

In order to fill up important gaps in the industrial structure of the country and to start industries
of strategic importance, Government actively enters business and launches big enterprises, e.g.,
huge steel plants, machine-making plants, heavy electrical work and heavy engineer¬ing works
have been set up in India.

(vii) Economic Planning:

The role of government in development is further highlighted by the fact that under-developed
countries suffer from a serious deficiency of all types of resources and skills, while the need for
them is so great. Under such circumstances, what is needed is a wise and efficient allocation of
limited resources. This can only be done by the State. It can be done through central planning
according to a scheme of priorities well suited to the country’s conditions and need.

Some of the main government aims for economy are as follows:

1. Full Employment
2. Price Stability
3. Economic Growth
4. Redistribution of Income
5. Balance of Payments Stability.

INDIAN ECONOMIC PLANNING

INTRODUCTION:

 After independence, one of the most difficult choices that the leaders had to make was to
decide the type of economic system that was capable enough to promote welfare equally
across the country.

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  Mixed economy was finally chosen with the help of Industrial Policy Resolution of
1948 and Directive Principle of Indian Constitution.
 Planning Commission was set up in 1950, and the Prime Minister of India was made
the chairperson of the commission.

Five-year Plans

 The First Five-Year Plan was one of the most important as it paved for the development
of the country then and for the years to come.
o Five-Year Plans are formulated very systematically in which all the problems are
considered and addressed on priority basis. For example, agriculture development
wasthe most important after independence, hence, the first five-year plan was drafted to
strategically propel its growth and development.

Goals of Five-year Plan

Growth
 This goal was directed towards an increase in Gross Domestic Product (GDP) of the
country. The different sectors of the economy — the agricultural sector, the service
sector, and the industrial sector are considered when a country’s GDP is derived.

Modernization
 For the swift growth and also to increase the productivity, modernization was necessary;
hence, new agricultural technology (use of machinery and hybrid seed varieties) as well
as advanced machinery for factories were used.

38
  Apart from the modern technology, social status of women was also considered and they
were granted equal rights.

Self-Reliance
 To develop all the sectors and make India a self-reliant country, only indigenous
resources and technology were promoted during the first seven five-year plans.
 Another purpose of self-reliance was − India did not want to depend on any other
country for food and important technologies, as it could be a threat to country’s
sovereignty as well.

Equity
The above mentioned goals would not be fruitful or lead to the betterment of the people unless
there is equality.

Major features of economic planning are as follows:

(i) It is concerned with survey and diagnosis of the present economic scenario.

(ii) It defines policy and objectives to be achieved in future.

(iii) It presents a macroeconomic projection for the whole economy.

(iv) It formulates strategies through which objectives are to be achieved.

(v) It guides and directs the economy along with the path of growth and development.

(vi) It creates productive capacity in the country.

Objective of Economic Planning of India

Economic Development:
The main objective of Indian planning is to achieve the goal of economic development economic
development is necessary for under developed countries because they can solve the problems of
general poverty, unemployment and backwardness through it.

Economic development is concerned with the increase in per capita income and causes behind
this increase.

In order to calculate the economic development of a country, we should take into consideration
not only increase in its total production capacity and consumption but also increase in its
population. Economic development refers to the raising of the people from inhuman elements
like poverty unemployment and ill heath etc.

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2. Increase Employment:
Another objective of the plans is better utilization of man power resource and increasing
employment opportunities. Measures have been taken to provide employment to millions of
people during plans. It is estimated that by the end of Tenth Plan (2007) 39 crore people will be
employed.

3. Self-Sufficient:

It has been the objective of the plans that the country becomes self-sufficient regarding food
grains and industrial raw material like iron and steel etc. Also, growth is to be self sustained for
which rates of saving and investment are to be raised. With the completion of Third Plan, Indian
economy has reached the take off stage of development. The main objective of the Tenth Plan is
to get rid of dependence on foreign aid by increasing export trade and developing internal
resources.

4. Economic Stability:

Stability is as important as growth. It implies absence of frequent end excessive occurrence of

inflation and deflation. If the price level rises very high or falls very low, many types of
structural imbalances are created in the economy.

Economic stability has been one of the objectives of every Five year plan in India. Some rise in
prices is inevitable as a result of economic development, but it should not be out of proportions.
However, since the beginning of second plan, the prices have been rising rather considerably.

5. Social Welfare and Services:

The objective of the five year plans has been to promote labour welfare, economic development
of backward classes and social welfare of the poor people. Development of social services like
education, health, technical education, scientific advancement etc. has also been the objective of
the Plans.

6. Regional Development:

Different regions of India are not economically equally developed. Punjab, Haryana, Gujarat,
Maharashtra, Tamil Nadu, Andhra Pradesh etc. are relatively more developed. But U.P., Bihar,
Orissa, Nagaland, Meghalaya and H.P. are economically backward. Rapid economic
development of backward regions is one of the priorities of five year plans to achieve regional
equality.

7. Comprehensive Development:

All round development of the economy is another objective of the five year plans. Development
of all economic activities viz. agriculture, industry, transport, power etc. is sought to be
simultaneously achieved. First Plan laid emphasis on the development of agriculture. Second

40
plan gave priority to the development of heavy industries. In the Eighth Plan maximum stress
was on the development of human resources.

8. To Reduce Economic Inequalities:

Every Plan has aimed at reducing economic inequalities. Economic inequalities are indicative of
exploitation and injustice in the country. It results in making the rich richer and the poor poorer.
Several measures have been taken in the plans to achieve the objectives of economic equality
specially by way of progressive taxation and reservation of jobs for the economically backward
classes. The goal of socialistic pattern of society was set in the second plan mainly to achieve
this objective.

9. Social Justice:

Another objective of every plan has been to promote social justice. It is possible in two ways,
one is to reduce the poverty of the poorest section of the society and the other is to reduce the
inequalities of wealth and income. According to Eighth Plan, a person is poor if the spends on
consumption less than Rs. 328 per month in rural area and Rs. 454 per month in urban area at
1999-2000 prices. About 26 percent of Indian population lives below poverty line. The tenth plan
aims to reduce this to 21%.

10. Increase in Standard of Living:

The other objective of the plan is to increase the standard of living of the people. Standard of
living depends on many factors such as per capita increase in income, price stability, equal
distribution of income etc. During the period of Plans, the per capita income at current prices has
reached only up to Rs. 20988.

INDUSTRIAL POLICY:

Industrial Policy
 Industrial policy is a document that sets the tone in implementing, promoting the regulatory
roles of the government. It was an effort to expand the industrialization and uplift the
economy to its deserved heights. It signified the involvement of the Indian government in
the development of the industrial sector.
 With the introduction of new economic policies, the main aim of the government was to free
the Indian industry from the chains of licensing. The regulatory roles of the Indian
government refer to the policies towards industries, their establishments, their functioning,
their expansion, their growth as well as their management.
 The industrial growth of a country is guided and regulated through its industrial
policies. Let’s understand the journey of various industrial policies
I. Industrial Policy of 1948
The first industrial policy after independence was announced on 6th April 1948. It was presented by
Dr. Shyama Prasad Mukherjee then Industry Minister. The main goal of this policy was to
accelerate the industrial development by introducing a mixed economy where the private and public
sector was accepted as important in the development of the economy. It saw the Indian economy in
socialistic patterns. The large industries were classified into four categories:

41
  Industries with exclusive State Monopoly/Strategic industries: It included industries
engaged in the activity of atomic energy, railways and arms, and ammunition.
 Industries with Government control: This category included industries of national
importance. 18 such categories were mentioned in this category such as fertilizers, heavy
machinery, defense equipment, heavy chemicals, etc.
 Industries with Mixed sector: This category included industries that were allowed to
operate independently in the private or public sector. The government was allowed to review
the situation to acquire any existing private undertaking.
 Industry in the Private sector: Industries which were not mentioned in the above
categories fall into this category. High importance was granted to small businesses and small
industries, leading to the utilization of local resources and creating employment.

II. Industrial Policy Resolution, 1956

This second industrial policy was announced on April 20, 1956, which replaced the policy of 1948.
The features of this policy were:
 A new classification of Industries.
 Non-discriminatory and fair treatment for the private sector.
Promotion of village and small-scale industries.
 To achieve development by removing regional disparity.
 Labour welfare.

The IRDA divided industries into three categories:

 Schedule A industries: The industries that were under the monopoly of the state or
government. It included 7 industries. The private sector was also introduced in these
industries if national interest required.
 Schedule B industries: In this category of industries, the state was allowed to establish
new units but the private sector was not denied to set up or expand existing units e.g.
chemical industries, fertilizer, synthetic, rubber, aluminum, etc.
 Schedule C industries: So the industries that were not a part of the above-mentioned
industries then it formed a part of Schedule C industries.
To summarize, the policy of 1956 in which the state was given a primary role for industrial
development as capital was scarce and business was not strong.

III. Indian Policy Statement, 1973

Indian Policy Statement of 1973 identified high priority industries with investment from large
industrial houses and foreign companies were permitted. Large industries were permitted to start
operations in rural and backward areas with a view to developing those areas and enabling the
growth of small industries around. And so the basic features of Indian Policy Statement were:
 The policy was directed towards removing the distortions, it provided for closer
interaction between agriculture and industrial sector.
 Priority was given towards generation and transmission of power.
 The list of industries reserved for the small-scale sector was expanded.
 Special legislation was made to protect cottage and household industries were introduced.

III. Indian Policy Statement 1977

Indian Policy Statement was announced by George Fernandes then the union industry minister of
the parliament. The highlights of this policy are:
A] Target on the development of small-scale and cottage industries.

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  Household and cottage industries for self-employment.
 Tiny sector investment up to 1 lakhs.
 Smallscale industries for investment up to 1-15 lakhs.
B] Large-scale sector
 Basic industries: infrastructure and development of small-scale and village industries.
 Capital goods industries: meeting the requirement of cottage industries.
 High technological industries: development of agriculture and smallscale industries such
as petrochemicals, fertilizers and pesticides.
C] Restrict the control of big business houses.
D] Role of the public sector:
 Development of ancillary industries.
 To make available expertise in technology and management in small and cottage
industries.
E] Revival and rehabilitation of sick units.
V. Industrial Policy, 1980
The Congress government announced this policy on July 23rd, 1980. The features of this policy are:
 Promotion of balanced growth.
 Extension and simplification of automatic expansion.
 Taking over industrial sick units.
 Regulation and control of unauthorized excess production capabilities installed for
industrial houses.
 Redefining the role of small-scale units.
 Improving the performance of the public sector.
VI. New Industrial Policy, 1991
The features of NIP, 1991 are as follows:
 Public sector de-reservation and privatization of the public sector through disinvestment.
 Industrial licensing.
 Amendments to Monopolies and Restrictive Trade Practices (MRTP) Act, 1969.
 Liberalized Foreign Investment Policy.
 Foreign Technology Agreements (FTA).
 Dilution of protection to SSI and emphasis on competitiveness enhancement.
The all-around changes introduced in the industrial policy framework have given a new direction to
the future industrialization of the country. There are encouraging trends on diverse fronts. Industrial
growth was 1.7 percent in 1991-92 that has increased to 9.2 percent in 2007-08. The industrial
structure is much more balanced. The impact of industrial reforms is reflected in multiple increases
in investment envisaged, both domestic and foreign.

LIBERALIZATION, PRIVATIZATION AND GLOBALIZATION

INTRODUCTION

 New Economic Policy refers to economic liberalisation or relaxation in the import tariffs,
deregulation of markets or opening the markets for private and foreign players, and reduction
of taxes to expand the economic wings of the country.
 Former Prime Minister Manmohan Singh is considered to be the father of New Economic
Policy (NEP) of India. Manmohan Singh introduced the NEP on July 24,1991.
Main Objectives of New Economic Policy – 1991, July 24

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The main objectives behind the launching of the New Economic policy (NEP) in 1991 by the
union Finance Minister Dr. Manmohan Singh are stated as follows:
1. The main objective was to plunge Indian Economy in to the arena of ‘Globalization and to
give it a new thrust on market orientation.
2. The NEP intended to bring down the rate of inflation
3. It intended to move towards higher economic growth rate and to build sufficient foreign
exchange reserves.
4. It wanted to achieve economic stabilization and to convert the economy into a market
economy by removing all kinds of un-necessary restrictions.

LIBERALIZATION

The basic aim of liberalization was to put an end to those restrictions which became hindrances in
the development and growth of the nation. The loosening of government control in a country and
when private sector companies’ start working without or with fewer restrictions and government
allow private players to expand for the growth of the country depicts liberalization in a country.
Objectives of Liberalization Policy
 To increase competition amongst domestic industries.
 To encourage foreign trade with other countries with regulated imports and exports.
 Enhancement of foreign capital and technology.
 To expand global market frontiers of the country.
 To diminish the debt burden of the country.

Following steps were taken under the Liberaliation measure:

(i) Free determination of interest rate by the commercial Banks:
Under the policy of liberalisation interest rate of the banking system will not be determined by
RBI rather all commercial Banks are independent to determine the rate of interest.

(ii) Increase in the investment limit for the Small Scale Industries (SSIs):
Investment limit of the small scale industries has been raised to Rs. 1 crore. So these companies
can upgrade their machinery and improve their efficiency.

(iii) Freedom to import capital goods:

Indian industries will be free to buy machines and raw materials from foreign countries to do
their holistic development.

44
(v) Freedom for expansion and production to Industries:
In this new liberalized era now the Industries are free to diversify their production capacities and
reduce the cost of production. Earlier government used to fix the maximum limit of production
capacity. No industry could produce beyond that limit. Now the industries are free to decide their
production by their own on the basis of the requirement of the markets.

(vi) Abolition of Restrictive Trade Practices:

According to Monopolies and Restrictive Trade Practices (MRTP) Act 1969, all those
companies having assets worth Rs. 100 crore or more were called MRTP firms and were
subjected to several restrictions. Now these firms have not to obtain prior approval of the Govt.
for taking investment decision. Now MRTP Act is replaced by the competition Act, 2002.

PRIVATIZATION
This is the second of the three policies of LPG. It is the increment of the dominating role of private
sector companies and the reduced role of public sector companies. In other words, it is the reduction
of ownership of the management of a government-owned enterprise. Government companies can be
converted into private companies in two ways:
 By disinvestment
 By withdrawal of governmental ownership and management of public sector companies.
Forms of Privatization
 Denationalization or Strategic Sale: When 100% government ownership of productive
assets is transferred to the private sector players, the act is called denationalization.
 Partial Privatization or Partial Sale: When private sector owns more than 50% but less
than 100% ownership in a previously construed public sector company by transfer of shares,
it is called partial privatization. Here the private sector owns the majority of shares.
Consequently, the private sector possesses substantial control in the functioning and
autonomy of the company.
 Deficit Privatization or Token Privatization: When the government disinvests its share
capital to an extent of 5-10% to meet the deficit in the budget is termed as deficit
privatization.
Objectives of Privatization
 Improve the financial situation of the government.
 Reduce the workload of public sector companies.
 Raise funds from disinvestment.
 Increase the efficiency of government organizations.
 Provide better and improved goods and services to the consumer.
 Create healthy competition in the society.
 Encouraging foreign direct investments (FDI) in India.
The following steps are taken for privatisation:
1. Sale of shares of PSUs:
Indian Govt. started selling shares of PSU’s to public and financial institution e.g. Govt. sold
shares of Maruti Udyog Ltd. Now the private sector will acquire ownership of these PSU’s.
The share of private sector has increased from 45% to 55%.

2. Disinvestment in PSU’s:
The Govt. has started the process of disinvestment in those PSU’s which had been running
into loss. It means that Govt. has been selling out these industries to private sector. Govt. has
sold enterprises worth Rs. 30,000 crores to the private sector.

45
3. Minimisation of Public Sector:
Previously Public sector was given the importance with a view to help in industralisation and
removal of poverty. But these PSU’s could not able to achieve this objective and policy of
contraction of PSU’s was followed under new economic reforms. Number of industries
reserved for public sector was reduces from 17 to 2.
(a) Railway operations
b) Atomic energy

GLOBALIZATION

It means to integrate the economy of one country with the global economy. During
Globalization the main focus is on foreign trade & private and institutional foreign investment. It is
the last policy of LPG to be implemented.
Globalization as a term has a very complex phenomenon. The main aim is to transform the
world towards independence and integration of the world as a whole by setting various strategic
policies. Globalization is attempting to create a borderless world, wherein the need of one country
can be driven from across the globe and turning into one large economy.

Outsourcing as an Outcome of Globalization

 The most important outcome of the globalization process is Outsourcing. During the
outsourcing model, a company of a country hires a professional from some other country to
get their work done, which was earlier conducted by their internal resource of their own
country.
 The best part of outsourcing is that the work can be done at a lower rate and from the
superior source available anywhere in the world. Services like legal advice, marketing,
technical support, etc. As Information Technology has grown in the past few years, the
outsourcing of contractual work from one country to another has grown tremendously. As a
mode of communication has widened their reach, all economic activities have expanded
globally.

Following steps are taken for Globalisation:

(i) Reduction in tariffs:
Custom duties and tariffs imposed on imports and exports are reduced gradually just to make
India economy attractive to the global investors.

(ii) Long term Trade Policy:

Forcing trade policy was enforced for longer duration.

Main features of the policy are:

(a) Liberal policy
(b) All controls on foreign trade have been removed
(c) Open competition has been encouraged.
(iii) Partial Convertibility of Indian currency:
Partial convertibility can be defined as to convert Indian currency (up to specific extent) in
the currency of other countries. So that the flow of foreign investment in terms of Foreign
Institutional Investment (FII) and foreign Direct Investment (FDI).
This convertibility stood valid for following transaction:
(a) Remittances to meet family expenses

46
 (b) Payment of interest
(c) Import and export of goods and services.
(iv) Increase in Equity Limit of Foreign Investment:
Equity limit of foreign capital investment has been raised from 40% to 100% percent. In 47 high
priority industries foreign direct investment (FDI) to the extent of 100% will be allowed without
any restriction. In this regard Foreign Exchange Management Act (FEMA) will be enforced.

PUBLIC , PRIVATE AND JOINT SECTORS

Business Enterprise or a Business undertaking is an institutional arrangement to conduct one or
other type of business activity.
TYPES OF BUSINESS ENTERPRISES
On the basis of ownership business enterprises are classified as:

1. Private sector enterprises,

2. Public sector enterprises, and
3. Joint sector enterprises.
What are Private Sector Enterprises?
Business enterprises owned by private individuals, singly or jointly, are known as private
enterprises. There is no Government participation in the ownership of such enterprises. All non-
incorporate enterprises are included in it.
Examples of Private Sector Enterprises
Sole trading concern, Joint Hindu Family business, Partnership, Joint Stock company,
Cooperative societies, Multinational companies are the main examples of private enterprises.

What are Public Sector Enterprises?

Any enterprise which is established, managed and controlled by government is known as public
enterprise. There are three types of public enterprises. These are
1. Departmental undertaking,
2. Public corporations, and
3. Government companies.
What are Joint Sector Enterprises?
Joint sector enterprises consist of those undertakings wherein the Government, Private
entrepreneurs and Public share the management, ownership, and powers of the enterprise, jointly.
DIFFERENCE B/W PUBLIC , PRIVATE AND JOINT SECTOR

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INDUSTRY ANALYSIS

Industry analysis is a market assessment tool used by businesses and analysts to understand the
competitive dynamics of an industry. It helps them get a sense of what is happening in an
industry, i.e., demand-supply statistics, degree of competition within the industry, state of
competition of the industry with other emerging industries, future prospects of the industry
taking into account technological changes, credit system within the industry, and the influence
of external factors on the industry.

Industry analysis, for an entrepreneur or a company, is a method that helps it to understand its
position relative to other participants in the industry. It helps them to identify both the
opportunities and threats coming their way and gives them a strong idea of the present and future
scenario of the industry.

Types of industry analysis

There are three commonly used and important methods of performing industry analysis. The
three methods are:

1. Competitive Forces Model (Porter’s 5 Forces)

2. Broad Factors Analysis (PEST Analysis)

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 3. SWOT Analysis

1. Competitive Forces Model (Porter’s 5 Forces)

One of the most famous models ever developed for industry analysis, famously known
as Porter’s 5 Forces, was introduced by Michael Porter in his 1980 book “Competitive Strategy:
Techniques for Analyzing Industries and Competitors.”According to Porter, analysis of the five
forces gives an accurate impression of the industry and makes analysis easier.

1. Intensity of industry rivalry

The number of participants in the industry and their respective market shares are a direct
representation of the competitiveness of the industry. These are directly affected by all the factors
mentioned above. Lack of differentiation in products tends to add to the intensity of competition.
High exit costs like high fixed assets, government restrictions, labor unions, etc. also make the
competitors fight the battle a little harder.

2. Threat of potential entrants

This indicates the ease with which new firms can enter the market of a particular industry. If it is
easy to enter an industry, companies face the constant risk of new competitors. If the entry is
difficult, whichever company enjoys little competitive advantage reaps the benefits for a longer
period. Also, under difficult entry circumstances, companies face a constant set of competitors.

3. Bargaining power of suppliers

This refers to the bargaining power of suppliers. If the industry relies on a small number of
suppliers, they enjoy a considerable amount of bargaining power. This can affect small
businesses because it directly influences the quality and the price of the final product.

4. Bargaining power of buyers

The complete opposite happens when the bargaining power lies with the customers. If
consumers/buyers enjoy market power, they are in a position to negotiate lower prices, better
quality, or additional services and discounts. This is the case in an industry with more
competitors but with a single buyer constituting a large share of the industry’s sales.

5. Threat of substitute goods/services

The industry is always competing with another industry in producing a similar substitute product.
Hence, all firms in an industry have potential competitors from other industries. This takes a toll
on their profitability because they are unable to charge exorbitant prices. Substitutes can take two
forms – products with the same function/quality but lesser price, or products of the same price
but of better quality or providing more utility.

2. Broad Factors Analysis (PEST Analysis)

Broad Factors Analysis, also commonly called the PEST Analysis stands for Political, Economic,
Social and Technological. PEST analysis is a useful framework for analyzing the external
environment.

49
Political
Political factors that impact an industry include specific policies and regulations related to things
like taxes, environmental regulation, tariffs, trade policies, labor laws, ease of doing business,
and the overall political stability.

2. Economic
The economic forces that have an impact include inflation, exchange rates (FX), interest rates,
GDP growth rates, conditions in the capital markets (ability to access capital), etc.

3. Social
The social impact on an industry refers to trends among people and includes things such as
population growth, demographics (age, gender, etc), and trends in behavior such as health,
fashion, and social movements.

4. Technological
The technological aspect of PEST analysis incorporates factors such as advancements and
developments that change the way a business operates and the ways in which people live their
lives (i.e. advent of the internet).

3 SWOT Analysis
SWOT Analysis stands for Strengths, Weaknesses, Opportunities, and Threats. It can be a great
way of summarizing various industry analysis methods and determining their implications for the
business in question.

SECTOR ANALYSIS

Definition: Sector Analysis

Sector analysis is the review of the current condition of a sector and an assessment of how the
future prospects of the sector looks.
 Sector analysis thus gives an idea of how well a group of companies in a particular sector
are going to perform as a whole. This assessment helps investors to make investment
decisions and reap potential benefits. The idea behind this is the stock of companies will
rise or fall in accordance with the performance of the sector.

 Examples of some sectors are energy, healthcare, technology, financial service, consumer
services, automobile, insurance, hospitality, tourism, retail, manufacturing,
pharmaceutical etc.

There are two strategies where-in investors use sector analysis:

• Top down Investing: Investor get the sector analysis done and invests in sectors performing
best and chooses some stocks, next he moves down and chooses stock from company not
performing so well and so on to complete his portfolio
• Sector rotation: Investor gets the sector analysis done and predicts the cyclic nature of stock
up and stock down. This way he gets an idea which sectors might surge in upcoming months.
Investors invests in stocks which have high potential for rise in near future

50
INDIAN AGRICULTURE SECTOR
Introduction
Agriculture is the most important sector of Indian Economy. Indian agriculture sector accounts
for 18 per cent of India's gross domestic product (GDP) and provides employment to 50% of the
countries workforce. India is the world’s largest producer of pulses, rice, wheat, spices and spice
products. India has many areas to choose for business such as dairy, meat, poultry, fisheries and
food grains etc. India has emerged as the second largest producer of fruits and vegetables in the
world [1]. According to the data provided by Department of Economics and Statics (DES) the
production of food grains for the year 2013-2014 is 264 million tons which is increased when
compared to (2012-2013) 257million tons. This is a good symptom for the Indian economy from
the agriculture sector. India remains among main three as far as production of different
agricultural things like paddy, wheat, pulses, groundnut, rapeseeds, natural products, vegetables,
sugarcane, tea, jute, cotton, tobacco leaves and so on. On the other hand, on advertising front,
Indian agribusiness is as yet confronting the issues, for example, low level of business sector
reconciliation and integration, availability of dependable and convenient information needed by
farmers on different issues in farming [2].

Agriculture in Indian Economy

 Indian is an agriculture based country, where more than 50% of population is depend on
agriculture. This structures the main source of income. The commitment of agribusiness in
the national income in India is all the more, subsequently, it is said that agriculture in India
is a backbone for Indian Economy. The contribution of agriculture in the initial two decades
towards the total national output is between 48% and 60%. In the year 2001-2002, this
contribution declined to just around 26%. The aggregate Share of Agriculture and Allied
Sectors, Including agribusiness, domesticated animals, and ranger service and fishery sub
segments as far as rate of GDP is 13.9 percent during 2013- 14 at 2004-05 prices.
Agricultural exports constitute a fifth of the total exports of the country. In perspective of
the overwhelming position of the Agricultural Sector, gathering and support of Agricultural
Statistics expect incredible significance.

IMPORTANCE OF AGRICULTURE IN INDIAN ECONOMY

1. Agricultural influence on national income:

The contribution of agriculture during the first two decades towards the gross domestic product
ranged between 48 and 60%. In the year 2001-2002, this contribution declined to only about
26%.

2. Agriculture plays vital role in generating employment:

In India at least two-thirds of the working population earn their living through agricultural
works. In India other sectors have failed generate much of employment opportunity the growing
working populations.
3. Agriculture makes provision for food for the ever increasing population:

51
Due to the excessive pressure of population labour surplus economies like India and rapid
increase in the demand for food, food production increases at a fast rate. The existing levels of
food consumption in these countries are very low and with a little increase in the capita income,
the demand for food rise steeply (in other words it can be stated that the income elasticity of
demand for food is very high in developing countries).
Therefore, unless agriculture is able to continuously increase it marketed surplus of food grains,
a crisis is like to emerge. Many developing countries are passing through this phase and in a bid
to ma the increasing food requirements agriculture has been developed.
4. Contribution to capital formation:
There is general agreement on the necessity capital formation. Since agriculture happens be the
largest industry in developing country like India, it can and must play an important role in
pushing up the rate of capital formation. If it fails to do so, the whole process economic
development will suffer a setback.
To extract surplus from agriculture the following policies are taken:
(i) Transfer of labour and capital from farm non-farm activities.
(ii) Taxation of agriculture should be in such a way that the burden on agriculture is greater than
the government services provided to agriculture. Therefore, generation of surplus from
agriculture will ultimately depend on increasing the agricultural productivity considerably.
5. Supply of raw material to agro-based industries:
Agriculture supplies raw materials to various agro-based industries like sugar, jute, cotton textile
and vanaspati industries. Food processing industries are similarly dependent on agriculture.
Therefore the development of these industries entirely is dependent on agriculture.
6. Market for industrial products:
Increase in rural purchasing power is very necessary for industrial development as two- thirds of
Indian population live in villages. After green revolution the purchasing power of the large
farmers increased due to their enhanced income and negligible tax burden.
7. Influence on internal and external trade and commerce:
Indian agriculture plays a vital role in internal and external trade of the country. Internal trade in
food-grains and other agricultural products helps in the expansion of service sector.
8. Contribution in government budget:
Right from the First Five Year Plan agriculture is considered as the prime revenue collecting
sector for the both central and state budgets. However, the governments earn huge revenue from
agriculture and its allied activities like cattle rearing, animal husbandry, poultry farming, fishing
etc. Indian railway along with the state transport system also earn a handsome revenue as freight
charges for agricultural products, both-semi finished and finished ones.
9. Need of labour force:
A large number of skilled and unskilled labourers are required for the construction works and in
other fields. This labour is supplied by Indian agriculture.
10. Greater competitive advantages:
Indian agriculture has a cost advantage in several agricultural commodities in the export sector
because of low labour costs and self- sufficiency in input supply.

52
THE INDUSTRIES DEVELOPMENT AND REGULATION ACT OF INDIA (1951)!
The Industries (Development and Regulation) Act, (IDRA), came into force from 8th May 1952
under a notification of the Central Government published in the Gazette of India.
The Act extends to whole of India including the state of Jammu & Kashmir with a view to being
under Central and regulation of a number of important industries, the activities of which affect
the country as a whole and the development of which must be governed by economic factors of
all India importance.
Objectives of the Act:
The Important objectives are,
(i) To Implement the Industrial Policy:
The Act provides the necessary means to the Central Government in order to implement its
industrial policy.
(ii) Regulation and Development of Important Industries:
The Act brings under the control of the Central Government the development and regulation of a
number of important industries listed m the first schedule attached to the Act as the activities of
such industries will affect the country as a w о e and, therefore, the development of such
important industries must be governed by the economic factors of all India importance.
(iii) Planning and Future Development of New Undertakings:
A system of licensing is introduced under the Act to regulate planning and future development of
new undertaking on sound and balance lines and may be deemed expedient in the opinion of the
Central Government.
Definitions:
Some of important definitions given in section 3 of the Act are as under:

1. Advisory Council [Sec. 3 (a)]:

It means the Central Advisory Council established under Sec. 5 of the Act.

2. Current assets and current liabilities:

Current Assets [Sec. 3(ab)]:
Current assets mean bank balance and cash. They include such other assets or reserves are
expected to be realised in cash or sold or consumed within a period of not more than 12 months
in the ordinary course of business such as stock-in-trade, amounts due from sundry debtor for
sale of goods and for services rendered, advance tax payments and bills receivable.

They however do not include sums credited to a provident fund, and a pension fund, a gratuity
fund or any other fund for the welfare of the employees, maintained by a company owning an
industrial undertaking.

Current Liabilities [Sec. 3(ac)]:

Current liabilities mean liabilities which must be met on demand or within a period of 12 months
from the date they are incurred. They include any current liability which is suspended under Sec.
18-FB.

3. Development Council [Sec. 3 (b)]:

It means a Development Council established under Sec. 6.

4. Factory [Sec. 3 (c)]:

53
It means any premises, including the percents thereof, in any part, of with a manufacturing
process in being carried on or is ordinarily so carried on:

(i) With the aid of power if 50 or more workers are working thereon on any day of the preceding
12 months; or

(ii) Without the aid of power if 100 or more workers are were working thereon on any day of the
preceding 12 months. Further in no part of such premises any manufacturing process should be
carried on with the aid of power.

5. High Court [Sec. 3 (cc)]:

‘High Court’ means the High Court having jurisdiction in relation to the place at which registered
office of a company is situated.

6. Industrial Undertaking [Sec. 3 (d)]:

It means an industrial undertaking pertaining to a scheduled industry carried on in one or more
factories by any person or authority including the Government.

(1) Ancillary industrial undertaking [Sec. 3 (aa)]:

It means an industrial undertaking which in accordance with the proviso to sec. 11-B(1) and the
requirement specified under sec. 11-B(1)] is entitled to be regarded as an ancillary industrial
undertaking for the purposes of this Act (inserted by the Amendment Act, 1984).

2) Small-Scale industrial undertaking [Sec. 3 (i)]:

It means an industrial undertaking which, in accordance with the requirements specified under
Sec. 11 B (1) is entitled to be regarded as a small-sele industries undertaking for the purpose of
this Act (inserted by the Amendment Act 1984).

(3) Existing Industrial Undertaking [Sec. 3(bb)]:

It means: (a) Industrial undertaking pertaining to any of the industries specified in the first
schedule as originally enacted. An industrial undertaking which was in existence on the
commencement of the industries (Development and Regulation) Act 1951, i.e. 8th May, 1952 or
for the establishment of which effective steps had been taken before such commencement, and

(b) In the case for an industrial undertaking pertaining to any of the industries added to the first
schedule by any amendment thereof, an industrial undertaking which is in existence on the
coming into force of such amendment or for the establishment of which effective steps had been
taken before the coming into force of such amendment.

7. New article [Sec. 3(dd)]:

In relation to an industrial undertaking which is registered or in respect of which a licence or
permission has been issued under this Act, ‘New article’ means—

(a) Any article which falls under an item in the first schedule other than the item under which
articles ordinarily manufactured or produced in the industrial undertaking at the date of
registration or issue of the licence or permission, as the case may be, fall;

54
(b) Any articles which bears a mark as define in the Trade Mark Act, 1940 or which is the subject
of a portent. If at the date of registration or issue of the licence or permission, as the case may be,
the industrial undertaking was manufacturing or producing such article bearing that mark or
which is the subject of that patent, the article not fall in the category of ‘New article’.

8. Notified Order [Sec. 3 (e)]:

It means an order notified in the official Gazette.

9. Owner [Sec. 3 (f)]:

In relation to an industrial undertaking, ‘owner’ means the person, who, or the authority which
has the ultimate control over the affairs of the undertaking, where the said affair are entrusted to
a manager or managing director, such manager or managing director shall be deemed to be the
owner of the undertaking.

10. Prescribed [Sec. 3 (g)]:

It means prescribed by rules made under this Act.

11. Schedule [Sec. 3 (h)]:

It means a schedule to this Act.

12. Scheduled Industry [Sec. 3 (i)]:

It means any of the industries specified in the first schedule. The first schedule to the Act
includes 38 industries engaged in the manufacture or production of any of the articles mentioned
under each of the headings or sub-heading given in the schedule.

Scope of the Act:

This Act applies to the whole of India including the State of Jammu & Kashmir, The provision of
the Act apply to industrial undertaking, manufacturing any of the articles mentioned in the first
schedule. An industrial undertaking (also called a factory) for the purpose of the Act is the one
where manufacturing process is being carried on:

(a) With the aid of power provided that fifty or more workers are working or were working on
any day of the preceding twelve months; or

(b) Without the aid of power provided that one hundred or more workers are working or were
working on any day of the preceding twelve months.

(c) The Act applies only on industrial undertakings. Trading houses and financial institutions are
outside the purview of the Act.

Provisions of the Act:

The Act has 31 sections. All of them can be classified into three broad categories depending upon
the purposes they seek to serve:

A. Preventive Provisions:
Preventive provision provide for:
(i) Registration and Licensing;
(ii) Investigation; and

55
(iii) Revocation of Licence.

UNIT – 5

MONETARY AND FISCAL POLICIES:

What is Monetary Policy?

Monetary policy is an economic policy that manages the size and growth rate of the money
supply in an economy. It is a powerful tool to regulate macroeconomic variables such
as inflation and unemployment.
These policies are implemented through different tools, including the adjustment of the interest
rates, purchase or sale of government securities, and changing the amount of cash circulating in
the economy. The central bank or a similar regulatory organization is responsible for formulating
these policies.
Objectives of Monetary Policy
The primary objectives of monetary policies are the management of inflation or unemployment,
and maintenance of currency exchange rates.

Inflation
Monetary policies can target inflation levels. A low level of inflation is considered to be healthy
for the economy. If inflation is high, a contractionary policy can address this issue.

Unemployment
Monetary policies can influence the level of unemployment in the economy. For example, an
expansionary monetary policy generally decreases unemployment because the higher money
supply stimulates business activities that lead to the expansion of the job market.

Currency exchange rates

Using its fiscal authority, a central bank can regulate the exchange rates between domestic and
foreign currencies. For example, the central bank may increase the money supply by issuing
more currency. In such a case, the domestic currency becomes cheaper relative to its foreign
counterparts.

Tools of Monetary Policy

Central banks use various tools to implement monetary policies. The widely utilized policy tools
include:

 Interest rate adjustment

A central bank can influence interest rates by changing the discount rate. The discount rate (base
rate) is an interest rate charged by a central bank to banks for short-term loans. For example, if a
central bank increases the discount rate, the cost of borrowing for the banks increases.
Subsequently, the banks will increase the interest rate they charge their customers. Thus, the cost
of borrowing in the economy will increase, and the money supply will decrease.

 Change reserve requirements

Central banks usually set up the minimum amount of reserves that must be held by a commercial
bank. By changing the required amount, the central bank can influence the money supply in the

56
economy. If monetary authorities increase the required reserve amount, commercial banks find
less money available to lend to their clients and thus, money supply decreases.
Commercial banks can’t use the reserves to make loans or fund investments into new businesses.
Since it constitutes a lost opportunity for the commercial banks, central banks pay them interest
on the reserves. The interest is known as IOR or IORR (interest on reserves or interest on
required reserves).

 Open market operations

The central bank can either purchase or sell securities issued by the government to affect the
money supply. For example, central banks can purchase government bonds. As a result, banks
will obtain more money to increase the lending and money supply in the economy.

Expansionary vs. Contractionary Monetary Policy

Depending on its objectives, monetary policies can be expansionary or contractionary.

Expansionary Monetary Policy

This is a monetary policy that aims to increase the money supply in the economy by decreasing
interest rates, purchasing government securities by central banks, and lowering the reserve
requirements for banks. An expansionary policy lowers unemployment and stimulates business
activities and consumer spending. The overall goal of the expansionary monetary policy is to fuel
economic growth. However, it can also possibly lead to higher inflation.

Contractionary Monetary Policy

The goal of a contractionary monetary policy is to decrease the money supply in the economy. It
can be achieved by raising interest rates, selling government bonds, and increasing the reserve
requirements for banks. The contractionary policy is utilized when the government wants to
control inflation levels.

FISCAL POLICY
Fiscal policy refers to the use of government spending and tax policies to influence economic
conditions, including demand for goods and services, employment, inflation, and economic
growth.

The two main tools of fiscal policy are taxes and spending.

Taxes influence the economy by determining how much money the government has to spend in
certain areas and how much money individuals should spend. For example, if the government is
trying to spur spending among consumers, it can decrease taxes. A cut in taxes provides families
with extra money, which the government hopes will, in turn, be spent on goods and services, thus
spurring the economy as a whole.

Spending is used as a tool for fiscal policy to drive government money to certain sectors needing
an economic boost. Whoever receives those dollars will have extra money to spend – and, as
with taxes, the government hopes that money will be spent on other goods and services.

57
Types of fiscal policy

There are two main types of fiscal policy: expansionary and contractionary. Expansionary fiscal
policy, designed to stimulate the economy, is most often used during a recession, times of high
unemployment or other low periods of the business cycle. It entails the government spending
more money, lowering taxes or both. The goal is to put more money in the hands of consumers
so they spend more and stimulate the economy.

Contractionary fiscal policy is used to slow economic growth, such as when inflation is
growing too rapidly. The opposite of expansionary fiscal policy, contractionary fiscal policy
raises taxes and cuts spending.

Main Objectives of Fiscal Policy in India

Before moving on the discussion on objectives of India’s Fiscal Policies, firstly know that the
general objective of Fiscal Policy.

General objectives of Fiscal Policy are given below:

1. To maintain and achieve full employment.
2. To stabilize the price level.
3. To stabilize the growth rate of the economy.
4. To maintain equilibrium in the Balance of Payments.
5. To promote the economic development of underdeveloped countries.

BUDGET

A budget is a financial plan for a defined period, often one year. It may also include
planned sales volumes and revenues, resource
quantities, costs and expenses, assets, liabilities and cash flows. Companies, governments,
families and other organizations use it to express strategic plans of activities or events in
measurable terms.[1]
A budget is the sum of money allocated for a particular purpose and the summary of intended
expenditures along with proposals for how to meet them. It may include a budget surplus,
providing money for use at a future time, or a deficit in which expenses exceed income.
Features of Budget
1. It is an estimate of the economic activities of an entity which related to a specified future
period.
2. It must be written and approved by the appropriate authority.
3. It should be modified or corrected, whenever, there is a change in circumstances.
4. It plays the role of a business barometer that helps in measuring the performance of the
business by comparing actual and budgeted results.
5. It is prepared on the basis of past experiences and trends in the business.

58
6. It is a business practice, which is used to forecast the operating activities and financial
position of the business.

TYPES OF BUDGET

1.Based on time

 Long-term Budget: The budget designed by the management for a long-term, i.e. three
to ten years is called as long-term budget.
 Short-term Budget: As the name suggests, the budget which is prepared for a period
ranging from 1 to 2 years, is called short-term budget.

2.Based on Capacity

 Fixed Budget: The budget created for a fixed activity level, i.e. the budget remains
constant regardless of the level of activity, is called as fixed budget.
 Flexible Budget: The budget which changes with the change in the level of activity is a
flexible budget. It identifies the fixed cost, semi-variable cost and variable cost, to show
the expected results at different volumes.

3.Based on Scope

o Functional Budget: The budget which is concerned with the business functions is called as
functional budget. It can be further classified as:

 Sales Budget: Sales budget is used to determine the quantity of anticipated sales and
the expected selling price per unit.
 Production Budget: It is prepared to indicate the production for the specified period
and is expressed in the units of outputs produced.
 Materials Budget: The budget prepared to show the quantities of direct material and
raw material required to manufacture the finished product.

59
  Purchase Budget: Purchase budget is designed to estimate the quantity and value of
different items to be bought at different points of time, considering the production
schedule and inventory required.
 Cash Budget: The budget highlights the cash needed by the business in a specified
period, taking into account all the receipts and payments of the business.
Apart from those discussed above, there are other functional budgets also, i.e. plant
utilization budget, direct material usage budget, factory overhead budget, production cost
budget, cost of goods sold budget, selling and distribution cost budget, administration
expenses budget, etc.

o Master Budget: Once all the functional budgets are created, then the financial officer will
prepare a master budget. It is an integrated budget that reflects the estimated profit and loss
and financial position using Budgeted Profit & Loss Account and Budgeted Balance Sheet of
the concern.
4.Based on Receipts and Expenditure
o Capital Budget: The budget takes into account the estimated capital receipts and
expenditure of the business for a specified period.
o Revenue Budget: The budget that covers all the revenue receipts and expenses of a
particular financial year is a revenue budget.

Capital Market
Definition: Capital Market, is used to mean the market for long term investments, that have
explicit or implicit claims to capital. Long term investments refers to those investments whose
lock-in period is greater than one year.

Functions of Capital Market

 Mobilization of savings to finance long term investments.
 Facilitates trading of securities.
 Minimization of transaction and information cost.
 Encourage wide range of ownership of productive assets.
 Quick valuation of financial instruments like shares and debentures.
 Facilitates transaction settlement, as per the definite time schedules.
 Offering insurance against market or price risk, through derivative trading.
 Improvement in the effectiveness of capital allocation, with the help of competitive price
mechanism.
Types of Capital Market
The capital market is bifurcated in two segments, primary market and secondary market:

60
  Primary Market: Otherwise called as New Issues Market, it is the market for the trading
of new securities, for the first time. It embraces both initial public offering and further
public offering. In the primary market, the mobilisation of funds takes place through
prospectus, right issue and private placement of securities.
 Secondary Market: Secondary Market can be described as the market for old securities,
in the sense that securities which are previously issued in the primary market are traded
here. The trading takes place between investors, that follows the original issue in the
primary market. It covers both stock exchange and over-the-counter market.

MONEY MARKET:

Definition: Money Market can be understood as the market for short term funds, wherein
lending and borrowing of funds varies from overnight to a year. It is an important part of the
financial system that helps in fulfilling the short term and very short term requirements of the
companies, banks, financial institution, government agencies and so forth.

Money Market Instruments

In this market, only those financial instruments are traded which are immediate substitutes for
money, which includes:

1. Call/Notice Money: When the money raised or borrowed on demand for a very short term
which ranges from one day to 14 days, then it may be called as notice money, and when it
exceeds 14 days it is termed as call money.
2. Treasury Bills: These are short term, negotiable financial assets issued by the central bank,
on behalf of the government, for overcoming liquidity shortfalls.
3. Commercial Bills: A commercial bill is a negotiable, self-liquidating instrument that is less
risky in nature. When goods are bought on credit, these bills improve the liability to make
payment at the specified date.
4. Commercial Paper: It alludes to an unsecured promissory note, issued by large and
creditworthy companies, at a discount on its face value and redeemable at its face value.
5. Certificate of Deposit: It is an unsecured, negotiable financial instrument which a bank and
financial institution issues to individuals, corporation, trust, funds etc. at a discount on its
face value and its maturity vary from 15 days to one year.

Functions of Money Market

The three basic functions of money market are:
 It provides a balancing tool for equating the demand for and supply of short term funds.
 It provides a centre for the intervention of central bank, for controlling liquidity and
general interest rate level.
 It provides a proper reach to the suppliers and users of the short term funds, to fulfil their
requirements, at a reasonable market clearing price.

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RBI’S CREDIT POLICY

INTRODUCTION:

The RBI is the main body that controls the monetary policy in India. They control the flow of money
into the market through various instruments of monetary policy. This helps the RBI control
the inflation and liquidity in the economy.

The RBI is the central bank of India. It was established in 1935 under a special act of the parliament.
The RBI is the main authority for the monetary policy of the country. The main functions of the RBI
are to maintain financial stability and the required level of liquidity in the economy.

MEANING:

Monetary policy refers to the credit control measures adopted by the central bank of a country. In
case of Indian economy, RBI is the sole monetary authority which decides the supply of money
in the economy.

Instruments of Monetary Policy

The instruments of monetary policy are of two types:
1. Quantitative, general or indirect (CRR, SLR, Open Market Operations, Bank Rate, Repo
Rate, Reverse Repo Rate)
2. Qualitative, selective or direct (change in the margin money, direct action, moral suasion)
We discuss them as under:
a. Bank Rate Policy:
One of the most effective instruments of monetary policy is the bank rate. A bank rate is essentially
the rate at which the RBI lends money to commercial banks without any security or collateral. It is
also the standard rate at which the RBI will buy or discount bills of exchange and other such
commercial instruments.

So now if the RBI were to increase the bank rate, the commercial banks would also have to increase
their lending rates. And this will help control the supply of money in the market. And the reverse
will obviously increase the supply of money in the market.

b. Open Market Operations:

Open Market Operations is when the RBI involves itself directly and buys or sells short-term
securities in the open market. This is a direct and effective way to increase or decrease the supply of
money in the market. It also has a direct effect on the ongoing rate of interest in the market.

Let us say the market is in equilibrium. Then the RBI decides to sell short-term securities in the
market. The supply of money in the market will reduce. And subsequently, the demand for credit
facilities would increase. And so correspondingly the rate of interest would also see a boost.

62
c. Changes in Reserve Ratios:

There are two components to this instrument of monetary policy, namely – The Cash Reserve Ratio
(CLR) and the Statutory Liquidity Ratio (SLR). Let us understand them both.

Cash Reserve Ratio (CRR) is the portion of deposits with the commercial banks that it has to
deposit to the RBI. So CRR is the percent of deposits the commercial banks have to keep with the
RBI. The RBI will adjust the said percentage to control the supply of money available with the
bank. And accordingly, the loans given by the bank will either become cheaper or more expensive.
The CRR is a great tool to control inflation.

The Statutory Liquidity Ratio (SLR) is the percent of total deposits that the commercial banks have
to keep with themselves in form of cash reserves or gold. So increasing the SLR will mean the
banks have fewer funds to give as loans thus controlling the supply of money in the economy. And
the opposite is true as well.

2. Selective Credit Controls:

Selective credit controls are used to influence specific types of credit for particular purposes.
They usually take the form of changing margin requirements to control speculative activities
within the economy. When there is brisk speculative activity in the economy or in particular
sectors in certain commodities and prices start rising, the central bank raises the margin
requirement on them.

a. Change in Margin Money:

The result is that the borrowers are given less money in loans against specified securities. For
instance, raising the margin requirement to 70% means that the pledger of securities of the value
of Rs 10,000 will be given 30% of their value, i.e. Rs 3,000 as loan. In case of recession in a
particular sector, the central bank encourages borrowing by lowering margin requirements.

b. Moral Suasion: Under this method RBI urges to commercial banks to help in controlling the
supply of money in the economy.
Objectives of the Monetary Policy of India
1. Price Stability: Price Stability implies promoting economic development with considerable
emphasis on price stability. The centre of focus is to facilitate the environment which is
favourable to the architecture that enables the developmental projects to run swiftly while also
maintaining reasonable price stability.
2. Controlled Expansion Of Bank Credit: One of the important functions of RBI is the
controlled expansion of bank credit and money supply with special attention to seasonal
requirement for credit without affecting the output.
3. Promotion of Fixed Investment: The aim here is to increase the productivity of investment
by restraining non essential fixed investment.
4. Restriction of Inventories: Overfilling of stocks and products becoming outdated due to
excess of stock often results is sickness of the unit. To avoid this problem the central monetary
authority carries out this essential function of restricting the inventories. The main objective of
this policy is to avoid over-stocking and idle money in the organization

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5. Promotion of Exports and Food Procurement Operations: Monetary policy pays special
attention in order to boost exports and facilitate the trade. It is an independent objective of
monetary policy.
6. Desired Distribution of Credit: Monetary authority has control over the decisions regarding
the allocation of credit to priority sector and small borrowers. This policy decides over the
specified percentage of credit that is to be allocated to priority sector and small borrowers.
7. Equitable Distribution of Credit: The policy of Reserve Bank aims equitable distribution to
all sectors of the economy and all social and economic class of people
8. To Promote Efficiency: It is another essential aspect where the central banks pay a lot of
attention. It tries to increase the efficiency in the financial system and tries to incorporate
structural changes such as deregulating interest rates, ease operational constraints in the credit
delivery system, to introduce new money market instruments etc.
9. Reducing the Rigidity: RBI tries to bring about the flexibilities in the operations which
provide a considerable autonomy. It encourages more competitive environment and
diversification. It maintains its control over financial system whenever and wherever necessary
to maintain the discipline and prudence in operations of the financial system.
MOBILIZATION OF SAVINGS FOR INVESTMENT:

Concept of Savings Mobilization:

Savings mobilization refers to creating safe and sound institution where savers can place their
deposits with the expectation that they will receive the full value of their fund plus a real return
upon withdrawal (Gardiol, 2004).
Mobilization of savings is a contract between two parties:
 the institution receiving the savings
 individual placing the savings in that institution.
For that reason services needs to operate within an established legal framework that identifies
each institution under which criteria are able to receive savings from members or from the
public. The legal framework should also identify what recourse saver have to recover their
savings in times of crisis, (Branch, et al.2002).
Savings are mobilized by financial institutions which can either be formal or informal. Savings
institutions are able to mobilize savings effectively within the safety of adequate regulatory and
supervisory framework.

Strategies for Savings Mobilization:

These are strategies employed by savings institutions to attract savers to save with them.
Different institutions use different strategies that enable them to reach out to their target clients.
To effectively mobilize savings in an economy, the deposit rate must be relatively high and
inflation rate stabilized to ensure high positive interest rate which motivates investors to save
from their disposable income.

According to Abayomithere are certain factors that are sure recipes for successful savings
mobilization for MFIs (Microfinance Institutions), they are;

 Organization and Delivery Channels: As the closer the MFIs get to its customers the
better the channel for mobilizing a large number of depositors.

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  Branch Network and Access Points: Savers need convenient and frequent access to
their deposits and provision of technology to support branch connectivity and ease of
access to savers thereby mobilizing a large number of depositors. Strategies for
successful savings mobilization are re-engineering of business processes, model and
organization, developing and implementing good marketing and promotional
programmes to address perception of savers.

 Saving Products: they states that savings institutions must first convince savers that
their deposits will be save and well managed .Then they design and offer products that
will satisfy the service demand of clients in the local market .

 Setting Interest Rates: It determine the returns savers earn on their deposit and the price
that institution pay for the use of the fund. According to Branch & Baker (2002), interest
rates should be competitive with market rates, cost-based and positive in real terms
above inflation. Managers of formal financial institutions should have the authority to
increase or decrease the rate offered on savings to respond to market trends and remain
competitive. Saving institution offers high interest rates on accounts with higher balances
and lower interest rates on account with lower balances to encourage savers to increase
their deposits.

INDUSTRIAL SICKNESS:

Meaning of Industrial Sickness:

The Reserve Bank of India has defined a sick unit as one “which has incurred a cash loss for one
year and is likely to continue incurring losses for the current year as well as in the following
year and the unit has an imbalance in its financial structure, such as, current ratio is less than 1:
1 and there is worsening trend in debt-equity ratio.” The State Bank of India has defined a sick
unit as one “which fails to generate an internal surplus on a continuous basis and depends for its
survival upon frequent infusion of funds.”

According to the Development Commissioner, a small scale industrial unit (SSI) becomes
sick if its:
(a) Capacity utilisation is less than 50 per cent of the highest achieved during the preceding five
years (incipient sickness)’,

(b) Net worth has been eroded by more than 50 per cent; and

c) The unit has remained closed for a period more than six months.

Nature of Sickness:
Sickness in industry can be classified into:
(a) Genuine sickness which is beyond the control of the promoters of the concern despite the
sincere efforts by them,

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(b) Incipient sickness due to basic non-viability of the project, an

(c) Induced sickness which is due to the managerial incompetence and wrong policies pursued
deliberately for want of genuine stake.d

Features of Industrial Sickness

(1) Socio-economic problem: Industrial sickness is a serious socio-economic problem, which

is result of unplanned industrial growth. It is a universal problem. In India, majority of sick units
are small units. They are a serious problem in the economy.

(2) Outcome of various causes: Industrial sickness is the net result of variety of financial,
technical, managerial, personnel and marketing causes faced by industrial units.

(3) Universal problem: Industrial sickness exists among large-scale and small-scale units,
public sector and cooperative sector enterprises. It is a universal problem.

(4) Visible symptoms: Industrial sickness is visible by various symptoms such as financial
difficulties, low profitability, inability to pay interest and loan installments.

(5) Serious consequences: The consequences of industrial sickness on employees, consumers,

investors, management and the national economy are serious. In addition, banks and term
lending institutions come in difficulties due to industrial sickness.

(6) Preventive approach: Industrial sickness can be removed through preventive measures.
Such approach is better than positive measures for the revival of a sick unit through turnaround
package or corporate restructuring.

(7) Gradual process: Industrial sickness takes place in a gradual manner and not
suddenly/overnight. Various stages are involved in this process. They include normal unit
tending towards sickness, beginning of sickness and confirmed sickness with normal features.
Preventive measures during incipient sickness are useful for avoiding sickness.

The causes of industrial sickness may be divided into two broad categories:

(i) external and

(ii) internal.

External causes are those which are beyond the control of its management and seen to be rela-
tively more important than internal causes.

The causes which have been identified so far include:

(a) Delay in land acquisition and building construction

(b) Delay in obtaining financial assistance from public financial institutions

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(c) Delayed supply of machinery by the manufacturers

(d) Problems related to recruitment of technical and managerial staff

(e) Delay on the part of the Government in sanctioning licences, permits, etc.

(f) Shortages of basic inputs like power.

(ii) Internal Causes:

Internal causes are many. The primary one seems to be

(i) “lack of experience of the promoters in the line of activity.” (ii) differences among various
persons associated with the promotion and management of the enterprise;

(iii) mechanical defects and breakdown;

(iv) inability to purchase raw materials at an economic price and at the right time;

(v) failure to make controls effective in time in case of deficiencies in workings;

(vi) deteriorating labour management relations and the consequent fall in capacity utilisation,
and, above all;

(vii) faulty financial planning and lack of balance in the financial (capital) structure.

EXIM POLICY

Exim Policy, also known as the Foreign Trade Policy is announced every 5 years by Ministry of
Commerce and Industry, Government of India. It is updated every year on the 31st of March and
all the amendments and improvements in the scheme are effective from the 1st of April. Exim
policy deals in general provisions pertaining to exports and imports, promotional measures, duty
exemption schemes, export promotion schemes, special economic zone programs and other
details for different sectors. The Government announces a supplement to this policy each year.
The Government of India also releases the Hand Book of Procedures detailing the procedures to
be followed for each of the schemes mentioned in the Exim Policy.

Objectives of Exim Policy :

 To enhance the level of exports;
 To improve the balance of payment;
 To improve the balance of trade;
 To enhance the reverse of foreign exchange;

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  To allow import of technology and equipment’s which may help in establishing new
industrial enterprises, produce new products and adopt a new process for higher
production levels.
 To ensure the availability of goods for the domestic consumption and to allow exports so
that the producers get a fair price;
 To allow import of certain goods as listed in the Open General Licence;
 To allow for hassle free exports and imports;
 Reducing the interface between the exporters and Director General of Foreign Trade by
reducing the number export documents;
 Establishing Advance Licencing System for imports of goods needed for manufacturing
various goods for export;
 Removal of the provisions to proceed realization;
 Establishing of Export oriented units and Export Processing Zones specifically for goods
meant to be produced for exports only;
 To accelerate the country’s transition to a globally oriented vibrant economy to deriving
maximum benefits from expanding global market opportunities;
 To enhance the technological strength and efficiency of Indian agriculture, industry, and
services there by improving their competitive strength while generating new employment
opportunities. It encourages the attainment of internationally accepted standards of
quality of Indian exports; and
 To provide consumers with good quality products at reasonable prices through regulated
imports of such products.
 To provide clients with high-quality goods and services at globally competitive rates.
Canalization is an important feature of Exim Policy under which certain goods can be
imported only by designated agencies. For an example, an item like gold, in bulk, can be
imported only by specified banks like SBI and some foreign banks or designated
agencies.

What is Foreign Direct Investment (FDI)?

 Foreign direct investment (FDI) is an investment from a party in one country into a
business or corporation in another country with the intention of establishing a lasting
interest. Lasting interest differentiates FDI from foreign portfolio investments, where
investors passively hold securities from a foreign country. A foreign direct investment
can be made by obtaining a lasting interest or by expanding one’s business into a foreign
country.

Benefits of Foreign Direct Investment

Foreign direct investment offers advantages to both the investor and the foreign host country.
These incentives encourage both parties to engage in and allow FDI.

Below are some of the benefits for businesses:

 Market diversification
 Tax incentives
 Lower labor costs

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  Preferential tariffs
 Subsidies

The following are some of the benefits for the host country:

 Economic stimulation
 Development of human capital
 Increase in employment
 Access to management expertise, skills, and technology

For businesses, most of these benefits are based on cost-cutting and lowering risk. For host
countries, the benefits are mainly economic.

Disadvantages of Foreign Direct Investment

Despite many benefits, there are still two main disadvantages to FDI, such as:

 Displacement of local businesses

 Profit repatriation

The entry of large firms, such as Walmart, may displace local businesses. Walmart is often
criticized for driving out local businesses that cannot compete with its lower prices.

In the case of profit repatriation, the primary concern is that firms will not reinvest profits back
into the host country. This leads to large capital outflows from the host country.

Types and Examples of Foreign Direct Investment

Typically, there are two main types of FDI: horizontal and vertical FDI.

Horizontal: a business expands its domestic operations to a foreign country. In this case, the
business conducts the same activities but in a foreign country. For example, McDonald’s opening
restaurants in Japan would be considered horizontal FDI.

Vertical: a business expands into a foreign country by moving to a different level of the supply
chain. In other words, a firm conducts different activities abroad but these activities are still
related to the main business. Using the same example, McDonald’s could purchase a large-scale
farm in Canada to produce meat for their restaurants.

IMPACT OF FDI ON MANUFACTURING SECTOR IN INDIA:

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India,
Mr Narendra Modi, had launched the ‘Make in India’ program to place India on the world map
as a manufacturing hub and give global recognition to the Indian economy. India is expected to
become the fifth largest manufacturing country in the world by the end of year 2020*.

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Investments
With the help of Make in India drive, India is on the path of becoming the hub for hi-tech
manufacturing as global giants such as GE, Siemens, HTC, Toshiba, and Boeing have either set
up or are in process of setting up manufacturing plants in India, attracted by India's market of
more than a billion consumers and increasing purchasing power.
Cumulative Foreign Direct Investment (FDI) in India’s manufacturing sector reached US$ 76.82
billion during April 2000-June 2018.
India has become one of the most attractive destinations for investments in the manufacturing
sector. Some of the major investments and developments in this sector in the recent past are:
 As of December 2018, premium smartphone maker OnePlus is anticipating that India will
become its largest Research and Development (R&D) base within the next three years.
 India’s manufacturing PMI stood at 51.7 in May 2019.Also companies start to spend
more on hiring and anticipate good growth in future prospects.

 As of October 2018, Filatex India, a polymer manufacturer, is planning to undertake

forward integration by setting up a fabric manufacturing and processing unit.

 As of August 2018, IISC’s Society of Innovation and Development (SID) and WIPRO 3D
are collaborating to produce India’s first industrial scale 3D printing machine.

 For its Commercial Vehicles, Ashok Leyland is utilising machine learning algorithms and
its newly created telematics unit to improve the performance of the vehicle, driver and so
on.

SERVICE SECTOR:

Introduction
The services sector is not only the dominant sector in India’s GDP, but has also attracted
significant foreign investment flows, contributed significantly to exports as well as provided
large-scale employment. India’s services sector covers a wide variety of activities such as trade,
hotel and restaurants, transport, storage and communication, financing, insurance, real estate,
business services, community, social and personal services, and services associated with
construction.
Investments
Some of the developments and major investments by companies in the services sector in the
recent past are as follows:
 Leisure and business travel and tourism spending are expected to increase to US$ 234.4
billion and US$ 12.9 billion in 2018, respectively.
 India’s earnings from medical tourism could exceed US$ 9 billion by 2020.

 Indian healthcare companies are entering into merger and acquisitions with domestic and
foreign companies to drive growth and gain new markets.

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What is Pollutants?
A pollutant is a substance or energy introduced into the environment that has undesired effects,
or
adversely affects the usefulness of a resource. A pollutant may cause long- or short-term damage
by changing the growth rate of plant or animal species, or by interfering with human amenities,
comfort, health, or property values. Some pollutants are biodegradable and therefore will
not
persist in the environment in the long term. However, the degradation products of some
pollutants
are themselves polluting such as the products DDE and DDD produced from degradation of
DDT.

cleaner and

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