Subsidy
A subsidy (also known as a subvention) is a form of financial assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry (e.g., as a result of continuous unprofitable operations) or an increase in the prices of its products or simply to encourage it to hire more labor (as in the case of a wage subsidy). Examples are subsidies to encourage the sale of exports; subsidies on some foods to keep down the cost of living, especially in urban areas; and subsidies to encourage the expansion of farm production and achieve self-reliance in food production.
Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs. Financial assistance in the form of a subsidy may come from one's government, but the term subsidy may also refer to assistance granted by others, such as individuals or non-governmental institutions.
Wednesday, May 18, 2011
Primary functions of money
Primary functions of money
* Medium of exchange:
The most important functions of money is to serve as a medium of exchange. It facilitates buying and selling to take place. It solves all the problems of barter system. People can exchange goods and services through money. By using money anything anything can be purchased in the market. For example, a seller sells a commodity by accepting money and by using this money, he can buy some other commodity which he wants.
* Measure of value:
Money is a common measure of value. The value of all the commodities can be expressed in terms of money. It is a measuring rod and it can be expressed in the price ratio of different commodities. In India, rupee is the standard of measure, and therefore prices of goods and services are expressed in terms of rupees.
* Medium of exchange:
The most important functions of money is to serve as a medium of exchange. It facilitates buying and selling to take place. It solves all the problems of barter system. People can exchange goods and services through money. By using money anything anything can be purchased in the market. For example, a seller sells a commodity by accepting money and by using this money, he can buy some other commodity which he wants.
* Measure of value:
Money is a common measure of value. The value of all the commodities can be expressed in terms of money. It is a measuring rod and it can be expressed in the price ratio of different commodities. In India, rupee is the standard of measure, and therefore prices of goods and services are expressed in terms of rupees.
Growth and Efficiency of industry
Growth and Efficiency of industry
The industrial sector is one of the main sectors that contribute in india. The country ranks fourteenth in the factory output in the world. The industrial sector is made up of manufacturing, mining and quarrying, and electricity, water supply, and gas sectors. The industrial sector accounts for around 27.6% of the India and it employs over 17% of the total workforce in the country. The Growth Rate of the Industrial Sector in India came to around 5.2% in 2002- 2003. In this year, within the India , the mining and quarrying sector contributed 4.4%, the electricity, water supply, and gas sector contributed 2.8%, and the manufacturing sector contributed around 5.7%.
The Growth Rate of the Industry Sector in India came to around 6.6% in 2003- 2004 and in this year, the electricity, water supply, and gas sector contributed 4.8%, the mining and quarrying sector contributed 5.3%, and the manufacturing sector contributed 7.1% in India . Industry Growth Rate in India came to 7.4% in 2004- 2005, with the manufacturing sector contributing 8.1%, the mining and quarrying sector contributing 5.8%, and the water supply, electricity, and gas sector contributing 4.3% in India .
Industry Growth Rate in India came to 7.6% in 2005- 2006. In this year, the mining and quarrying sector contributed 0.9%, the manufacturing sector contributed 9.0%, and the water supply, gas, and electricity sector contributed 4.3%. The Growth Rate of the Industrial Sector finally came to 9.8% in 2006- 2007. This shows that Industry Growth Rate in India has been on the rise over the last few years.
The reasons for the rise of Industry Growth Rate in India
The reasons for the increase of Industry Growth Rate in India are that huge amounts of investments are being made in this sector and this has helped the industries to grow. Further the reasons for the rise of the Growth Rate of the Industrial Sector in India are that the consumption of the industrial goods has increased a great deal in the country, which in its turn has boosted the industrial sector. Also the reasons for the increase of Industry Growth Rate in India are that the industrial goods are being exported in huge quantities from the country.
The Indian government must boost the Industrial Sector
Industry Growth Rate in India thus has been registering steady growth over the past few years. This has given a major boost to the Indian economy. The government of India thus must continue to make efforts to boost the industrial sector in the country. For this will in turn help to grow the country's economy.
The industrial sector is one of the main sectors that contribute in india. The country ranks fourteenth in the factory output in the world. The industrial sector is made up of manufacturing, mining and quarrying, and electricity, water supply, and gas sectors. The industrial sector accounts for around 27.6% of the India and it employs over 17% of the total workforce in the country. The Growth Rate of the Industrial Sector in India came to around 5.2% in 2002- 2003. In this year, within the India , the mining and quarrying sector contributed 4.4%, the electricity, water supply, and gas sector contributed 2.8%, and the manufacturing sector contributed around 5.7%.
The Growth Rate of the Industry Sector in India came to around 6.6% in 2003- 2004 and in this year, the electricity, water supply, and gas sector contributed 4.8%, the mining and quarrying sector contributed 5.3%, and the manufacturing sector contributed 7.1% in India . Industry Growth Rate in India came to 7.4% in 2004- 2005, with the manufacturing sector contributing 8.1%, the mining and quarrying sector contributing 5.8%, and the water supply, electricity, and gas sector contributing 4.3% in India .
Industry Growth Rate in India came to 7.6% in 2005- 2006. In this year, the mining and quarrying sector contributed 0.9%, the manufacturing sector contributed 9.0%, and the water supply, gas, and electricity sector contributed 4.3%. The Growth Rate of the Industrial Sector finally came to 9.8% in 2006- 2007. This shows that Industry Growth Rate in India has been on the rise over the last few years.
The reasons for the rise of Industry Growth Rate in India
The reasons for the increase of Industry Growth Rate in India are that huge amounts of investments are being made in this sector and this has helped the industries to grow. Further the reasons for the rise of the Growth Rate of the Industrial Sector in India are that the consumption of the industrial goods has increased a great deal in the country, which in its turn has boosted the industrial sector. Also the reasons for the increase of Industry Growth Rate in India are that the industrial goods are being exported in huge quantities from the country.
The Indian government must boost the Industrial Sector
Industry Growth Rate in India thus has been registering steady growth over the past few years. This has given a major boost to the Indian economy. The government of India thus must continue to make efforts to boost the industrial sector in the country. For this will in turn help to grow the country's economy.
Discuss the approaches to tax equity with special reference to ‘ability to pay principle.
Discuss the approaches to tax equity with special reference to ‘ability to pay principle.’
User pays, or beneficiary pays, is a pricing approach based on the idea that the most efficient allocation of resources occurs when consumers pay the full cost of the goods that they consume. In public finance it stands with another principle of "ability to pay," which states that those who have the means should share more of the burden of public services. The ability to pay principle is one the reasons for the general acceptance of the progressive income tax system.
The principle of user pay supports the idea of horizontal equity, which states that those in similar wealth and income positions should be treated equally by the tax system. The basic idea is that those who do not use a service should not be obligated to pay for it. As long as the beneficiary aligns exactly with the user, the user pay principle works. Those who do not go to a movie are not obligated to pay for someone else to attend.
In public goods, beneficiaries and users often do not align. The divergence of user and beneficiary occurs when production and consumption have external effects. The driver, who purchases gasoline, may believe he or she is paying for the full cost (user pay) of using gasoline, except that greenhouse gases are produced. These impose costs on the environment and are believed to contribute to climate change. The "beneficiaries" must bear costs not paid in the purchase of gasoline. In this case the user pay principle results in the driver not paying the full or social cost of using fossil fuels, which creates a strong argument for regulation and other forms of public intervention. Increasing taxes on gasoline is one possible response that preserves the user pay principle by increasing the costs to user.
User pays, or beneficiary pays, is a pricing approach based on the idea that the most efficient allocation of resources occurs when consumers pay the full cost of the goods that they consume. In public finance it stands with another principle of "ability to pay," which states that those who have the means should share more of the burden of public services. The ability to pay principle is one the reasons for the general acceptance of the progressive income tax system.
The principle of user pay supports the idea of horizontal equity, which states that those in similar wealth and income positions should be treated equally by the tax system. The basic idea is that those who do not use a service should not be obligated to pay for it. As long as the beneficiary aligns exactly with the user, the user pay principle works. Those who do not go to a movie are not obligated to pay for someone else to attend.
In public goods, beneficiaries and users often do not align. The divergence of user and beneficiary occurs when production and consumption have external effects. The driver, who purchases gasoline, may believe he or she is paying for the full cost (user pay) of using gasoline, except that greenhouse gases are produced. These impose costs on the environment and are believed to contribute to climate change. The "beneficiaries" must bear costs not paid in the purchase of gasoline. In this case the user pay principle results in the driver not paying the full or social cost of using fossil fuels, which creates a strong argument for regulation and other forms of public intervention. Increasing taxes on gasoline is one possible response that preserves the user pay principle by increasing the costs to user.
“The Foreign Trade Regime has undergone changes overtime.” Briefly examine the phases of change.
“The Foreign Trade Regime has undergone changes overtime.” Briefly examine the phases of change.
The administrative control regime, which applies to all merchandise has several changes overtime which are as follow…..
Under Law 7/1991, the government is entitled to regulate the import regime through decrees. Decrees must be approved by the Committee of Tariffs, Customs and Foreign Trade, whose main members are the vice-ministers of economy.(1) Decrees must be approved with the recommendation of the Superior Council of Foreign Trade, which is composed of the ministers of economy and the president of India.(2)
Under Decree 3803/2006, the Committee of Imports of the Ministry of Trade, Industry and Tourism will be the competent administrative authority to grant licences for the import of goods. The administrative authorization of prior licenses for the import of goods is mandatory now in the following cases:
* Goods included in the list established by the government;
* Goods that do not require payment under the exchange regime, including:
* goods imported as foreign investment or contributions in kind;
* donations;
* previously-paid imports originating from the free trade zone;
* personal belongings and luggage;
* legalization of merchandise; and
* goods identified by the government within the import policy framework;
* Requests for import of goods with tariff and tax exemptions;
* Requests for import of used, faulty, reconstructed, refurbished or remanufactured goods or inventory leftovers;
* imports originating from official and governmental organizations, except for gasoline and other fuels; and
* waste and scrap iron in cases determined by the government .
Any additional imports into India fall under the free import regime; some imports must be registered, while in other cases registration is not required. Both types of import are regulated by the Direction of Foreign Trade of the Ministry of Commerce, Industry and Tourism. Under the regime of free import with registration set forth in Article 2 of Decree 3803/2006, importers must submit certain information and request authorization in advance from the relevant administrative authorities and the Ministry of Foreign Trade with regard to the following goods:
* fishing resources;
* monitoring and security equipment;
* Radioactive isotopes and substances;
* Goods reserved for the armed forces;
* Hydrocarbons, fuels and gasoline;
* goods subject to sanitary control to preserve human, vegetal and animal safety and health;
goods subject to technical requirements and regulations;
* goods subject to quantitative restrictions;
* goods subject to control to guarantee environmental protection; and
* automotive vehicles.
The sanitary, environmental, energy, technical and radiation control authorities must receive requests in advance and issue their opinions accordingly. Requests are received and processed through the Unique Window of Foreign Trade, a service that operates on the Internet. It is managed by the Assistant Direction of Design and Administration of Operations of the Ministry of Commerce, Industry and Tourism.
The authorizations given within the framework of the foreign trade regime for the import of goods (either through licences or registrations) have a term of 12 months for capital goods (which may be extended by a further 12 months) and six months for other goods (which may be extended by three months).
The free import regime without registration applies to goods that do not require licences or authorizations within the free import regime with registration. In these cases importers may request customs clearance declarations from the relevant authorities without having to provide additional documents.
Authorizations (where applicable) must be presented as supporting documents for customs clearance and import declarations. Authorizations and registrations must be provided to the customs authorities to obtain customs clearance.
Importers must keep these documents for a minimum of five years; they must be available for review and control by the customs authorities of the National Direction of Taxes and Customs whenever required.
To benefit from all the legal advantages and comply with the legal requirements of the regime for the import of goods into India, importers and suppliers may seek legal advice from a trade lawyer before developing any projects for international sales of goods or import contracts.
The administrative control regime, which applies to all merchandise has several changes overtime which are as follow…..
Under Law 7/1991, the government is entitled to regulate the import regime through decrees. Decrees must be approved by the Committee of Tariffs, Customs and Foreign Trade, whose main members are the vice-ministers of economy.(1) Decrees must be approved with the recommendation of the Superior Council of Foreign Trade, which is composed of the ministers of economy and the president of India.(2)
Under Decree 3803/2006, the Committee of Imports of the Ministry of Trade, Industry and Tourism will be the competent administrative authority to grant licences for the import of goods. The administrative authorization of prior licenses for the import of goods is mandatory now in the following cases:
* Goods included in the list established by the government;
* Goods that do not require payment under the exchange regime, including:
* goods imported as foreign investment or contributions in kind;
* donations;
* previously-paid imports originating from the free trade zone;
* personal belongings and luggage;
* legalization of merchandise; and
* goods identified by the government within the import policy framework;
* Requests for import of goods with tariff and tax exemptions;
* Requests for import of used, faulty, reconstructed, refurbished or remanufactured goods or inventory leftovers;
* imports originating from official and governmental organizations, except for gasoline and other fuels; and
* waste and scrap iron in cases determined by the government .
Any additional imports into India fall under the free import regime; some imports must be registered, while in other cases registration is not required. Both types of import are regulated by the Direction of Foreign Trade of the Ministry of Commerce, Industry and Tourism. Under the regime of free import with registration set forth in Article 2 of Decree 3803/2006, importers must submit certain information and request authorization in advance from the relevant administrative authorities and the Ministry of Foreign Trade with regard to the following goods:
* fishing resources;
* monitoring and security equipment;
* Radioactive isotopes and substances;
* Goods reserved for the armed forces;
* Hydrocarbons, fuels and gasoline;
* goods subject to sanitary control to preserve human, vegetal and animal safety and health;
goods subject to technical requirements and regulations;
* goods subject to quantitative restrictions;
* goods subject to control to guarantee environmental protection; and
* automotive vehicles.
The sanitary, environmental, energy, technical and radiation control authorities must receive requests in advance and issue their opinions accordingly. Requests are received and processed through the Unique Window of Foreign Trade, a service that operates on the Internet. It is managed by the Assistant Direction of Design and Administration of Operations of the Ministry of Commerce, Industry and Tourism.
The authorizations given within the framework of the foreign trade regime for the import of goods (either through licences or registrations) have a term of 12 months for capital goods (which may be extended by a further 12 months) and six months for other goods (which may be extended by three months).
The free import regime without registration applies to goods that do not require licences or authorizations within the free import regime with registration. In these cases importers may request customs clearance declarations from the relevant authorities without having to provide additional documents.
Authorizations (where applicable) must be presented as supporting documents for customs clearance and import declarations. Authorizations and registrations must be provided to the customs authorities to obtain customs clearance.
Importers must keep these documents for a minimum of five years; they must be available for review and control by the customs authorities of the National Direction of Taxes and Customs whenever required.
To benefit from all the legal advantages and comply with the legal requirements of the regime for the import of goods into India, importers and suppliers may seek legal advice from a trade lawyer before developing any projects for international sales of goods or import contracts.
Briefly explain the Tenth Five Plan (2002-2007), highlighting its weaknesses and strengths. Refer to the Planning Commission report on website.
Briefly explain the Tenth Five Plan (2002-2007), highlighting its weaknesses and strengths. Refer to the Planning Commission report on website.
First Five-Year Plan, 1951–1956
The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to the Parliament of India on 8 December 1951. The plan addressed, mainly, the agrarian sector, including investments in dams and irrigation. The agricultural sector was hit hardest by the partition of India and needed urgent attention. The total planned budget of 206.8 billion (US$23.6 billion in the 1950 exchange rate) was allocated to seven broad areas: irrigation and energy (27.2 percent), agriculture and community development (17.4 percent), transport and communications (24 percent), industry (8.4 percent), social services (16.64 percent), land rehabilitation (4.1 percent), and for other sectors and services (2.5 percent). The target growth rate was 2.1% annual gross domestic product (GDP) growth; the achieved growth rate was 3.6%. The net domestic product went up by 15%. The monsoon was good and there were relatively high crop yields, boosting exchange reserves and the per capita income, which increased by 8%. National income increased more than the per capita income due to rapid population growth. Many irrigation projects were initiated during this period, including the Bhakra Dam and Hirakud Dam. The World Health Organization, with the Indian government, addressed children's health and reduced infant mortality, indirectly contributing to population growth.
At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as major technical institutions. The University Grant Commission was set up to take care of funding and take measures to strengthen the higher education in the country.[ Contracts were signed to start five steel plants, which came into existence in the middle of the second five-year plan.
Second Five-Year Plan, 1956–1961
This plan functioned on the basis of a nude model. The Mahalanobis model was propounded by Prasanta Chandra Mahalanobis in the year 1953. The second five-year plan focused on industry, especially heavy industry. Unlike the First plan, which focused mainly on agriculture, domestic production of industrial products was encouraged in the Second plan, particularly in the development of the public sector. The plan followed the Mahalanobis model, an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela were established. Coal production was increased. More railway lines were added in the north east.
The Atomic Energy Commission was formed in 1958 with Homi J. Bhabha as the first chairman. The Tata Institute of Fundamental Research was established as a research institute. In 1957 a talent search and scholarship program was begun to find talented young students to train for work in nuclear power.
The total amount allocated under the second five year plan in India was Rs. 4,800 crore. This amount was allocated among various sectors:
• Mining and industry
• Community and agriculture development
• Power and irrigation
• Social services
• Communications and transport
• Miscellaneous
Third Five-Year Plan, 1961–1966
The third plan stressed on agriculture and improving production of rice, but the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards the Defence industry. In 1965-1966, India fought a war with Pakistan. The war led to inflation and the priority was shifted to price stabilisation. The construction of dams continued. Many cement and fertilizer plants were also built. Punjab began producing an abundance of wheat.
Many primary schools were started in rural areas. In an effort to bring democracy to the grassroot level, Panchayat elections were started and the states were given more development responsibilities.
State electricity boards and state secondary education boards were formed. States were made responsible for secondary and higher education.
Fourth Five-Year Plan, 1969–1974
At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalised 14 major Indian banks and the Green Revolution in India advanced agriculture. In addition, the situation in East Pakistan (now Bangladesh) was becoming dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took place.
Funds earmarked for the industrial development had to be diverted for the war effort. India also performed the Smiling Buddha underground nuclear test in 1974, partially in response to the United States deployment of the Seventh Fleet in the Bay of Bengal. The fleet had been deployed to warn India against attacking West Pakistan and extending the war.
Fifth Five-Year Plan, 1974–1979
Stress was laid on employment, poverty alleviation, and justice. The plan also focused on self-reliance in agricultural production and defense. In 1978 the newly elected Morarji Desai government rejected the plan. Electricity Supply Act was enacted in 1975, which enabled the Central Government to enter into power generation and transmission leaders.
The Indian national highway system was introduced for the first time and many roads were widened to accommodate the increasing traffic. Tourism also expanded.
Sixth Five-Year Plan, 1980–1985
The sixth plan also marked the beginning of economic liberalization. Price controls were eliminated and ration shops were closed. This led to an increase in food prices and an increase in the cost of living. This was the end of Nehruvian Plan and Rajiv Gandhi was prime minister during this period.
Family planning was also expanded in order to prevent overpopulation. In contrast to China's strict and binding one-child policy, Indian policy did not rely on the threat of force. More prosperous areas of India adopted family planning more rapidly than less prosperous areas, which continued to have a high birth rate.
Seventh Five-Year Plan, 1985–1990
The Seventh Plan marked the comeback of the Congress Party to power. The plan laid stress on improving the productivity level of industries by upgrading of technology.
The main objectives of the 7th five year plans were to establish growth in areas of increasing economic productivity, production of food grains, and generating employment opportunities.
The thrust areas of the 7th Five year plan have been enlisted below:
• Social Justice
• Removal of oppression of the weak
• Using modern technology
• Agricultural development
• Anti-poverty programs
• Full supply of food, clothing, and shelter
• Increasing productivity of small and large scale farmers
• Making India an Independent Economy
Eighth Five-Year Plan, 1992–1997
Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and foreign debt. Meanwhile India became a member of the World Trade Organization on 1 January 1995.This plan can be termed as Rao and Manmohan model of Economic development. The major objectives included, controlling population growth, poverty reduction, employment generation, strengthening the infrastructure, Institutional building, tourism management, Human Resource development, Involvement of Panchayat raj, Nagarapalikas, N.G.O'S and Decentralization and people's participation. Energy was given priority with 26.6% of the outlay. An average annual growth rate of 6.7% against the target 5.6% was achieved.
Ninth Five-Year Plan, 1997–2002
Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main aim of attaining objectives like speedy industrialization, human development, full-scale employment, poverty reduction, and self-reliance on domestic resources.
The main objectives of the Ninth Five Year Plan of India are:
• to prioritize agricultural sector and emphasize on the rural development
• to generate adequate employment opportunities and promote poverty reduction
• to stabilize the prices in order to accelerate the growth rate of the economy
• to ensure food and nutritional security
• to provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy
• to check the growing population increase
• to encourage social issues like women empowerment, conservation of certain benefits for the Special Groups of the society
• to create a liberal market for increase in private investments
During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower than the target GDP growth of 6.5 per cent.
Tenth Five-Year Plan, 2002–2007
• Attain 8% GDP growth per year.
• Reduction of poverty ratio by 5 percentage points by 2007.
• Providing gainful and high-quality employment at least to the addition to the labour force;*All children in India in school by 2003; all children to complete 5 years of schooling by 2007.
• Reduction in gender gaps in literacy and wage rates by at least 50% by 2007;*Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2%;*Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 to 2007).
First Five-Year Plan, 1951–1956
The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to the Parliament of India on 8 December 1951. The plan addressed, mainly, the agrarian sector, including investments in dams and irrigation. The agricultural sector was hit hardest by the partition of India and needed urgent attention. The total planned budget of 206.8 billion (US$23.6 billion in the 1950 exchange rate) was allocated to seven broad areas: irrigation and energy (27.2 percent), agriculture and community development (17.4 percent), transport and communications (24 percent), industry (8.4 percent), social services (16.64 percent), land rehabilitation (4.1 percent), and for other sectors and services (2.5 percent). The target growth rate was 2.1% annual gross domestic product (GDP) growth; the achieved growth rate was 3.6%. The net domestic product went up by 15%. The monsoon was good and there were relatively high crop yields, boosting exchange reserves and the per capita income, which increased by 8%. National income increased more than the per capita income due to rapid population growth. Many irrigation projects were initiated during this period, including the Bhakra Dam and Hirakud Dam. The World Health Organization, with the Indian government, addressed children's health and reduced infant mortality, indirectly contributing to population growth.
At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as major technical institutions. The University Grant Commission was set up to take care of funding and take measures to strengthen the higher education in the country.[ Contracts were signed to start five steel plants, which came into existence in the middle of the second five-year plan.
Second Five-Year Plan, 1956–1961
This plan functioned on the basis of a nude model. The Mahalanobis model was propounded by Prasanta Chandra Mahalanobis in the year 1953. The second five-year plan focused on industry, especially heavy industry. Unlike the First plan, which focused mainly on agriculture, domestic production of industrial products was encouraged in the Second plan, particularly in the development of the public sector. The plan followed the Mahalanobis model, an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela were established. Coal production was increased. More railway lines were added in the north east.
The Atomic Energy Commission was formed in 1958 with Homi J. Bhabha as the first chairman. The Tata Institute of Fundamental Research was established as a research institute. In 1957 a talent search and scholarship program was begun to find talented young students to train for work in nuclear power.
The total amount allocated under the second five year plan in India was Rs. 4,800 crore. This amount was allocated among various sectors:
• Mining and industry
• Community and agriculture development
• Power and irrigation
• Social services
• Communications and transport
• Miscellaneous
Third Five-Year Plan, 1961–1966
The third plan stressed on agriculture and improving production of rice, but the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards the Defence industry. In 1965-1966, India fought a war with Pakistan. The war led to inflation and the priority was shifted to price stabilisation. The construction of dams continued. Many cement and fertilizer plants were also built. Punjab began producing an abundance of wheat.
Many primary schools were started in rural areas. In an effort to bring democracy to the grassroot level, Panchayat elections were started and the states were given more development responsibilities.
State electricity boards and state secondary education boards were formed. States were made responsible for secondary and higher education.
Fourth Five-Year Plan, 1969–1974
At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalised 14 major Indian banks and the Green Revolution in India advanced agriculture. In addition, the situation in East Pakistan (now Bangladesh) was becoming dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took place.
Funds earmarked for the industrial development had to be diverted for the war effort. India also performed the Smiling Buddha underground nuclear test in 1974, partially in response to the United States deployment of the Seventh Fleet in the Bay of Bengal. The fleet had been deployed to warn India against attacking West Pakistan and extending the war.
Fifth Five-Year Plan, 1974–1979
Stress was laid on employment, poverty alleviation, and justice. The plan also focused on self-reliance in agricultural production and defense. In 1978 the newly elected Morarji Desai government rejected the plan. Electricity Supply Act was enacted in 1975, which enabled the Central Government to enter into power generation and transmission leaders.
The Indian national highway system was introduced for the first time and many roads were widened to accommodate the increasing traffic. Tourism also expanded.
Sixth Five-Year Plan, 1980–1985
The sixth plan also marked the beginning of economic liberalization. Price controls were eliminated and ration shops were closed. This led to an increase in food prices and an increase in the cost of living. This was the end of Nehruvian Plan and Rajiv Gandhi was prime minister during this period.
Family planning was also expanded in order to prevent overpopulation. In contrast to China's strict and binding one-child policy, Indian policy did not rely on the threat of force. More prosperous areas of India adopted family planning more rapidly than less prosperous areas, which continued to have a high birth rate.
Seventh Five-Year Plan, 1985–1990
The Seventh Plan marked the comeback of the Congress Party to power. The plan laid stress on improving the productivity level of industries by upgrading of technology.
The main objectives of the 7th five year plans were to establish growth in areas of increasing economic productivity, production of food grains, and generating employment opportunities.
The thrust areas of the 7th Five year plan have been enlisted below:
• Social Justice
• Removal of oppression of the weak
• Using modern technology
• Agricultural development
• Anti-poverty programs
• Full supply of food, clothing, and shelter
• Increasing productivity of small and large scale farmers
• Making India an Independent Economy
Eighth Five-Year Plan, 1992–1997
Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and foreign debt. Meanwhile India became a member of the World Trade Organization on 1 January 1995.This plan can be termed as Rao and Manmohan model of Economic development. The major objectives included, controlling population growth, poverty reduction, employment generation, strengthening the infrastructure, Institutional building, tourism management, Human Resource development, Involvement of Panchayat raj, Nagarapalikas, N.G.O'S and Decentralization and people's participation. Energy was given priority with 26.6% of the outlay. An average annual growth rate of 6.7% against the target 5.6% was achieved.
Ninth Five-Year Plan, 1997–2002
Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main aim of attaining objectives like speedy industrialization, human development, full-scale employment, poverty reduction, and self-reliance on domestic resources.
The main objectives of the Ninth Five Year Plan of India are:
• to prioritize agricultural sector and emphasize on the rural development
• to generate adequate employment opportunities and promote poverty reduction
• to stabilize the prices in order to accelerate the growth rate of the economy
• to ensure food and nutritional security
• to provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy
• to check the growing population increase
• to encourage social issues like women empowerment, conservation of certain benefits for the Special Groups of the society
• to create a liberal market for increase in private investments
During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower than the target GDP growth of 6.5 per cent.
Tenth Five-Year Plan, 2002–2007
• Attain 8% GDP growth per year.
• Reduction of poverty ratio by 5 percentage points by 2007.
• Providing gainful and high-quality employment at least to the addition to the labour force;*All children in India in school by 2003; all children to complete 5 years of schooling by 2007.
• Reduction in gender gaps in literacy and wage rates by at least 50% by 2007;*Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2%;*Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 to 2007).
“The structural changes which are quite fundamental in character are inherent in the process of economic growth.” Discuss this statement.
“The structural changes which are quite fundamental in character are inherent in the process of economic growth.” Discuss this statement.
The Statement is totally agreeable that structural changes which are quite fundamental in character are inherent in the process of economic growth. Structural-change theory deals with policies focused on changing the economic structures of developing countries from being composed primarily of subsistence agricultural practices to being a "more modern, more urbanized, and more industrially diverse manufacturing and service economy." There are two major forms of structural-change theory; W. Lewis' two-sector surplus model, which views agrarian societies as consisting of large amounts of surplus labor which can be utilized to spur the development of an urbanized industrial sector, and Hollis Chenery's patterns of development approach, which holds that different countries become wealthy via different trajectories. The pattern that a particular country will follow, in this framework, depends on its size and resources, and potentially other factors including its current income level and comparative advantages relative to other nations. Empirical analysis in this framework studies the "sequential process through which the economic, industrial and institutional structure of an underdeveloped economy is transformed over time to permit new industries to replace traditional agriculture as the engine of economic growth."
Structural-change approaches to development economics have faced criticism for their emphasis on urban development at the expense of rural development which can lead to a substantial rise in inequality between internal regions of a country. The two-sector surplus model, which was developed in the 1950s, has been further criticized for its underlying assumption that predominantly agrarian societies suffer from a surplus of labor. Actual empirical studies have shown that such labor surpluses are only seasonal and drawing such labor to urban areas can result in a collapse of the agricultural sector. The patterns of development approach have been criticized for lacking a theoretical framework.
The Statement is totally agreeable that structural changes which are quite fundamental in character are inherent in the process of economic growth. Structural-change theory deals with policies focused on changing the economic structures of developing countries from being composed primarily of subsistence agricultural practices to being a "more modern, more urbanized, and more industrially diverse manufacturing and service economy." There are two major forms of structural-change theory; W. Lewis' two-sector surplus model, which views agrarian societies as consisting of large amounts of surplus labor which can be utilized to spur the development of an urbanized industrial sector, and Hollis Chenery's patterns of development approach, which holds that different countries become wealthy via different trajectories. The pattern that a particular country will follow, in this framework, depends on its size and resources, and potentially other factors including its current income level and comparative advantages relative to other nations. Empirical analysis in this framework studies the "sequential process through which the economic, industrial and institutional structure of an underdeveloped economy is transformed over time to permit new industries to replace traditional agriculture as the engine of economic growth."
Structural-change approaches to development economics have faced criticism for their emphasis on urban development at the expense of rural development which can lead to a substantial rise in inequality between internal regions of a country. The two-sector surplus model, which was developed in the 1950s, has been further criticized for its underlying assumption that predominantly agrarian societies suffer from a surplus of labor. Actual empirical studies have shown that such labor surpluses are only seasonal and drawing such labor to urban areas can result in a collapse of the agricultural sector. The patterns of development approach have been criticized for lacking a theoretical framework.
Identify the critical elements of the sociological environment of business and analyze the social problems and prospects with the help of examples.
Identify the critical elements of the sociological environment of business and analyze the social problems and prospects with the help of examples.
The business environment includes the marketplace, yourself and your business partners, and any external factor that may positively or negatively affect the level of your business success. Today we are going to look at three aspects of the environment; transformation, opportunities and obstacles, and two groups of environment handling strategies; consolidation strategies, and exit strategies.
1. The Amount Of Transformation Required To Reach Your Goal
Achieving any goal requires change. It is important when setting business goals to determine the amount of change required. If the change is great it may be better to break the goal down to sub-goals in order to make success more accessible.
Start with the question; why hasn’t the business already attained that goal? This will help determine exactly what needs to be changed as well as the amount of change needed.
It is important to determine how those changes can be accomplished in the current environment by looking at the opportunities and threats in the environment and the strengths and weakness within the business.
Opportunities, Strengths And Advantages
Every environment provides opportunities to those who develop the skill of seeing them. Every business has its own strengths and its own advantages over other businesses. The wise business manager can determine the best combination of these opportunities, strengths and advantages and then implement strategies to maximize profit at this point in the environment.
Even in the toughest times, when most businesses are in trouble, there are always some businesses that are prospering. If you develop the skills for assessing opportunities, strengths and advantages and the habit of acting on that assessment by taking appropriate goal directed action, then your business will always be one of those that are prospering.
3. Obstacles, Threats and Limitations
The environment always contains opportunities and it also always contains obstacles. Your business always has some limitations at any particular point in time and there are always threats to your success and profitability.
Since we know that these “problems” will always exist the wise business manager develops the skill of recognizing them early and develops and implements risk management strategies to guide the business through the difficulties while at the same time the business is focusing its efforts on profiting from the opportunities.
4. Consolidation Strategies
A business requires change in order to grow but constant change can be destabilizing. The wise business manager determines when it is appropriate to consolidate the gains made so that those gains become a strong foundation on which to build the next campaign of positive change.
A thorough understanding of the business environment can help determine the best point at which to consolidate and the best strategy to implement that consolidation.
5. Exit Strategies
No matter how skilled the manager is, or how well the environment is analyzed for opportunities, and threats, or how good the consolidation strategy may be, there is always the possibility that things don’t go to plan.
For this reason there is a golden rule that needs to be followed in every campaign; never enter any business campaign without a predetermined exit strategy.
The best time to determine strategies for how to exit a campaign with the minimum of difficulty or loss is before the campaign starts. This is when you are calm and clear thinking. If you wait until things are going wrong and the pressure is at a peak you are far less likely to find the best solution.
That was a brief introduction to capitalizing on the business environment. Now it’s up to you to put aside some time to use these five points to help you look at the current environment for your business and determine how you can capitalize on that environment to increase your business success.
The business environment includes the marketplace, yourself and your business partners, and any external factor that may positively or negatively affect the level of your business success. Today we are going to look at three aspects of the environment; transformation, opportunities and obstacles, and two groups of environment handling strategies; consolidation strategies, and exit strategies.
1. The Amount Of Transformation Required To Reach Your Goal
Achieving any goal requires change. It is important when setting business goals to determine the amount of change required. If the change is great it may be better to break the goal down to sub-goals in order to make success more accessible.
Start with the question; why hasn’t the business already attained that goal? This will help determine exactly what needs to be changed as well as the amount of change needed.
It is important to determine how those changes can be accomplished in the current environment by looking at the opportunities and threats in the environment and the strengths and weakness within the business.
Opportunities, Strengths And Advantages
Every environment provides opportunities to those who develop the skill of seeing them. Every business has its own strengths and its own advantages over other businesses. The wise business manager can determine the best combination of these opportunities, strengths and advantages and then implement strategies to maximize profit at this point in the environment.
Even in the toughest times, when most businesses are in trouble, there are always some businesses that are prospering. If you develop the skills for assessing opportunities, strengths and advantages and the habit of acting on that assessment by taking appropriate goal directed action, then your business will always be one of those that are prospering.
3. Obstacles, Threats and Limitations
The environment always contains opportunities and it also always contains obstacles. Your business always has some limitations at any particular point in time and there are always threats to your success and profitability.
Since we know that these “problems” will always exist the wise business manager develops the skill of recognizing them early and develops and implements risk management strategies to guide the business through the difficulties while at the same time the business is focusing its efforts on profiting from the opportunities.
4. Consolidation Strategies
A business requires change in order to grow but constant change can be destabilizing. The wise business manager determines when it is appropriate to consolidate the gains made so that those gains become a strong foundation on which to build the next campaign of positive change.
A thorough understanding of the business environment can help determine the best point at which to consolidate and the best strategy to implement that consolidation.
5. Exit Strategies
No matter how skilled the manager is, or how well the environment is analyzed for opportunities, and threats, or how good the consolidation strategy may be, there is always the possibility that things don’t go to plan.
For this reason there is a golden rule that needs to be followed in every campaign; never enter any business campaign without a predetermined exit strategy.
The best time to determine strategies for how to exit a campaign with the minimum of difficulty or loss is before the campaign starts. This is when you are calm and clear thinking. If you wait until things are going wrong and the pressure is at a peak you are far less likely to find the best solution.
That was a brief introduction to capitalizing on the business environment. Now it’s up to you to put aside some time to use these five points to help you look at the current environment for your business and determine how you can capitalize on that environment to increase your business success.
Industrial Location
Industrial Location
Choosing the Location of the Industry
Every entrepreneur is faced with the problem of deciding the location for his/her factory or plant. Location of the business is the most important factor influencing its success or failure. It is a long-term decision which should take into consideration not only the present requirements of the organisation but also its future expansion plans. Errors in location may be very difficult and expensive to rectify. Location of a plant has a bearing on the layout of machinery and equipment as well as on the process of production. The objective of a location plan is to find out the optimum or best location for the particular plant. Such a location not only results in lowest cost per unit but also facilitates orderly growth of the firm. Hence, the most advantageous location is that at which the cost of gathering material and fabricating it plus the cost of distributing the finished product to the customers will be at a minimum. It is not necessarily the most favourable location but rather the site at which all the considerations are optimised. There is no ideal location for all firms or even for one firm at all times. The choice of location depends on several important factors. It is influenced by the kind of products being manufactured, costs of production and distribution. The location of the plant should also be able to meet the environmental guidelines and other regulations set by the Government specific to a particular industry. The choice of an optimum location requires judicious balancing of all these factors.
Choosing the Location of the Industry
Every entrepreneur is faced with the problem of deciding the location for his/her factory or plant. Location of the business is the most important factor influencing its success or failure. It is a long-term decision which should take into consideration not only the present requirements of the organisation but also its future expansion plans. Errors in location may be very difficult and expensive to rectify. Location of a plant has a bearing on the layout of machinery and equipment as well as on the process of production. The objective of a location plan is to find out the optimum or best location for the particular plant. Such a location not only results in lowest cost per unit but also facilitates orderly growth of the firm. Hence, the most advantageous location is that at which the cost of gathering material and fabricating it plus the cost of distributing the finished product to the customers will be at a minimum. It is not necessarily the most favourable location but rather the site at which all the considerations are optimised. There is no ideal location for all firms or even for one firm at all times. The choice of location depends on several important factors. It is influenced by the kind of products being manufactured, costs of production and distribution. The location of the plant should also be able to meet the environmental guidelines and other regulations set by the Government specific to a particular industry. The choice of an optimum location requires judicious balancing of all these factors.
Current Account Convertibility
Current Account Convertibility:
Convertibility of a currency implies that a currency can be transferred into another currency without any limitations or any control. A currency is said to be fully convertible, if it can be converted into some other currency at the market price of that currency. If currency has to be convertible, it shall not be subjected to these restrictions.
Current account convertibility refers to currency convertibility required in the case of transactions relating to exchange of goods and services, money transfers and all those transactions that are classified in the current account. On the other hand, capital account convertibility refers to convertibility required in the transactions of capital flows that are classified under the capital account of the balance of payments.
At present, the Indian rupee is partly convertible on current account. In 1997, the Tarapore Committee on Capital Account Convertibility (CAC), constituted by the Reserve Bank, had indicated the preconditions for Capital Account Convertibility. The three crucial preconditions were fiscal consolidation, a mandated inflation target and, strengthening of the financial system.
Convertibility of a currency implies that a currency can be transferred into another currency without any limitations or any control. A currency is said to be fully convertible, if it can be converted into some other currency at the market price of that currency. If currency has to be convertible, it shall not be subjected to these restrictions.
Current account convertibility refers to currency convertibility required in the case of transactions relating to exchange of goods and services, money transfers and all those transactions that are classified in the current account. On the other hand, capital account convertibility refers to convertibility required in the transactions of capital flows that are classified under the capital account of the balance of payments.
At present, the Indian rupee is partly convertible on current account. In 1997, the Tarapore Committee on Capital Account Convertibility (CAC), constituted by the Reserve Bank, had indicated the preconditions for Capital Account Convertibility. The three crucial preconditions were fiscal consolidation, a mandated inflation target and, strengthening of the financial system.
Restructuring
Restructuring
Restructuring is of two types: financial restructuring and basic restructuring.
(1) Financial restructuring implies the writing off of accumulated losses and rationalization of capital composition in respect of debt-equity ratio. The main purpose of this restructuring is to improve the financial health of the enterprise.
(2) Basic restructuring is said to occur when the public enterprise decides to shed some of its activities to be taken up by ancillaries or small-scale units.
Operational measures:
The efficiency of public sector enterprises depends upon the organisational structure. Unless this structure grants a sufficient degree of autonomy to the operators of the enterprise or develop a system of incentives, it cannot raise its efficiency and productivity. These measures include: (a) grant of autonomy to public enterprises in decision making, (b) provision of incentives for workers and executives consistent with increase in efficiency and productivity, (c) freedom to acquire certain inputs from the markets with a view to reducing costs, (d) development of proper criteria for the investment planning, and (e) permission to public enterprise to raise resources from the capital market to execute plan of diversification/expansion. The basic purpose of operational measures is to infuse the spirit of private enterprise.
Restructuring is of two types: financial restructuring and basic restructuring.
(1) Financial restructuring implies the writing off of accumulated losses and rationalization of capital composition in respect of debt-equity ratio. The main purpose of this restructuring is to improve the financial health of the enterprise.
(2) Basic restructuring is said to occur when the public enterprise decides to shed some of its activities to be taken up by ancillaries or small-scale units.
Operational measures:
The efficiency of public sector enterprises depends upon the organisational structure. Unless this structure grants a sufficient degree of autonomy to the operators of the enterprise or develop a system of incentives, it cannot raise its efficiency and productivity. These measures include: (a) grant of autonomy to public enterprises in decision making, (b) provision of incentives for workers and executives consistent with increase in efficiency and productivity, (c) freedom to acquire certain inputs from the markets with a view to reducing costs, (d) development of proper criteria for the investment planning, and (e) permission to public enterprise to raise resources from the capital market to execute plan of diversification/expansion. The basic purpose of operational measures is to infuse the spirit of private enterprise.
What are the functions of Development Banks? Describe its Quantitative and Qualitative roles.
What are the functions of Development Banks? Describe its Quantitative and Qualitative roles.
Solution:
Development banks provide financial assistance to industry in the following forms:
i) Term loans and advances
ii) Subscription to shares and debentures
iii) Underwriting of new issues
iv) Guarantees for term loans and deferred payments
The first two forms place funds directly in the hands of companies as subscription to shares and debentures. The last two forms facilitate the raising of funds from other sources.
Aggregative Role of Development Financing Institutions
Development Financing Institutions consist of Development Banks like the IDBI, SIDBI, NABARD and the State Finance Corporations. Three of the development financing institutions has exited from the market after the RBI announced its policy of harmonization of the development and banking functions. They are: ICICI with a reverse merger with its off-spring ICICI Bank Ltd., impending merger of IFCI with the Punjab National Bank, and the winding up of the IRBI due to its unsustainable nature. The IDBI is also slated for conversion to a Bank and the Parliament already gave its approval. The process is yet to commence. The role played by development banks is of two broad types.
1. Quantitative Role
This is the part played by development banks as a constituent of the industrial financing system in India and refers to the magnitude of funds provided by them jointly to industrial enterprises. The magnitude of industrial financing by these development banks has been considerable.
These banks have emerged as the single most important source of institutional finance to industry and have come to occupy a pre-eminent position in the institutional structure of the financial system. The annual average of sanctioned assistance by all the development banks during the three year period 1978-79 to 1980-81 touched an all time high of Rs.1808 crores. At present, as much as one-third of the gross fixed capital formation in private industry is being contributed by development banks
In India, their operations have the effect of improving the allocative efficiency of the financial system. The development banks perform the function of being a substitute for the capital market. When industrial enterprises are unable to raise funds from the normal channels, development banks fill the gap as well as restore or resuscitate the capital market.
As integral part of their lending operations, they thoroughly appraise projects as regards the priority aspect, financial viability and economic soundness and so on. The rigorous and exacting scrutiny by development banks tones up the quality of industrial projects and enables a more efficient use of available project resources.
Appraisal by the development banks is impersonal and objective. This results in financial assistance to diverse enterprises for a wide variety of purposes which would not otherwise have been possible. Included in this category are; new enterprises, small or medium–sized firms, enterprises in backward regions, and non-traditional industries
2. Qualitative Role
Development banking in India has an overwhelmingly qualitative dimension too in terms of the recent orientation towards promotional or innovative functions in their operations. With the evolution of a meaningful strategy of industrial development, a more positive role has been assigned to, and it being played by, development banks in India since 1969-70. The essential elements of these are:
(i) Development of backward regions
(ii) Encouragement to a new class of small entrepreneurs and enterprises
(iii) Rehabilitation of sick mills
Solution:
Development banks provide financial assistance to industry in the following forms:
i) Term loans and advances
ii) Subscription to shares and debentures
iii) Underwriting of new issues
iv) Guarantees for term loans and deferred payments
The first two forms place funds directly in the hands of companies as subscription to shares and debentures. The last two forms facilitate the raising of funds from other sources.
Aggregative Role of Development Financing Institutions
Development Financing Institutions consist of Development Banks like the IDBI, SIDBI, NABARD and the State Finance Corporations. Three of the development financing institutions has exited from the market after the RBI announced its policy of harmonization of the development and banking functions. They are: ICICI with a reverse merger with its off-spring ICICI Bank Ltd., impending merger of IFCI with the Punjab National Bank, and the winding up of the IRBI due to its unsustainable nature. The IDBI is also slated for conversion to a Bank and the Parliament already gave its approval. The process is yet to commence. The role played by development banks is of two broad types.
1. Quantitative Role
This is the part played by development banks as a constituent of the industrial financing system in India and refers to the magnitude of funds provided by them jointly to industrial enterprises. The magnitude of industrial financing by these development banks has been considerable.
These banks have emerged as the single most important source of institutional finance to industry and have come to occupy a pre-eminent position in the institutional structure of the financial system. The annual average of sanctioned assistance by all the development banks during the three year period 1978-79 to 1980-81 touched an all time high of Rs.1808 crores. At present, as much as one-third of the gross fixed capital formation in private industry is being contributed by development banks
In India, their operations have the effect of improving the allocative efficiency of the financial system. The development banks perform the function of being a substitute for the capital market. When industrial enterprises are unable to raise funds from the normal channels, development banks fill the gap as well as restore or resuscitate the capital market.
As integral part of their lending operations, they thoroughly appraise projects as regards the priority aspect, financial viability and economic soundness and so on. The rigorous and exacting scrutiny by development banks tones up the quality of industrial projects and enables a more efficient use of available project resources.
Appraisal by the development banks is impersonal and objective. This results in financial assistance to diverse enterprises for a wide variety of purposes which would not otherwise have been possible. Included in this category are; new enterprises, small or medium–sized firms, enterprises in backward regions, and non-traditional industries
2. Qualitative Role
Development banking in India has an overwhelmingly qualitative dimension too in terms of the recent orientation towards promotional or innovative functions in their operations. With the evolution of a meaningful strategy of industrial development, a more positive role has been assigned to, and it being played by, development banks in India since 1969-70. The essential elements of these are:
(i) Development of backward regions
(ii) Encouragement to a new class of small entrepreneurs and enterprises
(iii) Rehabilitation of sick mills
Briefly explain the latest trade policy measures for 2008-09 and 2009-10. Refer to the recent Economic Survey.
Briefly explain the latest trade policy measures for 2008-09 and 2009-10. Refer to the recent Economic Survey.
Solution:
Trade policy measures in 2008-09 - Measures taken by the Government
• Interest subvention of 2 per cent from 1.12.2008 to 30.9.2009 to the labour-intensive sectors of exports such as textiles (including handloom), handicrafts, carpets, leather, gems and jewellery, marine products and small and medium enterprises.
• An additional allocation for export incentive schemes of Rs. 350 crore.
• Inclusion of handicrafts items in Vishesh Krishi and Gram Udyog Yojana (VKGUY)
• Support under VKGUY scheme for some additional commodities.
• Extension of market-linked focus product scheme for bicycle parts, motor cars and motor cycles, apparels and clothing accessories, auto components, etc.
• Provision of additional Rs. 1,100 crore to ensure full refund of claims of CST/terminal excise duty/duty drawback on deemed exports.
• Continuation of duty entitlement passbook (DEPB) scheme up to December 31, 2009.
• Restoration of DEPB rates for all items where they were reduced in November 2008 and increase in duty drawback rates on certain items effective from September 1, 2008
• Backup guarantee made available to ECGC to the extent of Rs. 350 crore to enable it to provide guarantees for exports to difficult markets/products. Funding for ECGC also provided from the National Export Insurance Account for providing higher risk cover to MSME exporters and select export sectors.
• Provision of additional funds of Rs. 1,400 crore for textile sector to clear the backlog claims of Technology Upgradation Fund (TUF).
• Export duty on iron ore fines eliminated, and for lumps, reduced to 5 per cent.
• Some pending issues relating to service tax refund on exports resolved.
• For fast track resolution of a number of procedural issues to reduce delays for the exporters, a committee constituted under the chairmanship of the Finance Secretary including Secretaries of the Department of Revenue and the Commerce.
• Excise duty reduced across the board by 4 per cent for all products except petroleum products and those products where current rate was less than 4 per cent.
• The guarantee cover under credit guarantee scheme for micro and small enterprises on loans doubled to Rs. 1 crore with a guarantee cover of 50 per cent. The guarantee cover extended by credit guarantee fund trust increased to 85 per cent for credit facility up to Rs. 5 lakh. The lock-in period for such collateral free loans reduced.
• CVD on TMT bars and structurals and on cement removed.
• Exemption from basic customs duty on zinc and ferro alloys withdrawn.
• Duty credit scrips under DEPB scheme and Freely Transferable Scrips under chapter 3 of FTP shall now be issued without waiting for realization of export proceeds.
• Rs. 325 crore outlay earmarked under the promotional schemes for leather, textile etc. for exports made with effect from 1.4.09.
• Benefit of 5 per cent under FPS has been notified for export of handmade carpets, in lieu of 3.5 per cent benefit allowed earlier under VKGUY scheme.
• Technical textiles and stapling machine have been added under the focus product scheme. An additional benefit of 2.5 per cent is notified for export of dried vegetables under VKGUY.
• STCL Limited, Diamond India Limited, MSTC Limited, Gem & Jewellery Export Promotion Council and Star Trading Houses (for gem and jewellery sector) have been added under the list of nominated agencies for the purpose of import of precious metals. The procedure and monitoring provisions for implementation of these additional agencies have been announced.
• Authorized person of gem & jewellery units in EOU allowed personal carriage of gold in primary form up to 10 kilograms in a financial year subject to RBI and customs guidelines.
• Export obligation period against advance authorizations extended up to 36 months without payment of composition fee in view of the present global economic slowdown.
• Supply of an Intermediate product by the domestic supplier directly from their factory to the port against advance intermediate authorization for export by ultimate exporter has been allowed.
• Elimination of import duties for naphtha for use in power sector.
• Simplification of export licensing requirements for blood samples
• Elimination of import duty on rough cubic zirconia and reduction in import duty on polished cubic zirconia and rough corals.
Measures taken by the RBI
• Increase in liquidity to the banks for improving credit flow
• Reducing CRR, SLR, repo rate and reverse repo rates
• Putting in place a special refinance facility for banks for the purpose of extending finance to exports, micro and small enterprises, mutual funds and NBFCs. Provisioning requirements have been lowered. Export credit refinance facility for commercial banks increased from 15 per cent to 50 per cent of the outstanding rupee export credit.
• Refinance facility to the EXIM Bank for an amount of Rs. 5,000 crore for providing pre-shipment and post shipment credit in rupees or dollars.
Increase in Forex liquidity:
• RBI's assurance for continued selling of foreign exchange (US$) through banks, to augment supply in the domestic foreign exchange market.
• Ceiling rates on export credit in foreign currency raised from LIBOR+100 basis points to LIBOR+350 basis points subject to the condition that the banks will not levy any other charges, i.e., service charge, management charge, except for recovery towards out of pocket expenses incurred.
• The ceiling on interest rates for non-residents deposits raised.
• Banks' overseas borrowing limits increased and ECB borrowing norms eased; "all in cost" ceiling of such borrowings to be removed under the approval route of RBI.
• RBI to provide forex liquidity to Indian public and private sector banks up to June 30, 2009, through forex swaps of tenure up to 3 months.
Easing of credit terms:
• Enhancing the period of pre-shipment and post-shipment Rupee Export Credit by 90 days each;
• Increasing the time period of export realization for non-status holder exporters to 12 months;
• Authorized dealers category-I banks permitted to consider applications for premature buy-back of FCCBs from their customers.
Other announcements made by the PSU banks consequent to measures announced by RBI:
i) Reduced interest rate for micro enterprises and SMEs;
ii) PSU banks will grant need-based ad hoc working capital loan of up to 20 per cent of their overall credit facility if it is less than Rs. 10 crore.
iii) For export units, margin money on guarantees will be reduced
Solution:
Trade policy measures in 2008-09 - Measures taken by the Government
• Interest subvention of 2 per cent from 1.12.2008 to 30.9.2009 to the labour-intensive sectors of exports such as textiles (including handloom), handicrafts, carpets, leather, gems and jewellery, marine products and small and medium enterprises.
• An additional allocation for export incentive schemes of Rs. 350 crore.
• Inclusion of handicrafts items in Vishesh Krishi and Gram Udyog Yojana (VKGUY)
• Support under VKGUY scheme for some additional commodities.
• Extension of market-linked focus product scheme for bicycle parts, motor cars and motor cycles, apparels and clothing accessories, auto components, etc.
• Provision of additional Rs. 1,100 crore to ensure full refund of claims of CST/terminal excise duty/duty drawback on deemed exports.
• Continuation of duty entitlement passbook (DEPB) scheme up to December 31, 2009.
• Restoration of DEPB rates for all items where they were reduced in November 2008 and increase in duty drawback rates on certain items effective from September 1, 2008
• Backup guarantee made available to ECGC to the extent of Rs. 350 crore to enable it to provide guarantees for exports to difficult markets/products. Funding for ECGC also provided from the National Export Insurance Account for providing higher risk cover to MSME exporters and select export sectors.
• Provision of additional funds of Rs. 1,400 crore for textile sector to clear the backlog claims of Technology Upgradation Fund (TUF).
• Export duty on iron ore fines eliminated, and for lumps, reduced to 5 per cent.
• Some pending issues relating to service tax refund on exports resolved.
• For fast track resolution of a number of procedural issues to reduce delays for the exporters, a committee constituted under the chairmanship of the Finance Secretary including Secretaries of the Department of Revenue and the Commerce.
• Excise duty reduced across the board by 4 per cent for all products except petroleum products and those products where current rate was less than 4 per cent.
• The guarantee cover under credit guarantee scheme for micro and small enterprises on loans doubled to Rs. 1 crore with a guarantee cover of 50 per cent. The guarantee cover extended by credit guarantee fund trust increased to 85 per cent for credit facility up to Rs. 5 lakh. The lock-in period for such collateral free loans reduced.
• CVD on TMT bars and structurals and on cement removed.
• Exemption from basic customs duty on zinc and ferro alloys withdrawn.
• Duty credit scrips under DEPB scheme and Freely Transferable Scrips under chapter 3 of FTP shall now be issued without waiting for realization of export proceeds.
• Rs. 325 crore outlay earmarked under the promotional schemes for leather, textile etc. for exports made with effect from 1.4.09.
• Benefit of 5 per cent under FPS has been notified for export of handmade carpets, in lieu of 3.5 per cent benefit allowed earlier under VKGUY scheme.
• Technical textiles and stapling machine have been added under the focus product scheme. An additional benefit of 2.5 per cent is notified for export of dried vegetables under VKGUY.
• STCL Limited, Diamond India Limited, MSTC Limited, Gem & Jewellery Export Promotion Council and Star Trading Houses (for gem and jewellery sector) have been added under the list of nominated agencies for the purpose of import of precious metals. The procedure and monitoring provisions for implementation of these additional agencies have been announced.
• Authorized person of gem & jewellery units in EOU allowed personal carriage of gold in primary form up to 10 kilograms in a financial year subject to RBI and customs guidelines.
• Export obligation period against advance authorizations extended up to 36 months without payment of composition fee in view of the present global economic slowdown.
• Supply of an Intermediate product by the domestic supplier directly from their factory to the port against advance intermediate authorization for export by ultimate exporter has been allowed.
• Elimination of import duties for naphtha for use in power sector.
• Simplification of export licensing requirements for blood samples
• Elimination of import duty on rough cubic zirconia and reduction in import duty on polished cubic zirconia and rough corals.
Measures taken by the RBI
• Increase in liquidity to the banks for improving credit flow
• Reducing CRR, SLR, repo rate and reverse repo rates
• Putting in place a special refinance facility for banks for the purpose of extending finance to exports, micro and small enterprises, mutual funds and NBFCs. Provisioning requirements have been lowered. Export credit refinance facility for commercial banks increased from 15 per cent to 50 per cent of the outstanding rupee export credit.
• Refinance facility to the EXIM Bank for an amount of Rs. 5,000 crore for providing pre-shipment and post shipment credit in rupees or dollars.
Increase in Forex liquidity:
• RBI's assurance for continued selling of foreign exchange (US$) through banks, to augment supply in the domestic foreign exchange market.
• Ceiling rates on export credit in foreign currency raised from LIBOR+100 basis points to LIBOR+350 basis points subject to the condition that the banks will not levy any other charges, i.e., service charge, management charge, except for recovery towards out of pocket expenses incurred.
• The ceiling on interest rates for non-residents deposits raised.
• Banks' overseas borrowing limits increased and ECB borrowing norms eased; "all in cost" ceiling of such borrowings to be removed under the approval route of RBI.
• RBI to provide forex liquidity to Indian public and private sector banks up to June 30, 2009, through forex swaps of tenure up to 3 months.
Easing of credit terms:
• Enhancing the period of pre-shipment and post-shipment Rupee Export Credit by 90 days each;
• Increasing the time period of export realization for non-status holder exporters to 12 months;
• Authorized dealers category-I banks permitted to consider applications for premature buy-back of FCCBs from their customers.
Other announcements made by the PSU banks consequent to measures announced by RBI:
i) Reduced interest rate for micro enterprises and SMEs;
ii) PSU banks will grant need-based ad hoc working capital loan of up to 20 per cent of their overall credit facility if it is less than Rs. 10 crore.
iii) For export units, margin money on guarantees will be reduced
Briefly discuss why the Industrial Policy of 1956 is referred to as the ‘Economic Constitution’ of the country?
Briefly discuss why the Industrial Policy of 1956 is referred to as the ‘Economic Constitution’ of the country?
Solution:
The Industrial Policy of 1956 is referred to as the `Economic Constitution’ of the country. Private sector is a junior partner. Public sector to play a leading role as a senior partner to develop heavy and basic industries to play a leading role as a senior partner to develop heavy and basic industries as well as infrastructure. Private sector worked under the misconception that the Damocles’ swear was hung on its head. This was an incorrect perception of IPR 1956. Rather a permanent place was provided for the private sector. By developing heavy industry and infrastructure, the State created a congenial environment for the development of the private sector. Later development by the Industrial Licensing Policy Inquiry Committee (1969) indicated that under one pretext or another, several areas reserves for the public sector were opened to the private sector. Private sector investment zoomed forward, along with public sector expansion. Industrial Policy Statement, 1977 - Policy drafted by the Ghanaians in the Janata Party. The main aim of the policy was to correct the distortions in the implementation of the Industrial Policy (1956). Major distortions:
(a) Unemployment has incre4ased
(b) rural-urban disparities have widened
(c) rate of real investment has stagnated.
Chief features:
Major thrust on the development of small industries.
• Reservation list increased from 180 to 807 items.
• District Industries Centres to be set up so that the services and support required
• Khadi and village Industries Commission to be strengthened.
• Appropriate technology to be developed for small and village industries.
Areas for Large Scale Sector:
Large sector should be related to minimum basic needs programme via dispersal of small and village industries. Large industries should strengthen the agricultural sector. Approach towards Large Business Houses – Large houses to rely on internally generated resources fro financing new projects or expanding existing projects. They should not depend on public financial institutions and banks. Larger role for the Public Sector – Besides producing important and strategic goods, public sector be expanded to act as a stabilizing force for maintaining supplies of essential consumer goods.
Foreign Collaborations:
In areas where technological know-how is not needed, existing foreign collaborations will not be renewed. As a rule, majority interest in ownership and control to remain in Indian hands, though the governmental make exceptions in highly export-oriented and/or sophisticated technology areas. Sick Units – Sick units to be helped in the interest of protecting employment, but no blanket assurance was given to take-over every sick unit. Units which are non-viable and continue to make losses year after year, may not be helped.
Solution:
The Industrial Policy of 1956 is referred to as the `Economic Constitution’ of the country. Private sector is a junior partner. Public sector to play a leading role as a senior partner to develop heavy and basic industries to play a leading role as a senior partner to develop heavy and basic industries as well as infrastructure. Private sector worked under the misconception that the Damocles’ swear was hung on its head. This was an incorrect perception of IPR 1956. Rather a permanent place was provided for the private sector. By developing heavy industry and infrastructure, the State created a congenial environment for the development of the private sector. Later development by the Industrial Licensing Policy Inquiry Committee (1969) indicated that under one pretext or another, several areas reserves for the public sector were opened to the private sector. Private sector investment zoomed forward, along with public sector expansion. Industrial Policy Statement, 1977 - Policy drafted by the Ghanaians in the Janata Party. The main aim of the policy was to correct the distortions in the implementation of the Industrial Policy (1956). Major distortions:
(a) Unemployment has incre4ased
(b) rural-urban disparities have widened
(c) rate of real investment has stagnated.
Chief features:
Major thrust on the development of small industries.
• Reservation list increased from 180 to 807 items.
• District Industries Centres to be set up so that the services and support required
• Khadi and village Industries Commission to be strengthened.
• Appropriate technology to be developed for small and village industries.
Areas for Large Scale Sector:
Large sector should be related to minimum basic needs programme via dispersal of small and village industries. Large industries should strengthen the agricultural sector. Approach towards Large Business Houses – Large houses to rely on internally generated resources fro financing new projects or expanding existing projects. They should not depend on public financial institutions and banks. Larger role for the Public Sector – Besides producing important and strategic goods, public sector be expanded to act as a stabilizing force for maintaining supplies of essential consumer goods.
Foreign Collaborations:
In areas where technological know-how is not needed, existing foreign collaborations will not be renewed. As a rule, majority interest in ownership and control to remain in Indian hands, though the governmental make exceptions in highly export-oriented and/or sophisticated technology areas. Sick Units – Sick units to be helped in the interest of protecting employment, but no blanket assurance was given to take-over every sick unit. Units which are non-viable and continue to make losses year after year, may not be helped.
Analyze the Growth and Structure of the Private Sector in India with special reference to the informal sector.
Analyze the Growth and Structure of the Private Sector in India with special reference to the informal sector.
Solution:
At the time of independence, almost the entire production and trade was in the domain of private sector. The public sector was insignificant, being confined to irrigation, power, railways, ports, posts and telegraphs and ordinance establishments. After 1951, the public sector was expanded fast both by Central and State Governments. It has become significant in many fields in terms of investments, total turnover, capital stock, contribution to foreign exchange earnings and so on as we noted in the previous unit. Now we turn to the growth of private sector. The importance of the private sector in the Indian economy can be assessed in terms of its contribution to national income and employment. According to the latest available statistics for the year 1999-2000 the public sector, including Government administration, contributed 25 per cent domestic product while the private sector contributed 75 per cent, private sector is dominant in agriculture, forestry, fishing, small-scale industry, retail trade, construction, transport other than railways, etc. major segment of the organised private sector is the corporate sector. Let us now look at the private corporate sector. As the organised private sector is generally equated with the private sector in a narrow sense, it is convenient and useful to study the growth of private corporate sector and compare it with the growth of public sector. The public sector companies in the early 1990's occupied a major position in terms of the amount of paid up capital, even though the number of government companies was small. In terms of number of companies the rate of growth of public sector companies has been faster than those of the private sector companies. Between 1967 to 2000, the number of government companies had increased from 74 to l,257. On the other hand, during the same period, the number of non-government companies had increased from 29,283 to 541,051. The paid-up capital of government companies increased from Rs. 70 crores in 1957 to Rs. 95,842 crores by March 2000. During the same period, the paid-up capital of private sector companies increased from Rs. 1,050 crores to 172,056 crores. The share of Government companies in total paid-up capital of all companies rose from 6.8% in 1957 to 35.8% in 2000. This indicates the growing importance of government companies.
In the organised sector public sector accounted for more than 70 per cent of total employment. The share of the private sector in the organised sector employment registered a slight increase from 28.7 per cent in 1989 to 31.3 per cent in 2001. As per the growth rate of employment in private sector during the recent period, it was higher than the growth rate in public sector. Structure of Private Sector Agriculture and allied activities which accounted for nearly 40 per cent of the domestic GNP and nearly 65% of employment in early 1990s are completely in the private sector. Small scale and cottage industries, trading, consumer goods industries, construction etc. are some of the other areas in which the private sector has been playing a major part. As noted in the previous unit the public sector in contrast to the private sector predominates in basic, heavy and infrastructure industries one important structural dimension of the private sector is the predominance of the informal or unorganised sector within the private sector. Informal or Unorganised Sector The private sector in India has three components : 1. Corporate sector, 2. enterprises other than corporate sector enterprises belonging to the .organised sector, 3. Informal or unorganised sector enterprises. Within the .organised private sector, the corporate sector predominates. We have already explained the structure and growth of private corporate sector, Now we briefly deal with the unorganised sector which is a large component of the private sector. T.S, Papola ("Informal Sector: Concept and Policy," The Giri Institute of Development Studies, Lucknow, December 1979 (mimeo) listed some prominent characteristics of the informal sector units after explaining how difficult it is to precisely define informal sector. Small size of operations, informal structure and family ownership, use of non-modern technology, lack of access to Government favours (subsidies etc.), competitive and unprotected product and labour markets are the prominent characteristics of the informal sector indentified and elaborated by Papola. A study of the informal sector in India has come up with the following conclusions:
Informal sector both in terms of employment and income has been a predominant sector of the Indian economy. In 1981 the sector accounted for 91.l% of total national employment and 65.66 per cent of income generated in the economy. During the period 1960-61 to 1981-82, while the organised sector grew at an average annual rate of 12.57 per cent (income growth rate), the unorganised sector recorded a growth rate of 9.37 percent. The economy as a whole recorded a higher growth rate of 11.36 percent indicating slight declining trend of the unorganised sector. While in the aggregate the above trend is clear, the urban informal sector has been growing during the period. The share of the urban informa1 sector in the total income of the unorganised sector increased from 29.35 per cent to 43.56 per cent during the period 1960-61 to 198 1-82.The average earnings per employee in the rural informal sector and urban informal sector were both less than those of the organised sector employee. The organised sector earnings per capita were several times higher than unorganised sector earnings per capita. While the share of wage/salary income in the case of organised sector was more than two-thirds, in the case of the unorganised sector it was less than a quarter. From the above, it is clear that within the private sector the unorganised sector was predominant both by income and employment criteria. In 1994-95 the share was around 63 per cent. By 2000-01 it has declined to 59 per cent. With steps for economic liberalisation initiated in 1991, it is expected that the organised private sector' will further expand resulting in the reduction of the sizeof the unorganised sector.
Solution:
At the time of independence, almost the entire production and trade was in the domain of private sector. The public sector was insignificant, being confined to irrigation, power, railways, ports, posts and telegraphs and ordinance establishments. After 1951, the public sector was expanded fast both by Central and State Governments. It has become significant in many fields in terms of investments, total turnover, capital stock, contribution to foreign exchange earnings and so on as we noted in the previous unit. Now we turn to the growth of private sector. The importance of the private sector in the Indian economy can be assessed in terms of its contribution to national income and employment. According to the latest available statistics for the year 1999-2000 the public sector, including Government administration, contributed 25 per cent domestic product while the private sector contributed 75 per cent, private sector is dominant in agriculture, forestry, fishing, small-scale industry, retail trade, construction, transport other than railways, etc. major segment of the organised private sector is the corporate sector. Let us now look at the private corporate sector. As the organised private sector is generally equated with the private sector in a narrow sense, it is convenient and useful to study the growth of private corporate sector and compare it with the growth of public sector. The public sector companies in the early 1990's occupied a major position in terms of the amount of paid up capital, even though the number of government companies was small. In terms of number of companies the rate of growth of public sector companies has been faster than those of the private sector companies. Between 1967 to 2000, the number of government companies had increased from 74 to l,257. On the other hand, during the same period, the number of non-government companies had increased from 29,283 to 541,051. The paid-up capital of government companies increased from Rs. 70 crores in 1957 to Rs. 95,842 crores by March 2000. During the same period, the paid-up capital of private sector companies increased from Rs. 1,050 crores to 172,056 crores. The share of Government companies in total paid-up capital of all companies rose from 6.8% in 1957 to 35.8% in 2000. This indicates the growing importance of government companies.
In the organised sector public sector accounted for more than 70 per cent of total employment. The share of the private sector in the organised sector employment registered a slight increase from 28.7 per cent in 1989 to 31.3 per cent in 2001. As per the growth rate of employment in private sector during the recent period, it was higher than the growth rate in public sector. Structure of Private Sector Agriculture and allied activities which accounted for nearly 40 per cent of the domestic GNP and nearly 65% of employment in early 1990s are completely in the private sector. Small scale and cottage industries, trading, consumer goods industries, construction etc. are some of the other areas in which the private sector has been playing a major part. As noted in the previous unit the public sector in contrast to the private sector predominates in basic, heavy and infrastructure industries one important structural dimension of the private sector is the predominance of the informal or unorganised sector within the private sector. Informal or Unorganised Sector The private sector in India has three components : 1. Corporate sector, 2. enterprises other than corporate sector enterprises belonging to the .organised sector, 3. Informal or unorganised sector enterprises. Within the .organised private sector, the corporate sector predominates. We have already explained the structure and growth of private corporate sector, Now we briefly deal with the unorganised sector which is a large component of the private sector. T.S, Papola ("Informal Sector: Concept and Policy," The Giri Institute of Development Studies, Lucknow, December 1979 (mimeo) listed some prominent characteristics of the informal sector units after explaining how difficult it is to precisely define informal sector. Small size of operations, informal structure and family ownership, use of non-modern technology, lack of access to Government favours (subsidies etc.), competitive and unprotected product and labour markets are the prominent characteristics of the informal sector indentified and elaborated by Papola. A study of the informal sector in India has come up with the following conclusions:
Informal sector both in terms of employment and income has been a predominant sector of the Indian economy. In 1981 the sector accounted for 91.l% of total national employment and 65.66 per cent of income generated in the economy. During the period 1960-61 to 1981-82, while the organised sector grew at an average annual rate of 12.57 per cent (income growth rate), the unorganised sector recorded a growth rate of 9.37 percent. The economy as a whole recorded a higher growth rate of 11.36 percent indicating slight declining trend of the unorganised sector. While in the aggregate the above trend is clear, the urban informal sector has been growing during the period. The share of the urban informa1 sector in the total income of the unorganised sector increased from 29.35 per cent to 43.56 per cent during the period 1960-61 to 198 1-82.The average earnings per employee in the rural informal sector and urban informal sector were both less than those of the organised sector employee. The organised sector earnings per capita were several times higher than unorganised sector earnings per capita. While the share of wage/salary income in the case of organised sector was more than two-thirds, in the case of the unorganised sector it was less than a quarter. From the above, it is clear that within the private sector the unorganised sector was predominant both by income and employment criteria. In 1994-95 the share was around 63 per cent. By 2000-01 it has declined to 59 per cent. With steps for economic liberalisation initiated in 1991, it is expected that the organised private sector' will further expand resulting in the reduction of the sizeof the unorganised sector.
The economic environment of business exercises a strong influence on the non-economic environment.
“The economic environment of business exercises a strong influence on the non-economic environment.” Discuss this statement with the help of examples.
ENVIRONMENT OF BUSINESS
Solution:
The term “environment” refers to the totality of all the factors which are external to and beyond the control of individual business enterprises and their managements. Environment furnishes the macro-context, the business firm is the micro-unit. The environmental factors are essentially the “givens” within which firms and their managements must operate. For example, the value system of society, the rules and regulations laid down by the Government, the monetary policies of the central bank, the institutional set up of the country, the ideological beliefs of the leaders, the attitude towards foreign capital and enterprise, etc., all constitute the environment system within which a business firm operates. These environmental factors are many in numbers and various in form. Some of these factors are totally static, some are relatively static and some are very dynamic – they are changing every now and then. Some of these factors can be conceptualized and quantified, while other can be only referred to in qualitative terms. Thus, the environment of business is an extremely complex phenomenon.
ECONOMIC ENVIRONMENT
The present day economic environment of business is a complex phenomenon. The business sector has economic relations with the Government, the capital market, the household sector and the foreign sector. These different sectors, together, influence the trends and structure of the economy. The form and functioning of the economy varies from country to country. The design and structure of an economic system is conditioned by socio-political arrangements. Such arrangements are relevant from the standpoint of macro-economic decision-making.
For example, in a democratic set up, people exercise an influence, direct or indirect, through the system of casting votes, on the nature of the decisions taken by the Government. In a parliamentary system, most decisions are processed by Cabinet ministers, whereas under a presidential form of Government the President acts as the real manager of the state: It is he who takes or makes decisions. Similarly, macro-real manager of the State: it is he who takes or makes decisions. Similarly, Marco-decision-making is more decentralized in a federal form of Government than in unitary form of Government.
All modern economics, whether capitalist, socialized, communist or missed, have certain fundamental economic problems to deal with. In each and every economy, including the so-called “affluent society”, some or many resources are scarce. Consequently, choices concerning the resource use have to be made together by individuals, by business corporations, and by society. It is the social choice and community preferences which give substance to the question of macro-economic decisions. From the standpoint of resources, the basic economic problem of every economy is that of just allocation of resources and subsequent optimum production. These may be the aspects to this problem: What to produce? How to produce? For whom to produce? When to produce?
Every economy has to decide on the quality and quantity of the goods and services to be produced. It has to decide on the nature of the technology and technique of production in view of factor endowment. It has to decide on the course and pattern of distribution of goods and services produced. It has to decide on the timing of production. The process of decision-making differs depending on how these problems are solved in different economies. This is what constitutes the functioning of the economy, or the nature of the economic environment. At the risk of over-implication, certain points can be made about the organisation and functioning of modern economics:
i) In most economies, both “free market mechanism” and “Centralised planning” exist in different degrees even today. By “free market mechanism” or “price mechanism”, we mean a free play of the market forces of demand and supply to determine an equilibrium solution of the allocation problem. Market mechanism determines commodity prices, factor prices, and income distribution. By “planning”, we mean a programme of action based upon consistency and feasibility of attaining a set of targets in view of a set of objectives through a set of instruments. In the present day world around us, planning is combined with free pricing to arrive at macro-economic decisions yielding “the maximum good to the maximum number”. Thus, the economy in which a business firm operates today is not an exclusively free economy making an indiscriminate use of prices and the markets. Rather, it is directed by a system of planning, control, regulation and coordination.
ii) In most economies, positive intervention by the Government in day-to-day economic affairs has existed over several decades in the past. Planning is a form of Government intervention. Besides this, the Government can also intervene through a system of controls and regulations. The “welfare state”principle induces the Government to enforce minimum wages, commodity controls, fair trade practices, etc, through legislation. The basic objectives of such economic legislations and policies are : growth, efficiency and equity. It is the intervene role fonder government that has made most business firms socially responsible. However, intervention by the Government is now on the decrees. Many economics have relaxed regulations and controls through economic reforms, and are allowing a free play of market forces.
iii) Modern economies age not “closed” and “open”; they are actively engaged in international trade and cooperation. So, the international transmission effect today is stronger than ever before. Though three are disparities in the levels of income and standards of living over space and time, there is a conscious effort to develop the port nations. The maintenance of steady growth and enveloped countries dependent on the acceleration of growth in underdeveloped countries. This idea has given new dimensions to issues like the role of multinational corporations, the ecological balance, the recycling of petrodollars, and the transfer of technology. The technological revolution is making strident moves. In order to keep their dynamism, the economics are determined to develop science and technology, and to balance environment and economy, and this is going to act as a unifying force for the world economic order. These facts define the environment and set the constraints within which modern business firms must operate. The managements cannot overlook the environment, whether market or non-market. No management can ignore the functioning of markets, the objectives of national planning, the polices of the Government or their social responsibilities, or the rate, pattern and structure of economic changes, or the forms of international cooperation. Progressive managements must keep themselves continuously informed about the magnitude and direction of changes in the national as well as international economic environment. Of course, both economic and non-economic environment have an important bearing on managerial decisions.
ENVIRONMENT OF BUSINESS
Solution:
The term “environment” refers to the totality of all the factors which are external to and beyond the control of individual business enterprises and their managements. Environment furnishes the macro-context, the business firm is the micro-unit. The environmental factors are essentially the “givens” within which firms and their managements must operate. For example, the value system of society, the rules and regulations laid down by the Government, the monetary policies of the central bank, the institutional set up of the country, the ideological beliefs of the leaders, the attitude towards foreign capital and enterprise, etc., all constitute the environment system within which a business firm operates. These environmental factors are many in numbers and various in form. Some of these factors are totally static, some are relatively static and some are very dynamic – they are changing every now and then. Some of these factors can be conceptualized and quantified, while other can be only referred to in qualitative terms. Thus, the environment of business is an extremely complex phenomenon.
ECONOMIC ENVIRONMENT
The present day economic environment of business is a complex phenomenon. The business sector has economic relations with the Government, the capital market, the household sector and the foreign sector. These different sectors, together, influence the trends and structure of the economy. The form and functioning of the economy varies from country to country. The design and structure of an economic system is conditioned by socio-political arrangements. Such arrangements are relevant from the standpoint of macro-economic decision-making.
For example, in a democratic set up, people exercise an influence, direct or indirect, through the system of casting votes, on the nature of the decisions taken by the Government. In a parliamentary system, most decisions are processed by Cabinet ministers, whereas under a presidential form of Government the President acts as the real manager of the state: It is he who takes or makes decisions. Similarly, macro-real manager of the State: it is he who takes or makes decisions. Similarly, Marco-decision-making is more decentralized in a federal form of Government than in unitary form of Government.
All modern economics, whether capitalist, socialized, communist or missed, have certain fundamental economic problems to deal with. In each and every economy, including the so-called “affluent society”, some or many resources are scarce. Consequently, choices concerning the resource use have to be made together by individuals, by business corporations, and by society. It is the social choice and community preferences which give substance to the question of macro-economic decisions. From the standpoint of resources, the basic economic problem of every economy is that of just allocation of resources and subsequent optimum production. These may be the aspects to this problem: What to produce? How to produce? For whom to produce? When to produce?
Every economy has to decide on the quality and quantity of the goods and services to be produced. It has to decide on the nature of the technology and technique of production in view of factor endowment. It has to decide on the course and pattern of distribution of goods and services produced. It has to decide on the timing of production. The process of decision-making differs depending on how these problems are solved in different economies. This is what constitutes the functioning of the economy, or the nature of the economic environment. At the risk of over-implication, certain points can be made about the organisation and functioning of modern economics:
i) In most economies, both “free market mechanism” and “Centralised planning” exist in different degrees even today. By “free market mechanism” or “price mechanism”, we mean a free play of the market forces of demand and supply to determine an equilibrium solution of the allocation problem. Market mechanism determines commodity prices, factor prices, and income distribution. By “planning”, we mean a programme of action based upon consistency and feasibility of attaining a set of targets in view of a set of objectives through a set of instruments. In the present day world around us, planning is combined with free pricing to arrive at macro-economic decisions yielding “the maximum good to the maximum number”. Thus, the economy in which a business firm operates today is not an exclusively free economy making an indiscriminate use of prices and the markets. Rather, it is directed by a system of planning, control, regulation and coordination.
ii) In most economies, positive intervention by the Government in day-to-day economic affairs has existed over several decades in the past. Planning is a form of Government intervention. Besides this, the Government can also intervene through a system of controls and regulations. The “welfare state”principle induces the Government to enforce minimum wages, commodity controls, fair trade practices, etc, through legislation. The basic objectives of such economic legislations and policies are : growth, efficiency and equity. It is the intervene role fonder government that has made most business firms socially responsible. However, intervention by the Government is now on the decrees. Many economics have relaxed regulations and controls through economic reforms, and are allowing a free play of market forces.
iii) Modern economies age not “closed” and “open”; they are actively engaged in international trade and cooperation. So, the international transmission effect today is stronger than ever before. Though three are disparities in the levels of income and standards of living over space and time, there is a conscious effort to develop the port nations. The maintenance of steady growth and enveloped countries dependent on the acceleration of growth in underdeveloped countries. This idea has given new dimensions to issues like the role of multinational corporations, the ecological balance, the recycling of petrodollars, and the transfer of technology. The technological revolution is making strident moves. In order to keep their dynamism, the economics are determined to develop science and technology, and to balance environment and economy, and this is going to act as a unifying force for the world economic order. These facts define the environment and set the constraints within which modern business firms must operate. The managements cannot overlook the environment, whether market or non-market. No management can ignore the functioning of markets, the objectives of national planning, the polices of the Government or their social responsibilities, or the rate, pattern and structure of economic changes, or the forms of international cooperation. Progressive managements must keep themselves continuously informed about the magnitude and direction of changes in the national as well as international economic environment. Of course, both economic and non-economic environment have an important bearing on managerial decisions.
Administered Prices
Administered Prices
An administered price is a price fixed by policy makers in order to determine, directly or indirectly, domestic market or producer prices. In the United States, all administered price schemes set a minimum guaranteed support price or target price for a commodity, which is maintained by associated policy measures such as quantitative restrictions on production and imports; taxes and tariffs on imports; export subsidies; and public stockholding. According to the definitions used, administered prices cover all goods and services whose prices are included in the HICP and are fully (“directly”) set or mainly (“to a significant extent”) influenced by the government (central, regional, or local government including national regulators). Fully administered prices cover the prices of goods and services that are directly set by the government. For example, the government may choose to increase local public transport charges at regular intervals. Other examples may include school and university fees, the prices of public theatre tickets, waste collection and childcare, and fees for administrative documents. Mainly administered prices cover the prices of goods and services on which the government or another national regulator has a very significant influence. These may include, for example, prices that cannot be changed without the prior approval of a national regulatory authority. The influence of such decisions may have a direct bearing on retail prices or it may be indirect via wholesale prices. However, the regulator must have a very significant impact on the consumer price. Owing to the many borderline cases that the concept of administered prices inevitably involves, a number of conventions have been used to guide the implementation of the general definition. Prices that are only influenced by the government via indirect taxation.) are not considered to be administered. Eurostat intends to publish a separate index that excludes the impact of changes in indirect tax rates on the HICP.
For example, administered prices under the 2002 farm bill (P.L. 107-171) include loan rates and/or target prices, and price support levels for sugar, and dairy products.
An administered price is a price fixed by policy makers in order to determine, directly or indirectly, domestic market or producer prices. In the United States, all administered price schemes set a minimum guaranteed support price or target price for a commodity, which is maintained by associated policy measures such as quantitative restrictions on production and imports; taxes and tariffs on imports; export subsidies; and public stockholding. According to the definitions used, administered prices cover all goods and services whose prices are included in the HICP and are fully (“directly”) set or mainly (“to a significant extent”) influenced by the government (central, regional, or local government including national regulators). Fully administered prices cover the prices of goods and services that are directly set by the government. For example, the government may choose to increase local public transport charges at regular intervals. Other examples may include school and university fees, the prices of public theatre tickets, waste collection and childcare, and fees for administrative documents. Mainly administered prices cover the prices of goods and services on which the government or another national regulator has a very significant influence. These may include, for example, prices that cannot be changed without the prior approval of a national regulatory authority. The influence of such decisions may have a direct bearing on retail prices or it may be indirect via wholesale prices. However, the regulator must have a very significant impact on the consumer price. Owing to the many borderline cases that the concept of administered prices inevitably involves, a number of conventions have been used to guide the implementation of the general definition. Prices that are only influenced by the government via indirect taxation.) are not considered to be administered. Eurostat intends to publish a separate index that excludes the impact of changes in indirect tax rates on the HICP.
For example, administered prices under the 2002 farm bill (P.L. 107-171) include loan rates and/or target prices, and price support levels for sugar, and dairy products.
Incremental Capital-Output Ratio
Incremental Capital-Output Ratio (ICOR)
The incremental capital output ratio (ICOR) is defined as the ratio between investment in some previous period(s) and the growth in output in the subsequent period. Needless to say, ICOR calculation is based on constant price data.
There are several critical points to be mentioned about this ratio: (i) Growth in output can be due to several other factors than investment in new capital, e.g., growth in productivity, production capacity utilization rate, and (ii) The 'investment - increase in output' lag will vary. Thus, to obtain a reliable relationship the measurement of ICOR should be estimated for a longer period, perhaps three or four decades.
The period used to compute ICOR should be as “normal” as possible, however, it might be difficult to recognize a 'normal' period. A pragmatic solution to this problem is to derive ICOR on the basis of several periods.
The above method smooths out periods with extremely high or low investments, however, if the periods 0 and/or t have extremely low or high use of capacity this method will give a ‘wrong’ picture of the average capital output ratio.
ICOR has been used since the 1950's, and is still used by the Bank and other international organizations for instance to measure required investment to reach the targeted GDP growth.
Example;
If a country has an investment rate of four percent of GDP and an ICOR of four, growth in GDP will be one percent per year. If the population is growing faster than one percent per year, GDP per capita will fall. Alternatively, lets say that the targeted GDP growth is five percent next year, then required investment this year is 20 percent of GDP.
The incremental capital output ratio (ICOR) is defined as the ratio between investment in some previous period(s) and the growth in output in the subsequent period. Needless to say, ICOR calculation is based on constant price data.
There are several critical points to be mentioned about this ratio: (i) Growth in output can be due to several other factors than investment in new capital, e.g., growth in productivity, production capacity utilization rate, and (ii) The 'investment - increase in output' lag will vary. Thus, to obtain a reliable relationship the measurement of ICOR should be estimated for a longer period, perhaps three or four decades.
The period used to compute ICOR should be as “normal” as possible, however, it might be difficult to recognize a 'normal' period. A pragmatic solution to this problem is to derive ICOR on the basis of several periods.
The above method smooths out periods with extremely high or low investments, however, if the periods 0 and/or t have extremely low or high use of capacity this method will give a ‘wrong’ picture of the average capital output ratio.
ICOR has been used since the 1950's, and is still used by the Bank and other international organizations for instance to measure required investment to reach the targeted GDP growth.
Example;
If a country has an investment rate of four percent of GDP and an ICOR of four, growth in GDP will be one percent per year. If the population is growing faster than one percent per year, GDP per capita will fall. Alternatively, lets say that the targeted GDP growth is five percent next year, then required investment this year is 20 percent of GDP.
Externalities
Externalities
Externalities are common in virtually every area of economic activity. They are defined as third party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid. Externalities can cause market failure if the price mechanism does not take into account the full social costs and social benefits of production and consumption. The study of externalities by economists has become extensive in recent years - not least because of concerns about the link between the economy and the environment.
PRIVATE AND SOCIAL COSTS
Externalities create a divergence between the private and social costs of production. Social cost includes all the costs of production of the output of a particular good or service. We include the third party (external) costs arising, for example, from pollution of the atmosphere.
SOCIAL COST = PRIVATE COST + EXTERNALITY
For example: - a chemical factory emits wastage as a by-product into nearby rivers and into the atmosphere. This creates negative externalities which impose higher social costs on other firms and consumers. e.g. clean up costs and health costs.
Another example of higher social costs comes from the problems caused by traffic congestion in towns, cities and on major roads and motor ways. It is important to note though that the manufacture, purchase and use of private cars can also generate external benefits to society. This why cost-benefit analysis can be useful in measuring and putting some monetary value on both the social costs and benefits of production.
MARKET FAILURE AND EXTERNALITIES
When negative production externalities exist, marginal social cost > private marginal cost. This is shown in the diagram below where the marginal social cost of production exceeds the private costs faced only by the producer/supplier of the product. In our example a supplier of fertiliser to the agricultural industry creates some external costs to the environment arising from their production process.
Externalities lead to market failure?
If we assume that the producer is interested in maximising profits - then they will only take into account the private costs and private benefits arising from their supply of the product. We can see from the diagram below that the profit-maximising level of output is at Q1. However the socially efficient level of production would consider the external costs too. The social optimum output level is lower at Q2.
This leads to the private optimum output being greater than the social optimum level of production. The producer creating the externality does not take the effects of externalities into their own calculations. We assume that producers are only concerned with their own self interest. In the diagram above, the private optimum output is when where private marginal benefit = private marginal cost, giving an output of Q1. For society as a whole though the social optimum is where social marginal benefit = social marginal cost at output Q2.The failure to take into account the negative externality effects is an example of market failure.
NEGATIVE CONSUMPTION EXTERNALITIES
Consumers can create externalities when they purchase and consume goods and services.
• Pollution from cars and motorbikes
• Litter on streets and in public places
• Noise pollution from using car stereos or ghetto-blasters
• Negative externalities created by smoking and alcohol abuse
• Externalities created through the mis-treatment of animals
• Vandalism of public property
• Negative externalities arising from crime
In these situations the marginal social benefit of consumption will be less than the marginal private benefit of consumption. This leads to the good or service being over-consumed relative to the social optimum. Without government intervention the good or service will be under-priced and the negative externalities will not be taken into account. Again there will be a deadweight loss of economic welfare.
In the example shown in the chart above we illustrate the potentially negative effects of people consuming cigarettes on other consumers. The disutility (dis-satisfaction) created leads to a reduction in the overall social benefit of consumption. If the cigarette consumer only considers their own private costs and benefits, then there will be over-consumption of the product. Ideally, the socially efficient level of cigarette consumption will be lower (Q2). The issue is really which policies/strategies are most appropriate in reducing the total level of cigarette consumption!
What is privatization? Briefly discuss the three forms adopted for privatizing Public Sector Enterprises.
What is privatization? Briefly discuss the three forms adopted for privatizing Public Sector Enterprises.
How important is privatization in India? The first order issue is that of competition policy. When the government hinders competition by blocking entry or FDI, this is deeply damaging. Once competitive conditions are ensured, there are, indeed, benefits from shifting labour and capital to more efficient hands through privatisation, but this is a second order issue. The difficulties of governments that run businesses are well-known. PSUs face little "market discipline". There is neither a fear of bankruptcy, nor are there incentives for efficiency and growth. The government is unable to obtain efficiency in utilising labour and capital; hence the GDP of the country is lowered to the extent that PSUs control labour and capital. When an industry has large PSUs, which are able to sell at low prices because capital is free or because losses are reimbursed by periodic bailouts, investment in that entire industry is contaminated. This was the experience of Japan where the "zombie firms" - loss-making firms that were artificially rescued by the government - contaminated investment in their industries by charging low prices and forcing down the profit rate of the entire industry.
Further, in many areas, the government faces conflicts of interest between a regulatory function and an ownership function. As an example, the Ministry of Petroleum crafts policies which cater for the needs of government as owner, which often diverge from what is best for India. There is a fundamental loss of credibility when a government regulator faces PSUs in its sector: there is mistrust in the minds of private investors, who demand very high rates of return on equity in return for bearing regulatory risk. These arguments have led many economists to advocate large-scale privatisation, so as to clear the slate, and get on with the task of building a mature market economy. The role model in this regard is India. After the collapse of communism and the unification of East and West Germany, an auction was held for selling off all East German PSUs. Negative bids were permitted; i.e. the government was willing to even pay a private manager to take over a loss-making business if no higher bid was to be found. Through this, Germany was able to erase the heritage of socialism, and get on with the task of running an efficient market economy.
While such a game plan is entirely feasible in India, the present Parliament desires no privatisation. Does this mean that in the immediate future, progress in economic policy on privatisation must merely wait for the next elections? When we look at various industries in India, the gains from privatisation are quite heterogeneous. In some cases, there are hopelessly loss-making PSUs. These operate in industries where private and foreign firms have been able to come in, and the PSU has been left far behind the standards of quality and price set by the private sector. The PSUs should ideally have been sold off long ago, but today, these firms are irrelevant for the competitive dynamics of the industries that they operate in. The only issue is that of getting the land, the labour and some machinery out of public hands. When privatisation is achieved, India will benefit because the private buyer will produce more GDP using the same resources, and the flow of budgetary support to these firms will cease. The government should be happy to get these firms out of its hands with negative bids. The next and most interesting category comprises industries like telecom and airlines. In these areas, India has witnessed the dramatic benefits that come from the entry of private players.
Telecom and airline services in India are now dramatically improved, if not yet up to world-class, by changing rules in a way that permitted limited entry to domestic and foreign players. The privatization of VSNL was critically important because it was part of the opening up of the ILD sector to competition: the government would arguably have been more tardy in opening up if it had a vested interest through ownership of VSNL.
However, the key innovation, which broke with the stasis of socialism was opening up entry barriers - not privatisation. In both sectors, the full benefits from permitting foreign competitors, which are only present in very muted fashion, remain to be harnessed. While Spicejet is a good airline, there are bigger benefits waiting to be obtained by having domestic flights run by Lufthansa and Singapore Airlines. In both sectors, the defining issue in policy is the removal of entry barriers, not privatisation. Looking forward, there is a good chance that in some years, BSNL, MTNL [ Get Quote ] and the merged airline will end up like one of the many defunct PSUs of today. It makes sense for the government to sell today - while the going is good. But the privatisation of these three firms is no longer the most important issue - the further elimination of entry barriers faced by domestic and foreign firms is. What does this tell us about banking? The decline in market shares of PSU banks, while helped along by strikes of PSU bank unions, has proceeded only slowly. This is partly because there is a fundamentally non-level playing field where private and foreign banks have deposit insurance for only Rs 100,000 of deposits while PSU banks have unlimited deposit insurance. This gives one reason in favour of bank privatisation: it is inherently difficult to achieve competitive conditions without privatisation. But equally, there is no industry in India where the licence-permit raj hinders entry more than in the case of banking. At a time when the Indian economy is booming, and every kind of business is being created, the one industry where we see no new firms starting up is banking. This has surely got to do with government restrictions on entry. There is absolutely no industry in India where the opening of branch offices by foreign firms and private firms requires permission from the government. When Ford operates in India, it has to obey rules on FDI, but after that, it never has to go back to the government to take permission to open offices. What is worse, all foreign banks - put together - are given permission to open 12 branches per year in the full country. There is no worse instance where contemporary Indian policy-making is animated by ideas from the 1960s.
How important is privatization in India? The first order issue is that of competition policy. When the government hinders competition by blocking entry or FDI, this is deeply damaging. Once competitive conditions are ensured, there are, indeed, benefits from shifting labour and capital to more efficient hands through privatisation, but this is a second order issue. The difficulties of governments that run businesses are well-known. PSUs face little "market discipline". There is neither a fear of bankruptcy, nor are there incentives for efficiency and growth. The government is unable to obtain efficiency in utilising labour and capital; hence the GDP of the country is lowered to the extent that PSUs control labour and capital. When an industry has large PSUs, which are able to sell at low prices because capital is free or because losses are reimbursed by periodic bailouts, investment in that entire industry is contaminated. This was the experience of Japan where the "zombie firms" - loss-making firms that were artificially rescued by the government - contaminated investment in their industries by charging low prices and forcing down the profit rate of the entire industry.
Further, in many areas, the government faces conflicts of interest between a regulatory function and an ownership function. As an example, the Ministry of Petroleum crafts policies which cater for the needs of government as owner, which often diverge from what is best for India. There is a fundamental loss of credibility when a government regulator faces PSUs in its sector: there is mistrust in the minds of private investors, who demand very high rates of return on equity in return for bearing regulatory risk. These arguments have led many economists to advocate large-scale privatisation, so as to clear the slate, and get on with the task of building a mature market economy. The role model in this regard is India. After the collapse of communism and the unification of East and West Germany, an auction was held for selling off all East German PSUs. Negative bids were permitted; i.e. the government was willing to even pay a private manager to take over a loss-making business if no higher bid was to be found. Through this, Germany was able to erase the heritage of socialism, and get on with the task of running an efficient market economy.
While such a game plan is entirely feasible in India, the present Parliament desires no privatisation. Does this mean that in the immediate future, progress in economic policy on privatisation must merely wait for the next elections? When we look at various industries in India, the gains from privatisation are quite heterogeneous. In some cases, there are hopelessly loss-making PSUs. These operate in industries where private and foreign firms have been able to come in, and the PSU has been left far behind the standards of quality and price set by the private sector. The PSUs should ideally have been sold off long ago, but today, these firms are irrelevant for the competitive dynamics of the industries that they operate in. The only issue is that of getting the land, the labour and some machinery out of public hands. When privatisation is achieved, India will benefit because the private buyer will produce more GDP using the same resources, and the flow of budgetary support to these firms will cease. The government should be happy to get these firms out of its hands with negative bids. The next and most interesting category comprises industries like telecom and airlines. In these areas, India has witnessed the dramatic benefits that come from the entry of private players.
Telecom and airline services in India are now dramatically improved, if not yet up to world-class, by changing rules in a way that permitted limited entry to domestic and foreign players. The privatization of VSNL was critically important because it was part of the opening up of the ILD sector to competition: the government would arguably have been more tardy in opening up if it had a vested interest through ownership of VSNL.
However, the key innovation, which broke with the stasis of socialism was opening up entry barriers - not privatisation. In both sectors, the full benefits from permitting foreign competitors, which are only present in very muted fashion, remain to be harnessed. While Spicejet is a good airline, there are bigger benefits waiting to be obtained by having domestic flights run by Lufthansa and Singapore Airlines. In both sectors, the defining issue in policy is the removal of entry barriers, not privatisation. Looking forward, there is a good chance that in some years, BSNL, MTNL [ Get Quote ] and the merged airline will end up like one of the many defunct PSUs of today. It makes sense for the government to sell today - while the going is good. But the privatisation of these three firms is no longer the most important issue - the further elimination of entry barriers faced by domestic and foreign firms is. What does this tell us about banking? The decline in market shares of PSU banks, while helped along by strikes of PSU bank unions, has proceeded only slowly. This is partly because there is a fundamentally non-level playing field where private and foreign banks have deposit insurance for only Rs 100,000 of deposits while PSU banks have unlimited deposit insurance. This gives one reason in favour of bank privatisation: it is inherently difficult to achieve competitive conditions without privatisation. But equally, there is no industry in India where the licence-permit raj hinders entry more than in the case of banking. At a time when the Indian economy is booming, and every kind of business is being created, the one industry where we see no new firms starting up is banking. This has surely got to do with government restrictions on entry. There is absolutely no industry in India where the opening of branch offices by foreign firms and private firms requires permission from the government. When Ford operates in India, it has to obey rules on FDI, but after that, it never has to go back to the government to take permission to open offices. What is worse, all foreign banks - put together - are given permission to open 12 branches per year in the full country. There is no worse instance where contemporary Indian policy-making is animated by ideas from the 1960s.
An important factor which influences the Balance of Payments of a country is the exchange rate of its currency vis-a- vis other major currencies.
'An important factor which influences the Balance of Payments of a country is the exchange rate of its currency vis-a- vis other major currencies.’ Briefly explain this statement.
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports. A favorable balance of trade is known as a trade surplus and consists of exporting more than is imported; an unfavorable balance of trade is known as a trade deficit or, informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance.
Primitive understanding of the functioning of balance of trade informed the economic policies of Early Modern Europe that are grouped under the heading mercantilism. An early statement appeared in Discourse of the Common Weal of this Realm of England, 1549: "We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them." The balance of payments of a country is said to be in equilibrium when the demand for foreign exchange is exactly equivalent to the supply of it. The balance of payments is in disequilibrium when there is either a surplus or a deficit in the balance of payments. When there is a deficit in the balance of payments, the demand for foreign exchange exceeds the demand for it. A number of factors may cause disequilibrium in the balance of payments. These various causes may be broadly categorized into:
(i) Economic factors;
(ii) Political factors; and
(iii) Sociological factors.
Economic Factors:
A number of economic factors may cause disequilibrium in the balance of payments. These are:
Development Disequilibrium:Large-scale development expenditures usually increase the
purchasing power, aggregate demand and prices, resulting in substantially large imports. The development disequilibrium is common in developing countries, because the above factors, and large-scale capital goods imports needed for carrying out the various development programmes, give rise to a deficit in the balance of payments.
Capital Disequilibrium: Cyclical fluctuations in general business activity are one of the prominent reasons for the balance of payments disequilibrium. As Lawrance W. Towle points out, depression always brings about a drastic shrinkage in world trade, while prosperity stimulates it. A country enjoying a boom all by itselt ordinarily experiences more rapid growth in its imports than its exports, while the opposite is true of other countries. But production in the other countries will be activated as a result of the increased exports to the boom country.
Secular Disequilibrium: Sometimes, the balance of payments diequilibrium persists for a long time because of certain secular trends in the economy. For instance, in a developed country, the disposable income is generally very high and, therefore, the aggregate demand, too, is very high. At the same time, production costs are very high because of the higher wages. This naturally results in higher prices. These two factors - high aggregate demand and higher domestic prices may result in the imports being much higher than the exports. This could be one of the reasons for the persistent balance of payments deficits of the India.
Structural Disequilibrium: Structural changes in the economy may also cause balance of payments disequilibrium. Such structural changes include the development of alternative sources of supply, the development of better substitutes, the exhaustion of productive resources, the changes in transport routes and costs, etc.
Political Factors: Certain political factors may also produce a balance of payments disequilibrium. For instance, a country plagued with political instability may experience large capital outflows, inadequacy of domestic investment and production, etc. These factors may, sometimes, cause disequilibrium in the balance of payments. Further, factors like war, changes in world trade routes, etc., may also produce balance of payments difficulties.
Social Factors: Certain social factors influence the balance of payments. For instance, changes in tastes, preferences, fashions, etc. may affect imports and exports and thereby affect the balance of payments.
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports. A favorable balance of trade is known as a trade surplus and consists of exporting more than is imported; an unfavorable balance of trade is known as a trade deficit or, informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance.
Primitive understanding of the functioning of balance of trade informed the economic policies of Early Modern Europe that are grouped under the heading mercantilism. An early statement appeared in Discourse of the Common Weal of this Realm of England, 1549: "We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them." The balance of payments of a country is said to be in equilibrium when the demand for foreign exchange is exactly equivalent to the supply of it. The balance of payments is in disequilibrium when there is either a surplus or a deficit in the balance of payments. When there is a deficit in the balance of payments, the demand for foreign exchange exceeds the demand for it. A number of factors may cause disequilibrium in the balance of payments. These various causes may be broadly categorized into:
(i) Economic factors;
(ii) Political factors; and
(iii) Sociological factors.
Economic Factors:
A number of economic factors may cause disequilibrium in the balance of payments. These are:
Development Disequilibrium:Large-scale development expenditures usually increase the
purchasing power, aggregate demand and prices, resulting in substantially large imports. The development disequilibrium is common in developing countries, because the above factors, and large-scale capital goods imports needed for carrying out the various development programmes, give rise to a deficit in the balance of payments.
Capital Disequilibrium: Cyclical fluctuations in general business activity are one of the prominent reasons for the balance of payments disequilibrium. As Lawrance W. Towle points out, depression always brings about a drastic shrinkage in world trade, while prosperity stimulates it. A country enjoying a boom all by itselt ordinarily experiences more rapid growth in its imports than its exports, while the opposite is true of other countries. But production in the other countries will be activated as a result of the increased exports to the boom country.
Secular Disequilibrium: Sometimes, the balance of payments diequilibrium persists for a long time because of certain secular trends in the economy. For instance, in a developed country, the disposable income is generally very high and, therefore, the aggregate demand, too, is very high. At the same time, production costs are very high because of the higher wages. This naturally results in higher prices. These two factors - high aggregate demand and higher domestic prices may result in the imports being much higher than the exports. This could be one of the reasons for the persistent balance of payments deficits of the India.
Structural Disequilibrium: Structural changes in the economy may also cause balance of payments disequilibrium. Such structural changes include the development of alternative sources of supply, the development of better substitutes, the exhaustion of productive resources, the changes in transport routes and costs, etc.
Political Factors: Certain political factors may also produce a balance of payments disequilibrium. For instance, a country plagued with political instability may experience large capital outflows, inadequacy of domestic investment and production, etc. These factors may, sometimes, cause disequilibrium in the balance of payments. Further, factors like war, changes in world trade routes, etc., may also produce balance of payments difficulties.
Social Factors: Certain social factors influence the balance of payments. For instance, changes in tastes, preferences, fashions, etc. may affect imports and exports and thereby affect the balance of payments.
‘Rao - Manmohan Model of Growth is different from Gandhian Model of Growth.’ Critically evaluate this statement.
‘Rao - Manmohan Model of Growth is different from Gandhian Model of Growth.’ Critically evaluate this statement.
In India efforts to remove poverty and inequality in rural areas have failed although growth in production and income has been achieved. The reason for this is that strategies for rural development were aimed primarily at raising production without any understanding of social and class structure and their relation to production and its distribution. A new approach to development policy is therefore required. Renewed attention has recently been paid to the Gandhian approach to rural development in the centre and in the northern states. This approach is examined, in the context of the present agricultural situation in India, in anticipation of its implementation. Aspects discussed include: characteristics of the model, ideals of development, concept of development, main aspects and sources of development, historical realities, and changing agrarian structure. It is concluded that the Gandhian model of rural development cannot succeed in providing social justice without the existence of the Gandhian type of rural economy. The prevailing agrarian situation indicates that this cannot be brought about in the context of India's present stage of development and of development in the world in general. In the present state of socio-politico-economic affairs, the model would benefit the dominant class of the rural population at the cost of the rural poor. Some aspects of the Gandhian model e.g. expansion of village and cottage industries, decentralization of production and wealth, and the institution of trusteeship by state confiscation of excess wealth, may be implemented under present conditions.
The economy of India is the twelfth largest economy in the world by nominal value and the fourth largest by purchasing power parity (PPP).In the 1990s, following economic reform from the socialist-inspired economy of post-independence India, the country began to experience rapid economic growth, as markets opened for international competition and investment. In the 21st century, India is an emerging economic power with vast human and natural resources, and a huge knowledge base. Economists predict that by 2020,India will be among the leading economies of the world. India was under social democratic-based policies from 1947 to 1991. The economy was characterised by extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth. Since 1991, continuing economic liberalisation has moved the economy towards a market-based system.A revival of economic reforms and better economic policy in 2000s accelerated India's economic growth rate. By 2008, India had established itself as the world's second-fastest growing major economy. However, the year 2009 saw a significant slowdown in India's official GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 10.3% of GDP which would be among the highest in the world.
India's large service industry accounts for 54% of the country's GDP while the industrial and agricultural sector contribute 29% and 17% respectively. Agriculture is the predominant occupation in India, accounting for about 60% of employment. The service sector makes up a further 28%, and industrial sector around 12%. The labor force totals half a billion workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology enabled services and software.
India's per capita income (nominal) is $1070, ranked 143th in the world, while its per capita (PPP) of US$2,780 is ranked 130th.Previously a closed economy, India's trade has grown fast. India currently accounts for 1.5% of World trade as of 2007 according to the WTO. According to the World Trade Statistics of the WTO in 2006, India's total merchandise trade (counting exports and imports) was valued at $294 billion in 2006 and India's services trade inclusive of export and import was $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's trade has reached a still relatively moderate share 24% of GDP in 2006, up from 6% in 1985. Despite robust economic growth, India continues to face many major problems. The recent economic development has widened the economic inequality across the country. Despite sustained high economic growth rate, approximately 80% of its population lives on less than $2 a day (PPP). Even though the arrival of Green Revolution brought end to famines in India, 40% of children under the age of three are underweight and a third of all men and women suffer from chronic energy deficiency. The economic liberalization in India refers to ongoing reforms in India. After Independence in 1947, India adhered to socialist policies. In the 1980s, Prime Minister Rajiv Gandhi initiated some reforms. His government was blocked by politics. In 1991, after the International Monetary Fund (IMF) had bailed out the bankrupt state, the government of P. V. Narasimha Rao and his finance minister Manmohan Singh started breakthrough reforms. The new policies included opening for international trade and investment, deregulation, initiation of privatization, tax reforms, and inflation-controlling measures. The overall direction of liberalization has since remained the same, irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labor laws and reducing agricultural subsidies.
As of 2009, about 300 million people — equivalent to the entire population of the entire United States — has escaped extreme poverty.[2] The fruits of liberalization reached their peak in 2007, with India recording its highest GDP growth rate of 9%. With this, India became the second fastest growing major economy in the world, next only to China. An Organisation for Economic Co-operation and Development (OECD) report states that the average growth rate 7.5% will double the average income in a decade, and more reforms would speed up the pace.
Indian government coalitions have been advised to continue liberalization. India grows at slower pace than China. McKinsey states that removing main obstacles "would free India’s economy to grow as fast as China’s, at 10 percent a year".
Period between 1989-91
1989-91 was a period of political instability in India and hence no five year plan was implemented. Between 1990 and 1992, there were only Annual Plans. In 1991, India faced a crisis in [[Foreign Exchange]] (Forex) reserves, left with reserves of only about $1 billion (US). Thus, under pressure, the country took the risk of reforming the socialist economy. [[P.V. Narasimha Rao]])(28 June 1921 – 23 December 2004) also called Father of Indian Economic Reforms was the twelfth Prime Minister of the Republic of India and head of [[Congress Party]], and led one of the most important administrations in India's modern history overseeing a major economic transformation and several incidents affecting national security. At that time Dr. [[Manmohan Singh]] (currently, Prime Minister of India) launched India's free market reforms that brought the nearly bankrupt nation back from the edge. It was the beginning of [[privatization]] and [[liberalization]] in India. Eighth plan (1992-1997) [[Modernization]] of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning [[deficit]] and foreign debt. Meanwhile India became a member of the [[World Trade Organization]] on 1 January 1995.This plan can be termed as Rao and Manmohan model of Economic development. The major objectives included, containing population growth,poverty reduction,employment generation,strengthening the infrastructure,Institutional building, Human Resource development,Involvement of Panchayat raj,Nagarapalikas,N.G.OSand Decentralisation and peoples participation. Energy was given prority with 26.6% of the outlay. An average annual growth rate of 6.7%against the target 5.6% was achieved. The Government of India headed by Narasimha Rao decided to usher in several reforms that are collectively termed as liberalisation in the Indian media. Narasimha Rao appointed Manmohan Singh as a special economical advisor to implement liberalisation. The reforms progressed furthest in the areas of opening up to foreign investment, reforming capital markets, deregulating domestic business, and reforming the trade regime. Liberalization has done away with the Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Rao's government's goals were reducing the fiscal deficit, privatization of the public sector, and increasing investment in infrastructure. Trade reforms and changes in the regulation of foreign direct investment were introduced to open India to foreign trade while stabilizing external loans. Rao's finance minister, Manmohan Singh, an acclaimed economist, played a central role in implementing these reforms. New research suggests that the scope and pattern of these reforms in India's foreign investment and external trade sectors followed the Chinese experience with external economic reforms.
• In the industrial sector, industrial licensing was cut, leaving only 18 industries subject to licensing. Industrial regulation was rationalized.
• Abolishing in 1992 the Controller of Capital Issues which decided the prices and number of shares that firms could issue.
• Introducing the SEBI Act of 1992 and the Security Laws (Amendment) which gave SEBI the legal authority to register and regulate all security market intermediaries.
• Starting in 1994 of the National Stock Exchange as a computer-based trading system which served as an instrument to leverage reforms of India's other stock exchanges. The NSE emerged as India's largest exchange by 1996.
• Reducing tariffs from an average of 85 percent to 25 percent, and rolling back quantitative controls. (The rupee was made convertible on trade account.)
• Encouraging foreign direct investment by increasing the maximum limit on share of foreign capital in joint ventures from 40 to 51 percent with 100 percent foreign equity permitted in priority sectors.
• Streamlining procedures for FDI approvals, and in at least 35 industries, automatically approving projects within the limits for foreign participation.
• Opening up in 1992 of India's equity markets to investment by foreign institutional investors and permitting Indian firms to raise capital on international markets by issuing Global Depository Receipts (GDRs).
• Marginal tax rates were reduced.
• Privatization of large, inefficient and loss-inducing government corporations was initiated.
In India efforts to remove poverty and inequality in rural areas have failed although growth in production and income has been achieved. The reason for this is that strategies for rural development were aimed primarily at raising production without any understanding of social and class structure and their relation to production and its distribution. A new approach to development policy is therefore required. Renewed attention has recently been paid to the Gandhian approach to rural development in the centre and in the northern states. This approach is examined, in the context of the present agricultural situation in India, in anticipation of its implementation. Aspects discussed include: characteristics of the model, ideals of development, concept of development, main aspects and sources of development, historical realities, and changing agrarian structure. It is concluded that the Gandhian model of rural development cannot succeed in providing social justice without the existence of the Gandhian type of rural economy. The prevailing agrarian situation indicates that this cannot be brought about in the context of India's present stage of development and of development in the world in general. In the present state of socio-politico-economic affairs, the model would benefit the dominant class of the rural population at the cost of the rural poor. Some aspects of the Gandhian model e.g. expansion of village and cottage industries, decentralization of production and wealth, and the institution of trusteeship by state confiscation of excess wealth, may be implemented under present conditions.
The economy of India is the twelfth largest economy in the world by nominal value and the fourth largest by purchasing power parity (PPP).In the 1990s, following economic reform from the socialist-inspired economy of post-independence India, the country began to experience rapid economic growth, as markets opened for international competition and investment. In the 21st century, India is an emerging economic power with vast human and natural resources, and a huge knowledge base. Economists predict that by 2020,India will be among the leading economies of the world. India was under social democratic-based policies from 1947 to 1991. The economy was characterised by extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth. Since 1991, continuing economic liberalisation has moved the economy towards a market-based system.A revival of economic reforms and better economic policy in 2000s accelerated India's economic growth rate. By 2008, India had established itself as the world's second-fastest growing major economy. However, the year 2009 saw a significant slowdown in India's official GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 10.3% of GDP which would be among the highest in the world.
India's large service industry accounts for 54% of the country's GDP while the industrial and agricultural sector contribute 29% and 17% respectively. Agriculture is the predominant occupation in India, accounting for about 60% of employment. The service sector makes up a further 28%, and industrial sector around 12%. The labor force totals half a billion workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology enabled services and software.
India's per capita income (nominal) is $1070, ranked 143th in the world, while its per capita (PPP) of US$2,780 is ranked 130th.Previously a closed economy, India's trade has grown fast. India currently accounts for 1.5% of World trade as of 2007 according to the WTO. According to the World Trade Statistics of the WTO in 2006, India's total merchandise trade (counting exports and imports) was valued at $294 billion in 2006 and India's services trade inclusive of export and import was $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's trade has reached a still relatively moderate share 24% of GDP in 2006, up from 6% in 1985. Despite robust economic growth, India continues to face many major problems. The recent economic development has widened the economic inequality across the country. Despite sustained high economic growth rate, approximately 80% of its population lives on less than $2 a day (PPP). Even though the arrival of Green Revolution brought end to famines in India, 40% of children under the age of three are underweight and a third of all men and women suffer from chronic energy deficiency. The economic liberalization in India refers to ongoing reforms in India. After Independence in 1947, India adhered to socialist policies. In the 1980s, Prime Minister Rajiv Gandhi initiated some reforms. His government was blocked by politics. In 1991, after the International Monetary Fund (IMF) had bailed out the bankrupt state, the government of P. V. Narasimha Rao and his finance minister Manmohan Singh started breakthrough reforms. The new policies included opening for international trade and investment, deregulation, initiation of privatization, tax reforms, and inflation-controlling measures. The overall direction of liberalization has since remained the same, irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labor laws and reducing agricultural subsidies.
As of 2009, about 300 million people — equivalent to the entire population of the entire United States — has escaped extreme poverty.[2] The fruits of liberalization reached their peak in 2007, with India recording its highest GDP growth rate of 9%. With this, India became the second fastest growing major economy in the world, next only to China. An Organisation for Economic Co-operation and Development (OECD) report states that the average growth rate 7.5% will double the average income in a decade, and more reforms would speed up the pace.
Indian government coalitions have been advised to continue liberalization. India grows at slower pace than China. McKinsey states that removing main obstacles "would free India’s economy to grow as fast as China’s, at 10 percent a year".
Period between 1989-91
1989-91 was a period of political instability in India and hence no five year plan was implemented. Between 1990 and 1992, there were only Annual Plans. In 1991, India faced a crisis in [[Foreign Exchange]] (Forex) reserves, left with reserves of only about $1 billion (US). Thus, under pressure, the country took the risk of reforming the socialist economy. [[P.V. Narasimha Rao]])(28 June 1921 – 23 December 2004) also called Father of Indian Economic Reforms was the twelfth Prime Minister of the Republic of India and head of [[Congress Party]], and led one of the most important administrations in India's modern history overseeing a major economic transformation and several incidents affecting national security. At that time Dr. [[Manmohan Singh]] (currently, Prime Minister of India) launched India's free market reforms that brought the nearly bankrupt nation back from the edge. It was the beginning of [[privatization]] and [[liberalization]] in India. Eighth plan (1992-1997) [[Modernization]] of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning [[deficit]] and foreign debt. Meanwhile India became a member of the [[World Trade Organization]] on 1 January 1995.This plan can be termed as Rao and Manmohan model of Economic development. The major objectives included, containing population growth,poverty reduction,employment generation,strengthening the infrastructure,Institutional building, Human Resource development,Involvement of Panchayat raj,Nagarapalikas,N.G.OSand Decentralisation and peoples participation. Energy was given prority with 26.6% of the outlay. An average annual growth rate of 6.7%against the target 5.6% was achieved. The Government of India headed by Narasimha Rao decided to usher in several reforms that are collectively termed as liberalisation in the Indian media. Narasimha Rao appointed Manmohan Singh as a special economical advisor to implement liberalisation. The reforms progressed furthest in the areas of opening up to foreign investment, reforming capital markets, deregulating domestic business, and reforming the trade regime. Liberalization has done away with the Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Rao's government's goals were reducing the fiscal deficit, privatization of the public sector, and increasing investment in infrastructure. Trade reforms and changes in the regulation of foreign direct investment were introduced to open India to foreign trade while stabilizing external loans. Rao's finance minister, Manmohan Singh, an acclaimed economist, played a central role in implementing these reforms. New research suggests that the scope and pattern of these reforms in India's foreign investment and external trade sectors followed the Chinese experience with external economic reforms.
• In the industrial sector, industrial licensing was cut, leaving only 18 industries subject to licensing. Industrial regulation was rationalized.
• Abolishing in 1992 the Controller of Capital Issues which decided the prices and number of shares that firms could issue.
• Introducing the SEBI Act of 1992 and the Security Laws (Amendment) which gave SEBI the legal authority to register and regulate all security market intermediaries.
• Starting in 1994 of the National Stock Exchange as a computer-based trading system which served as an instrument to leverage reforms of India's other stock exchanges. The NSE emerged as India's largest exchange by 1996.
• Reducing tariffs from an average of 85 percent to 25 percent, and rolling back quantitative controls. (The rupee was made convertible on trade account.)
• Encouraging foreign direct investment by increasing the maximum limit on share of foreign capital in joint ventures from 40 to 51 percent with 100 percent foreign equity permitted in priority sectors.
• Streamlining procedures for FDI approvals, and in at least 35 industries, automatically approving projects within the limits for foreign participation.
• Opening up in 1992 of India's equity markets to investment by foreign institutional investors and permitting Indian firms to raise capital on international markets by issuing Global Depository Receipts (GDRs).
• Marginal tax rates were reduced.
• Privatization of large, inefficient and loss-inducing government corporations was initiated.
Explain the factors responsible for industrial sickness and measures to tackle them in Small Scale Industries Sector (SSI)
Explain the factors responsible for industrial sickness and measures to tackle them in Small Scale Industries Sector (SSI)
It is a real fact that more than 70% of Indian population resides in rural areas of our country. But the majority of that population is still backward due to less support of external environment. The quoted quote that "wheel is the symbol of development" is proven false in case of Rural India because there is lack of development which may be because of unfair political environment and government negligence. SIDBI is an apex financial institution which provides financial support to the sick / small scale industries. So, we can say that SIDBI is the institution which engaged in the business of rural industrialization in India.
The small Industries Development Bank of India is Principal Financial institution engaged in development initiative in rural sector and improving the SSI unit. The another very important role is keeping by this Bank is that it is also encouraging SSIS and generating employment in rural India. The Bank also performing the rehabilitation duty and improving the performance of small Industries.
INDUSTRIAL SICKNESS IN INDIA
Industrial sickness specially in small-scale Industry has been always a demerit for the Indian economy, because more and more industries like – cotton, Jute, Sugar, Textile small steel and engineering industries are being affected by this sickness problem. As per an estimate 300 units in the medium and large scale sector were either closed or were on the stage of closing in the year 1976. About 10% of 4 lakhs unit were also reported to be ailing. And this position also remain same in the next decades. At the end of year 1986, the member of sick units in the portfolio of scheduled commercial banks stood at 1.47,740 involving an out standing bank credit of Rs. 4874 crores.
• Where the total number of large Industries which are sick were 637 units at the end of year 1985 increased to 714 units in the end of next year 1986.
• Likewise on the other hand the number of sick small scale units were also increased 1.18 lacks at the end of 1985 to 1.46 lakhs at the end of 1986.
• The bank amount which was outstanding in case of large industries for the same period also increased from Rs.2,900 crores to Rs. 3287 crores at the end of year 1986
• Dues of Small Scale sector also increased from Rs.1071 crores to Rs.1306 at the end of the year 1986.
• Of the 147, 740 sick industrial units which contains large medium as well as small scale involving the total bank loan (credit) of Rs. 4874 at the end of the year 1986.
CAUSES OF SICKNESS OF SSI'S
Most of the Indian authors and researchers have classified the different types of industrial sickness under two important categories. They are:
1) Internal Cause for sickness: Pertaining to the factors which are within the control of management. This sickness arises due to internal disorder in the areas justified as following:
a) Lack of Finance: This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds.
b) Bad Production Policies : The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on.
c) Marketing and Sickness : This is another part which always affects the health of any sector as well as SSI. This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions.
d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioural approach causes dissatisfaction among the employees and workers.
e) Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc.
2) External causes for sickness:
a) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area.
b) Marketing Constraints: The second cause for the sickness is related to marketing. The sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in global marketing scenario, excessive tax policies by govt. and market recession.
c) Production Constraints: This is another reason for the sickness which comes under external cause of sickness. This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions.
d) Finance Constraints: Another external cause for the sickness of SSIs is lack of finance. This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments, fear of nationalization.
LENDING (FINANCING SCHEMES OF SIDBI)
A) Direct Financial Assistances
For the development of Industrial infrastructure for SSIs
• Venture capital/development scheme
• Equipment Finance Scheme
• Integrated Infrastructural Development Scheme
• Project Finance Scheme
• Schemes related to Marketing of SSI's Product
• ISO 9000 Scheme
• Micro credit financing scheme
• Short term & long term loan schemes
• Direct Discounting of bill
• TDMF Schemes
• Factoring scheme
• Pre & Post shipment financial assistance scheme
• Export bill financing scheme & so on
B) Indirect Finance by SIDBI
I) Refinance Assistance
a) Composite loan scheme for cottage, Village & tiny Industries
b) Scheme for women entrepreneurs Mahila Udyam Nidhi
c) SEMFEX Scheme
d) Single window scheme
e) RTDM Scheme
f) RISO-9000 Scheme
g) NEF Scheme
h) RSR Scheme
i) Scheme for SRTOs
j) Scheme for ST/SC & Physically Challenged
k) Other General Schemes
II) Scheme for Rediscounting of bills
a) For equipments
b) For Inland supply bills
III) Other support through various institutions
a) SFC's, SIDC, SSIDC, Bank to Intermediacies
b) To leasing / hire purchase companies.
c) To factoring companies
d) To special corporate entities and institutions which are engaged in the business of development of SSIs
It is a real fact that more than 70% of Indian population resides in rural areas of our country. But the majority of that population is still backward due to less support of external environment. The quoted quote that "wheel is the symbol of development" is proven false in case of Rural India because there is lack of development which may be because of unfair political environment and government negligence. SIDBI is an apex financial institution which provides financial support to the sick / small scale industries. So, we can say that SIDBI is the institution which engaged in the business of rural industrialization in India.
The small Industries Development Bank of India is Principal Financial institution engaged in development initiative in rural sector and improving the SSI unit. The another very important role is keeping by this Bank is that it is also encouraging SSIS and generating employment in rural India. The Bank also performing the rehabilitation duty and improving the performance of small Industries.
INDUSTRIAL SICKNESS IN INDIA
Industrial sickness specially in small-scale Industry has been always a demerit for the Indian economy, because more and more industries like – cotton, Jute, Sugar, Textile small steel and engineering industries are being affected by this sickness problem. As per an estimate 300 units in the medium and large scale sector were either closed or were on the stage of closing in the year 1976. About 10% of 4 lakhs unit were also reported to be ailing. And this position also remain same in the next decades. At the end of year 1986, the member of sick units in the portfolio of scheduled commercial banks stood at 1.47,740 involving an out standing bank credit of Rs. 4874 crores.
• Where the total number of large Industries which are sick were 637 units at the end of year 1985 increased to 714 units in the end of next year 1986.
• Likewise on the other hand the number of sick small scale units were also increased 1.18 lacks at the end of 1985 to 1.46 lakhs at the end of 1986.
• The bank amount which was outstanding in case of large industries for the same period also increased from Rs.2,900 crores to Rs. 3287 crores at the end of year 1986
• Dues of Small Scale sector also increased from Rs.1071 crores to Rs.1306 at the end of the year 1986.
• Of the 147, 740 sick industrial units which contains large medium as well as small scale involving the total bank loan (credit) of Rs. 4874 at the end of the year 1986.
CAUSES OF SICKNESS OF SSI'S
Most of the Indian authors and researchers have classified the different types of industrial sickness under two important categories. They are:
1) Internal Cause for sickness: Pertaining to the factors which are within the control of management. This sickness arises due to internal disorder in the areas justified as following:
a) Lack of Finance: This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds.
b) Bad Production Policies : The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on.
c) Marketing and Sickness : This is another part which always affects the health of any sector as well as SSI. This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions.
d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioural approach causes dissatisfaction among the employees and workers.
e) Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc.
2) External causes for sickness:
a) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area.
b) Marketing Constraints: The second cause for the sickness is related to marketing. The sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in global marketing scenario, excessive tax policies by govt. and market recession.
c) Production Constraints: This is another reason for the sickness which comes under external cause of sickness. This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions.
d) Finance Constraints: Another external cause for the sickness of SSIs is lack of finance. This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments, fear of nationalization.
LENDING (FINANCING SCHEMES OF SIDBI)
A) Direct Financial Assistances
For the development of Industrial infrastructure for SSIs
• Venture capital/development scheme
• Equipment Finance Scheme
• Integrated Infrastructural Development Scheme
• Project Finance Scheme
• Schemes related to Marketing of SSI's Product
• ISO 9000 Scheme
• Micro credit financing scheme
• Short term & long term loan schemes
• Direct Discounting of bill
• TDMF Schemes
• Factoring scheme
• Pre & Post shipment financial assistance scheme
• Export bill financing scheme & so on
B) Indirect Finance by SIDBI
I) Refinance Assistance
a) Composite loan scheme for cottage, Village & tiny Industries
b) Scheme for women entrepreneurs Mahila Udyam Nidhi
c) SEMFEX Scheme
d) Single window scheme
e) RTDM Scheme
f) RISO-9000 Scheme
g) NEF Scheme
h) RSR Scheme
i) Scheme for SRTOs
j) Scheme for ST/SC & Physically Challenged
k) Other General Schemes
II) Scheme for Rediscounting of bills
a) For equipments
b) For Inland supply bills
III) Other support through various institutions
a) SFC's, SIDC, SSIDC, Bank to Intermediacies
b) To leasing / hire purchase companies.
c) To factoring companies
d) To special corporate entities and institutions which are engaged in the business of development of SSIs
The politico-legal environment of business contains a number of critical elements.
“The politico-legal environment of business contains a number of critical elements.” Examine this statement with the help of examples.
The impact a political-legal environment can have on business can cause so many craters so as to make that business look like the moon. It was a political-legal environment that gave birth to the corporate personhood doctrine and that gave rise to the corporate world we live in today. Political-legal environments can only hope to regulate markets, and market regulations will most certainly have profound impacts on business organizations. An example of the kind of bone headed impact a political-legal environment can have on a business one need look no further than American auto makers, the electric car and California. For whatever reasons, several of the auto manufacturers in the United States began developing electric cars which they leased to satisfied customers. Then, California decided it would be a good idea to mandate to American auto makers that if they expected to sell their cars in California they would have to invent some new technology reducing carbon dioxide. Presumably, California expected to see an increase of electric cars being sold by auto makers. What happened is quite the opposite and the auto makers took a hard look at their electric car program, uncertain how to market a "clean vehicle" without admitting the piston engine vehicles are dirty, realizing that much of the profit from a piston engine vehicle comes with the replacement of parts and not so with electric cars and finally, realizing that a State, not even the State of California can make them build technology they don't have, nor can any state even make them keep building the technology they do have, and so, the auto makers killed their own electric car program and this was the impact of a political-legal environment.
The Politico-Legal Environment Have An Impact On The Business Organization -In Anyone Or More Of These Areas
-Finance
-Marketing
-Human Resource
-Tax policies
what tax hinder the business and what taxes incentives are available] [ if the tax policies are liberal / incentivated, businesses will add expansion , which means the impact on HR
-International trade regulations and restrictions [ does the government encourage exports / with high tariffs on imports] [ if the exports policies are liberal / incentivated, businesses will add expansion , which means the impact on HR
Education : as the education level goes up and income distribution improves, demand for product/services will go up, businesses will addexpansion , which means the impact on HR
-Living conditions : as the income level goes up and living conditions improves, demand for product/services will go up, businesses will addexpansion , which means the impact on HR
Technological
New inventions and development : as more inventions are brought out, more jobs are created, demand for product/services will go up, businesses will add expansion , which means the impact on HR
The impact a political-legal environment can have on business can cause so many craters so as to make that business look like the moon. It was a political-legal environment that gave birth to the corporate personhood doctrine and that gave rise to the corporate world we live in today. Political-legal environments can only hope to regulate markets, and market regulations will most certainly have profound impacts on business organizations. An example of the kind of bone headed impact a political-legal environment can have on a business one need look no further than American auto makers, the electric car and California. For whatever reasons, several of the auto manufacturers in the United States began developing electric cars which they leased to satisfied customers. Then, California decided it would be a good idea to mandate to American auto makers that if they expected to sell their cars in California they would have to invent some new technology reducing carbon dioxide. Presumably, California expected to see an increase of electric cars being sold by auto makers. What happened is quite the opposite and the auto makers took a hard look at their electric car program, uncertain how to market a "clean vehicle" without admitting the piston engine vehicles are dirty, realizing that much of the profit from a piston engine vehicle comes with the replacement of parts and not so with electric cars and finally, realizing that a State, not even the State of California can make them build technology they don't have, nor can any state even make them keep building the technology they do have, and so, the auto makers killed their own electric car program and this was the impact of a political-legal environment.
The Politico-Legal Environment Have An Impact On The Business Organization -In Anyone Or More Of These Areas
-Finance
-Marketing
-Human Resource
-Tax policies
what tax hinder the business and what taxes incentives are available] [ if the tax policies are liberal / incentivated, businesses will add expansion , which means the impact on HR
-International trade regulations and restrictions [ does the government encourage exports / with high tariffs on imports] [ if the exports policies are liberal / incentivated, businesses will add expansion , which means the impact on HR
Education : as the education level goes up and income distribution improves, demand for product/services will go up, businesses will addexpansion , which means the impact on HR
-Living conditions : as the income level goes up and living conditions improves, demand for product/services will go up, businesses will addexpansion , which means the impact on HR
Technological
New inventions and development : as more inventions are brought out, more jobs are created, demand for product/services will go up, businesses will add expansion , which means the impact on HR
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