Course: 101 (Business Environment)
Full Marks: 80
Time: 3 hours
The figures in the margin indicate full marks for the questions.
1(a) Critically evaluate the Indian business environment. Do you think that it is progressing in the right direction? Justify.
-> Business Environment is sum or collection of all internal and external factors such as employees, customer’s needs and expectations, supply and demand, management, clients, suppliers, owners, activities by government, innovation in technology, social trends, market trends, economic changes, etc. These factors affect the function of the company and how a company works directly or indirectly. Sum of these factors influences the companies or business organisations environment and situation.
Business environment helps in identifying business opportunities, tapping useful resources, assists in planning, and improves the overall performance, growth, and profitability of the business. There are various types of Business Environment like Micro Environment and Macro Environment. Business Environment is the most important aspect of any business. The forces which constitute the business environment are its suppliers, competitors, media, government, customers, economic conditions, investors and multiple other institutions working externally. So let us start with the introduction to business environment and learn its importance.
Importance of Business Environment
On the basis of the foregoing discussion, it can be said that the Business Environment is the most important aspect of any business. To be aware of the ongoing changes, not only helps the business to adapt to these changes but also to use them as opportunities.
Business Environment presents threats as well as opportunities for any business. A good business manager not only identifies and evaluates the environment but also reacts to these external forces. The importance of the business environment can be neatly understood if we consider the following facts:
1. Enables to Identify Business Opportunities-
All changes are not negative. If understood and evaluated them, they can be the reason for the success of a business. It is very necessary to identify a change and use it as a tool to solve the solve the problems of the business or populous.
For example, Mr. Phanindra Sama was troubled by the ticket booking condition in India. He used to travel a long distance to his travel agent to book his ticket but even after travelling this distance he was not sure if his seat was confirmed. He saw the opportunity to establish an app in the face of the problem and co-founded the online ticket booking app called ‘redBus’.
2. Helps in Tapping Useful Resources-
Careful scanning of the Business Environment helps in tapping the useful resources required for the business. It helps the firm to track these resources and convert them into goods and services .
3. Coping with Changes-
The business must be aware of the ongoing changes in the business environment, whether it is changes in customer requirements, emerging trends, new government policies , technological changes. If the business is aware of these regular changes then it can bring about a response to deal with those changes.
For example, when the Android OS market was blooming and the customers preferred Android devices for its easy interface and apps, Nokia failed to cope with the change by not implementing Android OS on Nokia devices. They failed to adapt and lost tremendous market value.
4. Assistance in Planning-
This is another aspect of the importance of the business environment. Planning purely means what is to be done in the future. When the Business Environment presents a problem or an opportunity, it is up to the business to decide what plan would it have to come up with in order to address the future and solve the problem or utilise the opportunity. After analysing the changes presented, the business can incorporate plans to counteract the changes for a secure future.
5. Helps in Improving Performance-
Enterprises that are thoroughly scanning their environment not only deal with the changes presented but also flourish with them. Adapting to the external forces help the business to improve the performance and survive in the market.
Role of Government for the promotion of business environment in India:-
1. Government: Regulator of Business:
The entire regulatory legislations and policies stand covered under this segment. On the one hand, there is a very large indirect area of government control over the functioning of private sector business through budgetary and monetary policies.
But against this there is also a fast expanding area of direct administrative or physical controls through which the government seeks to ensure that private investment and production in industry and the use of scarce resources conform to government’s basic socio-economic objectives. They have become necessary tools in a system which seeks to avoid total nationalisation of resources. Government’s regulatory functions with regard to trade, business and industry aim at laying down the limits for the private enterprise. The regulatory functions of the Government include (i) restraints on private activities, (ii) control of monopoly and big business, (iii) development of public enterprises as an alternative to private enterprises to ensure competitive dualism, (iv) maintenance of a proper socioeconomic infrastructure.
2. Government: Promoter of Business:
The promotional role of the government in relation to industries can be seen as providing finance to industry, in granting various incentives and in creating infrastructure facilities for industrial growth and investment.
For example, our government has identified certain backward areas as ‘No Industry Districts’. To promote development of such areas, Government provides subsidies and tax holiday to attract investment in backward areas.
In this way the government will help the process of balanced development and thereby remove regional disparities. The government is assisting the development of small scale industries.
The District Industrial Centres are assisting the development of small industries. The government is actively helping the industrial development of the country by providing finance to them through the development banks.
3. Government as an Entrepreneur:
The impressive growth of the public sector in India from a small beginning bears testimony to the role of the government as an entrepreneur.
Private investors are solely guided by private profit motive and hence they are not interested in developing products of common public use and social services which yield relatively lower returns. But as a “social entrepreneur” the government does not hesitate to take them up.
4. Government as the Planner:
In its role as a planner, the government indicates various priorities in the Five Year Plans and also the sectoral allocation of resources. Mixed economies are democratically planned economies.
The government tries to manage the economy and its business activities through the exercise of planning. Planning is the most important activity in a modern mixed economy. The idea of economic planning can be traced to three different sources: Rationalism, Socialism and Nationalism.
Economists advocate a planned economy on the ground that it can be a rational economy which can utilise the available resources in an optimal manner.
In other words, the planned economy is a rational economy which attempts to secure the maximum return with minimum wastage of productive resources.
The socialists advocate a planned economy because it helps to achieve some desirable social ends like economic equality. An unplanned economy, left to it, is incapable of attaining the social ends.
The nationalists advocate a planned economy because a planned economy is a powerful economy.
The nationalists want to use planning as a weapon to strengthen the military power of the country. Hitler in Germany and Mussolini in Italy resorted to planning to achieve political motive.
Planning operation involves a number of steps. The first stage in planning is the formulation of socio-economic objectives of the plan and their definition in quantitative terms.
Such objectives include growth, justice, eradication of poverty, price stability etc. In the second stage, the plan lays down the physical and financial targets.
The third stage is concerned with execution. The Planning Commission is only an advisory body and it has no power to execute the plan.
The various government departments take necessary measures to execute the plan. Executing a plan is more difficult than making it.
The execution of our Five Year Plans is not satisfactory. Prof. Lewis has observed that Indians are better planners than doers. The gap between promise and performance has got to be narrowed down.
Typically, businessmen have held that national planning is incompatible with free enterprise and that a “free economy” is the antithesis of a planned economy.
Planning by business is good but planning by government for the whole society is, in the eyes of most businessmen, ‘bad’ (perhaps because government planning has come to be identified with communist countries).
(b) Analyse the significance of business environment. Do you think that the study of business environment becomes meaningless because a high volatility? Explain.
-> The word ‘Business Environment’ has been defined by various authors as follows,
“Business Environment encompasses the -climate’ or set of conditions, economic, social, political or institutional in which business operations are Conducted.”—Arthur M. Weimer
“Environment contains the external factors that create opportunities and threats to the business. This includes socio-economic conditions, technology and political conditions.” – William Gluck and Jauch
‘‘Business environment is the aggregate of all conditions, events and influences that surround and affect it.”—Keith Davis
“The environment of business consists of all those external things to which it is exposed and by which it may be influenced directly or indirectly”. —Reinecke and Schoell.
“The total of all things external to firms and industries that affect the function of the organisation is called business environment.”—Wheeler
“Civilisations require challenges to survive. Thus environment also contains hostilities and dangers that may be overcome by individuals and organisations.”—Arnold J. Toynbee
On the basis of the above definitions, it is very clear that the business environment is a mixture of complex, dynamic and uncontrollable external factors within which a business is to be operated.
Significance of Business Environment:-
Business Environment refers to the “Sum total of conditions which surround man at a given point in space and time. In the past, the environment of man consisted of only the physical aspects of the planet Earth (air, water and land) and the biotic communities. But in due course of time and advancement of society, man extended his environment through his social, economic and political function.”
In a globalised economy, the business environment plays an important role in almost all business enterprises. The significance of business environment is explained with the help of the following points:
(i) Help to understand internal Environment:
It is very much important for business enterprise to understand its internal environment, such as business policy, organisation structure etc. In such case an effective management information system will help to predict the business environmental changes.
(ii) Help to Understand Economic System:
The different kinds of economic systems influence the business in different ways. It is essential for a businessman and business firm to know about the role of capitalists, socialist and mixed economy.
(iii) Help to Understand Economic Policy:
Economic policy has its own importance in business environment and it has an important place in business. The business environment helps to understand government policies such as, export-import policy, price policy; monetary policy, foreign exchange policy, industrial policy etc. have much effect on business.
(iv) Help to Understand Market Conditions:
It is necessary for an enterprise to have the knowledge of market structure and changes taking place in it. The knowledge about increase and decrease in demand, supply, monopolistic practices, government participation in business etc., is necessary for an enterprise.
Five Key Steps for Managing Business Growth in a Volatile Environment:-
Small and medium-sized businesses are reporting more uncertainty and
volatility in their markets. This is putting extra pressure on their
ability to manage, because many are dealing with the challenges of growth
at the same time.
In “ordinary” growth situations, standard management practices are effective. There is some challenge with actually applying these practices to each situation, but planning, communication, and accountability can be applied close to how the textbook describes them.
There are two situations that many small businesses face today when the standard growth “playbook” doesn’t work: rapid growth and growth in a volatile environment. Both are actually a variation on the underlying theme of managing uncertainty. In rapid growth, the volatility is created inside the company; in a volatile market environment, the uncertainty comes from outside.
The good news is there are steps leaders can take to manage more effectively when faced with growth and volatility.
Practice “Good Enough” Management
The reality of an uncertain environment is that you cannot use standard
management practices. The uncertainty will overwhelm and undermine them and
the gap between the results you expected and the ones you actually get will
create problems, mostly because your expectations are too high.
The solution is to lower your expectations, especially about how much progress your team will make and how well things will be managed. The point isn’t to throw in the management towel because of the uncertainty—it is to think realistically so you can manage based on reality, not hope and desire. If you manage based on hope or desire, you will eventually be forced to throw in the towel because that method won’t work.
As you lower your expectations, you should also redouble your focus on making progress—however messy and incomplete—on a smaller number of key issues. Progress, not perfection, is the goal, and your focus on progress should not waver even as you lower your expectations for what that progress will be.
Tighten Your Planning Horizon I like a good long-term mission and vision as well as any other business owner, but in an uncertain environment, the planning focus needs to shorten up. Every strategic planning session we do for clients has a mix of long-term, medium-term, and short-term discussions. In a stable environment, the need for short-term coordination is less substantial and more time can and should be spent on the question of “where are we going” long-term.
In a volatile environment, short-term coordination and prioritization take
precedent and need to be addressed before longer-term issues get attention.
When that happens, you should still spend five to 10 minutes reviewing the mission and vision in your planning meetings (the need to give attention to all horizons never goes away completely) and then spend the rest of the meeting on short-term issues.
Keep the Dialogue Going
there can be a tendency for leaders to go into “command” mode when things
get uncertain. That works if the uncertainty is relatively simple and
short-term, impacting tactical actions. In that case, a command from
someone who better sees the bigger picture can be effective.
However, if the volatility is broad, multifaceted, or sustained, the only way for a team to deal with the complexity is to have robust and ongoing discussion. At times, that will mean it takes longer to make a decision. However, by going slow to go fast, a leader will make better decisions and have a team better equipped to carry out the decision quickly once it is made.
Often times, volatile environments also require that a team have more frequent discussions. For example, a company that used to rely on a monthly two-hour planning meeting can change to a weekly 15-minute “stand-up” and a monthly one-hour meeting to manage the uncertainty the company is facing.
Highlight Weaknesses and Blind Spots Conventional wisdom says it’s best for us to focus on our strengths. Leaders must realize, though, that that wisdom applies to individuals, not teams. If you are the leader of a team of any size or scope, that conventional wisdom will hurt you, especially in a volatile environment.
Unless a team is small or narrowly focused, it needs to take a balanced approach. To do that, a leader should add emphasis on the team’s blind spots and weaknesses. This approach gives leaders a more complete perspective to understand their problems and a more complete toolkit to solve them.
Note that I said “add emphasis on” blind spots and weaknesses. The point isn’t to focus on them but to acknowledge them and intentionally counterbalance them. By bringing outside perspectives into your meetings and discussions. If you are in charge of marketing, have someone from operations sit in on your meetings once a month. Or, if you have a shoot-from-the-hip style, meet for lunch every other week with someone who is more process-oriented.
Plan for Contingencies…or Rapid Response Things never go as planned, especially in a volatile environment. Some leaders are naturally inclined to want to plan for contingencies. Others will want to wait until a problem rears up before dealing with it. I have seen both works—if managed properly. The important thing is for a leader to pick one style or the other and follow through on it.
Most small businesses do not have the time, expertise, or resources to do extensive contingency planning; yet, it’s still possible to do it. Contingency planning for small businesses involves identifying the top three to six risks and deciding how the business will monitor those risks. Then, the planning focus is on ensuring that the business has the ability to recognize a few key problems as early as possible.
Many small business owners are more comfortable with a “rapid response”
approach to handling problems. That approach is effective as long as the
leader guides the team to acknowledge and agree that it will kick into
“rapid response” mode when a problem comes and set ahead of time the
general expectations for how the team will handle rapid responses.
The worst situation is when a business does not do contingency planning and has not had general planning discussions about its rapid response. That combination is likely to force a team into an environment in which one crisis follows another, and the leader never gains control of the situation.
2(a) Discuss the various components of government control in India prior to free economy.
-> India has a large, sophisticated financial system including private and public, formal and informal sectors. In addition to formal financial institutions, informal institutions such as family and money lenders are important sources of capital. In the formal financial system, lending is dominated by retail banks rather than the wholesale banks or the capital markets for debt. The primary method for firms to raise capital is through the public equity markets, rather than through private placements.
- The banking system
Prior to independence from Britain, the banking system was entirely private and largely family-operated. In the pre-war period, the family-run banks often invested in new venture. After Independence, the Reserve Bank of India (RBI) and the State Bank of India were nationalized, with the State Bank of India continuing to play the role of banker to government agencies and companies. Then, in 1969, the next 14 largest banks were nationalized. With the State Bank of India, the state controlled 90% of all bank assets. The nationalized banking system became an instrument of social policy. During 1969-91, the financial position of the banks progressively weakened, due to loss-making branch expansions, ever-strengthening unions, over standing, and politicized loans. Until 1991, depositors were reluctant to use banks because although their savings were safe, the government set deposit interest rates below the rate of inflation.
By 1991, the entire bank system was unprofitable and nearing collapse. The socialized banking system had other perverse effects. For example, although the bank managers were civil servants and very risk- averse, they could offer below-market interest rates. This created excessive demand for funds, but, quite naturally; bankers extended the loans to their safest customers. These were primarily the large firms owned by the government, which operated the largest steel, coal, electrical, and other manufacturing industries. The other large bank borrowers were the giant family conglomerates such as the Tata and Birla group. This increased the group’s economic power, but did not lead to economically efficient decisions about how to deploy capital. Small firms were starved for capital. Thus the Indian banks provided no resources for entrepreneurial firms.
- Equity markets
The first Indian stock markets were established during the British Raj era in the 19th century. During the early part of the 20 th century, Indian equity markets actively financed not only banking, but also the cotton and jute trades. In 1989 there were 14 stock markets in India, though Bombay was by far the largest (World Bank, 1989). The socialization of the economy and particularly banking after independence reinforced the strength of the stock markets as a source of capital, and by the 1960s, India had one of the most sophisticated stock markets in any developing country.
There were several reasons for the growth of the Indian stock market. Motivated by its egalitarian principles, the government supported the stock markets as an instrument for reducing the concentration of ownership in the hands of a few industrialists.
Second, the government industrialist licensing policy instituted in 1961 meant that businesses had to apply for government permission to establish new ventures. Permissions were given only in the context of the Soviet style national plans for each sector. There was a strong element of favouritism in where one receives permission. Most important, due to government central planning controls, shortages were endemic, and thus, permission to produce was a guarantee of profits. The distortion these policies created by encouraging concentration were meant to be offset by RBI stipulated that private sector borrowers could not own more than 40% of the firm’s equity if they wished to receive bank finance. In 1973 the government required all foreign firms to decrease ownership in their Indian subsidiaries to 40%. Faced with a choice between selling stakes privately and listing on the stock exchanges, most firms chose the latter and issued new stock, which led to a large increase in public ownership of such companies. So, to raise money the private sector became reliant on stock markets. Investors, large and small, readily financed ventures since the shortages induced by the planning system guaranteed a ready market for anything produced.
- Other institutional sources of funds
India has a strong mutual funds sector that began in 1964 with the formation of the Unit Trust of India (UTI), an open-ended mutual fund, promoted by a group of public sector, financial institutions. Because UTI’s investment portfolio was to consist of longer-term loans, it was meant to offer savers a return superior to bank rates. In keeping with the risk-averse Indian environment, initially UTI invested primarily in long-term corporate debt. But UTI eventually became the country’s largest public equity owner as well. This was because the government controlled interest rates in order to reduce the borrowing costs of the large manufacturing firms that it owned.
(b) Discuss the objectives and scope of MRTP Act. What are the remedies available under the Act?
-> 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.
The objectives and scope of MRTP Act are:
1. To promote and then sustain an enabling competition culture through engagement and enforcement which would inspire businesses to be fair, competitive and innovative.
2. To enhance the consumer welfare.
3. To support economic growth.
4. The Competition Commission of India aims to establish a robust competitive environment through proactive engagement with all the stakeholders including the consumers, industry, government as well as international jurisdictions.
Remedies available under the MRTP Act:-
A restrictive trade practice is a trade practice, which
· Prevents, distorts or restricts competition in any manner; or
· Obstructs the flow of capital or resources into the stream of production; or
· Which tends to bring about manipulation of prices or conditions of delivery or affected the flow of supplies in the market of any goods or services, imposing on the consumers unjustified cost or restrictions.
The Commission may inquire into any restrictive trade practice
· Upon receiving a complaint from any trade association, consumer or a registered consumer association, or
· Upon a reference made to it by the Central or State Government or
- Upon its own knowledge or information
The commission shall if after making an inquiry it is of the opinion that the practice is prejudicial to the public interest, or to the interest of any consumer it may direct that–
· The practice shall be discontinued or shall not be repeated;
· The agreement relating thereto shall be void in respect of such restrictive trade practice or shall stand modified.
· The Commission may permit the party to any restrictive trade practice to take steps so that it is no longer prejudicial to the public interest
However no order shall be made in respect of
· Any agreement between buyers relating to goods which are bought by the buyers for consumption and not for ultimate resale;
· A trade practice which is expressly authorised by any law in force.
3(a) Discuss the meaning of monetary policy. Discuss at least two features of Indian Monetary Policy. Write a note on the monetary growth in India.
-> 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.
Features of Indian Monetary Policy:-
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.
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.
Monetary growth in India:-
Monetary Policy of India is formulated and executed by Reserve Bank of India to achieve specific objectives. It refers to that policy by which central bank of the country controls(i) the supply of money, and (ii) cost of money or the rate of interest, with a view to achieve particular objectives.
In the words of D.C. Rowan, “The monetary policy is defined as discretionary act 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 for achieving specific objective.”
Thus, monetary policy of India refers to that policy which is concerned with the measures taken to regulate the volume of credit created by the banks. The main objectives of monetary policy are to achieve price stability, financial stability and adequate availability of credit for growth.
Following are the main elements of the monetary policy of India:
i. It regulates the stocks and the growth rate of money supply.
ii. It regulates the entire banking system of the economy.
iii. It determines the allocation of loans among different sectors.
iv. It provides incentives to promote savings and to raise the savings-income ratio.
v. It ensures adequate availability of credit for growth and tries to achieve price stability.
(b) What do you mean by Fiscal Policy? Discuss the different types of fiscal policies. Write a note on the changing structure of private savings in 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.
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
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.
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.
4(a) Discuss the objectives of Consumer Protection Act of1986. Define consumer as per the Act. What are the basic rights of consumers as per the Consumer Protection Act?
-> The Consumer Protection Act was passed in 1986 and it came into force from 1 July, 1987. The main objectives of the Act are to provide better and all round protection to consumers and effective safeguards against different types of exploitation such as defective goods, deficient services and unfair trade practices. It also makes provisions for simple, speedy and inexpensive machinery for redressal of consumer’s grievances.
The salient features of Consumer Protection Act (CPA), 1986 are as follows
1. It applies to all goods, services and unfair trade practices unless specifically exempted by the Central Government.
2. It covers all sectors-private, public or co-operative.
3. It provides for establishment of consumer protection councils at the central, state and district levels to promote and protect the rights of consumers and a three-tier quasi-judicial machinery to deal with consumer’s grievances and disputes.
4. It provides a statutory recognition to the six rights of consumers.
Objectives of Consumer Protection Act of 1986:-
1) To protect the consumers from immoral activities and unfair trade practices of the traders.
2) To protect and promote the rights of the consumers.
3) To set up “Consumer Protection Councils” to educate the consumers and to make them aware of their rights.
4) To redress disputes of the consumers, and matters connected with them, speedily.
5) To make provision for Quasi Judicial machinery to control marketing.
Consumer Protection Act has been implemented (1986) or we can bring into existence to protect the rights of a consumer. It protects the consumer from exploitation that business practice to make profits which in turn harm the well being of the consumer and society.
This right help to educate the consumer on the right and responsibilities of being a consumer and how to seek help or justice when faced exploitation as a consumer. It teaches the consumer to make right choices and know what is right and what is wrong.
Two Tier System under Consumer Act
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.
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.
The basic rights of consumers as per the Consumer Protection Act:-
1. Right to Safety:
According to this right the consumers have the right to be protected against the marketing of goods and services which are hazardous to life and property, this right is important for safe and secure life. This right includes concern for consumer’s long term interest as well as for their present requirement.
Sometimes the manufacturing defects in pressure cookers, gas cylinders and other electrical appliances may cause loss to life, health and property of customers. This right to safety protects the consumer from sale of such hazardous goods or services.
According to this right the consumer has the right to get information about the quality, quantity, purity, standard and price of goods or service so as to protect himself against the abusive and unfair practices. The producer must supply all the relevant information at a suitable place.
3. Right to Choice:
According to this right every consumer has the right to choose the goods or services of his or her likings. The right to choose means an assurance of availability, ability and access to a variety of products and services at competitive price and competitive price means just or fair price.
The producer or supplier or retailer should not force the customer to buy a particular brand only. Consumer should be free to choose the most suitable product from his point of view.
4. Right to be Heard or Right to Representation:
According to this right the consumer has the right to represent him or to be heard or right to advocate his interest. In case a consumer has been exploited or has any complaint against the product or service then he has the right to be heard and be assured that his/her interest would receive due consideration.
This right includes the right to representation in the government and in other policy making bodies. Under this right the companies must have complaint cells to attend the complaints of customers.
5. Right to Seek Redressal:
According to this right the consumer has the right to get compensation or seek redressal against unfair trade practices or any other exploitation. This right assures justice to consumer against exploitation.
The right to redressal includes compensation in the form of money or replacement of goods or repair of defect in the goods as per the satisfaction of consumer. Various redressal forums are set up by the government at national level and state level.
6. Right to Consumer Education:
According to this right it is the right of consumer to acquire the knowledge and skills to be informed to customers. It is easier for literate consumers to know their rights and take actions but this right assures that illiterate consumer can seek information about the existing acts and agencies are set up for their protection.
The government of India has included consumer education in the school curriculum and in various university courses. Government is also making use of media to make the consumers aware of their rights and make wise use of their money.
(b) Discuss the trends of Indian export from 2003 onwards.
-> Composition of exports of India
Exports of India may be divided into two parts I) Exports of traditional items and ii) Exports of non-traditional items.
Exports of traditional items
It includes the exports of tea, coffee, jute, jute products, iron ore, species, animal skin, cotton, fish, fish products, mineral products etc. At the beginning of the planning era, their items contributed about 80 percent of our total exports. Gradually, the contribution of these items is declining and that of non-traditional items is increasing. At present the contribution of traditional items is about 18.8% in our total exports.
It includes the export of sugar, engineering goods, chemicals, iron and steel electrical goods, leather products, gems and jewellery. There is a significant change in the pattern of exports of India during recent years. India has started to export a number of non-traditional items to a number of countries of the world. Contribution of these items is gradually increasing in total exports of India and shows a declining trend during some years also. Some facts to illustrate the changes are given below:
Agriculture and allied products which constituted 20.4 percent of total exports in 1996-97, decreased to 18.8 percent in 1999-2000. ii) Ores and minerals which constituted 3.5 percent of total exports in 1996-97, decreased to 3 percent in 1999-2000. iii) Manufactured good which contributed 73.4 percent of total exports in 1996-97, increased to 75.7 percent in 1999-2000. iv) Crude and petroleum products constituted 1.4 percent of total exports in 1996-97 but decreased to 1.0 percent in 1999-2000. v) With regard to other items of exports which constituted 1.2 percent in 1996-97 increased to 1.3 percent in 1999-2000.
Direction of exports of India
During the planning era, several important charges have taken place in the destination of exports of India. At present, we deal with about 180
Countries including many developed countries. Our major exports are directed towards the following countries:
OECD countries (Belgium, France Germany, U.K. North America, Canada, USA, Australia and Japan). Our exports which constituted percent of the total exports in 1990-91 increased to 55.7 percent in 1999-2000.
OPEC countries (Iran, Iraq, Kuwait, Saudi Arabia etc.). Our exports which constituted 5.6 percent of the total exports in 1990-91 increased to 10.0 percent in 1999-2000.
Eastern Europe (GDR, Romania, Russia etc.). Our exports which constituted 17.9 percent in 1990-91 decreased to 3.1 percent in 1999-2000.
Other LDC’s (Africa, Asia, Latin America). Our exports
Constitute 16.8 per cent in 1990-91, increased to 28.2 percent in 1999-2000.
To sum up, during the last five decades, significant changes have been observed in the volume, composition and direction of India’s trade. Most of these changes have been in consonance with the development needs of the economy.
5(a) Discuss the salient features of Indian foreign policy in terms of globalization and trade promotion.
-> Globalisation is the concept of securing real social, economic, political and cultural transformation of the world into a real global community. Globalisation involves a conscious and active process of expanding business and trade across the borders of all the states.
It stands for expanding cross-border facilities and linkages leading to an integration of economic interests and lives of the people living in all parts of the world. The objective of making the world a truly interrelated, inter-dependent, developed global community governs the process of Globalisation.
In the words of Baylis and Smith, “Globalisation is the process whereby social relations acquire relatively distance-less and borderless qualities.”
In simple words, Globalisation means securing of socio-economic integration and development of all the people of the world through a free flow of goods, services, information, knowledge and people across the borders of all states.
Features of Globalisation:
It stands for the freedom of the entrepreneurs to establish any industry or trade or business venture, within their own countries or abroad.
2. Free trade:
It stands for free flow of trade relations among all the nations. It stands for keeping business and trade away from excessive and rigid regulatory and protective rules and regulations.
3. Globalisation of Economic Activity:
Economic activities are being governed both by the domestic markets and also the world market. It stands for the process of integrating the domestic economies with the world economy.
4. Liberalisation of Import-Export System:
It stands for liberalization of the import-export activity involving a free flow of goods and services across borders.
Globalisation stands for keeping the state away from ownership of means of production and distribution and letting the free flow of industrial, trade and economic activity among the people and their corporations.
6. Increased Collaborations:
Encouraging the process of collaborations among the entrepreneurs with a view to secure rapid modernisation, development and technological advancement, is a feature of Globalisation.
7. Economic Reforms:
Encouraging fiscal and financial reforms with a view to give strength to free trade, free enterprise and market forces of the world. Globalisation stands for integration and democratisation of the world’s culture, economy and infrastructure through global investments.
Impact of globalisation on the business environment in India:
Positive Effects of Globalization:-
1. Globalization has opened new markets for Indian companies to sell their services and products. They have cheap resources such as labour due to which they can compete with other companies at international level.
2. Foreign investors invested in India to establish their businesses due to cheap resources. It will increase output, employment opportunities and economic development of the country.
3. Living standard of people in India has been developed due to increase in the wages of skilled and unskilled labour. The poverty ratio of urban and rural areas has been decreased to a greater level. These results are due to government policies and strategies to encourage foreign investors to invest in India.
4. Companies are producing quality products at competitive prices due to globalization. This tough competition forces local and international companies to utilize their resources efficiently and effectively to compete at global level.
5. Developing countries have become modernized due to Globalization. They adopt latest technologies and strategies quickly to compete with other companies.
6. Globalization strengthened the economic growth of the country due to increase in exports of the country.
7. Infrastructure has been improved; new employment opportunities have been created due to globalization.
Negative effects of Globalization:-
1. Globalization can damage environment of India due to the establishment of industry at large scale. It has brought water and air pollution e.g. Delhi is one of the most polluted cities of the world.
2. Profits earned from the business will move to the foreign countries although investment of foreigner will bring economic prosperity for short term. The long term advantages will be attained by the foreigners. In recession periods investors withdraw their funds which can create critical economic conditions for the country.
3. Human resources can be exploited in India by multinational firms. Moreover they can use natural resources inefficiently and ineffectively. Foreign investors might think that it is not in their interest to care for the resources of the country.
4. The entrance of overseas giants can cause closure of the local firms because they can invest more resources as compare to the local or small businesses. They might have other competitive advantages on the local firms due to which they can win the market of the country. The small firms will not be able to compete with them at such scale therefore they would be forced to close their businesses.
(b) Discuss the advantages of e-commerce and develop a road map to create an effective e-commerce system.
-> 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.
1. Speed up the buying process and save time for customers:-
It literally speeds up the buying process because when someone thinks of buying one specific product from the physical store which is very far and not easily available. Here how the e-commerce helps the customer to avail the specific product easily and speedily.
E-commerce helps the one to choose from a wide range of online accessed products easily and get it delivered too; it helps you to access online global market standards.
Such type of buying process can help you to reduce the travelling time and helps you with choosing plenty of options which you might be looking forward to getting your own one.
2. Personalize the store as per the customer expectation:-
One of the online business benefit which will enhance your online shopping experience. It is because every purchase which is made online will be referred as per location and recommended as per customers advanced searches.
It is one kind of personalize store where every customer has a different front page because of their location and previous purchases. Even customers are eligible sometime to get extra services because of previous history and loyalty towards the services. Such kind of store helps the customer to fulfil their expectations.
3. Reduce recurring cost while hiring virtual support resources:-
One of the factors which can benefit in e-commerce is that by hiring employees is affordable. It is like you can choose to outsource your task and work to your virtual assistants in different countries.
It will make your presence of the company in a different location at the same time always. In this case, you will not need many employees in an e-commerce business as compared retail locations.
4. Easily retarget your customers:-
There are many ways to retarget the customer and sell the product nicely. Below are some of the techniques which you can use to retarget customers:-
· Share a coupon when customers leave the checkout page.
· Even by sending emails which are pitching upsell and cross-sell.
· Can be done through Google paid and organic search results.
· It can be done through the customer’s number of visits to a specific page with a certain period of time.
5. Easier to encourage an impulse buy:-
Impulse buying is one of the techniques where it works as a common behaviour of customer’s perception towards a particular product. It is related to the control of human psychological behaviour which is like some people possess personality traits that can be said as impulse buying tendencies.
This is what can be used on an e-commerce platform too by making the product more attractive with images, other colour options and even by showing a video of the product. So the customer can get the same aura of buying the product from the store.
6. Reviews Available:-
It has so many positive recommendations which can give more values to your e-commerce website and help customers to build more trust over a particular product. It can help you to be clear and more visible about the product that helps you with more product selection too.
All of the reviews are valuable to customers, which can really help a lot to built trust over the products and services
7. Able to provide detailed information to the customer:-
Every customer looks for more details over the products so that it can help them to take a wise decision over their purchases. It is one kind of description which really helps a lot and expresses about any particular product.
It is in short one kind of information which is been shared clearly on the description about the product , that helps the user to take a final decision on the requirements.
The flow which is been shared below the product in detail makes the customer to understand it in more details and that makes them to put them on a cart for their final check out with making them aware of all the features and functions of the product.
8. Best Quality of services in reasonably low operation cost:-
It is one of the benefits which play a very vital role over an e-commerce platform. In most of the case, physical retail stores have to pay a lot to maintain their presence in the market by paying rent or even if it’s own. There are several upfront costs which affect the store which is physically owned.
E-commerce store will help you cut off more than 60% of the price which has been run through a physical store. When you talk about operation cost it is very high as compared to the online store. One has to pay their staff, location charges, inventory, store design etc, which affects a lot.
A Complete Roadmap for Successful e-commerce system:-
Creating an e-commerce seller business roadmap is similar to creating a traditional roadmap but it does have a few unique twists.
Clearly define your objectives
Take the time to define your objectives and get as specific as you can. Ask yourself some key questions and record the answers!
· Do you want to sell on a single channel like Amazon and make use of the Amazon Exclusives perks?
· Do you want to sell on multiple channels?
· Do you want to build your own channel? If so, do you have a marketing plan in place?
· Do you want to eventually expand your business abroad?
· Would you like to keep your business relatively small or scale it? If you want to scale it, how large would you like to grow?
Some sellers that first start selling products through marketplaces like Amazon, eBay and Jet haven’t defined their objectives or thought about expanding across multiple channels. This is a mistake. While marketplaces provide a great starting point, it’s never a good idea to put all your eggs in the same basket.
Accounts get suspended . Channels go down. And, eventually, you may want to compete on more than just price point and begin developing your own unique brand.
If you do want to build your own channel, it’s a good idea to craft your company mission statement early on. You can begin incorporating its principles through all your ventures and leverage it through social media. You can never start building brand awareness too early.
Assess your strengths, weaknesses and opportunities
The SWOT analysis is an integral part of business planning. You can successfully adapt key elements of it to craft your own roadmap.
Knowing your strengths and weaknesses helps you grow your e-commerce business more successfully. Identify key growth opportunities, areas where your business performs well, and where you can improve. Then, implement.
Integrating technology into your roadmap
Using tech to support your road map at various points of your seller journey is key to growing your business. While it is possible to succeed without integrating technology into your process, it’s like baking croissants without an oven. Sure, it’s possible , but why would you do it?
1. Optimizing your processes
Use tech integrations to help you optimize product listings and order fulfilments.
For people to buy your product, they need to find it. And, they need to find it before they stumble on enticing offerings from your competitors. You can help the process by optimizing your product listings. A tool like Scope can help you find the right long-tail keywords to rank for on Amazon.
Once you’ve set up a process for optimizing listings, you need a way to fulfil those orders successfully. Ideally, you can set up the various steps so they follow a series of if/then rules that keep the e-commerce machine running smoothly.
You can fulfil orders by renting your own warehouse or by partnering up with a third party . With the right tech and the right partner, you can automate your order fulfilment process from start to finish. This will improve your customer experience and save you a lot of headaches.
2. Inventory management
Effective inventory management is a crucial part of running a successful e-commerce business. Without inventory, your business can’t work. That’s what makes it a key competitive advantage.
To provide a high-quality customer experience, you need to keep the items they want in stock. But, to minimize risk and grow your business, you want to keep track of the popular items and phase out the unpopular ones.
Using a software solution like Skubana can take your inventory management to the next level. You can use our powerful analytics to keep track of which products are performing well and set up automated re-ordering when key stock drops below a certain level. And, you can also set alerts and check-ins to make sure you aren’t ordering too many of the less popular items.
This type of integration will help you maximize your inventory potential and provide a high-quality service.
3. Connecting with your customer
One of the main reasons for Amazon’s incredible success is its ability to generate repeat business. Everything on the platform is optimized for it.
Prime provides quick, convenient shipping. The free shipping option for orders over $25 offers quality service for orders of reasonable size. The customers who viewed this item also viewed and customers also shopped for sections are all engineered to make buying from Amazon more appealing.
Combine this with easy returns, an incredibly large selection of items and Amazon’s own A-Z guarantee and you’ve got a safe buying experience from anywhere with an internet connection. It’s easy to write off Amazon’s success and put it down the fact that they are Amazon.
But, it wasn’t always that way. You can pick out the elements that work and use tech to make them a part of your own roadmap.
If you build your own selling channel, you can use Facebook tracking pixels to show Facebook ads of relevant items to people who have visited your site. Or, you can use your CRM to create targeted nurturing campaigns. And, you can use a social media dashboard to engage with customers through various social media channels.
While using marketplaces like Amazon, eBay and Rakuten makes it easier to get a foothold in e-commerce, building your own channel allows you to compete against the bigger players on things like customer service and user experience.
Developing your roadmap over time
You don’t have to have all the answers right now. Your business is going to grow and develop over time and it will all become clearer. The key to a successful road map isn’t complete clarity. Instead, you need to schedule a time to go over it on a semi-regular basis so that you can make sure you are still on track to achieve all your goals.
Using tech to enhance your day to day process is crucial for creating a sustainable business.