2015 – Solved Question Paper | Business Environment | Previous Year – Masters of Commerce (M.Com) | Dibrugarh University

2015 – Solved Question Paper | Business Environment | Previous Year – Masters of Commerce (M.Com) | Dibrugarh University



Course: 101 (Business Environment)

Full Marks: 80

Time: 3 hours

The figures in the margin indicate full marks for the questions.

1(a) Highlight the relevance of government and business.

-> Government and business institutions in a country in many ways are interrelated and interdependent. In today’s global economy, businessmen and entrepreneurs are the driving forces of the economy.

In a planned economy or even in the market economy government holds control of shaping the business activates of a country.

For maintaining a steady and upward economic growth The Government must try to make the environment for business organizations suitable.

The main goal of businesses is to make a profit and governments’ goal is to ensure economic stability and growth. Both of them are different but very co-dependent.

For this, the government and organizations or businesses always try to influence and persuade each other in many ways for various matters.

A balanced relationship between the government and businesses is required for the welfare of the economy and the nation.

Let’s see how government and business organizations try to influence each other.

Business Organizations Influences the Government

Organizations try to force the government to act in ways that benefit the business activities. Of Course, for that, an organization must go through legitimately.

But sometimes we see that organizations try to go over the line.

Anyways, these are the common methods that business organizations us to influence government policies.

§ Personal Conducts and Lobbying

The corporate executives and political leaders and government officials are in the same social class. This creates a personal relationship between both parties. Also, organizations formally from the group to present their issues to government bodies.

§ Forming Trade Unions And Chamber Of Commerce

Trade unions and the chamber of commerce are associations of business organizations with a common interest. They work to find the common issues of organizations and present reports, holds dialogue to discuss them with government bodies.

§ Political Action Committees

Recently in the 2012 US elections, the term “super PACs” was a common topic in many discussions. Political action committees (PACs) or are special organizations formed to solicit money and distribute to political candidates.

Most times the rich executives donate money to the political candidates whose political views are similar to them.

§ Large Investment

Companies if can make a very large investment in industries or projects, could somehow affect government policies.

We see these very often in developing countries where foreign corporate wants to invest in these countries.

These works in another way around, where the government tries to implement the policy to attract foreign investment.

Government Influences the Business Organizations

The government attempts to shape the business practices through both, directly and indirectly, implementing rules and regulations.

The government most often directly influences organizations by establishing regulations, laws, and rules that dictate what organizations can and cannot do.

To implement legislation, the government generally creates special agencies to monitor and control certain aspects of business activity.

For example, the environment protection agency handles Central Bank , Food and Drug Administration, Labour Commission, Securities, and Exchange Commission and much more.

These agencies directly create, implement laws and monitor its application in the organization.

Governments sometimes take an indirect approach to shaping the activities of business organizations. These are also done by implementing laws or regulations but they are not always mandatory.

For instance, the government sometimes tries to change organizations’ policies by their tax codes.

The government could give tax incentives to companies that have an environment-friendly waste management system in a production factory.

Or, tax incentives could be provided to companies that have established their production facilities in a less developed region in the country. As a result, more often the businesses would probably do so.

(b) Discuss the significance of external business environment with examples.

-> External business environment consists of all the outside institutions and forces that have an actual or potential interest or impact on the organization’s ability to achieve its objectives, e.g.; competitive, economic, technological, political, legal, demographic, cultural, and ecosystem.

The significance of external business environment is:-

1. Suppliers- Development of supplier’s environment has a substantial impact on the company’s activity and marketing operations. Supply shortages or delay’s labour strikes and other events can affect sales and customer’s goodwill in the long run.

2. Customers- Every business house is closely looking at the customer’s needs, satisfaction level and expectations. As today’s market is primarily determined by customers, so the players have no other option but to dance in the tune played by the customers.

3. Competitors- The success of an enterprise depends on its ability to satisfy the needs and wants of the customers better than its competitors. With the change of the world economy by and large the competition becomes very tough and hence every organization tries to develop strategies to remain in the fray.

3. Economic systems- The economic system adopted by a country has a large role to play in determining the future course of action of all the business enterprises in that country. The systems could be Open market economy, centrally planned economy or Mixed economy. All these economies have certain advantages and disadvantages and accordingly the business houses has frame up their policies to sustain themselves in that economy.

4. Political system- The ideology of the political parties in rule has a major role in determining the course of action of business houses in that country. So the stabilities and efficiency of the political party has a positive impact on the business activities.

5. Social & Cultural Factors- The socio-cultural environment encompasses the economic, political, legal or technological factors and at times the buying behaviours of customers, their preferences, attitudes, beliefs, life styles and social values are being made to change over a period of time. Hence the socio-cultural changes affect the business strategies of an organization.

2(a) Are controls under planning in India effective? Justify.

-> At the time of independence India was a backward underdeveloped country. There was a lot of exploitation of India during the British colonial rule.

This made Indian people very poor. The aim of freedom struggle was not mere gaining political freedom from the British rule but also to attain economic freedom for the Indian people. Economic freedom implies the removal of mass poverty that prevailed in India.

At the time of independence there was deficiency of good entrepreneurs who could use the natural resource endowment of India for economic development. To improve living standards of the people, it was necessary to accelerate rate of economic growth. It was thought that the private sector lacked the necessary resources and the proper mindset to bring about rapid economic growth.

Inspired by the Russian experience, planning as an instrument of economic development was adopted. The Planning Commission was set up to prepare five year plans which would indicate directions in which the Indian economy should move. Resources were to be allocated both at the Centre and in the States according to the plan priorities decided in a five year plan.

The basic objective of Indian planning has been acceleration of economic growth so as to raise the living standards of the people. Further, various five year plans also gave high priority to generation of employment opportunities and removal of poverty. In what follows we will explain the role of planning in India and then explain the development strategies adopted in various plans to achieve the objectives.

Role of Planning In India:

Accelerating Economic Growth:

There were two main features of India’s economic policy that emphasized the role of planning and intervention by the State in the development process of the Indian economy in the first three decades of planning. First, to accelerate economic growth economists and planners recognized that raising the rate of saving and investment was essential to accelerate the rate of economic growth.

It was thought that the private sector on its own would not be able to achieve a higher rate of saving and investment required to break the vicious circle of poverty. Therefore, the state had to intervene to raise resources and increase the rate of saving and investment. This made the planning and the expansion of the public sector essential to accelerate economic growth.

Emphasis on Industrialisation, Second, the strategy of development, adopted since the adoption of Second Five Year Plan which was based on Mahalanobis growth model, laid stress on the industrialisation with an emphasis on the development of basic heavy industries and capital goods industries.

This model implied allocating a higher proportion of investible resources to capital goods industries than to consumer goods industries. Private sector which is driven by profit motive could not be expected to allocate sufficient resources to the growth of capital goods industries.

Therefore, the role of planning and the public sector was considered essential for rapid growth of basic heavy industries. Mahalanobis growth model was wrong in neglecting the role of agriculture and importance of wage goods for accelerating growth of output and employment. In fact, shortage of food, a cheap wage good, rather than machines could act as a constraint on the growth process. This became evident by the time of the Third Plan which laid a relatively greater stress on growth of agriculture to achieve self-reliance.

Development Strategy in India’s Five Year Plans:

In the Second Five Year Plan strategy which continued practically till the Fourth Plan period (1969-74) it was visualized those basic constraints on development was the acute deficiency of physical capital which was responsible for small productive capacity of the Indian economy. It was further thought that the rate of capital formation depended on the domestic rate of saving which could be raised by the adoption of proper fiscal and monetary policies.

However, Mahalanobis, author the Second Plan’s development strategy, asserted that even if domestic rate of saving could be increased, the non-availability of the domestic capacity to produce capital goods would prevent the transformation of these savings into real productive investment. Note that real investment occurs when savings are spent on purchasing capital goods such as machinery and equipment. The alternative to the expansion of domestic capacity to produce capital goods would be importing capital goods to ensure sustained increase in the rate of real investment.

Mahalanobis ruled out import of capital goods on grounds of lack of foreign exchange earnings from exports. He argued that if large investment was not made in basic heavy industries producing capital goods, the country would ever remain dependent on foreign countries for the import of steel and capital goods.

Since it was not possible for India to earn sufficient foreign exchange by increasing exports, the capital goods could not be imported in sufficient quantities owing to foreign exchange constraint. The result will be that the rate of real capital formation and rate of economic growth in the country would remain low.

Thus, Mahalanobis was of the opinion that without adequate investment in basic heavy industries, it would not be possible to achieve rapid self-reliant economic growth. According to Mahalanobis, “The proper strategy would be to bring about a rapid development of the industries producing investment goods in the beginning by increasing appreciably the proportion of investment in basic heavy industries. As the capacity to manufacture both heavy and light machinery and other capital goods increases, the capacity to invest in home produced capital goods would also increase steadily and India would become more and more independent of imports of foreign machinery and capital.”

Further, according to Mahalanobis, productive employment can be created only by increasing the production of capital goods. To quote him, “the only way of eliminating unemployment in India is to build up a sufficiently large stock of capital which will enable all unemployed persons being absorbed in productive activity. Increasing the rate of investment is therefore the only fundamental remedy for unemployment in India.”

Another important element of development strategy adopted in India’s earlier Five Year Plans was their emphasis on modem industrialisation, especially of import-substitution type. It was generally believed that industrialisation would generate sufficient employment opportunities which would cause surplus labour currently unemployed in agriculture to be shifted to more productive employment in industries. The underlying assumption was that agriculture was subject to diminishing returns and could not absorb unemployed labour productively whereas industries operated according to increasing returns to scale.

Thus, identifying underdevelopment with dependence on agriculture and thinking industrial growth especially the development of heavy industries as the core of development underlined the approach and strategy of the Second Five Year Plan.

To quote from Second Plan again, “low or static standards of living, underemployment and unemployment and to a certain extent even the gap between the average income and the highest income are all manifestations of the basic underdevelopment which characterizes an economy depending mainly on agriculture. Rapid industrialisation and diversification of the economy is thus the core of development. But if industrialisation is to be rapid enough, the country must aim at developing basic industries and industries which make machines to make the machines needed for further development.”

(b) Critically argue the role played by MRTP Act in India to minimise the restrictive trade practices.

-> The Monopolies & Restrictive Trade Practices Commission will be renamed Fair Trade Practices Commission under the revamped Monopolies and Restrictive Trade Practices (MRTP) Act being considered by the government.

Under the proposed MRTP Act, there will be a complete bifurcation of jurisdictions of the new act and the Consumer Redressal Act. This would help the commission to concentrate on larger issues rather than take up individual consumer grievances.

The MRTP Commission at present is flooded with individual consumer complaints and over 3000 such cases are pending with the commission. Officials assert that these complainants are only interested in claiming their compensation from companies which have indulged in unfair or restrictive trade practice. Hence, these cases need to be addressed by the Consumer Redressal Act, letting the MRTP Act concentrate on larger issues.

Another clause being considered by the government for inclusion in the revamped Act is the conferring of powers on the commission to impose financial penalties on offenders whose guilt has been proven.

At present, the MRTP Act allows only cease and desist orders against any party whose unfair or restrictive trade practice has been proven.

The government is also considering the withdrawal of writ jurisdiction from the act which allows offenders to contest the commission’s decision in high courts.

According to MRTP officials, the parties often seek stay orders from high courts which lengthen the time period for the cases.

The new act may also bring the directorate-general (investigation & registration), a statutory body under the MRTP Act, under direct control of the commission and also withdrawal of the suo motu powers of DGIR under the proposed recast act.

The new act would also seek to raise the status of the members of the commission from additional secretary level to secretary level. Besides, the act is likely to provide for additional members to the commission.

According to officials in the MRTP Commission, the recast of the act is being undertaken to give more teeth to the commission in discharging its duties. The thrust of the new act would be to allow the commission to undertake more issue-related cases and act in its capacity as a quasi-judicial body.

Highlights of the new act

MRTP Commission to be renamed to Fair Trade Practices Commission

Bifurcation of jurisdiction between MRTP Act and Consumer Redressal Act to enable the Commission to focus on policy issues rather than individual cases

Mergers and amalgamations to be brought under the Act

Status of Commission members to be raised to secretary level

Commission to have power to impose financial penalties

Withdrawal of writ jurisdiction and all appeals against Commission to be directed to Supreme Court

Monopoly trade to come under the jurisdiction of the Act.

3(a) Critically evaluates the monetary policy in the Indian context.

-> Monetary policy is concerned with the changes in the supply of money and credit. It refers to the policy measures undertaken by the government or the central bank to influence the availability, cost and use of money and credit with the help of monetary techniques to achieve specific objectives. Monetary policy aims at influencing the economic activity in the economy mainly through two major variables, i.e., (a) money or credit supply, and (b) the rate of interest.

The techniques of monetary policy are the same as the techniques of credit control at the disposal of the central bank. Various techniques of monetary policy, thus, include bank rate, open market operations, variable cash reserve requirements, selective credit controls. R.P. Kent defines monetary policy as the management of the expansion and contraction of the volume of money in circulation for the explicit purpose of attaining a specific objective such as full employment.

According to A. J. Shapiro, “Monetary Policy is the exercise of the central bank’s control over the money supply as an instrument for achieving the objectives of economic policy.” In the words of D.C. Rowan, “The monetary policy is defined as discretionary action undertaken by the authorities designed to influence (a) the supply of money, (b) cost of money or rate of interest and (c) the availability of money.”

Monetary policy is not an end in itself, but a means to an end. It involves the management of money and credit for the furtherance of the general economic policy of the government to achieve the predetermined objectives. There have been varying objectives of monetary policy in different countries in different times and in different economic conditions.

Different objectives clash with each other and there is a problem of selecting a right objective for the monetary policy of a country. The proper objective of the monetary policy is to be selected by the monetary authority keeping in view the specific conditions and requirements of the economy.

Objectives of Monetary Policy:

The goals of monetary policy refer to its objectives such as reasonable price stability, high employment and faster rate of economic growth. The targets of monetary policy refer to such variables as the supply of bank credit, interest rate and the supply of money.

These are to be changed by using the instruments of monetary policy for attaining the objectives (goals). The instruments of monetary policy are variation in the bank rate, the repo rate and other interest rates, open market operations (OMOs), selective credit controls and variations in reserve ratio (VRR). [The targets are to be changed by using the instruments to achieve the objectives.]

Four most important objectives of monetary policy are the following:

1. Stabilising the Business Cycle :

Monetary policy has an important effect on both actual GDP and potential GDP. Industrially advanced countries rely on monetary policy to stabilise the economy by controlling business. But it becomes impotent in deep recessions.

Keynes pointed out that monetary policy loses its effectiveness during economic downturn for two reasons:

(i) The existence of liquidity trap situation (i.e., infinite elasticity of demand for money) and

(ii) Low interest elasticity of (autonomous) investment.

2. Reasonable Price Stability :

Price stability is perhaps the most important goal which can be pursued most effectively by using monetary policy. In a developing country like India the acceleration of investment activity in the face of a fall in agricultural output creates excessive pressure on prices. The food inflation in India is a proof of this. In such a situation, monetary policy has much to contribute to short-run price stability.

Due to various changes in the structure of the economy in a developing country like India some degree of inflation is inevitable. And mild inflation or a functional rise in prices is desirable to give necessary incentive to producers and investors. As P. A. Samuelson put it, mild inflation at the rate of 3% to 4% per annum lubricates the wheels of trade and industry and promotes faster economic growth.

Price stability is also important for improving a country’s balance of payments. In the opinion of C. Rangarajan, “The increasing openness of the economy, the need to service external debt and the necessity to improve the share of our exports in a highly competitive external environment require that the domestic price level is not allowed to rise unduly”. This is more so in view of the fact that India’s major trading partners have achieved notable success in recent years in achieving price stability.

3. Faster Economic Growth :

Monetary policy can promote faster economic growth by making credit cheaper and more readily available. Industry and agriculture require two types of credit—short-term credit to meet working capital needs and long-term credit to meet fixed capital needs.

The need for these two types of credit can be met through commercial banks and development banks. Easy availability of credit at low rates of interest stimulates investment or expansion of society’s production capacity. This in its turn enables the economy to grow faster than before.

4. Exchange Rate Stability:

In an ‘open economy’—that is, one whose borders are open to goods, services, and financial flows— the exchange-rate system is also a central part of monetary policy. In order to prevent large depreciation or appreciation of the rupee in terms of the US dollar and other foreign currencies under the present system of floating exchange rate the central bank has to adopt suitable monetary measures. India by the Reserve

Conflicts among Objectives:

In the long run there is no conflict between the first two objectives, viz., price stability and economic growth. In fact, price stability is a means to achieve faster economic growth. In the context of the Indian economy C. Rangarajan writes, “It is price stability which provides the appropriate environment under which growth can occur and social justice can be ensured.”

However, in the short run there is a trade-off between price stability and economic growth. Faster economic growth is achieved by increasing-the availability of credit at a lower rate of interest. This amounts to an increase in the money supply.

But an increase in the money supply and the consequent rise in consumer demand tend to generate a high rate of inflation. This raises the question of what is the minimum acceptable rate of inflation which does not act as a growth-retarding factor. The question still remains unanswered.

There is also a conflict between exchange rate stability and economic growth. If the rupee depreciates in terms of the dollar, then RBI has to tighten its monetary screws, i.e., it has to raise the interest rate and reduce excess liquidity of banks (from which loans are made).

On the other hand in order to promote faster economic growth the RBI has to lower interest rate and make more credit available for encouraging private investment. Thus the RBI often faces a dilemma situation.

Monetary Policy of India:-

Monetary Policy is the process by which the monetary authority of a country, generally the central bank, controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth. In India, the central monetary authority is the Reserve Bank of India (RBI). It is designed to maintain the price stability in the economy. Other objectives of the monetary policy of India, as stated by RBI, are:

Price Stability

Price Stability implies promoting economic development with considerable emphasis on price stability. The centre of focus is to facilitate the environment which is favourable to the architecture that enables the developmental projects to run swiftly while also maintaining reasonable price stability.

Controlled Expansion of Bank Credit

One of the important functions of RBI is the controlled expansion of bank credit and money supply with special attention to seasonal requirement for credit without affecting the output.

Promotion of Fixed Investment

The aim here is to increase the productivity of investment by restraining non essential fixed investment.

Restriction of Inventories and stocks

Overfilling of stocks and products becoming outdated due to excess of stock often results in sickness of the unit. To avoid this problem, the central monetary authority carries out this essential function of restricting the inventories. The main objective of this policy is to avoid over-stocking and idle money in the organisation.

To Promote Efficiency

It is another essential aspect where the central banks pay a lot of attention. It tries to increase the efficiency in the financial system and tries to incorporate structural changes such as deregulating interest rates, easing operational constraints in the credit delivery system, introducing new money market instruments, etc.

Reducing the Rigidity

RBI tries to bring about flexibilities in operations which provide a considerable autonomy. It encourages more competitive environment and diversification. It maintains its control over financial system whenever and wherever necessary to maintain the discipline and prudence in operations of the financial system.

These instruments are used to control the money flow in the economy,

Open Market Operations

An open market operation is an instrument of monetary policy which involves buying or selling of government securities like government bond from or to the public and banks. This mechanism influences the reserve position of the banks, yield on government securities and cost of bank credit. The RBI sells government securities to control the flow of credit and buys government securities to increase credit flow. Open market operation makes bank rate policy effective and maintains stability in government securities market.

Cash Reserve Ratio (CRR)

Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances. The higher the CRR with the RBI, the lower will be the liquidity in the system, and vice versa. RBI is empowered to vary CRR between 15 percent and 3 percent. Per the suggestion by the Narasimham Committee report, the CRR was reduced from 15% in 1990 to 5 percent in 2002. As of 31 December 2019, the CRR is 4.00 percent.

Statutory Liquidity Ratio (SLR)

Every financial institution has to maintain a certain quantity of liquid assets with themselves at any point of time of their total time and demand liabilities. These assets have to be kept in non cash form such as G-secs precious metals, approved securities like bonds etc. The ratio of the liquid assets to time and demand liabilities is termed as the statutory liquidity ratio . There was a reduction of SLR from 38.5% to 25% because of the suggestion by Narsimham Committee. As on 31-December -2019, the SLR stands at 18.25%.

Bank Rate Policy

The bank rate , also known as the discount rate, is the rate of interest charged by the RBI for providing funds or loans to the banking system. This banking system involves commercial and co-operative banks, Industrial Development Bank of India, IFC , EXIM Bank , and other approved financial institutions. Funds are provided either through lending directly or discounting or buying money market instruments like commercial bills and treasury bills . Increase in bank rate increases the cost of borrowing by commercial banks which results in the reduction in credit volume to the banks and hence the supply of money declines. Increase in the bank rate is the symbol of tightening of RBI monetary policy. As of 31 December 2019, the bank rate is 5.40 percent.

Credit Ceiling

In this operation, RBI issues prior information or direction that loans to the commercial banks will be given up to a certain limit. In this case, commercial bank will be tight in advancing loans to the public. They will allocate loans to limited sectors. A few examples of credit ceiling are agriculture sector advances and priority sector lending.

Credit Authorisation Scheme

Credit Authorisation Scheme was introduced in November, 1965 when P C Bhattacharya was the chairman of RBI. Under this instrument of credit regulation, RBI, as per the guideline, authorise the banks to advance loans to desired sectors.

Moral Suasion

Moral Suasion is just as a request by the RBI to the commercial banks to take certain actions and measures in certain trends of the economy. RBI may request commercial banks not to give loans for unproductive purposes which do not add to economic growth but increase inflation.

Repo Rate and Reverse Repo Rate

Repo rate is the rate at which RBI lends to its clients generally against government securities. Reduction in repo rate helps the commercial banks to get money at a cheaper rate and increase in repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. Reverse repo rate is the rate at which RBI borrows money from the commercial banks. The increase in the repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit. As the rates are high the availability of credit and demand decreases resulting to decrease in inflation . This increase in repo rate and reverse repo rate is a symbol of tightening of the policy. As of 31 December, 2019 Repo rate is 5.15% and Reverse Repo rate is 4.90%.

(b) Write a detail note on the fiscal policy of India.

-> The means by which the government adjust its spending levels along with tax rates to influence and monitor the nation’s economy it is known as fiscal policy.

Fiscal policy is playing an important role on the economic and social front of a country. Traditionally, fiscal policy in concerned with the determination of state income and expenditure policy. But with the passage of time, the importance of fiscal policy has been increasing continuously for attaining rapid economic growth.

Accordingly, it has included public borrowing and deficit financing as a part of fiscal policy of the country. An effective fiscal policy is composed of policy decisions relating to entire financial structure of the government including tax revenue, public expenditures, loans, transfers, debt management, budgetary deficit, etc. There are several component policies or a mix of policies that contribute to the fiscal policy. These include subsidy, taxation, welfare expenditure, etc. Also, there are a certain investment and disinvestment policies and debt and surplus management that contribute to fiscal policies.

Objectives of a Fiscal Policy

· 1. In order to stabilize the pricing level in the economy.

· 2. The main objective is to achieve and maintain the level of full employment in the country.

· 3. Also, to stabilize the growth rate in the economy.

· 4. Also, promote the economic development in a country.

· 5. In order to maintain the level of balance of payment in the economy.

Various Types of Fiscal Policies

Contractionary Fiscal Policy

This involves cutting government spending or raising taxes. Thus, the tax revenue generated is more than government spending. Also, it cuts on the aggregate demand in the economy. So, the economic growth leading to the reduction in inflationary pressures of the economy.

Expansionary Fiscal Policy

This is generally used to give a boost to the economy. Thus, it speeds up the growth rate of the economy. Also, during the recession period when the growth in national income is not enough to maintain the current living of the population.

So, a tax cut and an increase in government spending would boost economic growth and decrease the unemployment rates. Although this is not a sustainable solution. Because this can lead to a budget deficit. Thus, the government should use this with caution.

Neutral Fiscal Policy

This policy implies a balance between government spending and Furthermore, it means that tax revenue is fully used for government spending. Also, the overall budget outcome will have a neutral effect on the level of economic activities.

Types of Fiscal Policy

There are major components to the fiscal policies and they are

Expenditure Policy

Government expenditure includes capital expenditure and revenue expenditure. Also, the government budget is the most important instrument that embodies government expenditure policy. Furthermore, the budget is also for financing the deficit. Thus, it fills the gal between income and government spending.

Taxation Policy

The government generates its revenue by imposing both indirect taxes and direct taxes. Thus, it is important for the government to follow a judicial system for taxation and impose correct tax rates. This is because of two reasons. The higher the tax, the reduction in the purchasing power of the people.

This will lead to a decrease in investment and production. Furthermore, the lower tax will leave more money with people that lead to high spending and thus higher inflation.

Merits or Advantages of Fiscal Policy of India:

The following are some of the important merits or advantages of fiscal policy of Government of India:

1. Capital Formation:

Fiscal policy of the country has been playing an important role in raising the rate of capital formation in the country both in its public and private sectors. The gross domestic capital formation as per cent of GDP in India has increased from 10.2 per cent in 1950-51 to 22.9 per cent in 1980-81 and then to 24.8 per cent in 1997-98. Therefore, it has created a favourable impact on the public and private sector investment of the country.

2. Mobilisation of Resources:

Fiscal policy of the country has been helping to mobilize considerable amount of resources through taxation, public debt etc. for financing its various developmental projects. The extent of internal resources mobilisation for financing plan has increased considerably from 70 per cent in 1965-66 to around 90 per cent in 1997-98.

3. Incentives to Savings:

The fiscal policy of the country has been providing various incentives to raise the savings rate both in household and corporate sector through various budgetary policy changes, viz., tax exemption, tax concession etc. Accordingly, the saving rate has increased from a mere 10.4 per cent in 1950-51 to 23.1 per cent in 1997-98.

4. Inducement to Private Sector:

Private sector of the country has been getting necessary inducement from the fiscal policy of the country to expand its activities. Tax concessions, tax exemptions, subsidies etc. incorporated in the budgets have been providing adequate incentives to the private sector units engaged in industry, infrastructure and export sector of the country.

5. Reduction of Inequality:

Fiscal policy of the country has been making constant endeavour to reduce the inequality in the distribution of income and wealth. Progressive taxes on income and wealth tax exemption, subsidies, grant etc. are making a consolidated effort to reduce such inequality. Moreover, the fiscal policy is also trying to reduce the regional disparities through its various budgetary policies.

6. Export Promotion:

The Fiscal policy of the government has been making constant endeavor to promote export through its various budgetary policy in the form of concessions, subsidies etc. As a result, the growth rate of export has increased from a mere 4.6 per cent in 1960-61 to 10.4 per cent in 1996-97.

7. Alleviation of Poverty and Unemployment:

Another important merit of Indian fiscal policy is that it is making constant effort to alleviate poverty and unemployment problem through its various poverty eradication and employment generation programmes, like, IRDP, JRY, PMRY, SJSRY, EAS etc.

4(a) Elucidate the redressal machinery under the Consumer Protection Act.

-> Redressal Machinery under the Act:

The CPA provides for a 3 tier approach in resolving consumer disputes. The District Forum has jurisdiction to entertain complaints where the value of goods / services complained against and the compensation claimed is less than Rs. 5 lakhs, the State Commission for claims exceeding Rs. 5 lakhs but not exceeding Rs. 20 lakhs and the National Commission for claims exceeding Rs. 20 lakhs.

District Forum

Under the CPA, the State Government has to set up a district Forum in each district of the State. The Government may establish more than one District Forum in a district if it deems fit. Each District Forum consists of:-

(a) a person who is, or who has been, or is qualified to be, a District Judge who shall be its President

(b) two other members who shall be persons of ability, integrity and standing and have adequate knowledge or experience of or have shown capacity in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration, one of whom shall be a woman.

Appointments to the State Commission shall be made by the State Government on the recommendation of a Selection Committee consisting of the President of the State Committee, the Secretary – Law Department of the State and the secretary in charge of Consumer Affairs

Every member of the District Forum holds office for 5 years or up to the age of 65 years, whichever is earlier and is not eligible for re-appointment. A member may resign by giving notice in writing to the State Government whereupon the vacancy will be filled up by the State Government.

The District Forum can entertain complaints where the value of goods or services and the compensation, if any, claimed is less than rupees five lakhs. However, in addition to jurisdiction over consumer goods services valued upto Rs. 5 lakhs, the District Forum also may pass orders against traders indulging in unfair trade practices, sale of defective goods or render deficient services provided the turnover of goods or value of services does not exceed rupees five lakhs.

A complaint shall be instituted in the District Forum within the local limits of whose jurisdiction –

(a) the opposite party or the defendant actually and voluntarily resides or carries on business or has a branch office or personally works for gain at the time of institution of the complaint; or

(b) any one of the opposite parties (where there are more than one) actually and voluntarily resides or carries on business or has a branch office or personally works for gain, at the time of institution of the complaint provided that the other opposite party/parties acquiescence in such institution or the permission of the Forum is obtained in respect of such opposite parties; or

(c) the cause of action arises, wholly or in part.

State Commission

The Act provides for the establishment of the State Consumer Disputes Redressal Commission by the State Government in the State by notification. Each State Commission shall consist of:-

(a) a person who is or has been a judge of a High Court appointed by State Government (in consultation with the Chief Justice of the High Court ) who shall be its President;

(b) two other members who shall be persons of ability, integrity, and standing and have adequate knowledge or experience of, or have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs or administration, one of whom must be a woman.

Every appointment made under this hall be made by the State Government on the recommendation of a Selection Committee consisting of the President of the State Commission, Secretary -Law Department of the State and Secretary in charge of Consumer Affairs in the State.

Every member of the District Forum holds office for 5 years or up to the age of 65 years, whichever is earlier and is not eligible for re-appointment. A member may resign by giving notice in writing to the State Government whereupon the vacancy will be filled up by the State Government.

The State Commission can entertain complaints where the value of goods or services and the compensation, if any claimed exceed Rs. 5 lakhs but does not exceed Rs. 20 lakhs;

The State Commission also has the jurisdiction to entertain appeal against the orders of any District Forum within the State

The State Commission also has the power to call for the records and appropriate orders in any consumer dispute which is pending before or has been decided by any District Forum within the State if it appears that such District Forum has exercised any power not vested in it by law or has failed to exercise a power rightfully vested in it by law or has acted illegally or with material irregularity.

National Commission

The Central Government provides for the establishment of the National Consumer Disputes Redressal Commission The National Commission shall consist of:-

(a) a person who is or has been a judge of the Supreme Court, to be appoint by the Central Government (in consultation with the Chief Justice of India ) who be its President;

(b) four other members who shall be persons of ability, integrity and standing and have adequate knowledge or experience of, or have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs or administration, one of whom shall be a woman

Appointments shall be by the Central Government on the recommendation of a Selection Committee consisting of a Judge of the Supreme Court to be nominated by the Chief Justice of India, the Secretary in the Department of Legal Affairs and the Secretary in charge of Consumer Affairs in the Government of India.

Every member of the National Commission shall hold office for a term of five years or up to seventy years of age, whichever is earlier and shall not be eligible for reappointment.

The National Commission shall have jurisdiction:-

a. to entertain complaints where the value of the goods or services and the compensation, if any, claimed exceeds rupees twenty lakhs:

b. to entertain appeals against the orders of any State Commission; and

c. to call for the records and pass appropriate orders in any consumer dispute which is pending before, or has been decided by any State Commission where it appears to the National Commission that such Commission has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested, or has acted in the exercise of its jurisdiction illegally or with material irregularity.

Complaints may be filed with the District Forum by:-

1. The consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided

2. Any recognised consumer association, whether the consumer to whom goods sold or delivered or agreed to be sold or delivered or service provided or agreed to be provided, is a member of such association or not

3. one or more consumers, where there are numerous consumers having the same interest with the permission of the District Forum, on behalf of or for the benefit of, all consumers so interested

4. The Central or the State Government.

On receipt of a complaint, a copy of the complaint is to be referred to the opposite party, directing him to give his version of the case within 30 days. This period may be extended by another 15 days. If the opposite party admits the allegations contained in the complaint, the complaint will be decided on the basis of materials on the record. Where the opposite party denies or disputes the allegations or omits or fails to take any action to represent his case within the time provided, the dispute will be settled in the following manner:-
I. In case of dispute relating to any goods: Where the complaint alleges a defect in the goods which cannot be determined without proper analysis or test of the goods, a sample of the goods shall be obtained from the complainant, sealed and authenticated in the manner prescribed for referring to the appropriate laboratory for the purpose of any analysis or test whichever may be necessary, so as to find out whether such goods suffer from any other defect. The appropriate laboratory’ would be required to report its finding to the referring authority, i.e. the District Forum or the State Commission within a period of forty- five days from the receipt of the reference or within such extended period as may be granted by these agencies.

Appropriate laboratory means a laboratory or organisation:-

(i) Recognised by the Central Government;

(ii) Recognised by a State Government, subject to such guidelines as may be prescribed by the Central Government

(iii) Any such laboratory or organisation established by or under any law for the time being in force, which is maintained, financed or aided by the Central Government or a State Government for carrying out analysis or test of any goods with a view to determining whether such goods suffer from any defect.

The District Forum / State Commission may require the complainant to deposit with it such amount as may be specified towards payment of fees to the appropriate laboratory for carrying out the tests. On receipt of the report, a copy thereof is to be sent by District Forum/State Commission to the opposite party along with its own remarks.

In case any of the parties disputes the correctness of the methods of analysis/test adopted by the appropriate laboratory, the concerned party will be required to submit his objections in writing in regard to the report. After giving both the parties a reasonable opportunity of being heard and to present their objections, if any, the District Forum/Slate Commission shall pass appropriate orders.

II. In case of dispute relating to goods not requiring testing or analysis or relating to services: Where the opposite party denies or disputes the allegations contained in the complaint within the time given by the District Forum / State Commission, it shall dispose of the complaint on the basis of evidence tendered by the parties. In case of failure by the opposite party to represent his case within the prescribed time, the complaint shall be disposed of on the basis of evidence tendered by the complainant.

(b) Explain the growth trends of India’s foreign trade.

-> Foreign Trade is the important factor in economic development in any nation. Foreign trade in India comprises of all imports and exports to and from India. The Ministry of Commerce and Industry at the level of Central Government has responsibility to manage such operations. The domestic production reveals on exports and imports of the country. The production consecutively depends on endowment of factor availability. This leads to relative advantage of the financial system. Currently, International trade is a crucial part of development strategy and it can be an effective mechanism of financial growth, job opportunities and poverty reduction in an economy. According to Traditional Pattern of development, resources are transferred from the agricultural to the manufacturing sector and then into services.

Foreign trade in India began in the period of the latter half of the 19th century. The period 1900-1914 saw development in India’s foreign trade. The augment in the production of crops as oilseeds, cotton, jute and tea was mainly due to a thriving export trade. In the First World War, India’s foreign trade decelerated. After post-war period, India’s exports increased because demand for raw materials was increased in all over world and there were elimination of war time restrictions. The imports also increased to satisfy the restricted demand. Records indicated that India’s foreign trade was rigorously affected by the great depression of 1930s because of decrement in commodity prices, decline in consumer’s purchasing power and unfair trade policies adopted by the colonial government. During the Second World War, India accomplished huge export surplus and accumulated substantial amount of real balances. There was a huge pressure of restricted demand in India during the Second World War. The import requirements were outsized and export surpluses were lesser at the end of the war. Before independence, India’s foreign trade was associated with a colonial and agricultural economy. Exports consisted primarily of raw materials and plantation crops, while imports composed of light consumer merchandise and other manufactures. The structure of India’s foreign trade reflected the organized utilization of the country by the foreign leaders. The raw materials were exported from India and finished products imported from the U.K. The production of final products was discouraged. For instance, cotton textiles, which were India’s exports, accounted for the largest share of its imports during the British period. This resulted in the decline of Indian industries. Since last six decades, India’s foreign trade has changed in terms of composition of commodities. The exports included array of conventional and non-traditional products while imports mostly consist of capital goods, petroleum products, raw materials, intermediates and chemicals to meet the ever increasing industrial demands. The export trade during 1950-1960 was noticeable by two main trends. First, among commodities which were directly based on agricultural production such as tea, cotton textiles, jute manufactures, hides and skins, spices and tobacco exports did not increase on the whole, and secondly, there was a significant boost in the exports of raw manufactures such as iron ore. In the period of 1950 to 1951, main products dominated the Indian export sector. These included cashew kernels, black pepper, tea, coal, mica, manganese ore, raw and tanned hides and skins, vegetable oils, raw cotton, and raw wool. These products comprised of 34 per cent of the total exports. In the period of 1950s there were balance of payments crunch. The export proceeds were not enough to fulfil the emerging import demand. The turn down in agriculture production and growing pace of development activity added pressure. The external factors such as the closure of Suez Canal created tension on the domestic financial system. The critical problem at that moment was that of foreign exchange scarcity. The Second Five Year Plan with its emphasis on the development of industry, mining and transport had a large foreign exchange factor. This tension on the balance of payments required the stiffening of import strategy at a later stage.

Indian economy and foreign trade are closely interlinked. The early policy initiatives aimed at liberalization of India’s foreign trade, the outward looking trade policy measures announced in 1991 marks the initiation of a new era in India’s foreign trade. The total value of India’s merchandise exports increased from US $ 1.3 billion in 1950-51 to US $ 251.1 billion in 2009-10. The proportions of high value and differentiated products have increased our export basket. The composition of trade is now dominated by manufactured goods and services. Though the gradual liberalization had picked up trade growth, the trade deficit has widened much more following the reforms. The unprecedented raise in the price of oil in 2008 skyrockets our import bills though the export sector has not been affected so much during the recent face of global slowdown. Thus, India’s potential in trade is great, but the challenges are also plenty.

Indian economy and foreign trade have come a long way in value terms from the time of gaining independence in 1947.The total value of merchandise exports increased from US $ 1.3 billion in 1950-51 to US $ 178.75 billion in 2009-10. India’s trade growth has been robust at 20 percent plus since 2002-03.Indian economy and foreign trade has shown progress post liberalization. While India’ trade growth has a strong correlation with world trade growth particularly in two time period, first following the 1990 reforms and second after 2003. India adopted import substitution strategy before the reforms to protect its domestic industries by imposing high tariffs and quantitative restrictions on imports. After the post liberalization India adopted export promotion strategy just to promote its export so as to increase its foreign exchange earnings. It was during the eighties that the government undertook expansionary fiscal and monetary policies. But this rapid expansion was supported by a large current account deficit. A mounting deficit, coupled with high inflation (at 13.5 percent) and the Gulf war led India to a balance of payment crisis in 1991. Following the crisis, the Indian economy was opened up to foreign participation for the first time, in an attempt to improve the efficiency and competitiveness of Indian industries. Post 1991, the gradual liberalization of the Indian economy characterized by such policy reforms created a conducive environment for India’s exports to flourish and evolve into an engine of social and economic growth. Hence, the last two decades have witnessed India transform from a closed economy to a considerable player in the global market.

India’s susceptibility to international crises became evident when the financial crisis of 2008 had an impact on India’s economic performance. The financial turmoil had a dampening effect on global demand and slowed down capital inflows which affected India’s export sector. The impact of the crisis was felt most acutely in job oriented sectors which experienced up to a 70 percent fall in their growth rates and affected other segments as well. This had a cascading effect on overall economic growth, as India’s GDP growth rate fell from 9 percent in 2007-08 to 7.1 percent in 2008-09. The impact of this crisis on the export sector was evident as India’s exports which had previously grown at nearly 20 percent between 2002 and 2008 plummeted to a negative 20.3 percent in 2009-10.Though India had previously experienced a negative growth in its exports, such a prolonged period of decline had not been witnessed in over two decades. It is evident from the preceding discussion that India’s export performance and economic growth are closely inter-linked. Over time, the export sector has grown to be a significant earner of foreign exchange and a major contributor to India’s national income. Further, the performance of this sector is highly dependent on domestic as well as global factors. As a consequence of this, domestic as well as international economic policies have a bearing on the overall export performance of India.

5(a) How far have structural reforms made an impact on reducing poverty and provision for food security?

-> The year 1991, is an important year in the economic history of India . As soon as the new government resumed office on June 21, 1991, it adopted a number of stabilization measures to restore internal and external confidence in India’s economy. In 1991, the government made some radical changes in its policies regarding foreign investment, trade, exchange rate, industries, banking, and fiscal affairs, etc. It also announced several new policies under the name – New Economic Reforms of India, which gave a new direction and dimension to the Indian economy.

Nature of Economic Reforms in India

The nature of the new economic reforms in India is as follows:


The fundamental feature of the new economic reforms in India was that it offered freedom to the entrepreneurs to establish any trade or industry or business venture. Economic liberalization means freedom to make economic decisions.

In other words, the producers, owners or consumers of the factors of production are free to take their decisions in order to promote their interests. The Government of India announced the liberalization policy in the:

  • Industrial sector
  • Foreign trade
  • Exchange rate
  • Banking and financial sector

· The fiscal sector, etc.

Further, the government also freed the capital markets and opened them to private enterprises. Also, it permitted foreign equity participation of up to 51 percent or more.

Additionally, the government de-licensed the industrial sector and abolished the Monopolies and Restrictive Trade Practices (MRTP) Act.

Further, the government also allowed foreign investments to enter the infrastructure sector. Finally, the policy amended the Foreign Exchange Regulation Act (FERA) and enacted the Foreign Exchange Management Act (FEMA).

Extension of Privatization

Another important feature of the new economic reforms in India was the extension of privatization in the country. In simple words, privatization is a process which helps to reduce the role of the State or the public sector in the economic activity of a country.

The primary objective of privatization is improving the overall performance of the public sector undertakings. This is especially beneficial to the taxpayers as it reduces the financial burden on them.

As a part of privatization, the government gave 11 industries to the private sector. These were out of the 17 industries reserved for the public sector. Further, the government offered better opportunities for investment to the foreign private investors and extended the scope of privatization.

Globalization of the Economy

The new economic reforms in India made our country’s economy outwardly oriented. Globalization is basically a process of increasing the economic integration and growing economic interdependence between different countries in the world economy.

The processes of economic liberalization and privatization of the public sector enterprises eventually led to the globalization of the Indian economy. Globalization is the flow of capital, commodities, technology, and labour across national boundaries. As a result of globalization, both domestic and world markets started governing the economic activities in India.

The impact of structural reforms on income generation and poverty alleviation in India: Poverty is defined as the state of being poor and not having access to adequate necessities. Poverty is a multifaceted concept, which also includes social, economic, and political elements. It is a social condition wherein human beings do not have enough financial means to meet the most basic standards of life that is acceptable by the society. Individuals suffering from poverty do not have the means to pay for basic needs of daily life such as food, clothes and shelter. Those who suffer from poverty also do not have access to social tools of well-being such as education and health requirements. The direct effects of poverty are hunger, malnutrition and susceptibility to diseases. These have been identified as huge problems across the world. It affects the individuals in a socio-psychological manner. This condition disables them from being able to afford simple recreational activities and getting progressively marginalized in the society. There can be various different causes of poverty. These may be categorized as follows:

1. Demographic – One of the biggest reasons of poverty in India is over population. India is a highly populated country. The growth of population in India is way beyond the growth in economy and the gross result is such that the poverty figures have remained more or less constant. As far as the rural areas are concerned, the basic size of the family is bigger which eventually leads to lowering the per capita income values and consequently lowering of standard of living of an individual.

2. Economic – There are many economic reasons behind poverty. These are:

a. Poor Agricultural Infrastructure – Agriculture is the backbone of the economy in India. India is an agricultural country. The only area where India lacks is the agricultural infrastructure such as outdated and old farming practices; obsolete technology and lack of formal agricultural education amongst the farmers. The income is too less for a farmer to meet the economic needs of his/ her family.

b. Unequal distribution of assets – The Upper and middle income groups in India see a faster increase in earnings as compared to the lower income groups. The scenario in India is such that 80% wealth in the country is controlled by just 20% of the population.

c. Unemployment – Unemployment is one factor that hugely increases and multiplies the effect of poverty by 10 times. Almost, 77% of families do not have a regular source of income in India.

3. Social – The various social issues that contribute largely to poverty are:

a. Education and illiteracy – Lack of education and growing illiteracy is majorly responsible for poverty in India. Due to the increase in the illiteracy rates, unemployment rises and resultantly poverty rates increase.

b. Outdated Social Customs – Social customs like caste system cause segregation and marginalization of certain sections of the society also play a major role in spreading poverty.

c. Gender inequality– India is a country where till today there is discrimination on the basis of gender. The weak status attached with women is hugely responsible for the poor condition of women.

d. Corruption – Although the government promises to make considerable efforts every now and then in order to make India corruption free but the reality is very different. Corruption is deep rooted in India. It is immensely difficult to make India corruption free. Due to the rise in the rates of corruption every hour, poverty is increasing simultaneously.

4. Individual – Individual lack of efforts also become a huge reason behind increase in the poverty rates. There are people who are lazy and do not wish to work hard. Such people suffer from poverty due to lack of personal efforts.

Effects of Poverty : Poverty is like a disease that has devastating effects on an individual and his family. The major effects are as follows:

1. Effect on Health – The biggest effect of poverty is poor health. Those who suffer from poverty do not have access to enough food, adequate clothing, medical facilities, and clean surroundings. The lack of all these basic facilities leads to poor health. Such individuals and their families suffer from malnutrition. Further, when these people get ill, they do not have enough money to visit a doctor and buy medicines. Many such poor people die on a daily basis due to prolonged illness etc. Further, these people are unable to afford a clean house for themselves, which also makes them prone to diseases.

2. Effects on Society – The effects of poverty on society are as follows:

a. Violence and crime rate –Occurrence of violence and crime have been found to be geographically coincident. Due to unemployment and marginalization, the poor people often indulge in wrong practices such as prostitution, theft and criminal activities such as chain snatching etc.

b. Homelessness – Poor people are usually homeless. They sleep on the road sides at night. These makes the entire scenario vey unsafe for women and children.

c. Stress – Due to lack of money, poor people suffer from a lot of stress which leads to a reduction in the productivity of individuals, thereby making poor people poorer.

d. Child labour – Poverty forces poor people to send their children to work instead of sending them to schools. This is because the families fail to bear the burden of their child/ children. Among the poor families, children start earning at an average age of 5 years only.

e. Terrorism – Youngsters from poor families are usually targeted and involved in terrorist activities. These people are offered huge amount of money in lieu of which they are assigned with a destructive task of terrorism.

3. Effect on Economy –Poverty is a directly proportional to the success of the economy. The number of people living under the poverty is reflective of how powerful is the economy.

The measures that should be taken in order to fight the demon of poverty in India are follows:

1. A check should be maintained on the population rate in India.

2. The employment opportunities must be increased by inviting more foreign investments into the country.

3. A check should be maintained upon the gap that remains in the distribution of wealth.

4. Few Indian states are more poverty stricken than the others like Odisha and the North Eastern states. Government should work in order to encourage investment in these states by offering special concessions on taxes.

5. Primary needs of people such as food, shelter and clothing should be taken care of by the government especially for those who are unable to afford these facilities.

Provision for food security:-

Change in poverty and household food security was seen during the period 1983 to 1999-00. The reason for including year 1983 in the analysis was to compare the change process before reforms as observed from the data for year 1983 and 1987-88 with the change process during reforms as revealed by comparing 1987-88 situation with 1993-94 and 1999-00. Level of energy intake and protein intake and per cent of population consuming less than suggested norm of calorie and protein were used as indicators of food security. Average per capita calorie intake at cultivator households in India during the year 1983 was 2289 kcal, which increased to 2423 during 1987-88. With the beginning of economic reforms calorie intake declined to 2277 and remained at this level during the year 1999-2000. Protein intake increased between 1983 and 1987-88 and declined thereafter in 1993-94 and 1999-00. Among different size classes calorie intake showed decline in the beginning of reforms and increase thereafter except in the case of large farm size group which recorded decline. In all the survey years’ per capita calorie intake increased with the increase in size of farm, which represents economic class.

Calorie intake at labour households dropped sharply in the beginning of reforms and recovered subsequently. Calorie intake at labour households during 1999-00 is slightly higher as compared to the year 1983 but lower as compared to 1987-88.

There was a sharp reduction in percent of population consuming less than minimum level of calorie suggested for a healthily person between 1983 and 1987-88. The process got reversed in the beginning of economic reforms. With further progress in reforms, undernourished population among farm households increased but there was a sharp decline in the case of labour households.

Incidence of malnourishment showed a sharp decline before reforms. With the beginning of economic reforms farm population deficit in protein showed a slight increase. Intensification of reforms with trade liberalization however was accompanied by sharp increase in malnourishment of farm population. The situation is somewhat different in the case of labour households. Their protein deficit population increased substantially in the beginning of reforms and dropped subsequently. According to the estimate for the year 1999-2000 more than 26 percent farm population and more than 45 percent of rural labours are suffering from energy and protein deficiency.

(b) Discuss the need, significance and importance of e-commerce.

-> E-Commerce is the online buying and selling process which is extremely important in our daily life now. The foremost reason behind the growth of Internet users besides social media in e-commerce. E-Commerce is at the heart of the Internet and e-commerce is as important as a heart is for a body.

Worldwide, e-commerce sales are expected to grow to 4 Trillion Dollars by 2020. In India, Amazon and Walmart are vying to outbid each other for buying Flipkart. Whoever finally wins, this merger/takeover by these e-commerce behemoths will leave a lasting impression on India’s ecommerce landscape.

Needs of E-commerce:-


There are many ways to make sure people can find your website. Whether you focus on long tail keywords or Pay per Click advertising on Google, it is essential that your website appears when searching for the products or services you offer.


Customers do not have to visit your shop to buy your products; you can now send them direct to their door.

One major advantage of having an e-commerce website is that customers do not have to visit your shop to buy your products, as they can be delivered anywhere in the country and direct to the customer’s door.


Potential customers can browse your entire product range whilst sitting on their sofa watching TV. You can also up sell and cross sell by recommending products that relate to the ones they are browsing.


For your business to really benefit from a growing social media following you need to make it as easy as possible for potential customers to buy your products. Continue to provide valuable content and then start sending your followers to your website is the best way to turn followers into customers.


Let’s be blunt, the footfall on high streets throughout the UK is dropping and I bet you can name a couple of shops that have been boarded up on your local high street. With this in mind it is essential that you offer your customers an easy way to buy your products and being able to buy your products anywhere at any time is a great asset for any business.


Increasing the number of opportunities to sell your products can massively contribute to the numbers of sales you generate. But don’t think that just by building an ecommerce website you will automatically gain new customers, there is still some leg work that has to go into making your website a success such as driving traffic, provide informative content and engage visitors.

Significance of E-commerce:-

E-commerce or Electronic commerce is the buzzword of the modern day. In simple terms, it’s just buying and selling of product and services through internet. But in a broad sense, it includes the entire online process of developing, marketing, selling, delivering, servicing and paying for products and services. With the widespread usage of internet, the sphere of ecommerce has widened dramatically.

Today Ecommerce is an integral part of business because of various reasons like:

• Ease of use

• Accessibility all across the globe

• Great variety & easy compassion of products from different vendors

• Trusted payment channels

• Shopping can be done sitting in the convenience of home shopping, hence it is less time consuming.

It is therefore very important for any new entrepreneur to understand the significance of E-Commerce and should know how to utilize this tool for the growth and development of business.

So, whether you have an existing business or launching a brand new business, whether the volume of your business is large or small, you can always generate profit by demonstrating your products or services online, thereby acquiring a large amount of viewer exposure. In concise, buying and selling will result in profits and returns.

There are so many factors which makes e-commerce to come to the fore front in today’s world. Saving precious time involved in business transactions is really a prominent factor. Like for instance, net banking makes it easy to carry out money and baking transactions in a break neck speed as compared to the real banking scenario. This asserts the fact that Ecommerce is beneficial to both business and consumer wise as payment and documentations can be completed with greater efficiency and reliability. Another important factor determining the flow of whole business is connectivity. Connectivity is very important for both consumers and business. Ecommerce provides better connectivity for all the potential candidates all over the globe, thus helping in enhancing the business without any geographical barriers. From the view point of the customer, Ecommerce is a good platform for hassle free shopping by sitting in your home. The customer can browse through all the products and services available and can review and compare the prices of the similar products available in the online space.

In global market scenario, the emergence of Ecommerce as a forerunner has opened up various windows of opportunities for a variety of online companies and investors. More and more resources are being directed into electronic securities, internet facilities, business plans and new technologies due to the boom in the space of E-commerce. As a result various new markets have emerged from Ecommerce itself giving a boost to the global market.

Importance of E-commerce:-

1. Wide variety of products:-

In small cities or villages, people have to compromise due to the small shops and a limited variety of products and services available locally. Traditional brick and mortar shops and conventional commerce is not able to satisfy customers in terms of variety. Normally people have to visit 5 to 6 shoe stores in 1 market to buy 1 pair of shoes due to size, colour, price or design problem, etc. And it’s tough for retailers to provide all the variations. That’s why eCommerce is important. It brings in more variety by expanding the boundaries of traditional commerce.

People can visit more than 5 websites to buy shoes in a few minutes, which is far more convenient than visiting 5 different shops. They can check colours, offers, sizes, models and various details related to shoes. And it takes 20 to 30 minutes to decide. With the traditional retail method, you need to spend the whole day if you decide to shop for shoes or anything else at the Mall. That’s why I believe that eCommerce is important to provide a variety of products with speed and that too at home.

2. Lower Cost than traditional shopping and selling:-

Selling products and services online is less costly than traditional methods. There are various high overhead costs that are included in offline commerce. Recurring expenses such as store management cost, counter cost, inventory cost, security cost, transportation cost, Shop rent, and salary, etc. So the retailers cannot afford to sell the products at a low cost.

That’s why eCommerce is important because it reduces the fixed cost and variable cost and people get the products and services at a low cost.

3. Less time consuming and faster consumer consumption:-

If we talk about educational eCommerce then it’s really changed the way people consume the products and services. For example, traditionally it takes a minimum of 6 months course offline to learn graphics designing. And people have to visit the study centre each day for 2-3 hours for a 6 month period. It’s not providing flexibility, freedom for the learners to choose their own hours, mood and best focused time of the day. Nor are the teachers available all the time in the offline classroom. As a result, it takes lots of time to build and improve the skills for faster employment.

4. Exciting offers and shopping deals notifications:-

Traditionally people don’t know what’s new (shoes, clothes, cosmetics, electronics) in tier 2 and tier 3 cities, village shops, local market or even shopping malls until they don’t visit. Even local retailers don’t know what’s hot in the international market.

That’s why in the past you found that there was a difference in the thinking, personality, appearance, and habits of people from metros and those from villages, etc. But owing to the unprecedented development in eCommerce and communication technology, now people from even the most far-flung areas such as Leh and Ladakh get notifications and messages from sellers about existing Diwali and Navratras discount offers.

Today customers can find the best shopping deals within a second by visiting a link on their mobile. Now the same branded jeans are worn by trendy people in Mumbai and also worn by a fashionable Darlaghat village person. Similarly, students from Shimla can join the same career courses as students from California are studying. It means eCommerce has connected people, eCommerce has equalized the appearances, eCommerce removed the gap between metro student and village student.

Ecommerce has levelled the playing field, shrinking physical boundaries in the world. That’s why I think eCommerce was a great internet development. And it keeps going.

5. Transparent business system:-

Developing countries are trying to increase transparency in the commercial activities to remove corruption at ground zero, where trillions of rupees are transacted between buyers and sellers for goods and services. POS (Point of Sale) machines, digital transactions, UID integration with Bank accounts, etc. are few steps taken to increase transparency.

And in commercial transparency eCommerce is playing a responsible role in explaining buyer’s and seller’s debit, credit and bank account details. It enables banks/government to check where they spend, wherefrom they earn and how they earn and transfer, everything is accounted for.

Most of the eCommerce transactions are digital such as by using credit, debit cards, and net banking. Sellers or online retailers receive payments through payment gateway (mostly connected to a current account). Because of this method buyers and sellers are always under Government scrutiny.

And the government can trace any account for doubtful activities at any time, they can also match or compare the expenditure with earned income in bank statement versus income/expenses details from ITR, GST. That’s why eCommerce is important to build and enhance transparent business or commercial activities system.

6. Faster business expansion:-

Gone are the days when it was tough for local retailers to sell or expand their business, products, and services all over India or the world. It was tough due to the market conditions, local competition, and low advertising reach, higher expansion cost, small brand equity, consumer interests, and various other factors.

But eCommerce is a boon for such visionaries who strive for business expansion. One eCommerce website or online store is doing the job for small scale businesses, companies, and retailers with 30 to 50000 monthly operational costs. Not only are they able to expand rapidly, but they are also making a higher profit with lesser hassles.

It means the world is running, walking, socializing, eating, buying, selling, sleeping, educating, learning and enjoying due to the internet. And ecommerce is the power supply to all these activities on the internet.

That’s why ecommerce is the faster method to expand and grow the business worldwide.

7. More employment opportunities:-

Traditional commerce was known as a job provider for people living in the metros and bigger cities. 30 years ago metros, cities were the biggest source of work and money for people. Villages were known for poverty, less skilled workforce, and poor living standards when compared to the metros based on economics.

But today, whole economics has changed due to the development of eCommerce. Today, people living in the metros are more stretched for money, more worried, more populated and morbid with various things than a village or small city people.

This is because today, a mid-level graphic designer can earn 70000 to 100000 monthly from home by using freelancing platforms, providing services online and selling creative products, from any village in India with internet connectivity.

Today’s skilled village people will very soon be tomorrow’s experts. Metros are becoming destructive for humans in many ways. Internet and eCommerce have provided great platforms for local retailers to sell online, market online, educate online and stand or compete with the people living in the metros.

That’s why I think eCommerce is really the best thing that has ever happened for villagers, farmers. And I truly hope they will get the benefits of this development.

8. Enhancement in digital products and services production:-

eCommerce enhanced the creativity of people to create new and innovative products and services. Online courses, on-demand expert services, books, gifts, and various other e solutions are increasing the speed of development. Today any expert can write an ebook and is able to sell online. Any teacher can create tutorials and educate people online by launching online courses. Most of the things are possible by the use of the internet.

That’s why small scale business owners, small city students, and villagers need e-education so that they too can innovate and reduce poverty and improve the living standard of people.

9. Low maintenance cost:-

Ecommerce is an important profit driver for business. Most of the things in the online store are automatic. Costs incurred in everything from inventory, customer details, payment details to product selection and management of customers’ interests are lower than traditional commerce expenses.

There are various online store builders, platforms, who update automatically. Websites get automatic updates. Most of the time, the investment in an online store is a onetime task. And the operational cost and maintenance cost is also minimum.

The use of Artificial intelligence, cloud computing and machine learning in eCommerce has further minimized the running and operational cost of business. As a result, owners can get maximum profits in low-level input costs. One can operate the whole eCommerce business from a single room with the help of 2-3 people.

There are various couriers, delivery services, payment gateway, inventory and online support available for eCommerce website. And using such services do not require an end to end maintenance of online store and websites by the business owner himself.

Ebooks, online courses and digital product sellers, subscription models do not require too much maintenance. And most of the things are automatic and do not require that much labour that is needed in traditional commercial activities.

10. Multiple selling and marketing options:-

Buyers and sellers are free to choose any marketplace for selling and buying their goods and services. There is almost perfect competition in eCommerce. There is always more than 1 company selling something to a person. Market rules and opportunities are equal for everyone. Small Business owners can market their products and services on social media, search engines for free. In fact, even the consumers buy services and goods after seeing the posts on social media. Ecommerce platforms provided the way for business owners to maximize their business reach.

This was not the case in traditional selling methods. That’s why eCommerce has been adopted by many businesses due to its extraordinary benefits. So it’s clearly evident, how important it is to use eCommerce platforms for buying and selling to break the monopoly of a few capitalist organizations.

11. More Customer retention than traditional shopping:-

When someone buys goods and services online, their identity and preferences remain saved in the database of sellers. Later the business or e-commerce owners use that data to attract and retain customers with new products and services updates. It’s not possible in a traditional market where sellers don’t know much about the buyers. And they can’t retain them without providing quality and higher satisfaction.

Ecommerce increases cold calling, promotional messages so that consumers keep noticing the development behind the products and services they are using. E-commerce also opens up the market several folds, people who would never visit a physical shop are within range of the same shop’s e-store for advertising. Due to so many advantages of e-commerce, it is the go-to method for small business owners.

12. The quality compulsion for sellers:-

Due to high competition and more quality-wise expectations from consumers, quality in e-commerce has become the biggest compulsion for online marketers and sellers if they want to survive.

This is because if customers are not satisfied with the products or services they can give feedback, bad reviews, comments about the products and they can ruin the product or brand equity and image. That’s why eCommerce matters because it protects users’ interests and opinions so highly than traditional commerce.

13. More Contribution of customers in brand success:-

eCommerce platforms enable buyers to contribute to brand building. 5-star feedback, positive comments, and reviews about the products increase brand awareness and credibility among prospective consumers.

This awareness helps people to choose which one product, services are better than others. People read reviews, existing customer feedback before making up their mind to buy certain products or services. It’s one of the key components of influence marketing.

Today’s brands can’t win customers based on sensational stories, the attractive advertisement, and fake promises. Consumers are more intelligent and empowered than ever. So it’s tough to cheat people and expect your business to grow. Because if they cheat, 1 article with bad customer reviews can destabilize the profit and loss equation towards loss.

14. Personalized customer experiences:–

Every single interaction on an e-commerce website or any other website generates data. That is used by companies to deliver the personalized experience of each customer. So that the right customer can get the right product or services.

Let’s say a person is interested in buying certain types of branded shoes, but the online retailer or e-commerce platform does not have it in his size. Now once the platform realizes (saved data from customer interaction) that it couldn’t provide the product to a willing customer because of inventory issues, it will work towards getting the size from another to go down as soon as possible and notify the customer that the shoes are now available in his size. Some may call it targeting, but it’s more like a personalized experience for consumer benefit.



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