Friday 14 October 2016

Business environment:: a review conclusion

Business environment:

Meaning of Business Environment

Environment of a business means the external forces influencing the business decisions. They can be forces of economic, social, political and technological factors. These factors are outside the control of the business. The business can do little to change them.

Following features:

1. Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregated in nature.

2. (Specific and general forces: Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly.

3. Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.

4. Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.

5. Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France.

Importance of Business Environment

1. firm to identify opportunities and getting the first mover advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India.

2. firm to identify threats and early warning signals: If an Indian firm finds that a foreign multinational is entering the Indian market it should gives a warning signal and Indian firms can meet the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on.

3. Coping with rapid changes: All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action.

4. Improving performance: the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

Dimensions of Business Environment

What constitutes the general environment of a business?

The following are the key components of general environment of a business.

1. Economic environment economic environment consists of economic factors that influence the business in a country. These factors include gross national product, corporate profits, inflation rate, employment, balance of payments, interest rates consumer income etc.

2. Social environment It describes the characteristics of the society in which the organization exists. Literacy rate, customs, values, beliefs, lifestyle, demographic features and mobility of population are part o the social environment. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario.

3. Political environment It comprises political stability and the policies of the government. Ideological inclination of political parties, personal interest on politicians, influence of party forums etc. create political environment. For example, Bangalore established itself as the most important IT centre of India mainly because of political support.

4. Legal environment This consists of legislation that is passed by the parliament and state legislatures.Examples of such legislation specifically aimed at business operations include the Trade mark Act 1969, Essential Commodities Act 1955, Standards of Weights and Measures Act 1969 and Consumer Protection Act 196.

5. Technological environment It includes the level of technology available in a country. It also indicates the pace of research and development and progress made in introducing modern technology in production. Technology provides capital intensive but cost effective alternative to traditional labor intensive methods. In a competitive business environment technology is the key to development.

Economic Environment in India

In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of India’s development plans were:

1. Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty;

2. Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries;

3. Reduce inequalities of income and wealth;

4. Adopt a socialist pattern of development — based on equality and prevent exploitation of man by man.

As a part of economic reforms, the Government of India announced a new industrial policy in July 1991.

The broad features of this policy were as follows:

1. The Government reduced the number of industries under compulsory licensing to six.

2. Disinvestment was carried out in case of many public sector industrial enterprises.

3. Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.

4. Automatic permission was now granted for technology agreements with foreign companies.

5. Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.


· The economic reforms that were introduced were aimed at liberalizing the Indian business and industry from all unnecessary controls and restrictions.

· They indicate the end of the licence-pemit-quota raj.

· Liberalization of the Indian industry has taken place with respect to:

1. Abolishing licensing requirement in most of the industries except a short list,

2. Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities,

3. Removal of restrictions on the movement of goods and services,

4. Freedom in fixing the prices of goods services,

5. Reduction in tax rates and lifting of unnecessary controls over the economy,

6. Simplifying procedures for imports and experts, and

7. Making it easier to attract foreign capital and technology to india.


· The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector.

· To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991

· The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernization.

· It was also observe that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUs.

· The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions.


· Globalizations are the outcome of the policies of liberalisation and privatisation.

· Globalisation is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon.

· It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration.

· It involves creation of networks and activities transcending economic, social and geographical boundaries.

· Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy.

· Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market.

Impact of Government Policy Changes on Business and Industry

1. Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.

2. More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.

3. Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms.

4. Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.

5. Threat from MNC Massive entry of multi nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners

investment incentives

· The role of the private sector and foreign investment in the Indian economy is increasing.

· The rupee is now convertible on the current account, and exchange rates are market-determined.

· There has been rapid progress in implementing government commitment to the deregulation process.

· Industrial policy emphasizes boosting economic growth through encouraging the generation of income and wealth.

· The vast and growing middle-class population provides a large domestic market.

· Skilled manpower and professional managers are available at moderate cost.

· Capital markets, the banking infrastructure and the financial services sector are well developed.

Industrial Climate

India has a mixed economy, with the government-owned public sector and the private sector playing active roles. The public sector has traditionally been dominant in infrastructure and in basic industries, while the private sector ahs played an important role in all other sectors.

Until a few years ago, the government exercised considerable control over the private sector through licensing for additional manufacturing capacity; control over imports of capital, raw material, technology and capital goods; and allocation of basic raw material. While the liberalization process began a decade ago, it was in 1991 that it gathered momentum and was set out in the Industrial Policy.

The earlier preoccupation with equality in income distribution has been welcomed by industry, some Indian businesses have asked for time to be able to compete with foreign investment.

Framework of industry

In India, the public and the private sector have coexisted in industrial activity, with the former dominant in certain sectors. The present trend is clearly toward a larger role for the private sector, with fresh public investments being more or less restricted to a few strategic and essential infrastructure areas. The government is also pursuing a policy of divestment of equity in public-sector enterprises outside these areas and dilution of its holding through fresh issues to the public, although privatization (in the sense of transfer of majority or complete ownership) is not yet a clearly stated policy.

The majority of big businesses continue to be controlled by state-owned corporations, large family groups and multinationals. However, this dominance has started to dilute with the entry of nonresident Indian technocrats and successful first-generation entrepreneurs.

In many substantial private-sector companies, promoters hold a minority stake but are able to retain control due to dispersal of balance holdings. The public financial institutions hold large chunks of equity in many major Indian private sector companies, but generally follow a policy of noninterference.

India also has a significant base of closely held small and medium-size businesses supplying local and regional markets in competition with the national large-scale manufacturers.


Economic development plans

In general terms, the government's aim, over four decades of economic planning though successive five-year plans, has been to raise the standard of living of the people through programs also designed to promote equality and social justice.

In the Eighth Plan (1992-97) there is a significant shift from detailed planing to indicative planning, with private-sector investment assuming much greater importance. Recent government pronouncements acknowledge that poverty cannot be removed unless the creation of wealth is restored to its proper place in the development process and that protection must be reduced because the country cannot continue to be insulated from the global economy.

The policies announced since 1991 show a greater reliance on market mechanisms than on physical and quantitative restrictions and bureaucratic controls. This change is underscored by a substantial reduction in areas reserved for the state and those requiring licensing; provision for automatic clearance of direct foreign investment and foreign-technology collaboration in specified industries (see Chapter 4); and elimination of the requirement for large businesses to obtain prior government approval for establishment of new undertaking, expansion, mergers, and takeover. Imports of a number of items have been decanalized, and import restrictions have been virtually removed except for a short negative list of banned, canalized or licensed items. (Canalized items are those imported and distributed through designated public-sector agencies.)

Because difficult economic circumstances necessitated the gradual reduction of high import duties and other taxes, the peak tariff rate is currently 50 percent, compared with 150 percent in 1991. The government has also introduced convertibility for the rupee on the current account and market-determined exchange rates.

State-owned financial institutions and nationalized banks have begun to raise additional capital from the public. Several private-sector banks and mutual funds have commenced operations, and a number of foreign tie-ups have taken place in the financial services sector. A number of multinationals are setting up projects in diverse sectors

The policies also allow for areas that continue to be reserved for the public sector to be opened up selectively to private enterprise. Additionally, there is a special program to attract substantial foreign investment that would provide access to high technology and world markets. Investment proposals are considered as a whole without predetermined parameters or procedures.

Investment trends

For a number of years prior to 1980, there was considerable emphasis on the public sector, greater control over the activities and expansion of "large" businesses, and pressure on multinationals to "Indianize" in varying degree's. The 1980s saw dilution of public-sector dominance, and private investment was allowed in core industries such as power, steel, petrochemicals, and telecommunications equipment. The 1991 Industrial Policy made a substantial reduction in the areas reserved to the public sector, and the portfolio of public-sector investments is being reviewed with a view to focusing the public sector on strategic, high-technology and essential infrastructure areas. Generally, no fresh government investment is contemplated outside these areas, and future nationalization has been rules out. While there is as yet no clear policy of privatization (in the sense of transfer of majority or complete ownership), the government is pursuing a policy of offloading a part of its shareholding in public-sector enterprises to mutual funds, financial institutions, workers, and the general public.

Various measures are being taken for improving infrastructure, by encouraging the creation of additional capacity and provision of new services by private enterprise and foreign investors as well as the better performance of existing units, particularly in the areas of power, telecommunication and transportation.

Regional / special industry development

The government had been pursuing a national policy of dispersing economic growth to the rural and less - development urban areas where more employment opportunities and increased incomes are needed. Recent changes have included a realization in this policy. While some incentives for investments in these areas continue to be available, government policy has shifted to encouraging development of identified growth centers by focusing public investment in the development of infrastructure at these centers. Consequently, the government seeks to achieve balanced regional development through removal of constraints to such development; licensing is no longer used as an instrument for influencing location.

A package of incentives is available to all potential investors for investment in certain priority sectors of the economy. In general, this covers industries that support agriculture, industrial development, infrastructure, employment generation, and foreign exchange earnings.

Free-trade zones

Seven export-processing zones provide facilities for duty-free imports for the manufacture of export item under certain conditions. Also, 100 percent export-oriented units (EOUs) can be set up outside these zones. While these units are set up to cater to the export market, they may be allowed to sell up to 25 percent of their production in the domestic tariff area.

The government is also setting up a number of Soft ware Technology Parks (STPs) for export of computer software through shared date-communication facilities. Seven of them are now operational. It is also possible to get a private facility recognized as an STP, making it eligible for benefits similar to those granted to operations in government-established parks, including domestic sales of up to 25 percent of the value of software production. In addition, the government has a scheme for the setting up of Electronic Hardware Technology Parks (EHTPs), which would offer manufacturers the same kind of benefits. The permitted level of domestic sales for EHTPs may be as high as 30 percent of production for finished equipment and 40 percent for components.

All units under these various schemes are required to adhere to prescribed value-added norms. India has no free-trade zones that allow imports for reexport purposes without processing.

Financial service services.

Financial services for commerce and industry are provided by both private-sector institutions. The former consist of nationalized and other scheduled banks (i.e., those registered with the Reserve Bank of India), specialized financial institutions and insurance corporations. Private providers of financial services comprise smaller financial service agencies and banks and branches of international banking corporations. Significant developments have taken place in the area of financial services, with expansion and specialization in services offered both by scheduled banks and by smaller financial services agencies. The capital markets have also been gaining in depth and volume of capitalization.

Public / private sector cooperation

Cooperation between the public and private sectors takes place at many levels. Private-sector leaders have traditionally served on planning bodies and boards of public-sector corporations; Similarly, government and private-sector leaders share many other platforms and forums, e.g., chambers of commerce and industry associations, and they have worked together to attract foreign direct investment. The last few decades have also seen the promotion of numerous joint projects in which the government and private-sector promoters have nearly equal equity stakes. Many such ventures have also included participation by foreign corporations.

Labor / management relations

The Indian workforce, skilled or unskilled, is on the whole respectful of authority and has good relations with management. However, all large enterprises have one or more labor unions, often with political affiliations. Labor legislation helps to avoid many disputes but can also make discharge and retrenchment difficult. Union membership is voluntary. Negotiation of wages and employment conditions between management and union is an accepted practice, and such negotiations usually result in collective agreements, which when registered with the government are valid and legally enforceable for the agreement period (usually three years).


Membership in trade blocs

Although not a member of any trade bloc, India has entered into bilateral trade agreements with a number of countries and is a member of several international organizations, such as the United Nations, the Commonwealth, UNCTAD, and the WTO.

India is a member of one global preferential trading arrangement, the Global System of Trade Preferences (GSTP), which is open to the members of the G-77, and one regional preferential trading arrangement, popularly known as the Bangkok Agreement. The latter is open to all developing countries under the aegis of United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).


Government export policy is oriented toward encouraging exports in traditional as well as nontraditional fields. Measures taken for encouraging exports, particularly in agriculture and allied fields and in the services sector, are yielding results. For a discussion of export incentives.

Trade barriers

Local industry has traditionally enjoyed a high level of protection through licensing and tariff barriers, with the objectives of protection for domestic industry and the need to raise revenues. Generally, permission to import was given to items considered essential or materials necessary for the manufacture of export goods. This restrictive treatment has undergone significant change in accordance with the government's declared policy of reducing protection to make domestic industry internationally competitive. Most items, except consumer goods, are freely importable, and the peak import tariff now stands at 50 percent, compared with 150 percent in 1991.

investor considerations

· Foreign investment requires approval, but certain types of investments quality for automatic approval

· Up to 100 percent foreign ownership may be permitted except in certain cases.

· The trend is to require proof of economic value to India for investment project approval.

· For approved investments. Capital and earning can be freely repatriated, subject to taxation and exchange control formalities.

· Exchange controls are being reduced.

· Only a few industries are reserved for the public sector.

· The favored type of business enterprise is a locally incorporated company with foreign equity participation; a local jointly venture partner is not mandatory.


Regulatory authorities

Foreign investment projects (other than those qualifying for automatic approval) are approved by the Foreign Investment Promotion Board (FIPB), a high-powered committee of civil servants chaired by the Secretary-industry. Investment proposals up to Rs 6 billion recommended for approval by the FIBP are given final clearance by the Industry Minister. Proposals for investment exceeding this amount are considered by the Cabinet Committee endorses the recommendations of the FIPB, and accordingly the FIPB is the main decision-making body in the Foreign investment approval process. The Secretariat for Industrial Approvals (SIA) in the Ministry of Industry, in addition to being the Secretariat for the FIPB, is the approving authority for technical-collaboration agreements that do not fall under the norms for automatic approval and involve only technical and not financial collaborations.

Applications for setting up units in designated export-processing zones for free-trade zones (EPZs/FTZs) or Software or Electronic Hardware Technology Parks (STPs/EHTPs) or for setting up individual units as 100 percent export-processing units (EOUs), STPs or EHTPs are now required to be made either to the development commissioners of the relevant zone.

The Reserve Bank of India (RBI, the Indiana central bank) is the exchange control authority and is also empowered to grant automatic approval for foreign investment of up to 51 percent in specified high-priority industries (see Chapter 4) and also approve technical-collaboration agreements within specified parameters in all industries. The RBI is also the approving authority for the establishing of a branch, liaison office or project office or the posting of a representative in India by a foreign corporation.

Regulatory legislation

India has no separate foreign investment legislation. The Foreign Exchange Regulation Act 1973 (FETA) also regulates the activities of foreign enterprises in India. Authorized dealers in foreign exchange (i.e., commercial banks) are guided by the Exchange Control Manual (two volumes) issued by the Reserve Bank For all foreign exchange transactions.

Exchange controls

The Indian rupee has been made fully convertible for trade-and current-account transactions. Capital-account convertibility for the rupee is expected in the next few years. While trade-account transactions have been fully deregulated, the Reserve Bank still monitors and often regulates current-account transactions to ensure that remittances relate to current rather than capital transactions.

Inward investment

Under the Exchange Control laws, permission of the Reserve Bank is required for securities to be registered in Indian in the name of a nonresident or to be sent out of India. In addition, foreign corporations (i.e., companies not incorporated in India) require approval to set up a place of business in India or undertake a business activity in India.

The government's attitude toward foreign investment is discussed in general terms in Chapter 3, and the percentage restrictions on foreign equity ownership are explained below under "Restrictions on foreign ownership."

Registration of foreign capital and technology

The foreign investment approval is valid for the specified period of time within which the collaboration agreement must be filled with the RBI/authorized foreign exchange dealer (i.e, a commercial bank through which the remittances under the collaboration would be made). Copies of the agreement must also be filed with specified authorities, which include the relevant administrative ministry for the sector, the SIA, and the Department of Scientific and Industrial Research.

Automatic approval received from the RBI is a single clearance that combines the approval for the foreign collaboration with permission to issue equity shares of the Indian company to the nonresident foreign collaborator. However, in the case of a discretionary approval (i.e., an FIPB approval), formal authorization or permission to issue shares is provided by the Reserve Bank after the collaboration proposal is approved, the principle, by the government.

Foreign technical-collaboration agreements must be registered with the Reserve Bank after the approval. Foreign loans also require a discretionary approval from the Ministry of Finance, after which the loan agreement must be registered with the Reserve Bank.

There are no mandatory reporting requirements for foreign capital and technology. However, the Ministry of Industry requests investors to submit bio-annual progress reports during project implementation.

Currency Accounts

A foreign-invested Indian company is treated on a par with other locally incorporated companies. Accordingly, the general rules for foreign currency accounts for residents (detailed bellow) apply to foreign-invested companies as well.

· Foreign currency accounts of residents

Resident Indians (including individuals and corporations) are normally not allowed to open and operate foreign currency accounts in India or abroad without prior RBI approval.

Indian firms and companies can seek permission from the RBI to open foreign currency accounts abroad for certain specific purposes, such as retention of foreign equity subscriptions or proceeds of foreign currency loans raised abroad. Such accounts, however, are permitted to be maintained only for a limited period.

Indian exporters and other foreign exchange earners are permitted by the RBI to open and maintain in India a foreign-currency-denominated account called the Exchange Earners Foreign Currency (EEFC) Account and retain upto 25 percent (up to 50 percent in a few specified cases, and even higher proportions with special RBI approval) of their foreign currency earnings. EEFC accounts holders are allowed to remit money aboard for a range of bona fide payments specified by the RBI, which may otherwise require prior approval.

Exporters falling in specific categories (such as Export/Trading/Star Trading House) and others meeting certain specified limits on net foreign exchange earnings can seek permission from the RBI to open foreign currency accounts in India or abroad to credit proceeds of export shipments.

In addition, the RBI also permits the opening of foreign currency accounts in India by airline and shipping companies, overseas companies executing projects in India and overseas buyers, subject to condition laid down by it in the approval.

Persons of Indian origin who have been resident outside India for a continuous period of not less than one year are permitted to open and maintain foreign-currency-denominated accounts in India.

· Rupee accounts of nonresidents

Branches or offices in India of foreign firms, companies or associations and foreign nationals resident but not permanently resident in India are permitted to maintain the operate rupee bank accounts in India only with authorized dealers. The Reserve Bank subjects such accounts to monitoring and strict reporting requirements. Repatriation facilities for such accounts are governed by the conditions specified by the Reserve Bank While permitting the account holders to operate the account in India.

The RBI has granted general permission to authorized foreign exchange dealers to open Ordinary Nonresident Rupee (NRO) Accounts in the names of nonresident individuals or entities for all bona fide transactions permitted under the exchange control regulations. Balances in NRO accounts are not normally eligible for remittances abroad and require specific approval from the Reserve Bank if repatriation is sought.

Nonresident Indians (NRIs) and Overseas Corporate Bodies (OCBs - organizations with NRI holdings of at least 60 percent) are permitted to open and maintain rupee accounts on a repatriable basis, provided the funds are either remitted in foreign currency into India or are legitimately due to them in India on a repatriable basis. NRIs and OCBs are also permitted to maintain non-repatriable rupee deposits in India for periods ranging from six months to three years.

Blocked Accounts

The Reserve Bank has the powers to "block" accounts in India of any person or entity resident outside India and to direct that payment of any sums due to that person be made to those blocked accounts. Remittances can be affected through authorized foreign exchange dealers after payment of the applicable withholding taxes. In consumer-goods industries, foreign exchange outflows on account of dividend payments must be balanced by export earnings for the first seven years from commencement of production. Since exports need not be the exporter's own manufactured products, most investors do not find this commitment to be onerous.

For approved technical-collaboration agreements, royalties and technical fees can be remitted through normal banking channels after payment of applicable withholding taxes. A 5 percent research and development cess (tax) is payable by all Indian parties on technology-related fees remitted abroad as well as associated expenses.

Repatriation of capital upon disinvestment requires specific approval from the Reserve Bank, which is not normally withheld if the sales price is considered to be fair and reasonable. The sales price less the capital gains tax can be remitted through normal banking channels.

For approved loan arrangements, repatriation of interest and principal amounts can be effected through normal banking channels.

For all approved branches, branch profits are allowed to be repatriated in full after payment of the applicable withholding taxes, although specific RBI approval is mandatory.

Repatriation of amounts abroad for other purposes requires specific approval by the RBI unless the remittances are covered by general permission granted by the RBI. Such instances of general permission for remittances include those for import of goods, short-term engagement of foreign nationals, overseas travel, land sundry remittances within a specified limit

The RBI does not permit netting of payments for remittances and requires that all inward receipts be first brought into the country.

Applications to authorized dealers for making any remittances are to be supported by the required documents, including the auditor's certificate on calculation of the amounts (royalties, branch profits, etc.) to be repatriated as well as on various other matters such as adequacy of tax provision, compliance with the Companies Act and a no-objection certificate from the Tax authorities.

Banks that are authorized dealers in foreign exchange may allow all non-Indian nationals temporarily resident but no domiciled in India to make remittances to their own countries, provided the dealer making the remittance is satisfied that this amount does not exceed 75 percent of the remitters net income after taxes. If an application is made for remittance of an amount in excess of this limits, it must be refereed to the Reserve Bank. The Reserve Bank is prepared to consider individual cases on their merits and to allow larger remittances when it is satisfied that the applicant has retained sufficient funds out of monthly income to meet local expenses.

Upon departure from India, foreign nationals who had been temporarily resident in the country are allowed to remit in full current assets, such as savings out of salaries, commissions, dividends, provident funds, and proceeds from sales of personal effects. In addition, they may be permitted to repatriate the sales proceeds of their investments,. Subject to a limit of Rs. 1,000,000 at the time of departure. The balance, if any, may be remitted in annual installments not exceeding Rs. 500,000 per annum.

Guarantees against inconvertibility

Neither the Indian government nor the Reserve Bank provides any guarantee against inconvertibility or makes any advance commitment for the conversion of Indian currency into other currencies, except for facilities for forward contracts, which may be entered into by authorized dealers for purchase and sale of foreign currencies in furtherance of genuine foreign exchange transactions permitted under the current regulations.

The Indian government has been a signatory to the Multilateral Investment Guarantee Agency (MIGA) convention since April 13,1992.

The Indian government has signed bilateral investment protection treaties with various countries. These treaties state that investment from the partner country will be given national treatment (treated on a par with Indian companies), and investors are given most-favored-nation status. The treaties also provide for dispute settlement and guarantees against nationalization, and they allow repatriation of returns on investments without undue delay. India has a ratified treaty with the United Kingdom and has signed treaties with Denmark, Germany, Israel, Italy, the Republic of Korea, Malaysia, the Netherlands and Russia.


Industries closed to private enterprise

All industries are open to private enterprise except those on a small list that are reserved for the public sector for security and strategic reasons (see below). Entry of the private sector may be selectively allowed in the reserved sectors.

The manufacture of certain specified items is reserved for small-scale units (see Chapter 6). Large units, including foreign companies, are permitted to hold up to 24 percent of small-scale units.

The insurance sector, although currently reserved for the public sector, is likely to be deregulated in the near future. Recent actions of the government provide clear indication that private participation, both for Indian and foreign investors, will soon be permitted. For example an autonomous interim regulatory body ahs been set up and will soon become a permanent statuary authority with suitable powers to frame policies and procedures for privatization within the insurance industry.

Restrictions of foreign ownership

All sectors open to private investment are open to foreign investors as well, although the mandatory approval requirement for foreign investment, granted on a discretionary basis, acts as a restriction. For certain specified telecommunications services, the government has imposed an upper limit of 49 percent for foreign equity participation. While informal guidelines have been formulated in certain sectors such financial services and mining regarding the permissible level of foreign equity participation, they are revised from time to time, and investors are advised to obtain local professional advice.

Guideline for Approval

As part of the initiatives being taken to promote foreign investment, the government has constituted the Foreign Investment Promotion Council, which will frame transparent guidelines for foreign investment in various sectors, with the states objective of attracting US $10 billion annually.

The Reserve Bank is empowered to grant automatic approval for up to 51 percent foreign equity in specified high-priority industries (see list in Chapter 4) and for trading companies engaged primarily in export. For an investment to qualify for automatic approval (usually granted in two to three weeks), the imported capital goods must be new and not secondhand. For Foreign investment in existing companies engaged in high-priority industries, automatic approval is available only for a fresh issue of equity shares. The list of high-priority industries is being expanded, and it is expected that automatic approval may be available in certain sectors for investments with a threshold greater than 51 percent.

Foreign investment proposals not qualifying for automatic approval are considered by the Foreign Investment Promotion Board (FIPB) on merit. The FIPB considers an investment proposal as a whole, free from predetermined norms or parameters.

Some of the aspects the FIPB examines while reviewing an investment proposal include the background and corporate image of the foreign investor, the current stage of development of the business sector in which the investment is proposed to be made and the likely contribution of the foreign investor in upgrading the sector, the type and level of technology that will be transferred, employment potential and export earnings associated with the proposed investment, and the overall effect of the investment on the economy. Guidelines, which are indicative in nature, have been frames for foreign investment approval by the FIBP in certain sectors such as mining, power, telecommunications, and banking. The government is revising existing guidelines and framing new ones for investment in certain sectors as well as certain areas such as approval of 100 percent foreign ownership.

Approval is granted for a specified foreign investment amount and equity level and for a specified set of business activities. Payments (royalties, technical fees, etc.) associated with the technical-collaboration agreement are also approved by the FIPB along with the foreign investment approval.

There is no specific format for submissions to the FIPB. Foreign investors find it useful to enlist local professional assistance to assist in the FIPB submission process to ensure that specific benefits of the project to the economy are highlighted and the case for investment is made in line with the current environment.

Although the FIPB has been selective in granting approvals for 100 percent foreign ownership, such clearances have been granted in many cases, including in the consumer-goods industry. There is no mandatory requirement of a local joint venture partner. In cases where the foreign equity is lower than 100 percent, the remaining equity can be held by one or more Indian partners (perhaps as sleeping partners), placed privately with mutual or venture funds or other private equity investors, offered to the Indian public, or placed through a combination of these options.

The FIPB approval process normally takes 6 to 12 weeks. In the future it is expected to take no longer than 8 weeks because of changes in the approval process recently introduced.

Investment by nonresident Indians

Nonresident Indians (NRIs) and Overseas Corporate Bodies (OCBs-see "Rupee accounts of nonresidents" above) are granted concessional treatment for foreign investment approvals. The RBI is empowered to grant approval for NRI or OCB investment with full repatriation benefits for up to 100 percent investment in high-priority industries and in any other manufacturing business and in specified service sectors like hotels, tourism and hospitals; and up to 24 percent in any other Indian company.

Prior approval is not required for nonrepatriable NRI investment (where dividends are reatriable but capital is nonrepatriable) up to 100 percent equity in any sector, provided the equity contribution is made by remittance in foreign currency or from funds held in authorized nonresident bank accounts in the country. The Indian company, however, is required to inform the RBI of such investment with 90 days of its being made.

All the above schemes are applicable only for a new issue of shares. NRI or OCB investments not falling in any of the above categories are treated on a par with other foreign investment proposals and require clearance from the FIPB.

Technical-collaboration Agreements

Automatic permission is granted by the RBI for technical-collaboration agreements with foreign parties up to a lump-sum payment of US$2 million and a running royalty of 5 percent on domestic sales and 8 percent on exports subject to total payments (lump-sum plus royalties) of 8 percent of sales over a ten-year period from the date of agreement or seven years from commencement of production. The prescribed royalty rates are net of taxes and are to be calculated according to a standard procedure on a base figure of net ex-factory sale price less the cost of certain specified components.

Technical-collaboration agreements not conforming to the above conditions, as well as proposals for extension of existing collaboration agreements, are considered by the Secretariat for Industrial Approvals in the Ministry of Industry.

Other activities

Foreign corporations wishing to open a branch office or a liaison or project office or to post a representative in India require approval from the Reserve Bank.

Other restrictions

A foreign-invested Indian Company, irrespective of its level of foreign equity participation, is treated on a par with a fully domestic-owned company, and there are no restrictions on is activities except that participation in agricultural or plantation activities is restricted for Indian companies in which the nonresident interest is more than 40 percent.

Policy trends

The measures introduced by the government in the past few years clearly establish a trend toward deregulation and liberalization of the economy in favor of the private sector, including foreign investors. There are strong indications that this process will continue. Foreign investment will be welcome in priority sectors and receive "nation treatment," i.e., on a basis of equality with domestic capital, but the government is unlikely to offer foreign investors special incentives to invest in India.

Industries reserved for the public sector

The following is a list of industries reserved to the state. This list is commonly referred to as "Annexure I industries" and replaces the earlier, more extensive list of reserved industries.

· Arms and ammunition and allied items of defense equipment: defense aircraft and warships.

· Atomic energy.

· Coal and lignite.

· Mineral oils.

· Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order 1953.

· Railway transport.

Investor considerations

· Foreign-invested Indian companies are treated on a par with fully domestically owned companies for all regulatory requirements.

· The industrial-licensing requirement is limited to a few industries.

· Monopolies in and of themselves are not assumed to be against the public interest.

· Imports and exports are freely allowed except for a few specified items on the negative list.

· Safety, environment and consumer protection controls are being made more extensive.

· Patent protection is available, although not to the degree contemplate under the Paris Convention.

· No restrictions are imposed on the use of foreign brand names.

· The trend is toward deregulation and simplification of procedures for setting up and operating a business.

· Few items are reserved for exclusive manufacture by small units.

Regulation of business

Government attitude

There has been a marked change in the government's policy and attitude toward regulation of business since mid-1991, when the liberalization process began. The pre liberalization philosophy of an interventionist state marked by; extensive government controls, on the economy as well as on various aspects of doing business in the country, has been replaced with a model of market-drived economy, with the state playing a limited regulatory role. This paradigm shift has necessitated an extensive overhaul of rules and regulations. Certain critical regulations relating to foreign investment, exchange controls, industrial licensing, foreign trade, stock exchanges, etc., have either been amended extensively or replaced with new regulations. However, amendments to certain other regulations relating to the functioning of companies, patents and trademarks, copyrights. Arbitration, etc., are still awaiting parliamentary approval.

A notable feature of the Indian regulatory system as compared with that in some other Asian countries is the concept of the rule of law and the feature of judicial review. The Indian judicial system is quite independent of the executive and of late is perceived to be playing an extensive activist role to ensure that the executive functions with the ambit of the law. In addition, there have historically been numerous instances of Indian businesses, including foreign-participated firms, successfully petitioning the courts against the executive. Another notable feature is that, subsequent to amendments to the Foreign Exchange Regulation Act, a foreign-invested Indian company whose investment has been cleared by the government is treated like a fully Indian-owned company for all regulatory purposes as well as for practical day-to-day aspects of running a business. However business activities of foreign-invested companies beyond the charter approved by the foreign-invested companies beyond the charter approved by the foreign-invested companies beyond the charter approved by the foreign-investment clearance may require a formal expansion of the approved charter.

Regulatory agencies

The principal regulatory agencies concerned with business operations and their areas of responsibility are as shown in Table VI below.

A variety of local government, state, and other clearances, registrations and infrastructure-supply arrangements must also be obtained or made and some states provide a more favorable environment in this regard than others. Progressive sates are focusing attention of deregulation and simplification of requirements at the state level.

Industrial-licensing system

A key feature of the preliberalization economy was the strict control exercised by the central government over industry through the industrial- licensing systems required central government permission to set up a new manufacturing unit or expand an existing unit and included a specification of the capacity as well as location. This system has now been greatly curtailed and is applicable only to investments in 16 specified industries (see below). Undertakings other than in the 16 specified industries are required to file only the single-page Industrial Entrepreneurs Memorandum with the Secretariat of Industrial Approvals in the Ministry of Industry, along with another prescribed memorandum at the start of commercial production. The memorandum are intended for information and statistical purposes only.

There is a long list of products (over 800 at present) the manufacture of which is reserved for undertakings in the small-scale sector (SSI unit). I.e., for units with an investment in plant and machinery up to a specified monetary limit. This has been raised from time to time; at present it is Rs6 million (Rs 7.5 million for ancillary units). Non-SSI units can undertake production of items under the SSI reserved list if they meet an export obligation of 75 percent of their total production. Large industrial undertakings, including foreign companies, can together hold up to 24 percent of the total share capital of an SSI unit.

The requirement for progressive indigenization of production (phased manufacturing program), with was imposed earlier while licenses in certain sectors were being granted, is no longer applied except in automobile projects, where manufacturers have been permitted certain customs-duty concessions for import of automobiles in a completely knocked down (CKD) or semi-knocked-down (SKD) form.

Competition policy

The government's stated policy is now to increase the degree of competition between firms in the domestic market, as well as from abroad, so that there are adequate incentives for raising productivity, improving efficiency and reducing costs, making Indian industry internationally competitive. The government, however, does not play any direct role in this regard, although the Monopolies and Restrictive Trade Practices (MRTP) Commission is chartered to inquire into restrictive trade practices. An attempt has been made to phase in the exposure to international competition, through gradual rather than sharp reductions in tariff levels, to allow domestic industry to adjust to changed circumstances. This policy has also been dictated by revenue considerations.

The closing of an industrial unit requires state-government permission, which is difficult to obtain. The National Renewal Fund was set up in February 1992 to provide assistance to cover the costs of retraining or redeploying labor arising from modernization and upgraded technology, as well as to provide a safety net for workers affected by industrial restructuring. This should facilitate the formulation of an exit policy allowing the closing of sick units that cannot be economically rehabilitated. Such a policy, however, is yet to be announced.

Price controls

Prices of a few specified goods are directly controlled by the government. Goods subject to such administered pricing include certain categories of petroleum products, fertilizers, and drugs and pharmaceutical products. The government's stated policy is to reduce price controls, and the past two years have seen substantial relaxation of price controls in the pharmaceutical and petroleum sectors.

Utility pricing tends to be controlled because most utilities are either in the public sector or are allowed to sell only to public-sector utilities, as in the case of private power generators.

For some essential commodities, such as sugar and coffee, a part of the production is subject to price and distribution controls, while the rest of the production can be sold at market-determined rates.

In determining the administered prices, the government's declared policy is that a fair return on investment should be assured. In some recent instances of fixed prices, a fair return has been taken to be an after-tax profit of 12 to 16 percent on the equity capital employed. In such cases, costs including interest are allowed on a normative basis.

For consumer goods, the manufacturer must indicate the maximum retail price on the package. While the government does not regulate the specific price that can be indicated, retailers are expected to sell the goods to the end consumer at a price not exceeding this amount.

Indian Economy Overview

Last Updated: March 2010

As per the advance estimates of GDP for 2009-10 released by the Central Statistical Organisation (CSO), the economy is expected to grow at 7.2 per cent in 2009-10, with the industrial and the service sectors growing at 8.2 and 8.7 per cent respectively.

India's gross domestic product (GDP) grew by 6 per cent during October to December 2009, over the corresponding quarter of the previous year, as per data released by the CSO.

The economic activities which registered significant growth in the third quarter of 2009-10 over the corresponding period in 2008-09 are 'mining and quarrying' at 9.6 per cent, 'manufacturing' at 14.3 per cent, 'construction' at 8.7 per cent, 'trade, hotels, transport and communication' at 10 per cent and 'financing, insurance, real estate and business services' at 7.8 per cent.

According to the latest estimates available on the Index of Industrial Production (IIP), the index of mining, manufacturing and electricity, registered growth rates of 9.6 per cent, 14.3 per cent and 4 per cent, respectively in Q3 of 2009-10, as compared to the growth rates of 2 per cent, 0.5 per cent and 2.9 per cent in these industries in same period in 2008-09. The key indicators of construction sector, namely, cement and finished steel registered growth rates of 8.5 per cent and 7.7 per cent, respectively in Q3 of 2009-10.

The Economic scenario

Foreign institutional investors (FIIs) were net investors of US$ 4.37 billion in equity and US$ 2.09 billion in debt instruments in the month of March 2010, according to the data released by Securities and Exchange Board of India (SEBI). The number of registered FIIs was 1713 as on March 31, 2010 and the total FII inflow in equity during January to March 2010 was US$ 4.54 billion while it was US$ 4.71 billion in debt.

As on March 26, 2010, India's foreign exchange reserves totaled US$ 277.04 billion, an increase of US$ 24.71 billion over the same period last year, according to the Reserve Bank of India's Weekly Statistical Supplement.

Moreover, India received FDI worth US$ 20.92 billion during April-December 2009, taking the cumulative amount of FDI inflows from August 1991 to December 2009 to US$ 127.46 billion, according to the Department of Industrial Policy and Promotion.

Six core infrastructure industries grew at 4.5 per cent in February 2010 against 1.9 per cent during the corresponding month last year, primarily due to increased output in electricity. The six infrastructure sectors—crude, petroleum refinery products, coal, electricity, cement and finished steel—that constitute 26.68 per cent in IIP, recorded a growth of 5.3 per cent in the period April-February 2009-10, as against 2.9 per cent in the same period last year.

Moreover, according to latest data from RBI, loan disbursement by scheduled commercial banks, including regional rural banks, recorded 16.04 per cent growth at the end of March 12, 2010, on a year-on-year basis. This is above RBI's projection of 16 per cent credit growth in this financial year.

Of the more than 200 companies from over 50 countries that form part of the World Economic Forum's Global Growth Companies (GGC) Community, India today has the second largest representation, with a total of 18 GGCs. Indian GGCs come from every sector, with a strong representation in information technology and electronics, retail, consumer goods and banking.

The GGC Community was formed to engage high-growth companies with the potential to be tomorrow's industry leaders and drive economic and social change.

India ranks 49 among 133 countries in 2009-10 in the global competitiveness index (GCI) prepared by the World Economic Forum (WEF), an improvement of one position from last year. India's position is a result of mixed performance across 12 categories covered by the GCI.

* Exports from India were worth US$ 16.09 billion in February 2010, 34.8 per cent higher than the level in February 2009, according to the Ministry of Commerce and Industry. India's imports during February 2010 were valued at US$ 25.05 billion representing a growth of 66.4 per cent over February 2009.
* India's logistics sector is witnessing increased activity—the country's major ports handled 411.95 MT of cargo during April-December 2009, an increase of 5.14 per cent over previous year traffic, according to data released by the Ministry of Shipping.
* Foreign tourist arrivals in India during the month of February 2010 were 601,000, an increase of 9.9 per cent over February 2009. Foreign exchange earnings during February 2010 were US$ 1.43 billion, an increase of 55.4 per cent over February 2009, according to data released by the Ministry of Tourism.
* The total telephone subscriber base in the country crossed the 600-million mark to touch 600.69 million in February 2010, taking the overall tele-density to 51.05, according to the figures released by the Telecom Regulatory Authority of India (TRAI). Also the wireless subscriber base increased to 563.73 million.
* According to the latest statistics from the Association of Mutual Funds in India (AMFI), the assets under management (AUM) of mutual funds were worth US$ 174.96 billion in February 2010, an increase of 36 per cent over February 2009.
* According to NASSCOM's India IT-BPO sector performance estimates for FY 09-10, export revenues for the Indian IT-BPO industry are expected to record a growth of 5.5 per cent to reach US$ 49.7 billion in FY09-10.
* According to data released by Society of Indian Automobile Manufacturers, the cumulative production data for April-February 2010 shows production growth of 24.34 per cent over same period last year. Passenger vehicles production crossed 2 million and two wheelers production touched almost 9.5 million.
* According to the Gem and Jewellery Export Promotion Council, the exports of gems and jewellery from India including rough diamonds, rose by 10.48 per cent during April-February 2010 to touch US$ 28.84 billion.
* The recovery of the Indian economy, as was broadly expected, worked well for the advance tax figures for the third installment that was payable by December 15, 2009. The all India direct tax collection between April and December 2009, which includes corporate and personal taxes, increased 8.1 per cent to US$ 48.39 billion, according to figures that are currently with the income-tax (I-T) department.
* The Indian drug retail market grew by a 29.24 per cent in value terms in October 2009 over the year ago period, more than double the average monthly revenue growth rate of 13-14 per cent in the recent past, as per market research firm ORG IMS.
* India has joined an elite group of six countries which have successfully decoded the human genome indigenously. The discovery, which was announced by the Council of Scientific and Industrial Research (CSIR), will bring pharmaceutical companies a step closer to designing drugs accounting for the specific characteristics of the Indian physiology.
* Merger and acquisition (M&A) activity involving Indian small and medium enterprises (SMEs) are on the rise. During the first two months of 2010 M&A transactions worth US$ 155 million have been concluded in the SME sector, up by 66 per cent over the US$ 93 million in transactions in the corresponding period of 2009, according to Venture Intelligence, a Chennai-based research firm focusing on M&A and PE transactions.


Agriculture is one of the strongholds of the Indian economy and accounted for 15.7 per cent of the country's gross domestic product (GDP) in 2008-09.

In Budget 2010-11, the Finance Minister, Mr Pranab Mukherjee has made the following announcements for the agriculture sector.

* US$ 88.02 million is provided to increase the Green Revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern up, West Bengal and Orissa.
* US$ 66.02 million has been provided to organise 60,000 pulses and oil-seed villages in rain-fed areas in 2010-11 and provide an integrated intervention for water harvesting, watershed management and soil health to improve productivitiy of the dry land farming areas.
* Banks have been consistently meeting the targets set for agricultural credit flow in the past few years. For the year 2010-11, the target has been set at US$ 82.53 billion.
* In addition to the 10 mega food park projects already being set up, the government has decided to set up five more.
* External commercial borrowings are available for cold storage for preservation or storage of agricultural and allied products.

Growth potential story

* Ernst and Young has forecast the passenger car market in India to grow by 12 per cent annually over the next five years from the present figure of 1.89 million units to reach 3.75 million units by 2014.
* Small and medium enterprises (SMEs) are expected to contribute 22 per cent to India's Gross Domestic Product (GDP) by 2012, up from about 17 per cent at present, according to a survey by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).
* The healthcare industry in the country, which comprises hospital and allied sectors, is projected to grow 23 per cent per annum to touch US$ 77-billion mark by 2012 from the current estimated size of US$ 35 billion, according to a Yes Bank and ASSOCHAM report.
* India's domestic business processing outsourcing (BPO) market, that has close to 500 players, will grow at a compound annual growth rate (CAGR) of 33.3 per cent, to reach revenues of US$ 6.82 billion by 2013, up from US$ 1.62 billion in 2008, according to a report by information technology research firm IDC India.
* According to a report published by domestic broking major Edelweiss Capital in March 2010, India's GDP is set to quadruple over the next ten years and the country is likely to be a US$ 4 trillion economy by 2020.
* India will overtake China to become the world's fastest growing economy by 2018, according to the Economist Intelligence Unit (EIU), the research arm of London-based Economist magazine.
* Majority of India Inc's top CEOs feel that the Indian economy is likely to grow at 8-8.5 per cent in the next fiscal, according to a survey conducted by industry body CII in March this year. As per the survey which took responses from 100 CEOs and industrialists, 60 per cent of the respondents said they expect GDP to grow 8-8.5 per cent for the year ending March'11, while another 20 per cent expect growth to range between 7.5-8 per cent.

Union Budget 2010-11

Last Updated: February 2010

The Union Budget for 2010-11 has been announced by the Union Finance Minister, Mr Pranab Mukherjee, in Parliament on February 26, 2010.

India is among the first few countries in the world to implement a broad-based counter-cyclic policy package to respond to the negative fallout of the global slowdown. The Advance Estimate for Gross Domestic Product (GDP) growth for 2009-10 is pegged at 7.2 per cent. The final figure is expected to be higher when the third and fourth quarter GDP estimates for 2009-10 become available. The growth rate in manufacturing sector in December 2009 was 18.5 per cent – the highest in the past two decades.

Budget Highlights:


* Rs 1,73,552 crore (US$ 37.57 billion) provided for infrastructure development which accounts for over 46 per cent of the total plan allocation.
* Allocation for road transport increased by over 13 per cent from Rs. 17,520 crore (US$ 3.79 billion) to Rs 19,894 crore (US$ 4.31 billion).
* Rs 16,752 crore (US$ 3.79 billion) provided for Railways, which is about Rs. 950 crore (US$ 205.81 million) more than last fiscal.


Plan allocation for power sector excluding Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) doubled from Rs. 2,230 crore (US$ 483.06 million) in 2009-10 to Rs. 5,130 crore (US$ 1.11 billion) in 2010-11.

Agriculture Growth

* Agricultural production

Rs. 400 crore (US$ 86.66 million) provided to extend the green revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern UP, West Bengal and Orissa.

* Credit support to farmers

Banks have been consistently meeting the targets set for agriculture credit flow in the past few years. For the year 2010-11, the target has been set at Rs. 3,75,000 crore (US$ 81.25 million).

* Impetus to the food processing sector

In addition to the ten mega food park projects already being set up, the Government has decided to set up five more such parks.

Petroleum and Diesel pricing policy

* Expert Group has submitted its recommendations to advise the Government on a viable and sustainable system of pricing of petroleum products.
* Decision on these recommendations will be taken in due course.

Urban Development and Housing

Allocation for urban development increased by more than 75 per cent from Rs. 3,060 crore (US$ 663 million) to Rs. 5,400 crore (US$ 1.17 billion) in 2010-11.

Improving Investment Environment

Foreign Direct Investment

* Number of steps taken to simplify the FDI regime.
* Methodology for calculation of indirect foreign investment in Indian companies has been clearly defined.
* Complete liberalisation of pricing and payment of technology transfer fee and trademark, brand name and royalty payments.


Extension of existing interest subvention of two per cent for one more year for exports covering handicrafts, carpets, handlooms and small and medium enterprises.


* Plan allocation for school education increased by 16 per cent from Rs. 26,800 crore (US$ 5.81 billion) in 2009-10 to Rs. 31,036 crore (US$ 6.72 billion) in 2010-11.
* In addition, States will have access to Rs. 3,675 crore (US$ 796.1 billion) for elementary education under the Thirteenth Finance Commission grants for 2010-11.


* An Annual Health Survey to prepare the District Health Profile of all Districts shall be conducted in 2010-11.
* Plan allocation to Ministry of Health & Family Welfare increased from Rs 19,534 crore (US$ 4.23 billion) in 2009-10 to Rs 22,300 crore (US$ 4.83 billion) for 2010-11.

Budget Estimates 2010-11

* The Gross Tax Receipts are estimated at Rs. 7,46,651 crore (US$ 161.78 billion) and the Non Tax Revenue Receipts are estimated at Rs. 1,48,118 crore (US$ 32.09 billion). The net tax revenue to the Centre as well as the expenditure provisions in 2010-11 have been estimated with reference to the recommendations of the Thirteenth Finance Commission.
* The total expenditure proposed in the Budget Estimates is Rs. 11,08,749 crore (US$ 240.25 billion), which is an increase of 8.6 per cent over last year.



Definition of Business

Business means all economic activities which is done for the motive of earning. In these activities, we can include production, manufacturing, purchasing and selling and other market promotion activities. Commerce, trade and aids to trades and enterprise are also included in business.

There two concept of business:-

1st Economic concept of business

This is oldest concept of business and according to this concept; main aim of business is to earn profit and never to do any other work. Under this concept, every legal and illegal and scams and fraud are the necessary for doing highest profit from business. Because in old time, there is no competition and trend to earn money is by any way. But now this concept is totally failed and bear a new concept which is successful in world business market.

2nd Social concept of business:-

According to this concept, business’s all activities are done for making stable customers and make them satisfied. Now, all business organization is understood this point and making social networking for promoting business. Even all big business organization is communicating with general public by the way of twitter and face book and linkedin (35 million registered business profiles).

Objective of business

There are also two main objectives

1st objective
i) to earn profit
ii) to growth
iii) to innovation

2nd objective of business

i) to satisfaction of employees

Employees are main asset of business and it is the main object of business to satisfy its employee by providing them fair salary and other incentives because , without this business can not operate well and from time to time development of employee of business is the main need of business .

ii) to satisfaction of customers

It is also aim or objective of business to satisfy its customers and it should do the work for their welfare. This welfare may by possible by providing product at low cost and high quality. A stable customer can provide stable amount of sale and contribute in the stable growth rate of business.

iii) to satisfaction of investors :-

Investors are those persons who invest their money in business and it is the main aim of business to provide them high rate of return and make them satisfied because, if there are satisfied, they will not sell company’s share at low price and financial crisis will not be faced by businessman.
iv) other social responsibility :-

To obey all other responsibility of society is also main objective of business and in this responsibility we can include protection of environment. We are seeing that business are becoming restriction in the way of environment protection but , because of business also dependent on environment and all raw material comes from environment , then it is the duty of businessman to protect environment by growing plantation in their business plants and also starting new programme for protection of environment .

Definition of Business Environment

Business Environment may be define as all external and internal factors which affects the activities of business. In these factors we can include customers, suppliers, and employees, Govt., Economy and Competitors.

Explanation of Business Environment

We can explain business environment with physical environment of nature . When we see nature , we find many things air , water , sun , moon and so many other things . They create environment . Nature is effected from these factors from time to time and shows his presentation in the form of raining , season and other variations . Same thing happens in business . Business is also affected from its environment . Suppose , If Govt. increases service tax rate or VAT rate . At this time , business has also to increase the price of his products . There is not just a single factor are affecting business but large number of factors affect business .
So , see the behaviour of different factors is necessity of time for operating business smooth in this environment .

Elements of business environment and its explanation by presentation

A – Micro business Environment:

This is also known as internal business environment because business has power to control them. In this environment, factors can be divided with following way.

1st Supplier

A supplier provides raw material to business. This is also main factor of business environment because, it affects business very closely. If supplier delay to supply raw material or stop to supply. At this time production of business can be stopped due to not getting raw material. So, for controlling this factor, it is the duty of businessman to make good relation with more than one supplier so that, if one stop or delay at this time, goods can be purchased from other supplier.

2nd Customers

Customers are those people or companies which buy goods from our business. Business sells them his finished product. But time to time tastes of customers also change. So, according to the taste of business customers, new products must be supplied by business. That is the formula for living long life of business.

3rd Market Intermediaries

For promoting sale, it is required to ads by different way, so market intermediaries include sales man and middle man.
This environment is under control of business because, if business starts selling with more ads, his selling will surely increase.

4th Competitors

Competitors of business also create internal business environment. According to competitors, policies, business changes his policies for winning in competition.

5th Financial Intermediaries

As business grows, it needs more money for his growth; either this money can be gotten by issuing new shares or by borrowing money from financial intermediaries. So, financial intermediaries plays a vital role in business environment. If they provides loan at very low rate, at that time business can get and grow fastly but, if they increase in interest rate, at that time business will not get at this rate and its growth may decrease due to lack of fund.

Macro Business Environment or External Factors of Business Environment:-

1. Economical Environment

Economic environment is main element of business environment. Economy is factor which affects business with following way:-

A) Economic policies

Economic policies related to budget , industrial policy , fiscal policy , export and import policy and business should see what changes are done in these and business has to changes their business policies according to these changes .

B) Economic regulation

Different laws and regulations are at international level and national level . These are all called economic regulation and business has to respect all of these while it is operating business .

2. Natural Environment

Natural environment is also external factor of business . Because , business can not fully control on natural environment . Many points like season , raining , floods , earth quake are natural and happens according to fluctuation in it . These are also main element of business because business has to face all these factors . But some of loss from these factors can be transferred with effective schemes of insurance .

3. Demo – graphic Factors

Size of population and their growth rate includes in demo graphic element and factor of business environment. Increasing trend of population will increase demand of products and support business to produce more products. But if death rate is increasing or demo graphic factor like religion are preventing to use the products of business. At that time business has to change their business or make other plans according to situation.

4. Technological Environment : -

This is fully concerned with changing of technology and its effect on product . Many technical products are fastly changed by coming new technology .At that time business also have to cover new products according to changes in technology .

5. Political Environment

Political environment is composition of three factors which are following
a) legislature
b) executive
c) judiciary

All above factor affects business and business has to make rules and regulation according to Govt. and political rules and regulation.

6. International Environment

International environment includes WTO, IMF, WB, SARC and G20 meetings and their rules and regulations can effect on any type of business. Business has to exist in world market, and then it should understand their effect and take action according to these rules and regulation.

Definition of Economic Environment

Economic environment is very important factor of business. It means any environment which becomes from economic system, economic planning and economic policies. Main motive of this environment is to effective utilization of resources.

From above definition we get three factor that are :

1. Economic system

Economy works always in any system
There are main three economic systems; any country can adopt any system for making economic planning and economic policy.

a) capitalistic economy

In this economy all powers are in private hands, they are free to choose any business and also invest money in any type of business. Govt. just cares the security of country and life of people but it does not disturb to anyone on the basis of business. This economy is in USA.

b) Socialistic economy

This economy is basically in poor and developing countries and main motive of this economy is to welfare of people and develop the economy. In this economy all businesses are under fully control of govt. and nobody can operate any business freely. Govt. makes rules and regulation for operating business and also appoints authorities for operating it. Because, all powers are in the hand of govt., so there are huge chances of corruption in govt. departments.

c) Mixed economy :

Any country in which both capitalistic and socialistic economy works, and after mixing of both economy, the new economy will comes in our eyes that is called mixed economy. In this economy govt. fixes some sector which are reserves only for govt. investment and no private person can do that business. India is the good example of mixed economy.

2. Economic policies

An economic policy means any policy which is related to fund of nation and its utilization. It also includes fiscal policy and budget of nation.

3. Economic planning

For equal distribution of money and wealth, it is very necessary to make economic plans of development in socialistic economy. These plans are known as economic plans.
New Industry Policy of India

Definition of Industrial policy

Industrial policies are action plans of any country’s govt. relating to industries and companies. Every country’s Industrial policies are related two sectors one is public sector and other is private sector. Main objective of making industrial policies are to help industries for their development and also try to increase the sale of industries by making more attractive industrial plans by Govt.

New Industrial policies of India

New industrial policies have been made in India in 1991. It is also part of India’s liberalization policy in which Govt. is providing more powers to the industrial enterprises. There are following features of industrial policies of India.

1. Licensing policy

When a company starts a new factory in specific industry, it has to get license from Govt. reduced the member of licensed industries from 18 to 8 and these are related to security and social welfare of people. Reducing the no. of industry helps companies to get position in new work and Govt. thinks that it will be help to generate new employment and also will support to private enterprise to enter in all sectors because Govt is closing the trend of reserve only for public sector companies.

The following industries which now reserve under govt. sector.

1. Arms and ammunition and allied items of defense equipment, Defense aircraft and warships.

2. Atomic Energy.

3. Coal and lignite.

4. Mineral oils.

5. Mining if iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.

6. Mining of copper, lead, zinc, tin, molybdenum and wolfram.

7. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953.

8. Railway transport.

2. Public sector policy

Under new industrial policy, govt. of India started to reconstruct public sector which are getting loss and also encourage private enterprise to purchase shares of PSU .The Public sector company whose turnover is more than 2 crores rupees , govt. has started specially care on them for their stable development .

3. Direct foreign investment

Under industrial policies, govt. of India has opened doors for all foreigner for investing 51% direct investment in Indian industries . For this they need not take special acceptance from govt. of India.

4. Technology policy

Govt of India is supporting Indian manufacturer for importing new technology with large paper works. After this, many Indian manufacturers have imported different advance technology for effective production.

5. Small scale industrial policies

Govt. of India has increased the limit of investment in Small scale industries from Rs. 2 Lakhs to Rs. 5 Lakhs and also power to export up to Rs. 75 lakhs under small scale industries.

Criticisms of New Industrial policy

1. Ignore to unemployed peoples
2. unprotect small scale industries
3. Transfer of India currency to foreign country in the form of profit under new direct foreign investment policy.

Legal environment of business in India and List of Different Indian Acts which affect business

Legal environment of business means all factors relating to laws and legal orders which affect business and its working.
Business must be operated under the rules and regulation of different laws of India. The following is the list of main laws which affect business.

1. Indian contract act 1872
2. Indian sale of goods act 1930
3. Indian partnership act 1932
4. Industrial dispute Act 1947
5. Minimum wages act 1948
6. Indian companies act 1956
7. Foreign exchange regulation act (FERA ) 1973
8. Foreign exchange management act 1999
9. Monopolies and restrictive trade practice act 1969
10. Consumer protection act 1986
11. Indian income tax act 961
12. Central excise act 1944
13. Security exchange board of India act 1992
14. Banking regulation act 1949
15. Chartered accountant act 1949
16. Information technology act 2000
17. competition act 2002
18. right to information act 2005
19. Micro, Small and Medium Enterprises Development Act,2006
20. Commissions for Protection of Child Rights Act,2005
The Consumer Protection Act 1986 and its main provisions and features

Govt of India has made consumer protection act in 1986. The main aim is to protect consumers from immoral practice of business organizations. We see in general when a company or business concern becomes monopolize in market , then that company starts to get benefits of his monopoly powers by illegal ways. This law is very helpful to secure consumers and customers from such cheating and market frauds.

Main features of Consumer protect Act 1986

Under this act, consumers have right to get information of quality, quantity and price of products.
Under this act, consumer has power to sue in district forum and report or complaint against the cheating of businessmen to the authorities and get remedies for this.
This act also awakes consumers regarding their rights and powers. In other words, it helps to educate consumers about his rights.
After spending one decade this act becomes more strict for all cheaters who commit cheating with consumers.

Main authorities under Consumer protect act 1986

District forum

This forum has power to solve the problems of consumers up to Rs. 500000 at district level.
State govt. has power to make suitable numbers of district forum for protecting the rights of consumers.
This forum can be made by district judge and other experienced persons in the field of law and commerce.

State commission

Consumer can also appeal to state commission against the decisions of district forum. State commission has power to solve the problems of consumers from Rs. 500000 to Rs. 2000000. This commission can be made by state high court judges and 2 experts in the field of commerce and laws.

National Commission

National commission has power to solve all consumers’ disputes and problems more than 2000000 Rs. The chairperson of this commission will be the retired Supreme Court judges and other 4 experts in the field of commerce and laws and industry. Out of four, it is necessary to include one lady member in the four expert team.

IMF and its objectives, functions and membership

What is IMF ?

IMF is UNO recognized international monetary fund or reserve which helps its members. It established in 1946 after bretton wood meeting. It has 185 members across the all nations but soviet Russia and its member are not linked with IMF.

All work is done by its board of directors which is made by board of governors. Every country’s finance minister is as the governor from his respective country. There are two type directors in board of directors of IMF. One is quota and other is non quota. USA, UK, Germany and India are quota country and one member is taken in board of directors and other from non quota countries. Total no. of directors are 20.

Objective and functions of IMF

1. Provide loan to the members for removing unfavorable balance of payment.
2. Determine the value of currency of member countries.
3. Determine the economic policies’ main contents of member’s countries.
4. To make plan for increasing per capita income of member countries.
5. To collect money from member countries in the form of fun or reserves.
6. Latest objective in IMF is that it will support 3 trillion dollars under his budget for decreasing the pressure of 2000 recession.

Eligibility for membership in IMF

Any country can become the member of IMF but for getting eligibility the following procedure is adopted by IMF.

First of all membership is accepted by board of directors after accepting membership , board of directors send this proposal to board of governors with supported all documents and subscription and quota amount as per the terms of membership .
World bank or IBRD

World Bank is international financial institution for reconstruction and development of member countries. So, its other name is international bank of reconstruction and development (IBRD). This bank is established in 1944 after bretton woods meeting of 20 major countries. This bank provides long term loan to its members and all work is done by executive directors which is nominated by shareholders of member countries and board of governors.

Bank has own 20 billion dollar paid up capital. Bank provides loan but before providing loan it sees the project and after accepting project, the loan is given under strict terms and conditions of World Bank. In which includes the interest on loan, commission and administration charge

GATT and its functions and policies

In 1944 , developed countries participated in bretton woods meeting . In this meeting they wanted to make international trade organisation but all countries could not agree on its terms but 1948 , they had made a general agreement for tariffs and trade after signing GATT in 1947 by 23 countries including India. Now no. of member countries reached up to 184 .

Objectives and functions of GATT

1. Reduce international restriction
2. Reduce tax problems

Policies of GATT

1. Non discrimination policy
2. No quantitative restrictions
3. Opinions

New in Asian Development Bank

Asian development bank is established in 1966 under the direction of united nation economic commission for Asia and for east . Its main objective is to help Asian countries . It provides loans to Asian countries . From time to time , it also provides technical help to Asian countries . It also establishes his good links with UNO , IMF and world bank for promoting developing activities in Asian and east countries .


All members of UNECFAE are also members of ADB . At 2007 it has 67 members .

Capital of ADB

1. total capital is 7965.1 million dollars and its one half is paid up and other one half is called up capital

2. It can also collect more capital by issuing new shares in world share market .

Organisation of Bank

1. Board of governers

2. Board of directors - total 10 directors board

3. president - elected for 5 years out of board of directors .

New Updates

In 1990 , Loan for protecting plants and forest is given by this bank

WTO and its functions and policies

Full form of WTO is world trade organisation . It is an international organisation which established after conversion of GATT in 1995 . In 1944 , when bretton woods conference was completed . In that meeting leaders of developed countries wanted to make international trade organisation but they accepted only GATT's policies in 1948 . After Uruguay discussion , all GATT members included in WTO . Main objective of making WTO is to reduce restrictions in international trade with more globalisation and liberalisation policy.

Functions and policies of WTO

1. Reduction of the rate of Tariffs :

Tariffs means tax on imported goods . For developing international trade , it is compulsory to all member countries to reduce 24 % to 30 % tariffs with in 6 to 10 years .

2. Reduction the subsidy to domestic trade

For more smooth competition , WTO has made rule to reduce the amount of subsidy or other assistance which is given by govt. to their domestic industry .


Trips means trade and intellectual property rights . WTO has made some rules for prohibiting piracy in intellectual property rights . All countries will have to accept these trips .

4. Other GATT rules

Some of GATT rules will still apply

Meaning of Social Environment

Social or Societary environment of business means all factors which affects business socially . Every business works in a society , so societies ' different factors like family , educational institutions and religion affects
business .

Main elements Of Societies and its effect on Business

1. Family :- Family is basic part of society from the birth of a person and upto death , he lives in family so personal decision of buying and selling of goods are affects from family . In the culture of a family , it may happen that parent does not allow to use any product , then sale of such product will decrease , so businessman must analyze different families needs . Many occasion of family like marriage of any family member , can increase the demand of goods .
2. Educational institutions :- Educational institutions are also main part of societies . They provide good knowledge , education , awareness , thinking what should students buy or not to buy . Suppose if a student is habitual to drink the tea and if his teacher advice him that this is harmful to his health after his guidance students can avoid to drink tea after this the sale of tea will decrease .
3. Religion :- Like family and education institution , religion is also effects the business socially . Religion means the system in which group of persons trust in God . They believe that there is one supernatural power in this earth and its name is God . They gives many name like Ek onkar sat nam , om and many more etc. Different religions have different principles , rules and regulations in which they sacrifice to use some products and to eat some food , in Hindu religion , they never use leather products . They affects the sale of leather industries . So, businessman must analyse the targeted audience and after listening their religious thoughts , he should produce the goods .

Social Responsibility of Business and Points in Favour and Against of it

Meaning of Social Responsibility of Business

Social responsibility is the duty of businessman to help the society to solve its major problems . Every enterprise is fully connected with society . He takes many things from society in the form of raw material ,
work from employees and also pollute environment of society. After this , many social problems rise due to pollution . So businessman's prime duty is to support in the form of plantation near the area of factory providing free health facilities to employees and also donate some part of profit for welfare of poor community to uplift them . These days trends shows that almost all companies are taken steps for becoming responsible toward society .

Arguments in favour of social responsibility :-

1. To increase reputation of society :-

Businessman sells the goods to the customers and customers are the social person .If businessman is responsible towards society , then he can increase his reputation in society . This is the one of most important argument that after providing good quality of goods at lower price and providing other free facilities to customers , business can grow his business.

2. Business legal obligations :-

Some law are made in India to reduce population . So businessman must follow these rules and regulations and after this he can save from government penalties . According to this argument businessman should come forward for doing social work. After this he can respect the law .

3. More Public expectation from business :-

In the modern time it may be argued that businessman should fulfil the expectation of public . Businessman gets raw material from very low cost and after producing he sells at very high cost . So it is the duty of businessman to share his some profit in the form of donation.

4. Business has useful resource

Many wise person from society gives argument that business has skill , experience and money resources and innovation mind . If these resources are used to solve social problem , then society can rich with in some year .

5. Better Environment from business

If a business gives good working condition to employee then it will provide better environment for business . How will it possible.

Good facility in factory and provide high wages to labourer

will reduce the absenteeism

will reduce labourer turnover

will reduce labourer crime.

Argument against Social responsibility

1. Cost of social work

Business has already limited resource. So , if it is used in social work then business activity may slow and business's expenses will increase and it will affected business inversely.

2. Businessman is not expert in social work :-

Businessman is not expert in social work . Because he has not done MSW . Master of social work is higher qualification for doing social work and fulfilling social responsibility as social and moral agent . So , without perfect knowledge , business should not do any social activity but concentrate only on his business .

3. Social responsibility is not legal responsibility :-

Some businessman argue that social responsibility is not legal responsibility , no one pressure on business man to give donation under any law .

4. International competition

One of important argument is given by Indian businessman that they have to face international competition . After adopting some social responsibility , it will increase the prices of their product and after competition our business will fail and foreign companies will win in competition.

5. Ignore Business Aim :-

It is the duty of Govt. to do that social activities and if a businessman ignore his business aim and start social activities , then after ignoring business aim businessman can succeed in business.


In very brief , we can give the conclusion of this debate that business should concentrate on business activities but also do social activities which promote the business. He can give small amount of donation and provide good services to employee and society .

What is Technological Environment and Its Status in India ?

Definition of Technological Environment :-

“Technological Environment means the development in the field of technology which affects business by new inventions of productions and other improvements in techniques to perform the business
work. "


We see that in 21st century, technology is changing fastly. Now, all work is done online and business shops are using machinery at high level. There are following technological environment factors which affects business.

• New inventions to produce the products.

• New inventions relating to marketing like BPO for selling online in international market.

Status of Technological Environment or Technology in India :-

After Independence, India had basic problems like poverty , unemployment and development of India . Indian Govt. has taken many following steps for technological development.

1. Establishment of technological and research institute

Indian govt. has established 500 technological institutes for providing education to Indian students. It has also established 1080 research institutes. In these institutes major names like space research centre, medical research centre and agricultural research centre have developed India technically.

2. Positive Technical policy

India has strong and positive technical policy for technological development. This policy opens door to import technology from foreign countries for increasing agricultural and industrial developments.

3. High Growth Rate of Information Technology in India

In India, IT sector is developing with 35% growth rate, India is second country after China who is using internet at large scale for e-commerce , e-education and e-accounting .

4. Incentive for promoting Technology in India

• Indian Govt. has given 100% income tax exemption for expenses incurred in research of technology in India.

• State financial corporation is uplifting domestic technology by supporting finance to domestic Industries.

Definition of Transfer of Technology

“Transfer of Technology means to sell the technology or to provide technology to other for getting money from that person. Technology includes skill, knowledge and new and fast production techniques and any
organization will give it only after getting its fees that may be license fees. After this second party can share that technology for their own purposes.

Main methods of Transfer of Technology

1. Transfer of Technology by providing training to employees of company

If any company is started the work of training to employees of different company . By this way they can transfer their technology to the employees after learning skills , employees can work more technically.

2. Transfer of Technology by giving license

By this way company can also transfer of technology, Microsoft is the one of example of this; you can buy the license to use the different softwares of Microsoft company. For this Microsoft Company will take fees for this.

3. Transfer of Technology by selling of machinery and equipment

This is also another method of transferring the technology. Company can make any machine or equipment and it is finished with all technology by selling this machine or Equipment Company can transfer the technology.

4. Making of Partnership or joint venture programme

Under this method company does not sell the technology but technology becomes fixed investment in partnership or joint venture. One party brings technology and other party brings money and both start a new business.

5. by Expert Services

Under this method, expert can transfer of technology by giving his professional services and takes fees.

Followings are the main economic policies:-

1. Industrial Policies :-

Industrial policies are the one of the important part of economic policies. For working of industry in peace environment, these policies are made. These policies may be different according to the size and location of industry.

2. Trade Policies:-

Trade policy is relating to import and export of goods. Govt. makes trade policy for protecting domestic industry by levying of tax on import.

3. Foreign exchange policy:-

It is also the part of economic policy. For exchanging the currency and better movement of international capital, these policies are made in international capital market.

4. Foreign investment and technology policy:-

This policy is very helpful for getting large amount in form of foreign investment and high skill in form of technology. Govt. makes this policy more liberalized to attract foreign investors.

5. Fiscal Policy:-

Fiscal policy is very advance tool to promote economy. Govt. can reduce the rate of indirect tax for removing recession from country under fiscal measurements .

6. Monetary policy:-

Monetary Policy is made by central bank of any country. RBI uses several tools of monetary policy like bank rate, open market operations and direct regulations.

Critical Role of Economic Policies:-

In India, there are approximate six economic policies and policies are so important for development of India economy. But there are also many shortcomings, we can see in these , which we can explain following way :-

→ Industrial policies affect on domestic industry adversely. Govt. promotes only big companies.

→ Economic policies can be criticized that these are affected from world economy which can not be controlled by govt.

→ Govt. has no direct control on monetary policies due to the control of RBI. So, it is less represented by public.

→ Liberalized foreign investment are decreasing the portion of public sector.

Definition of Monetary Policy

Monetary policy is that part of economic policy in which central bank controls the cost and supply of money and credit by applying different techniques. It is also
main function of central bank.

We all know, if supply and cost of money are not controlled. Then both are harmful for development of economy. In India RBI is sole institute who is taking steps to regulate money and credit by controlling its supply. Monetary policy regulates both volume and value of currency and credit.

Objective of Monetary Policy

* To control the supply of money.
* To control the cost of money and credit.
* Exchange stability
* Full employment

Instruments or technique of credit control / monetary policy:-

1. Bank Rate

Bank rate is that rate which is charged by Central bank for issue loan to the member banks. By changing it, central bank can control the credit.

→ If Central bank increase this bank rate, all commercial banks will increase their interest rate by this loan become costly and flow of fund in the form of credit will decrease.

→ If central bank wants to expand credit, then Central bank will decrease bank rate, after this commercial bank can get advance and loan at cheap rate and by this way, they also decrease their interest rate. After this flow of cash in the form of loan will increases.

2. Open Market Operation

Open market operation is the all action which is done by central bank for purchase and sale of member banks' security in open market. If RBI wants to contract the credit, then RBI will sell the security of member bank and member bank's flow of cash will stop. If RBI wants to expand credit in recession, then RBI will start to buy the security of member banks and member banks get cash and they can now use it for providing more loans to customers.

3. Cash Reserve Ratio / Statutory minimum reserve:-

Cash reserve ratio is the minimum percentage of the deposit to be kept as reserve by the banks with central bank. It can be used as the technique of monetary policy. By changing cash reserve ratio, RBI can contract or expand credit in Indian economy.

→ If RBI wants to contract credit, and then RBI will increase this ratio. After this all banks have to keep more fund as reserve with RBI. So, they will decrease the amount of loan due to decrease the total fund available for enterprises.

→ If RBI wants to expand credit, then RBI will decrease this ratio, after this all banks have to keep less fund as reserve with RBI. So, they will issue more credit to public.

4. Changes in Marginal Requirement of loan:-

Marginal requirement is the difference between value of security and actual loan accepted by bank. Suppose a person wants to take loan of Rs. 80 , we has to give security of Rs. 100 then marginal requirement is Rs. 100 - Rs. 80 = Rs. 20 .

→ If RBI wants to contract the credit , this rate will increase suppose , if RBI fixes it as 40 % , then customer can get loan of Rs. 60 after giving security of Rs. 100 . So , trend of getting loan will decrease .

→ If RBI wants to expand the credit, this rate will decrease suppose, if RBI fixes it as 10% more people will take loan , if they get Rs. 90 in cash after giving security of Rs. 100 .

So , by this way RBI controls credit .

5. Moral Persuasion / Inspiration

RBI as central bank of country can control credit with moral persuasion. Under this persuasion, RBI can call a meeting of all commercial bank and give advice in discussion that they should not give loan for speculative purposes.

6. Rationing of Credit

RBI has right to create ration of credit under monetary policy. It can be done by following way:-

* To fix the amount of loan for a particular bank.
* To fix Quota for all banks.
* To fix Quota for different traders.

7. Regulation of consumer credit

→ In case inflation, prices are increased. To control prices central bank contract credit to reduce the total amount of installment for payment.

→ In case of deflation, prices are decreased to control prices central bank expand credit to increase the amount of installment.

What is Fiscal Policy ? What are The Objectives of Fiscal Policy ? What are The Main Techniques of Fiscal Policy ? What are Limitation of Fiscal Policy ?

Definition of Fiscal Policy

Fiscal Policy is the main part of Economic Policy and Fiscal Policy's first word Fiscal is taken from French word Fisc it means treasure of Govt. So we can define fiscal policy as the revenue and expenditure policy of Govt. of India .It is prime duty of Government to make fiscal policy . By making this policy , Govt. collects money from his different resources and utilize it in different expenditure . Thus fiscal policy is related to development policy . All welfare projects are completed under this policy

Objectives of Fiscal Policy

There are following objectives of fiscal policy :-

1. Development of Country :-

For development of Country , every country has to make fiscal policy . With this policy , all work work is done govt. planning and proper use of fund for development functions . If govt. does not make fiscal policy , then it may happen that revenue may be misused without targeted expenditure of govt.

2. Employment :-

Getting the full employment is also objective of fiscal policy . Govt. can take many action for increase employment. Government can fix certain amount which can be utilized for creation of new employment for unemployed peoples .

3. Inequality :-

In developing country like India , we can see the difference one basis of earning . 10% of people are earning more than Rs. 100000 per day and other are earning less than Rs . 100 per day . By making a good fiscal policy , govt. can reduce this difference . If govt makes it as his target .

4. Fixation of Govt. Responsibility :-

It is the duty of Govt. to effective use of resources and by making of fiscal policy different minister's accountability can be checked . I was seeing the Episode of Chanakya on YouTube in which I found that in old time fiscal policy was made and treasury officer and even prime minister are also responsible for any shortage of govt .fund .

Techniques of Fiscal Policy

1. Taxation Policy

Taxation policy is relating to new amendments in direct tax and indirect tax . Govt. of India passes finance bill every year . In this policy govt. determines the rate of taxes . Govt. can increase or decrease these tax rates and amend previous rules of taxation .Govt.'s earning's main source is taxation . But more tax on public will adverse effect on the development of economy.

→ If Govt. will increase taxes , more burden will be on the public and it will reduce production and purchasing power of public .

→ If Govt. will decrease taxes , then public's purchasing power will increase and it will increase the inflation.

Govt. analyzes both the situation and will make his taxation policy more progressive .

2. Govt. Expenditure Policy

There are large number of public expenditure like opening of govt schools , colleges and universities , making of bridges , roads and new railway tracks . In all above projects govt has paid large amount for purchasing and paying wages and salaries all these expenditure are paid after making govt. expenditure policy . Govt. can increase or decrease the amount of public expenditure by changing govt. budget . So , govt. expenditure is technique of fiscal policy by using this , govt. use his fund first on very necessary sector and other will be done after this .

3. Deficit Financing Policy

If Govt.'s expenditures are more than his revenue , then govt. should have to collect this amount . This amount is deficit and it can be fulfilled by issuing new currency by central bank of country . But , it will reduce the purchasing power of currency . More new currency will increase inflation and after inflation value of currency will decrease . So, deficit financing is very serious issue in the front of govt. Govt. should use it , if there is no other source of govt. earning .

4. Public Debt Policy

If Govt. thinks that deficit financing is not sufficient for fulfilling the public expenditure or if govt. does not use deficit financing , then govt. can take loan from world bank , or take loan from public by issuing govt. securities and bonds . But it will also increase the cost of debt in the form of interest which govt. has to pay on the amount of loan . So, govt. has to make solid budget for this and after this amount is fixed which is taken as debt. This policy can also use as the technique of fiscal policy for increase the treasure of govt.

Limitation of Fiscal Policy

1. After issuing new notes for payment of govt. of expenses , inflation of India is increasing rapidly and in this inflation , prices of necessary goods are increasing very fastly. Living of poor person has become difficult . So , these sign shows the failure of Indian fiscal policy.

2. Govt. fiscal policy has failed to reduce the black money . Even large amount of past minister is in the form of black money which is deposited in Swiss Bank.

3. After taking loan from world bank under the fiscal policy's debt technique , govt. has to obey the rules and regulations of world bank and IMF . These rules are more harmful for developing small domestic business of India. These organisation are inter related with WTO and they want to stop Indian domestic Industry.

4. After expending large amount for generating new employment under fiscal policy , rate of unemployment is increasing fastly and big lines on govt. employment exchange can be seen generally in working days . Database of employment exchanges are full from educated unemployed candidates .

Monopoly and Restrictive Trade Practice (MRTP ) Act 1969 and its Provisions
After 1947 , many big firms had entered in Indian economy and they were trying to operate business without any competitors . Govt. of India had understood the policy of big Corporate firms and for safeguarding the
interest of consumers , Govt. of India has passed the bill of MRTP and made the monopoly and restrictive trade practise Act 1969 . After activation of this law , no company can promote monopoly and other restrictive trade activities . MRTP commission has power to stop all business activity who are creating barrier in the way of competition in Indian economy.

In this law , RTP is defined deeply and many provisions explains what are activities are restrictive .

Now , this act is converted into Competition Act 2002 and MRTP commission is converted into Competition commission.
Main Provisions of Competition Act 2002
In 1969 Govt. has passed an act and it had given the name monopoly and restrictive trade practices (MRTP). It became popular with the name of MRTP 1969. This act has many provisions to control the
monopoly and to promote the competition. It has defined RTP and also explained the powers of MRTP commission. But its scope was very narrow and Govt. of India has made new act called competition act 2002. On the place of MRTP ACT 1969 after this MRTP act 1969 was fully repealed.

Explanation of Competition Act 2002

Competition Act 2002 states that Indian traders must not do any activity for promoting monopoly. If they will do any activity in the form of production, distribution, price fixation for increasing monopoly and this will be against this act and will be void. This act is very helpful for increasing good competition in Indian economy.

Under this act following are restricted practice and these practices are stopped by this act.

1. Price fixing:-

If two or more supplier fixes the same price for supply the goods then it will be restricted practice.

2. Bid ragging:-

If two or more supplier exchange sensitive information of bid, then it will also be restricted practice and against competition.

3. Re-sale price fixation:-

If a producer sells the goods to the distributors on the condition that he will not sell any other price which is not fixed by producer.

4. Exclusive dealing:-

This is also restricted practice. If a distributor purchases the goods on the condition that supplier will not supply the goods any other distributor.

Above all activities promote monopoly so under competition act these are void and action of competition commission will not entertain by civil court.

Establishment of Competition Commission Under this law

Govt. of India appoints the chairman and other member of competition commission. Competition act 2002 gives the rules and regulation regarding establishment and functions of this commission.

Qualification of chairperson of Competition commission:-

He or she should be Judge of high court + 15 years or more experience in the field of international trade , commerce , economics , law , finance , business and industry .

Function of Competition commission:-

1. To stop activity and practice which are promoting monopoly.
2. To promote the competition.
3. To protect the interest of consumers.


India is doing all work for safeguarding the interest of consumer and this law is one of the important pillar in this way.

What is Information Technology Act 2000? What are Its Scope And Objectives? What are Its Main Provisions? Discuss Its Advantages And Shortcomings.
Introduction of Information Technology Act 2000

Information technology is one of the important law relating to Indian cyber laws. It had passed in Indian parliament in 2000. This act is helpful to promote business with the help of internet. It also set of rules and regulations which apply on any electronic business transaction.

Due to increasing crime in cyber space, Govt. of India understood the problems of internet user and for safeguarding the interest of internet users, this act was made.

The following are its main objectives and scope:-

1. It is objective of I.T. Act 2000 to give legal recognition to any transaction which is done by electronic way or use of internet.

2. To give legal recognition to digital signature for accepting any agreement via computer.

3. To provide facility of filling document online relating to school admission or registration in employment exchange.

4. According to I.T. Act 2000, any company can store their data in electronic storage.

5. To stop computer crime and protect privacy of internet users.

6. To give legal recognition for keeping books of accounts by bankers and other companies in electronic form.

7. To make more power to IPO, RBI and Indian Evidence act for restricting electronic crime.


Every electronic information is under the scope of I.T. Act 2000 but following electronic transaction is not under I.T. Act 2000

1. Information technology act 2000 is not applicable on the attestation for creating trust via electronic way. Physical attestation is must.

2. I.T. Act 2000 is not applicable on the attestation for making will of any body. Physical attestation by two witnesses is must.

3. A contract of sale of any immovable property.

4. Attestation for giving power of attorney of property is not possible via electronic record.

Highlights the main chapters of I.T. Act 2000 or its main provisions:-

There are 13 chapters in law and all provision is included in this chapters.

1. Chapter II

Any contract which is done by subscriber. If he signs the electronic agreement by digital signature. Then it will be valid.

In case bank, the verification of digital signature can be on the basis of key pair.

2. Chapter III

This chapter explains the detail that all electronic records of govt. are acceptable unless any other law has any rules regarding written or printed record.

3. Chapter IV

This chapter deals with receipts or acknowledgement of any electronic record. Every electronic record has any proof that is called receipt and it should be in the hand who records electronic way.

4. Chapter V

This chapter powers to organization for securing the electronic records and secure digital signature. They can secure by applying any new verification system.

5. Chapter VI

This chapter states that govt. of India will appoint controller of certifying authorities and he will control all activities of certifying authorities.

“Certifying authority is that authority who issues digital signature certificate.”

6. Chapter VII

In this chapter powers and duties of certifying authority is given. Certifying authority will issue digital signature certification after getting Rs. 25000. If it is against public interest, then C.A. can suspend the digital signature certificate.

7. Chapter VIII

This chapter tells about the duties of subscribers regarding digital signature certificate . It is the duty of subscriber to accept that all information in digital signature certificate that is within his knowledge is true .

8. Chapter IX

If any body or group of body damages the computers , computer systems and computer networks by electronic hacking , then they are responsible to pay penalty upto Rs. 1 crore . Fore judgment this , govt. can appoint adjucating officer .

9. Chapter X

Under this chapter, cyber regulation appellate tribunal can be established. It will solve the cases relating to orders of adjudicating officers.

10. Chapter XI

For controlling cyber Crime, Govt. can appoint cyber regulation advisory committee who will check all cyber crime relating to publishing others information. If any fault is done by anybody, he will be responsible for paying Rs. 2 lakhs or he can get punishment of 3 years living in jail or both prison and penalty can be given to cyber criminal.

11. Chapter XII

Police officers have also power to investigate dangerous cyber crime under IPC 1860 , Indian Evidence Act 1872 and RBI Act 1934 .

Advantages of I.T. Act 2000

1. Helpful to promote e-commerce

• Email is valid

• Digital signature is valid.

• Payment via credit card is valid.

• Online contract is valid

Above all things validity in eye of Indian law is very necessary. After making IT act 2000 , all above things are valid and these things are very helpful to promote e-commerce in India .

2. Enhance the corporate business

After issuing digital signature, certificate by Certifying authority, now Indian corporate business can enhance.

3. Filling online forms :-

After providing facility, filling online forms for different purposes has become so easy.

4. High penalty for cyber crime

Law has power to penalize for doing any cyber crime. After making of this law, nos. of cyber crime has reduced.

Shortcoming of I.T. Act 2000

1. Infringement of copyright has not been included in this law.

2. No protection for domain names.

3. The act is not applicable on the power of attorney, trusts and will.

4. Act is silent on taxation.

5. No, provision of payment of stamp duty on electronic documents.
What is FEMA 2000 ? What are Its Main Objectives ? What are Main Provisions of FEMA 2000
Definition of FEMA 2000

FEMA 2000 means Foreign exchange management Act 2000. Foreign exchange management act 2000 is very helpful law for development of foreign exchange market in India. It was passed in 1999 and came into effect from June 1, 2000 to entire country. After this foreign exchange regulation act ( FERA ) 1973 was closed . FEMA was most suitable for India corporate sector instead of FERA because almost all strict regulations of FERA were removed in FEMA .

Objectives of FEMA

1. Main objective of apply FEMA is to reduce the restriction on foreign exchange . Now , any offense in foreign exchange will be civil offense not criminal offense .

2. This law's main objective is to increase the flow of foreign exchange in India. Now , under this law , you can bring foreign currency in India without any legal barrier .

Provision /Rules / Regulation of FEMA

1. Provision regarding dealing in foreign exchange :-

According to section 3 of FEMA 2000 ," only authorized person under the govt. terms can deal in foreign exchange in India . "

2. Provision regarding holding of foreign exchange :-

According to section 4 of FEMA 2000, " All persons which are provided authority only can hold or purchase foreign exchange in India or outside India."

3.Provision regarding current account transactions :-

According to section 5 of FEMA 2000 ," There is no restriction regarding sale or deal foreign exchange , if it is a current account transaction ."

The following transaction are deemed current account transactions under FEMA :-

a) Expenses in connection with foreign travel , education and medical care of parents , spouse and children ( Any body now can send the foreign currency in India for above expenses under current account )

b) Payment due as interest on loan

c) Payment due under short term loan for business .

4. Provision regarding capital account transactions :-

Under section six ," RBI will fix the limit of foreign exchange transactions relating to capital account after discussion with Indian govt. "

RBI can restrict following :-

a) transfer of foreign security by Indian resident .

b) transfer of foreign security by Indian resident which is now outside India .

c) transfer of immovable property .

5. Provision regarding export of goods and services :-

According to section 7 of FEMA 2000 , " It is the duty of exporter to declare the true and correct detail of goods which , he have to sell the market outside India and must send complete report to RBI .

RBI can make particular requirement for any exporter .

RBI can also make rules and regulations for realization of amount earned from foreign country.

6. Provision regarding authorised persons :-

RBI can authorize any body who can deal in money exchange or off shore transaction and foreign exchange .

* He has to follow the rules and guidelines of RBI .
* RBI can revoke the authorisation granted to any person at any time in public interest .
* If authorized person will be done contravention the rules of RBI , he will be liable to pay up to Rs. 10000 penalty and Rs. 2000 for every day during which such contravention continue .

7. Provision regarding contravention and penalties :-

Section 13 to 15

If any body or person contravenes the rules and regulation of FEMA 2000 or RBI direction , he will be liable to a penalty three times of sum involved in contravention .

If contravention will continue , then he will pay upto Rs. 5000 per day during the time of contravention .

8. Provision regarding adjucation and appeal :-

According to section 18, " Central govt. can appoint adjudicating authority who can give the punishment of civil imprisonment of maximum six months if case is less than one crore . If demanded value is more than one crore then punishment of imprisonment may be of three years . the person can appeal to special director against the decisions of adjudicating officer . He can also appeal in appellate tribunal and also in high court with the sixty days of communication of order .
What are The Development Banks ? What are Its Features , Functions and Lending Procedures ?
Features of Development Bank

1. Providing loan for development of business of enterprise .
2. Loan is given on project basis not on the basis of security .
3. It provides loan at cheap rate of interest .

Functions of Development Bank

1. Providing loan at cheap rate

Development bank takes interest at very low rate and from time to time , they issue new scheme of loan in which rate of interest is very low .

2. Provide advice and guidance

Development bank provides advice to the businessman about which project is best . It is also function of development bank is to guide to businessman about how to use the loan .

3. Providing facility of refinancing of Commercial banks

Large numbers of commercial bank gets the refinance facility from development bank. Refinance means getting the finance for further distribution of loan to customer .

4. Providing underwriting services

These days development bank are also providing the facility of underwriting in which development bank promises to sell all the shares of company . For these services development bank gets some commission from companies .

Lending procedure of Development bank

Step one

Checking the project

Customer wants to get the loan , he will apply for same . He will attach his project with his application after this development bank will check the project . It will see the following points .

* What amount of capital is investing by businessman .
* Size of infrastructure .
* What is the major transport facility for distribution of products .
* Availability of raw material

After checking the above points development banks decides to give loan or not .

Step Second

Other Govt. formalities

Development bank also checks whether the customers has fulfilled all the formalities of govt. or not . Whether he obtained license or not .

Step Third

Acceptance of loan :

If project is good and customers fulfills all the conditions of govt. , then development bank will accept the project and issues the loan to customers bank account .

Step Fourth

Follow Up

After giving loan , development bank guides customers , how to use loan effective way for achievement in project under follow up step .
What is FTDR Act 1992 and What are Its Provisions ?
Foreign trade development and regulation act was passed in 1992 . After this , old export control act 1947 was closed . All export and import are done by FTDR Act 1992 . FTDR Act is helpful to promote export
and import without any restrictions .

Main provisions

1. Reduce restrictions

This act's provisions are relating to reduce the restrictions on foreign trade .

2. EXIM Policy

This provision gives power to govt. of India to make policy of export and import under this act.

3. Appointment of Director general of Foreign trade

This act also powers to govt. of india to appoint director general of foreign trade . DFGT will advise for making exim policy .

4.Importer exporter code no.

Under this law , any body can export or import only after getting I-M-C-N from director general of foreign trade .

5. Issue of license

Export or import can be done under license issued by DGFT

6. Search and Seizure

Authorized person can search whether goods are imported or exported under term and conditions of FTDR Act 1992.

7. Penalty for contravention

If anybody contravenes the rules and regulations of FTDR Act 1992 , then he has to give 1000 rupees or 5 times of value of goods involve whichever is more .
What is ISO ? Explain its Standards ISO 9000 and ISO 14000 . Discuss Its Objectives , working and Versions
Meaning of ISO

ISO means international standard organisation . In business environment , ISO word is so famous and International organisation provides standards to those business oraganisations who fulfill its conditions . It has
authority to issue certificate of quality management and quality environment . There are large numbers of business organisation who satisfy the conditions . They have ISO certificate .

ISO's official site is at the url

ISO (International Organization for Standardization) is the world's largest developer and publisher of International Standards. This organisation has made by participation of all countries .Its central secretariat is in Geneva , Switzerland .It is NGO which helps to promote business by providing them solution of quality problems .

Meaning of ISO 9000

This is the latest version of International organization for standardization which gives to those organization who satisfy the following condition

1. It fulfills the quality requirements of customers .
2. It fulfills regulatory requirements .
3. Customers satisfaction
4. Continual improvement in quality management .
5. Records should show how and where raw materials and products were processed, to allow products and problems to be traced to the source.
6. You need to test and document whether the product meets design requirements, regulatory requirements and user needs.

Meaning of ISO 14000

ISO 14000 is standard certificate which gives to those business organization who fulfill the conditions relating to quality environment . Quality environments means all measure to protect the environment from pollution .


1. Company has minimized harmful effect on environment by proper control on waste and pollution.
2. Achieve improvement in its environment performance by planting the trees and other projects .
3. ISO 9000 and ISO 14000 are given after taking test of products who apply for same and ISO takes also some fees for issuing the certificate . There is no guarantee , any quality of end products but almost all ISO products are high quality .
4. The certificate will be for three years and after this product will again review for giving certificate .

Objectives of ISO 9000 and ISO 14000

1. To Increase the goodwill of company

Main objective of getting these standards is to increase the goodwill of company. Customer can compare the quality of two companies , one is with ISO standard and other is without ISO standard . Goodwill may be in form of increase in sale or more promotion of product of company.

2. Control on Quality

After getting ISO standards , company has to control on quality and it is the objective of ISO standards . ISO standard 9000 controls product's quality and ISO 14000 controls environment quality .

3. Revolution

After coming , ISO 9000 and ISO , 14000 companies have started to label the product by eco labeling . Moreover awareness has come in the minds of company after ist ISO standard in 1987.

Working of ISO

ISO 9000 is more powerful tool to get confidence in market . Company can invite customers to check the quality before purchasing the products. It will only possible after implement ISO 9000 standards . Every product's package is with ISO 9000 and customer can understand its value .


1. ISO 9001 : 1987
2. ISO 9002 : 1987
3. ISO 9003: 1987
4. ISO 9000: 1987 , 1994 , 2000
5. ISO 9000 : 2008
6. ISO 9001 : 2008

ISO 14000 version

1. ISO 14000 family version
2. ISO 14001 : 2004 EMS
3. ISO 14020 ,14021 , 14022 , 14023 , 14024 , 14025

What is the NGO ? Discuss Its Type , Role And Legal Status ? Explain Various Methods in Which NGO Operates

Meaning of NGO

NGO means non - government organisation. Any organisation who is doing non profit activity is called NGO . The aim to make NGO is to do social activities . These organisations do not involve in commercial activities . The source of fund may be private or govt. NGO collects fund through donation . Now , NGO are also known as private voluntary organisation .

It is estimated that 40000 NGO are working internationally and more than 1 million NGO are only in India . Main objectives for making NGO are to reduce poverty , increase employment and support to poor children.
Types of NGO

On the basis of Acronyms


INGO means international non govt. organisation . For example UNO and ILO are INGO.


BINGO means business oriented international NGO . CARE , RED Cross and Green peace are BINGO


ENGO means environmental NGO


GONGO means govt. operated NGO .


QUANGO means quasi autonomous NGO

For example ISO


TANGO means Technical assistance NGO


CSO means civil society organisation.

Types of NGO on the basis of World bank's classification

1. Operational

Operational NGO is that type of NGO which are created for development projects .

2. Advocacy

Advocacy NGO is that type of NGO which are created for awareness projects .


USAID is created as private voluntary organisation in US .

Legal Status

NGO has legal status under following laws

1. Any charitable society registered under society registration act 1860
2. Trust
3. Any ltd company formed under company law 1956 of India

Methods in which NGO operates

There are following methods to operate NGO

1. Lobbying
2. Other Social welfare projects like project for providing food , drinking water , and poverty alleviation.

Role of NGO in Consumer awarness

NGO plays a very important role in the consumer awareness . Consumer is the person who buys the products of the company. It is his right to choose the right product at right price . Many NGO are created for providing awareness to consumer with the help of print media , seminars and work shops with this consumers knows what are the points with a business man to cheat the consumers . He can give low quality products. These NGO are also helpful to give remedies to helpless consumers . Large nos. of advocates and legal experts work voluntarily in NGO . So , consumer can get help or advice from these members .

Any Error? Report to Us
Content are not to subject of Copyrights.
Disclaimer: We cannot guarantee the information is 100% accurate.

No comments:

Post a Comment