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  • 1. In marketing terms the demand for dollar is far exceeding its supply. When demand exceeds supply the price of that commodity goes up, till the supply demand position, is balanced once again.
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Business environment Business environment Presentation Transcript

  • Business Environment By: Dr. Vibhuti Tripathi, SMS
  • Environmental Forces • Business Environment • Task Environment • Competitive Forces in the Task Environment • Technological Forces • Political and Legal Forces
  • The General Environment and Environmental Forces Affecting Organizations The General Environment Cultural Forces Political - Legal Forces Technological Forces Competitive Forces Organization
  • The General Environment • Sometimes called the macro-environment. • Are external factors, such as inflation and demographics, that usually affect indirectly all or most organizations.
  • Factors in the General Environment • Type of economic system and economic conditions • Type of political system • Condition of the ecosystem • Demographics • Cultural Background
  • Roles of Government in Business • The government acts as a watchdog over business • Provides direction in areas such as: • Antitrust, • Monetary policy, • Defense, • Human rights • Environmental matters
  • The Economic System • • • • • • Privately Controlled Markets Based On Supply And Demand Free Market Competition Private Contracts Profit Incentives Technological Advancement
  • Competitive Forces in the Task Environment Threat of new competitors Suppliers bargaining power Rivalry among existing firms in industry Threat of substitute goods/services Buyers bargaining power
  • New Entrants • Barriers to Entry: • Economies of scale – Decrease in per unit costs as volume of goods/services produced increases • Product differentiation – uniqueness in quality, price, design, brand image, or customer service that gives a product an edge over the competition
  • New Entrants cont. • Capital requirements – Money needed to finance equipment supplies, advertising, R&D, and the like necessary to start • Government regulation – May bar or severely restrict potential new entrants to an industry
  • Substitute Goods and Services • Goods/Services –that can easily replace the firm’s goods/services
  • Customers • Potential Effects of Customers: – They may drive down prices – Push for more or higher-quality products
  • Integration • Developing related business units • Forward Integration- customer • Backward Integration- supplier • Horizontal Integration- competitors
  • Customers cont. • Exhibit Bargaining Power : – They purchase a large volume relative to the supplier’s total sales – They have readily available alternatives for the same services/products
  • Suppliers • Bargaining Power of Suppliers: – Often controls how much they can : • Raise prices above their costs • Reduce the quality of goods and services – Bargaining Power is increased by patents and copyrights
  • Impact of Technology – Knowledge, tools, techniques, and actions • Used to transform material , information, and other inputs into finished goods and services – Plays pivotal role in creating and changing an organization’s task environment
  • Economic Systems • Capitalism • Socialistic • Mixed
  • Capitalistic Economy • Free Enterprise • Freedom to save and invest • Free and healthy competition Run by price mechanism : Goods are bought and sold in the market at a price which is freely determined by the market.
  • • Distribution of goods is according to market conditions prevalent in markets. • Entrepreneurs / Organizations have control over production & distribution of goods by mobilising the resources to maximise profits • Government has a role of regulator only.
  • Socialistic Economy • Private players do not contribute much. • Government takes the responsibility of the economic development wholly to .. – Strategize the exploitation of resources – Equitable distribution of goods – Primary motive is social good.
  • • Entrepreneurship exists in the form of .. – Representatives nominated by government to plan and strategize. – Mobilise the resources – Allocating and re-allocating resources – Resources are channelized towards industries of National importance.
  • • Production and distribution of the goods is according to the needs of the people. • Private entrepreneurs have a negligible role
  • Mixed Economy • Government undertakes the production of capital goods like – iron, steel, cement, fertilizers etc. • Production of consumer goods is left to the private enterprises. • Runs on both price mechanism as well as equitable distribution.
  • • Mixed economy tries to solve the problem of distribution of goods and services in a better way than capitalist economy. • Role of government is wider .. – Formulate different strategies to establish gvt. owned enterprises. – Tries to increase production of essential goods and encourages private entrepreneurship.
  • Deciding Whether to Go Global • Reasons to consider going global: – Foreign attacks on domestic markets – Foreign markets with higher profit opportunities – Stagnant or shrinking domestic markets – Need larger customer base to achieve economies of scale – Reduce dependency on single market – Follow customers who are expanding
  • Deciding Which Markets to Enter • Before going abroad, the company should try to define its international marketing objectives and policies. What Volume of Foreign Sales is Desired? How Many Countries to Market In? What Types of Countries to Enter? Choose Possible Countries and Rank Based on Market Size, Market Growth, Cost of Doing Business, Competitive Advantage, and Risk Level
  • Strategic Orientations EPRG Schema Ethnocentric Polycentric Regio/Geocentric Orientation Domestic Marketing Extension Multidomestic Marketing Global Marketing
  • Strategic Orientations… • Domestic Market Extension Orientation – Extension of domestic products into foreign markets – International markets are secondary – Prime focus—market excess domestic products abroad – Firm’s orientation is domestic • Multi-Domestic Market Orientation – Realizes the difference b/w domestic & foreign markets – Different countries need different products – Separate marketing strategies for each country – Subsidiaries operate independent of one another – Products are adapted, advertising is localized – Might not standardize products
  • Strategic Orientations • Regional/Global Orientation – Truly global – single market – Emphasis on standardization—product/process – Strive for efficiencies of scale by standardizing market mix across national borders, whenever it is cost or culture effective – Pursue a global strategy for major brands or multidomestic strategy for other brands
  • Market Entry Strategies
  • Market Entry Strategies • Exporting: – Indirect: working through independent international marketing intermediaries. – Direct: company handles its own exports.
  • Market Entry Strategies • Joint Venturing: – Joining with foreign companies to produce or market products or services. • Approaches: – Licensing – Contract manufacturing – Management contracting – Joint ownership
  • Joint Ownership KFC entered Japan through a joint ownership venture with Japanese conglomerate Mitsubishi.
  • Market Entry Strategies • Direct Investment: – The development of foreign-based assembly or manufacturing facilities. – This approach has both advantages and disadvantages.
  • An Overview Of Liberalization, Privatization • Indian economy had experienced major policy changes in early 1990s. • The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. • The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient. • It marks the advent of the real integration of the Indian economy into the global economy.
  • • The term “Liberalization” stands for “the act of making less strict”. • Liberalization in Economy stands for “The process of making policies less constraining of economic activity." And also “Reduction of tariffs and/or removal of nontariff barriers.” • Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities.
  • • In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. • Five of the fastest growing developing economies today; Brazil, Russia, India, China and South Africa, have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital. • Most first world countries, in order to remain globally competitive, have pursued the path of economic liberalization: • partial or full privatization of government institutions and assets, greater labor-market flexibility, lower tax rates for businesses, less restriction on both domestic and foreign capital, open markets, etc.
  • Backdrop of Indian Economy • The low annual growth rate of the economy of India before 1980, which stagnated around 3.5% from 1950s to 1980s, while per capital income averaged 1.3%. • Only four or five licenses would be given for steel, power and communications. License owners built up huge powerful empires. • A huge public sector emerged. State-owned enterprises made large losses. • Infrastructure investment was poor because of the public sector monopoly. • License Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country" and corruption flourished under this system.
  • Benefits of Liberalization • • • • • Increase in Foreign investment Increase in Foreign Exchange Reserve Increase in Consumption Control over price Reduction on External Commercial Borrowings
  • Definitions Of The Term “Privatization” and “Economic Privatization” • The term “Privatization” refers to “The transfer of ownership of property or businesses from a government to a privately owned entity.” • The transition from a publicly traded and owned company to a company which is privately owned and no longer trades publicly on a stock exchange. • The process of converting or "selling off" government-owned assets, properties, or production activities to private ownership. • After several decades of increasing government control over productive activities, privatization came into vogue in the 1980s, along with business deregulation and an overall movement toward greater use of markets.”
  • • Privatization is frequently associated with industrial or service-oriented enterprises, such as mining, manufacturing or power generation, but it can also apply to any asset, such as land, roads, or even rights to water. • In recent years, government services such as health, sanitation, and education have been particularly targeted for privatization. • Privatization helps establish a "free market", as well as fostering capitalist competition, which will give the public greater choice at a competitive price.
  • Reason for Indian Privatization 1. Crippling Budget deficit 2. Spectacular growth by economies of Korea, Taiwan, Malaysia in private sector 3. Changes in China
  • 4. Emergence of professional management 5. IMF & World Bank extended arm to capitalism 6.Gulf crisis 7.Lack of demand in economy 8.Integration of world trade 9. Developed local capital market and Financing Institution
  • Recent Reasons •To STENGTHEN Competition •To improve public finance •To fund Infrastructure Growth •Accountability of share holders •To reduce unnecessary interference
  • The main reason for increased efficiency gain as a result of privatization can be attributed to (i) Less political interference in decision making (i) Staff remuneration is more closely linked to productivity and profitability (ii)Firm are exposed to open market discipline as opposed to government support (iii)Firm’s cost reducing effort are higher under competitive private ownership
  • Key obstacle to privatization (i) Lack of strong and high level political commitment to the privatization program (ii) Unclear and weak institutional frame workdecentralized or centralized. (ministry and provincial level) iii) Lack of proper preparation of enterprise for privatization or divestment eg. Accounting and auditing , treatment of losses, social and environmental safety net
  • (iv) Insufficient transparency and flexibility in term of the method of privatization, balancing, ownership, and control (corporate governance) (v) Vested interest of manager, employees and customer (vi) Lack of appropriate legal frame work (eg. Property right, foreign ownershipbankruptcy law ) (vii) Underdeveloped capital markets
  • WAYS OF PRIVATIZATION • DISINVESTMENT (a process in which the public undertaking reduces its portion in equity by disposing its shareholding) • CONTRACTING • FRANCHISING / LEASING • PREMITING PRIVATE SECTOR ENTER INTO PSU RESERVED AREA • LIQUIDATION (Termination of a business operation by using its assets to pay up its liabilities)
  • ECONOMIC ACTIVITIES
  • Methods of measuring economic activity : • Consumer spending: consumer demand or consumption is also known as personal consumption expenditure • Exchange Rate: also known as the foreign-exchange rate, forex rate or FX • • • rate) between two currencies specifies how much one currency is worth in terms of the other. Gross domestic product: The gross domestic product (GDP) or gross domestic income (GDI) is a measure of a country's overall official economic output. It is the market value of all final goods and services officially made within the borders of a country in a year. It is often positively correlated with the standard of living.
  • • Stock Market: • Interest Rate: a fee paid on borrowed assets. or, money earned by deposited funds. Paid on percentage of amount deposited or charged on percentage of amount borrowed. • National Debt: A broader definition of government debt considers all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid. • can be categorized as internal debt, owed to lenders within the country, and external debt, owed to foreign lenders.
  • • Rate of Inflation: a rise in the general level of prices of goods and services in an economy over a period of time. • When the price level rises, each unit of currency buys fewer goods and services. • an erosion in the purchasing power of money. • uncertainty about future inflation may discourage investment and saving • may lead to reductions in investment of productive capital and increase savings in non-producing assets. Selling Stocks and buying gold.
  • • Unemployment: • Balance of Trade: difference between the monetary value of exports and imports of output in an economy over a certain period. • trade surplus , trade deficit
  • MONEY
  • Few More Terms • Money Supply – Total volume of money that is circulated in the economy. – M1– – Currency in Circulation – Demand Deposits of public with banks – M 2 – Total of M 1 + Post Office savings + Time Deposits of small denominations – (M1 & M2 = Narrow Money)
  • • M 3 – Total of M 2 + Large time deposits + Institutional funds. • M 4 - All deposits with post office saving(excluding National Savings Certificates). (M3 & M4 = Broad Money ) These gradations are in decreasing order of liquidity. M1 is most liquid and easiest for transactions M4 is least liquid of all. M3 is the most commonly used measure of money supply
  • More money = more liquidity = easy to get loans = inflation central bank money (physical currency, government money) commercial bank money (money created through loans) sometimes referred to as private money, or chequebook money. Expansion of Money : i. Money is pumped into market through issuing of Currency by RBI. ii. Borrowings of Government. iii. Government meets its budgetary deficits by borrowing from RBI
  • • Contraction of Money : – Unlimited expansion of money and credit would lead to ? INFLATION Role of RBI Monetary Policy: It is a statement stated bi-annually through RBI. Fixed by considering the prevailing prices and growth patterns of economy and also rate of population growth and employment.
  • The Reserve Bank estimates the demand for banknotes on the basis of the growth rate of the economy, the replacement demand, Inflation and public expenditure demand by using statistical models/techniques. All the currency issued is the monetary liability of RBI. Backed by assets of equal value held. Assets consist of gold, foreign securities, and the government’s securities.
  • Devaluation of Rupee • There is a shortage of dollars. • Foreign Exchange reserves are almost static around $ 300 billion since last nearly 3 years . This means that we are not able to increase the reserves and is a poor reflection on our inability to increase our net earnings in dollar terms. • Our exports have gone up and in 2011-12 touched the highest figure of $300 bn but so have the imports also risen to an ever highest figure of nearly $450+ bn levels. Foreign Exchange reserves are not going up.
  • • High rate of inflation it erodes the value of rupee • High fiscal deficit in the central budget, presently around 5.9% and expected to go up. requires to resort to increased borrowings • Increasing burden of subsidies on account of fertilisers, cooking gas, petrol and diesel prices, NAREGA etc it is a mammoth task to reduce the overspending to reduce the fiscal deficit to manageable levels. • The recent downgrading of India by Standard & Poor international rating agency has resulted in flight of dollars by FII's who quit from the share markets thus leading to a furthur shortage of dollars.
  • Monitory Policy • Expansionary policy, increases the total supply of money in the economy rapidly OR • Contractionary policy, decreases the total money supply or increases it only slowly.
  • • It Regulates the supply of money and the cost of availability of credit in the economy. • Aims at – maintaining price stability and Economic growth through; – Changing money supply and interest rates. – Credit Control Measures : – Bank Rates: Rate at which the central bank provides credit to commercial banks.
  • • Increase in bank rates leads to ? – Increase in lending rate – Money supply could be checked. – Acts as a pace setter to all other rates of interests. – Increase in Bank rates could lead to reduction in • • • • Borrowings Level of inventory holding Investment Prices
  • – CRR (Cash Reserve Ratio): Every Bank has to keep certain amount of cash reserve with the RBI – SLR (Statutory Liquidity Ratio) : Every bank should keep certain percentage of its total DEMAND and TIME deposits with RBI in the form of Liquid assets. – Open Market Operations: buying or selling of bonds by RBI in the open market.
  • • The assets purchased or sold are – – Government Securities / Bonds – Company Shares – Foreign Exchange – Repo rate: Interest rate at which the Reserve Bank of India lends money to other banks. – It is a repurchase agreement between RBI & commercial bank. (Essentially short term securities).
  • • When the repo rate increases borrowing from RBI becomes more expensive. • If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; • Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate
  • • Reverse Repo rate : rate at which banks park their short-term excess liquidity with the RBI. • The RBI uses this tool when it feels there is too much money floating in the banking system. • An increase in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of interest.
  • • As a result, banks would prefer to keep their money with the RBI. • Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI. • Whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks.
  • Fiscal Policy • Is a deliberate attempt of the government to influence the economy by changing levels of government expenditure and / or taxation. • Government must provide equitable Division of revenue raised nationally among : –Centre, state and local
  • • It should be of national interest. • Consider economic disparity among the states. • Budgets must contain: –Estimates of revenue and expenditure; differentiating between capital and current expenditure. –Proposal for financing and anticipated deficit for the said period. – Funding areas could be : • Agriculture, Education, Health, Social
  • Revenue Deficit Fiscal Factors Output and Employment  Fiscal deficit can be higher if …  … public investment is large. Expenditure
  • Tools of Fiscal Policy (1)Government Expenditure: Chosen area (2)Taxes, both direct & indirect: Revenue generation (3)Deficit financing: Government spends more money than it receives as revenue, the difference being made up by borrowing. issue bonds or to print money (4)Subsidies: they can alter relative prices and budget constraints and thereby affect decisions concerning production, consumption and allocation of resources.
  • Subsidies, lead to changes in demand/ supply decisions. .. By means of creating a wedge between consumer prices and producer costs, Subsidies are often aimed at : • inducing higher consumption/ production • offsetting market imperfections • achievement of social policy objectives including redistribution of income, population control, etc
  • (5)Transfer payments: Transfer payments are payments made by the government sector to the household sector with no expectations of productive activity in return. The three common transfer payments are: • Social Security benefits to the elderly and disable, •unemployment compensation to the unemployed, •welfare to the poor.
  • Money Market Money Market is a wholesale market of short term debt instrument and is synonym of liquidity.. Due to highly liquid nature of securities and their short term maturities, money market is treated as a safe place. As per RBI definitions “ A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”.
  • It doesn’t actually deal in cash or money but deals with substitute of cash like trade bills, promissory notes & government papers which can be converted into cash.
  • Features of Money Market? It is a market purely for short-terms funds or financial assets called near money. It deals with financial assets having a maturity period less than one year only. In Money Market transaction take place informally, only through oral communication, relevant document and written communication transaction can be done.
  • Transaction are conducted without the help of brokers. It is not a single homogeneous market, it comprises of several submarket like call money market & treasury bill market.
  • Objective of Money Market? To provide a parking place to employ short term surplus funds. To provide room for overcoming short term deficits. To enable the central bank to influence and regulate liquidity in the economy through its intervention in this market. To provide a reasonable access to users of short term funds to meet their requirement quickly, adequately at reasonable cost.
  • The Players • Reserve Bank of India • Acceptance Houses: guarantees the payment of bills used to finance trade deals and goods in shipment. Its profit is the difference between the discounted amount it guarantees to pay and the full amount of the bill that it undertakes to collect from the original creditor. • Commercial Banks, Co-operative Banks and Primary Dealers are allowed to borrow and lend.
  • •Specified All-India Financial Institutions, Mutual Funds, and certain specified entities are allowed to access to Call/Notice money market only as lenders • Companies, Corporate bodies, Trusts and institutions can purchase the treasury bills, Commercial Papers and Certificate of Deposits.
  • Composition of Money Market? Money Market consists of a number of submarkets which collectively constitute the money market. They are .. Call Money Market Treasury bill market
  • Call Money Market • The day-to-day surplus funds (mostly of banks) are traded. • The loans are of short-term duration varying from 1 to 14 days. • The money that is lent for one day in this market is known as "Call Money", and • If it exceeds one day (but less than 15 days) it is referred to as "Notice Money".
  • Banks borrow in this market for the following purpose: • To fill the gaps or temporary mismatches in funds • To meet the CRR & SLR mandatory requirements as stipulated by the Central bank • To meet sudden demand for funds arising out of large outflows.
  • Instrument of Money Market? A variety of instrument are available in a developed money market. • Treasury bills • Certificate of Deposits • Commercial Papers, promissory notes in the bill market. • Repurchase agreement • Money Market mutual fund
  • Treasury Bills • Treasury bills, commonly referred to as T-Bills are issued by Government of India against their short term borrowing requirements with maturities ranging between 14 to 364 days. • All these are issued at a discount-to-face value. For example a Treasury bill of Rs. 100.00 face value issued for Rs. 91.50 gets redeemed at the end of it's tenure at Rs. 100.00. Who can invest in T-Bill • Banks, State Governments, Provident Funds, Financial Institutions, Insurance Companies, NBFCs, FIIs (as per prescribed norms), NRIs invest in T-Bills.
  • • At present, the Government of India issues three types of treasury bills through auctions, namely, 91day, 182-day and 364-day. There are no treasury bills issued by State Governments. Amount • Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000. Treasury bills are issued at a discount and are redeemed at par.
  • Certificate of Deposit • A CD is a time deposit with a bank. • Like most time deposit, funds can not be withdrawn before maturity without paying a penalty. • CD’s have specific maturity date, interest rate. • The main advantage of CD is their safety. • Anyone can earn more than a saving account interest.
  • • CDs can be issued by all scheduled commercial banks • Minimum period 15 days ; Maximum period 1 year • Minimum Amount Rs 1 lac and in multiples of Rs. 1 lac • CDs are transferable by endorsement • CDs may be issued at discount on face value
  • Commercial Paper • Commercial Paper (CP) is issued in the form of a promissory note. • Issued by a corporation typically financing day to day operation. • Only company with high credit rating issues CP’s. (CRISIL, ICRA) • Denomination: min. of 5 lakhs and multiple thereof. • Maturity: min. of 7 days and a maximum of upto one year from the date of issue
  • Eligibility for issue of CP a) the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore; b) (b) the working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore c) and the borrowal account of the company is classified as a Standard Asset by the financing bank/s.
  • Rating Requirement • All eligible participants should obtain the credit rating for issuance of Commercial Paper • Credit Rating Information Services of India Ltd. (CRISIL) • Investment Information and Credit Rating Agency of India Ltd. (ICRA) • Credit Analysis and Research Ltd. (CARE) • Duff & Phelps Credit Rating India Pvt. Ltd. (DCR India) • The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies
  • Repos • It is a transaction in which two parties agree to sell and repurchase the same security. • Under such an agreement the seller sells specified securities with an agreement to repurchase the same at a mutually decided future date and a price • The Repo/Reverse Repo transaction can only be done at Mumbai between parties approved by RBI and in securities as approved by RBI (Treasury Bills, Central/State Govt securities).
  • Importance of Money Market • Development of trade and industry • Development of capital market • Smooth functioning of Commercial banks • Effective central bank control • Formulation of suitable monetary policy • Source of finance to government
  • Need for Development of Capital Market • Increase in Industrial Units due to .. – Technological Development – Increase in Demand – Competition • Situation .. – Capital at the disposal of one individual or a few individuals is not sufficient. – Paucity of funds arises .
  • Industrial Securities Market • Refers to the market for shares and debentures of old and new companies • New Issues Market- also known as the primary market- refers to raising of new capital in the form of shares and debentures • Stock Market- also known as the secondary market. Deals with securities already issued by companies
  • Types of Shares • Equity shares: These shares are also known as ordinary shares. • They are the shares which do not enjoy any preference regarding payment of dividend and repayment of capital. • They are given dividend at a fluctuating rate. • The dividend on equity shares depends on the profits made by a company.
  • • Preference shares: These shares are those shares which are given preference as regards to payment of dividend and repayment of capital. • Preference shareholders have some preference over the equity shareholders, as in the case of winding up of the company, they are paid their capital first. • Deferred shares: which are held by the founders or pioneer or beginners of the company. • They are also called as Founder shares or Management shares.
  • • The right to share profits of the company is deferred, i.e. postponed till all the other shareholders receive their normal dividends. • IPOs : Initial Public offer , floated by new companies or for first time to raise funds. • FPOs: Follow on Public Offer, already listed company issues more equity shares.
  • Debentures • Is a document that either creates a debt or acknowledges it. • Used for a medium- to long-term debt instrument used by large companies to borrow money. • Debenture holders have no voting rights.
  • Mutual Funds • Promote savings and mobilise funds which are invested in the stock market and bond market • Pool funds of savers and invest in the stock market/bond market • Their instruments at saver’s end are called units • Offer many types of schemes: growth fund, income fund, balanced fund • Regulated by SEBI • Provide a service in terms of analytical knowledge of the investment opportunities. • Fund Management expertise
  • Stock Exchange • Place where trading of shares is done in terms of sale and purchase. • At present, there are twenty one recognized stock exchanges in India. • Bombay Stock Exchange is the largest, with over 6,000 stocks listed. • The BSE accounts for over two thirds of the total trading volume in the country.
  • Working of Stock exchanges • Placing an order with a broker – – – – – Only members are allowed to trade. Outsiders trade through members. Opening of an account with the broker Order placed with the broker • Execution of the order– Broker or his clerk approaches the SE – Quotations are asked or quoting his own price – Negotiation on word of mouth and noted for, quantity, description, name of party – Transaction appears in SE’s daily official list – including no. of shares and price.
  • • Reporting the deal to the client – – Contract note is prepared – security bought or sold, price, broker’s commission, date of settlement. • Settlement of transaction – 1. Ready delivery (Spot Delivery) – cash settlement made immediately on transfer of securities or within 1-7 days through clearing houses. 2. Forward Delivery – settlement within a fixed duration, normally 15 days. 3. Carry forward transactions- postponing the transaction to next settlement period by paying carry forward charge.
  • • Clearing Houses: agencies given the responsibility of settling the amounts payable between counter parties. • It is separate arm; for BSE – Bank of India • Clearing the transactions on commission.
  • Flaws in Stock Exchanges • Lack of integration – leading to variation in prices. • Settlement system varies. • No nation wide platform.
  • National Stock Exchange (NSE) • • • • Established in 1994 in Mumbai. There was a need for a nation wide trading Equal access to investors across the country. Meet international securities market standard.
  • Working of NSE • Fully automated screen based trading system. • Trader can put various conditions in terms of type, price and quantity • Orders received are stacked in price and time priority. • Computer searches for compatibility • In case of no-match the order is kept pending
  • • When the deal is stuck a confirmation slip is printed to give details of price and quantity. • Identity of the trader is not revealed. • Done through registered brokers. • NSE to Start Mobile Trading from Early October (Read the hand out distributed)
  • SPECULATION : • Definition : it involves the buying, holding, selling, shortterm selling of stocks, bonds, commodities, currencies, collectibles or any valuable financial instrument to .. • Profit from fluctuations in its price as opposed to buying it for use or for income via method like dividends or interest.
  • Kinds of speculation • Bull Market (Tejiwala): purchasing the shares at current prices to sell at a higher price in the near future and make a profit. Only if expectations come true. Also called a long buyer. • Bear Market (Mandiwala) : Selling security in the hope that he will be able to buy them back at lesser price. Also called “short selling”.
  • • Stag : Applying for a large number of a shares in a new issue with the intention of selling them at a premium. Insider trading • The trading of a corporation's stock or other securities (e.g. bonds or stock options) by individuals with potential access to non-public information about the company.
  • Why do we need a regulatory body ?  India is an ` informationally ' weak market.  Investors are less aware.  Boosting capital market demands; restoring the confidence of investors who have been beaten down by repeated scams.
  • FEW SCAMS, Which shook the Investors’ confidence. • During 1992 : ‘Big Bull’, Harshad Mehta’s Securities Scam. Many Banks were involved. • 1993 : Preferential Allotment Scam, issuing of equity allotments to their respective controlling groups at steep discounts. To the tune of Rs. 5000 crores lost. • 1993 – 94 : Disappearance of companies; Stock market shot up 120%; 3,911 companies raised over Rs. 25,000 crores and vanished / did not set up their projects.
  • • 1995-97 : Plantation Companies’ Scam, NBFCs promised high returns; collected Rs. 50,000 crores • 1999 – 2000 UTI Scam Rs. 32 crores. • IT Scam; firms changed their names to include infotech; IT sector was booming. • Satyam Fiasco : Inflated (non-existent) cash and bank balances. Insider Trading; corporate-mis-governance.
  • Mission of SEBI • Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with the prime objective of – Protecting the interests of investors in securities, – Promoting the development of, and – Regulating, the securities market and for matters connected therewith or incidental thereto.’ Focus being the greater investor protection, SEBI has become a vigilant watchdog
  • FUNCTIONS OF SEBI 1. A review of the market operations, organizational structure and administrative control of the exchange 2. Registration And Regulation Of The Working Of Intermediaries Primary Market Secondary Market Merchant Bankers Stock brokers Underwriters Sub- Brokers Portfolio Managers
  • 3. Registration And Regulation Of Mutual Funds, Venture Funds & Collective Investment Schemes Capital Promoting and protecting the interest of mutual funds and their unit-holders, increasing public awareness of mutual funds, and serving the investors' interest by defining and maintaining high ethical and professional standards in the mutual funds industry'. Every mutual fund must be registered with SEBI and registration is granted only where SEBI is satisfied with the background of the fund. SEBI has the authority to inspect the books of accounts, records and documents of a mutual fund and its trustees.
  • • SEBI (Mutual Funds) Regulations, 1996 lays down the provisions for the appointment of the trustees and their obligations • Every new scheme launched by a mutual fund needs to be filed with SEBI and SEBI reviews the document in regard to the disclosures contained in such documents. • Regulations have been laid down regarding listing of funds, refund procedures, transfer procedures, disclosures, guaranteeing returns etc • SEBI has also laid down advertisement code to be followed by a mutual fund in making any publicity regarding a scheme and its performance • SEBI has prescribed norms / restrictions for investment management with a view to minimize / reduce undue investment risks. • SEBI also has the authority to initiate penal actions against an erring MF. • In case of a change in the controlling interest of an asset management company, investors should be given at least 30 days time to exercise their exit option.
  • 4. Prohibiting Fraudulent And Unfair Trade Practices In The Securities Market – SEBI is vested with powers to take action against these practices relating to securities market manipulation and misleading statements to induce sale/purchase of securities. 5. Prohibition Of Insider Trading an investor who has in excess of 5 per cent of the stake in a company has to disclose any transaction that has the effect of altering his ownership stake by more than 2 per cent. It has to do so within four working days following the day when its trade resulted in crossing the 2 per cent threshold.
  • 6. Investor Education And The Training Of Intermediaries – SEBI distributed the booklet titled “A Quick Reference Guide for Investors” to the investors – SEBI also issues a series of advertisement /public notices in national as well as regional newspapers to educate and caution the investors about the risks associated with the investments in collective investment schemes – SEBI has also issues messages in the interest of investors on National Channel and Regional Stations on Doordarshan. 7. Inspection And Inquiries 8. Regulating Substantial Acquisition Of Shares And Take-overs
  • Gilt Edged • Securities of government and semi-government organisations are marketed. • Securities are backed by RBI. • Investors are predominantly institutions, which are compelled by law to invest a certain portion of their funds in Government securities. • Thus called a captive market for Government securities.
  • All Over Again Capital Market -- The market for relatively long-term (greater than one year original maturity) financial instruments. Primary Market -- A market where new securities are bought and sold for the first time (a “new issues” market). Secondary Market -- A market for existing (used) securities rather than new issues.
  • • Market for long-term capital. Demand comes from the industrial, service sector and government • Supply comes from individuals, corporates, banks, financial institutions, etc. • Can be classified into: – Gilt-edged market – Industrial securities market (new issues and stock market)
  • Development Financial Institutions After industrial revolution in India Existing Financial Institutions were inadequate in number to provide funds to large scale industries. Government of India Established DFIs These institutions subscribe to shares and debentures of new and old companies and also give them loans.
  • – Industrial Finance Corporation of India (IFCI) – State Finance Corporations (SFCs) – Industrial Development Finance Corporation (IDFC) – Industrial Credit and Investment Corporation of India (ICICI) – Industrial Development Bank of India (IDBI) – Small Industries Development Bank of India (SIDBI)
  • Non-Banking Finance Companies • Those who are not approaching DFIs due to not matching the requirements. • NBFCs provide credit to them. • No minimum liquidity ratio is mandatory • Also give loans to self-employed individuals. • Subject to extreme insecurities; – Loans are not protected. – Higher rates of interest
  • Financial Intermediaries Merchant Banks: are issue houses rendering various services to industrial projects and new companies. Reasons to establish : – To encourage small and medium industrialists who require specialist services. – Complexity in rules and procedures of government norms. Merchant banking is brought under the regulatory framework of SEBI
  • Activities of Merchant Banker • Issue Management : – Structuring of instrument – Preparation of offer document- (prospectus, need for money, expenditure, nature of instrument, information about management, future plans etc. ) – Obtaining statutory and other clearances – Assistance in selection of brokers, registrars, printers, ad agency and other intermediaries. – Post Issue activities- Collecting application forms, money, dispatch of share certificate.
  • • Corporate advisory services: – – – – Valuation Advise on mergers / Acquisitions Restructuring of business and finance Selling of assets Underwriting: contractual obligation whereby the underwriter agrees to subscribe to a certain number of shares if they are not subscribed by the company. DSP MeryLynch and J P Morgan Stanley
  • Venture Capital Financing • Development of any entrepreneurship would require combination of three vital factors : – Innovative ideas – Competency in project preparation & implementation – Project financing Many ideas are profitable but risky; solution ---VENTURE CAPITALISTS
  • • Venture Capital firms take up such risky projects. • ICICI, IDBI, IFCI have venture capital divisions. • Private banks too have such divisions.
  • Socio-cultural Environment
  • Cultural Forces • Culture is the shared characteristics, values, and beliefs of a group that distinguishes them from another group • Such as religion, language, and heritage
  • Demographics • Characteristics of a population such as age, race, gender, ethnic origin, and social class • determine the characteristics of work groups, organizations, specific markets, or nations population. • Demographics influence marketing, advertising, and human resources decisions. • Such as the number of individuals the ages of 18 to 25 • They change all the time.
  • The social environment encompasses various aspects like: The religious aspects, Language, Customs, Traditions and Beliefs; Tastes and Preferences; Social Satisfaction; Social Institutions; Buying and Consumption Habits All very important factors for business
  • Socio-cultural Factors 1. Population demographics Ethnic composition Aging of population (India is a young country) Regional changes in population growth decline 2. Social mobility 3. Lifestyle changes; and
  • 4. Attitudes to work and leisure 5. Education – spread or erosion of educational standards 6. Health and fitness awareness 7. Multiple income families
  • One of the important reasons for the failure of a number of companies in foreign markets is Their failure to understand the cultural environment of these markets and to suitably formulate their business. Even when people of different cultures use the same basic product, The mode of consumption, conditions of use, Purpose of use or the perceptions of the product attributes may vary.
  • The product attributes, method of presentation, positioning or method of promoting the product may have to be varied to suit the characteristics of different markets. The differences in language sometimes pose a serious problem, even necessitating a change in the brand name. The values and beliefs associated with colour vary significantly between different cultures.
  • Social inertia (inactivity) and associated factors come in the way of the promotion of certain products, services or ideas. We come across such social stigmas in the marketing of family planning ideas, use of biogas for cooking etc. In such circumstances, the success of marketing depends, to a very large extent, on the success in changing social attitudes or value systems.
  • While dealing with the social environment, we must also consider the social environment of the business, which encompasses Social responsibility and the alertness or vigilance of the consumers and of society at large.
  • The number and proportion of the women in the work force have been rising in most of the countries. Birth control has been a contributory factor in raising the proportion of women employees. The rise in the number of double income households increases the demand for a number of products like household appliances, electronic gadgets, packaged food products etc.
  • Demographic trends may confine to certain countries only, the strength of other trends vary greatly between nations. There are a number of social behaviours that have different meanings in other cultures. Americans generally consider it impolite to mound food on a plate, make noises when eating, and belch, while…. Chinese feel it is polite to take a portion of every food served and consider it evidence of satisfaction to belch.
  • Saudi Arabia, it is an insult to: question a host about the health of his spouse, show the soles of one’s shoes, or touch or deliver objects with the left hand. In Korea, both hands should be used when passing objects to another person, It is considered impolite to discuss politics, communism, or Japan.
  • In Indonesia, it is considered rude to point at another person with a finger. However, one may point with the thumb or gesture with the chin. In Venezuela,; close friends greet each other with a full embrace and a hearty pat on the back; In Indonesia, a social kiss is in vogue, and a touching of first the right then the left cheek as one shakes hands. In Malaysia, close friends grasp with both hands;
  • Although many of the social behaviors mentioned vary from the home-country norm, negative judgments should not be made about them.
  • In addition to knowing specific Courtesies, Personal space, Language and Communication, and Social Behavioral differences, There are numerous intercultural socialization behaviors that an international business person should be knowing.
  • It is not always necessary for an international business traveler to understand the “whys” of a culture, but it is Important to accept them and to abide by them while on foreign soil. Becoming aware of the culture in which one is visiting or working will pay dividends.
  • Impact of Social Environment in International Marketing on Consumer Products Consumer products are more sensitive to cultural differences than the industrial products. Hunger is a basic physiological need; everyone needs to eat, but what we want to eat can be strongly influenced by culture. CPC International failed to win popularity for Knorr dehydrated soups among Americans. 90 percent of the soup consumed by households was canned.
  • Hofstede’s Cultural Dimensions 1. Power distance 2. Uncertainty avoidance 3. Individualism/collectivism 4. Masculinity/femininity
  • • Power distance: Less powerful members accept that power is distributed unequally – High power distance countries: people blindly obey superiors; centralized, tall structures (e.g., Mexico, South Korea, India) – Low power distance countries: flatter, decentralized structures, smaller ratio of supervisor to employee (e.g., Austria, Finland, Ireland)
  • • Uncertainty avoidance: people feel threatened by ambiguous situations; create beliefs/institutions to avoid such situations – High uncertainty avoidance countries: high need for security, strong belief in experts and their knowledge; structure organizational activities, more written rules, less managerial risk taking (e.g., Germany, Japan, Spain) – Low uncertainty avoidance countries: people more willing to accept risks of the unknown, less structured organizational activities, fewer written rules, more managerial risk taking, higher employee turnover, more ambitious employees (e.g., Denmark and Great Britain)
  • • Individualism: People look after selves and immediate family only – High individualism countries: High value on autonomy; Individual achievement, Privacy • High collectivism countries: High value on group (Family, clan, organization); Loyalty; Devotion; Conformity
  • • Masculinity: dominant social values are success, money, and material – High masculine countries: stress on earnings, recognition, advancement, challenge, we alth; (e.g., German countries) – High feminine countries: emphasize caring for others and quality of life; cooperation, friendly atmosphere., employment security, group decision making; low job stress (e.g., Norway)
  • How Culture Affects Managerial Approaches Centralized vs. Decentralized Decision Making: Safety vs. Risk: Individual vs. Group Rewards: Informal Procedures vs. Formal Procedures: High Organizational Loyalty vs. Low Organizational Loyalty: Cooperation vs. Competition:
  • INDUSTRIAL POLICY of INDIA
  • Introduction • The Industrial Policy indicates the respective roles of the public, private, joint and co-operative sectors; small, medium and large scale industries. • It underlines the national priorities and the economic development strategy.
  • • It also spells the Government’s policy towards industriestheir establishment, functioning, growth and management; foreign capital and technology, labor policy, tariff policy etc. in respect of the industrial sector. • The Industrial Policy of India has determined the pattern of economic and industrial development of the economy. The Industrial Policy reflected the socio-economic and political ideology of development.
  • Industrial Policy upto 1991 The objective of the policy were to : • Reduce disparities in income and wealth • Prevent monopolies and concentration of economic power • Build a large and heavy public sector and manage the same effectively • Develop heavy and machine making industries • Accelerate the rate of industrialization and economic growth • Higher employment generation
  • • Focus on development of small scale sector • Optimum utilization of installed capacity • Rural Industrialization • Promotion of export oriented units (Industrial Policy 1980) • Industrial Dispersal and decentralization (Industrial Policy 1990)
  • The industrial policy of India prior to liberalization in 1991 was characterized by the following features: • Dominance of Public Sector • Entry and Growth Restrictions • Restrictions on Foreign Capital and Technology Dominance of Public Sector: • Future development of 17 important industries such as arms and ammunition, atomic energy, coal, iron and steel, air transport, railway transport etc. was exclusively reserved for the public sector.
  • • Under the Schedule B; 12 industries such as machine tools, fertilizers, synthetic rubber, road, transport etc; industries were progressively state owned and the State would take the initiative to establish new undertakings. Entry and Growth Restrictions: • License was mandatory for establishing new units with investments above a specified limit, for manufacturing of new products and for undertaking substantial expansion. • Large firms of Rs. 100 crore or above and dominant undertakings (those with a market share of 25% or more) had to obtain clearance under the Monopolies and Restrictive Trade Practices Act in addition to the industrial license.
  • Restrictions on Foreign Capital and Technology: • In industries where foreign capital was allowed, it was subjected to a ceiling of 40% of the total equity although there were certain exception. Operations of foreign companies in India and issue of securities abroad by Indian Companies was regulated by the Foreign Exchange Regulation Act, FERA 1973.
  • The New Industrial Policy 1991 The Industrial Policy announced on July 24, 1991 heralded the economic reforms in India and sought to drastically alter the industrial scenario in our country. The most visible sign of the country’s economic crisis in early 1991 was: • Extremely low foreign exchange reserves of Rs. 2400 crore (just enough to buy from abroad only three weeks requirements.) • Inflation was as high as 13.5%
  • This policy expanded the scope of the private sector by opening up most of the industries for the private sector and did away with the entry and growth restrictions. The most important initiatives are with respect to the virtual scrapping of industrial licensing and registration policies, an end to the monopoly law and a welcoming approach to foreign investments, apart from redefining the role of the public sector. Words like “dramatic”, revolutionary” and “drastic have been used to describe this policy. .
  • The New Policy has four features: Liberalisation; privatisation, globalisation and stabilisation Redefinition of the role of the Public Sector: The number of industries reserved for the public sector was reduced to eight and it was later pruned to two i.e. atomic energy and railway transport.
  • Main features :Objectives of the Industrial Policy of the Government are – • to maintain a sustained growth in productivity; • to enhance employment; • to achieve optimal utilization of human resources; • to attain international competitiveness • Development of indigenous technology through greater investment in R&D • bring in new technology to help Indian manufacturing units • Incentive for industrialization of backward areas
  • • Ensure running of PSUs on business lines and cut their losses • Protect the interests of workers • Abolish the monopoly of any sector in any field of manufacture except on strategic or security grounds. • to transform India into a major partner and player in the global arena. Policy focus is on – • Deregulating Indian industry; • Allowing the industry freedom and flexibility in responding to market forces and • Providing a policy regime that facilitates and fosters growth of Indian industry.
  • Evaluation of the New Industrial Policy Positives of the new policy are: • Delicensing of most industries will help entrepreneurs to quickly seize business opportunities. • Removal of controls under the MRTP Act will facilitate expansion and growth. • There will be greater inflow of foreign capital and technology due to easing of restrictions. • Burden on the public sector will be reduced and reforms relating to the public sector like transferring sick units to BIFR will help improve their performance.
  • Watch- outs : • The policy environment is much more conducive for both domestic and foreign investment than in the past. However, a host of countries are now trying to woo foreign investment with a much more conducive economic environment than in India. • cultural factor do also tend to tilt the balance in favor of other nations.
  • • Foreign investors still regard the policy and procedural system in India confusing. Rather many feel that policy and development environment in China is superior to India. This Policy has been criticized on the following grounds: • The policy is a total departure from Nehru’s model of socialism. • It will lead to domination of MNC on the Indian Economy. • Trade Unions oppose the policy due to fear of unemployment which may arise due to privatization.
  • • Monopolies and concentration of economic power in a few hands is likely to increase. • Distortion in industrial pattern would occur due to slow pace of investment in few basic and strategic industries. Absence of a mechanism would slow down the development of backward areas. • Government is silent about tackling the growing industrial sickness. The Government has not announced a clear exit policy for sick units.
  • Second Generation Reforms • The 1991 reforms have considerably helped in improving the economic growth of the country. Yet much more needs to be done to reap the full benefits. There is a need for Second Generation Reforms: • A. Exploiting the Knowledge based Global Economy: – Revolutionizing the telecom sector to help integrate India’s economy into the world economy. – Build institutes for higher education – A system of intellectual property rights to reward innovations adequately. – Venture capital funds to finance risk projects of the knowledge based economy.
  • B. Growing Indian Transnational Corporations: – Indian firms to enjoy flexibility in entry and exit. Freedom to diversify and close down unsuccessful units. – Liberalize and move towards capital account convertibility. C. High Growth of Agriculture: – State to ensure that adequate investments are made in irrigation, agricultural research and infrastructure • D. Empowering the Poor: – Integrate and consolidate anti poverty measures. – Set up a system for old age security.
  • E. Human Development – Primary education made compulsory. – Involve private sector to provide better primary education. F. Clean Environment: – Arrest damage to environment – Promote clean and healthy environment. H. Improvements to Governance: – Rationalize electricity prices – Bring in legal reforms that ensure inexpensive and speedy justice and at the same time facilitate economic growth.
  • Current Changes • FDI in Multiple Sectors • Disinvestment of PSE a process in which the public undertaking reduces its portion in equity by disposing its shareholding • disinvestments are being done to finance the budget deficit it has reached unsustainable levels. • “Strategic Disinvestment”. The government should be the minority shareholder in these entities to give them more autonomy and increase their competitiveness.
  • Role of AGRICULTURE in Economic Development
  • Why Agriculture Is Important Before the Green Revolution, agriculture was widely seen as a stagnant, low-productivity, and residual sector Agriculture came to be seen as a growth sector that could: 1. Generate more food and raw materials at lower prices; 2. Free up foreign exchange for the importation of strategic industrial and capital goods; 3. with rising rural incomes, provide a growing domestic market for nascent national industries; 4. reduce poverty by increasing labor productivity and employment in rural areas,
  • Role in Economic Development: 1. Contribution to National Income 2. Major source of Livelihood 3. Provider of Employment 4. Industrial development 5. International Trade 6. Capital Formation and Investment 7. Food and Fodder
  • Simon Kuznets identifies four factors contributing to the overall economic development. 1.Product contribution i.e., making available food and raw materials. 2. Market contribution i.e., providing the market for producer goods and consumer goods produced in the non-agricultural sector. 3.Factor contribution; making available labour and capital to the non-agricultural sector 4. Foreign Exchange contribution.
  • Relationship between Agricultural and non-agricultural sector During the process of development, inter-dependence Between agriculture and industry has become stronger Production Linkages Arise from the interdependence of agriculture and industry for productive inputs. Linkages have got further strengthened with agriculture’s dependence on industry reflecting the modernization of agricultural sector.
  • Demand linkages There are strong demand linkages between the two sectors. There is an impact of income and industrialization on the demand for food and agricultural raw materials. Savings and Investment linkages There is an impact of rural income on industrial consumption goods, i.e., clothing, footwear, sugar, edible oils, TV sets, washing machines, refrigerators, motor bikes, etc. “Rural bazaar out buys urban market”.
  • Features of Indian Agriculture Dependency on Monsoons Multiplicity of Crops Diversity in other Spheres Semi-commercialized farming Predominance of small farmers Low level of productivity
  • Factors responsible for the backwardness of agriculture. Factors can be classified as under: 1. Demographic factors 2. General factors 3. Technological factors
  • 1. Demographic factors Important Demographic factor responsible for low yield in agriculture is the increasing pressure of population on land. Increasing population has fallen back on land for its livelihood, Created problems like fragmentation and subdivision of holdings; The supply of improved practices and services has always fallen short of requirements.
  • General Factors Excess or surplus labour in Agriculture Discouraging climate Inadequate non-farm services Size of holdings Defective land tenure structure Indebtedness of the farmers
  • Technical Factors Inadequate Research Inadequate irrigation facilities Poor inputs and techniques
  • Agriculture Policy of India Agricultural policy followed during the last five decades can be broadly distinguished In 3 phases. The period from 1950/51 to mid 1960s which is also called pre green revolution period witnessed: 1. Tremendous agrarian reforms, 2. Institutional changes and 3. Development of major irrigation projects.
  • The intermediary landlordism was abolished, tenant operations were given security of farming and ownership of land. Land ceiling acts were imposed by all the states to eliminate large sized holdings Cooperative credit institutions were strengthened to minimise exploitation of Cultivators by private money lenders and traders Expansion of area was the main source of growth in the pre green revolution period.
  • The scope for area expansion diminished considerably in the green revolution period Increase in productivity became the main source of growth in crop output There was significant acceleration in yield growth in green revolution period. The country faced severe food shortage and crisis in early 1960s which forced the policy makers to realise that; Continuous reliance on food imports and aid imposes Heavy costs in terms of political pressure and economic instability
  • There was a desperate search for a quick breakthrough in agricultural production. One choice before the country was to go for spread of new seeds of high yielding varieties (HYV) of wheat and rice This marked second phase of agriculture policy in the country. The green revolution technology involved use of modern farm inputs, its spread led to fast growth in agro input industry.
  • Agrarian reforms during this period took back seat while; Research, Input supply, Credit, Marketing, Price support and Spread of Technology were the prime concern of policy makers
  • Two very important institutions were created in this period, namely: Food Corporation of India To maintain buffer stock to guard against adverse impact of year to year fluctuations in output on price stability. Agricultural Prices Commission, To ensure remunerative prices to producers, maintain reasonable prices for consumers. These two institutions have mainly benefited rice and wheat crops which are the major cereals and staple food for the country.
  • The next phase in Indian agriculture began in early 1980s. While there was clear change in economic policy towards delicensing and deregulation in Industry sector, agriculture policy lacked direction and was marked by confusion. There has been a considerable increase in subsidies and support to agriculture sector during this period Investments by farmers kept on moving on a rising trend
  • The rural economy started witnessing process of diversification which resulted into fast growth in non food grain output like milk, fishery, poultry, vegetables, fruits etc which accelerated growth in agricultural GDP during the 1980s. Though green revolution has been widely diffused in irrigated areas throughout the country, The dryland areas did not see benefit of technological breakthrough.
  • National Agricultural Policy in July 2000. Formulated to meet challenges facing Indian agriculture Grouped in four categories relating to (1) Growth (2) Sustainability (3) Efficiency and (4) Equity.
  • There are also other important concerns like; Food security, Livelihood, Employment, Improvement in standard of living of agricultural population. The National Policy on Agriculture seeks to actualize the vast untapped growth potential of Indian agriculture
  • Over the next two decades, the national agriculture policy aims to attain: • A growth rate in excess of 4 per cent per annum in the agriculture sector • It is based on efficient use of resources and conserves our soil, water and bio-diversity • With equity, i.e., growth which is widespread across regions and farmers • It should be demand driven and caters to domestic markets and • Maximizes benefits from exports of agricultural products
  • Growth that is sustainable technologically, environmentally and economically Food and nutrition security Food and nutritional security has remained central to India’s agricultural and development policy since Independence. However, importance being accorded to food and nutrition security has receded during 1990s because of two reasons. There was accumulation of very large stock of grains in government stock after April 1998 which. Reduction in cereal consumption
  • Credit Facility To curtail Exploitation from money lenders credit facilities Were provided to farmers through co-operatives, regional Rural banks and government loan. NABARD (National Bank for Agriculture and Rural Development) There has been steady increase in the flow of Institutional Credit to agriculture over the years Loans are provided to farmers for farming and other related Activities like; well digging, equipments etc.
  • Kisan Credit Card Scheme: Introduced in 1998 -99. Banks have issued more than 435 lakh cards in 2006. The objective was to provide adequate and timely support from baking system to the farmers for their cultivation need. The card is coupled with a passbook where as per the credit limit the transactions are recorded. The limit is fixed on the basis of operational land holdings, And cropping pattern and cycle. Each withdrawal is to be repaid within 12 months.
  • Self Help Groups These are linked to banks to offer support to the farmers or rural population in variety of income generating programs. There are various Insurance schemes and different covers Introduced specifically for farmers. These are linked to banks to offer support to the farmers or rural population in variety of income generating programs.
  • Provision for Irrigation facilities In spite of irrigation being given importance since 1950 – 51 There is a wide gap between potential and actual irrigation. AIBP (Accelerated Irrigation Benefits Program) was launched To encourage the states for completion of ongoing irrigation Projects. Fast Track Program in 2002 was launched through Central Loan Assistance Provision for Irrigation facilities Subsidies for fertilizers, electricity, seeds
  • Provision for Proper Marketing Cooperative marketing is started by government to ensure Reasonable prices to the farmers. Regulated markets are being set up through out the country. A committee was formed to analyze agriculture marketing in India in 2002; the recommendation given were :Contract farming Development of agricultural markets in private and Cooperative sector. Use of information technology to provide in time information
  • Establishment of direct purchase centres Complete Transparency in pricing Payments to be done on the same day. Provision and expansion of storage and warehousing Government worked on provision of cooperative storage Food Corporation of India Central Warehousing Corporation State Warehousing Corporation Institutions are engaged in Scientific Storage in rural India.
  • Food Security Public Distribution System Traditional food problem in India is caused by large fluctuations in production of food-grains Lead to gravity due to absence of suitable transport systems And infrastructure. Qualitative Deficiency Rapid Growth of Population Large part of income is spent in necessities, thus a rise in Income leads to a large demand for food grains.
  • Government’s Food Policy Government has been taking various steps to solve the food Problem. Which constitute as food policy. Important measures: Increasing Supplies: Increase in production through the extension of Irrigation, propagation of high yielding varieties of Crop. Efforts are made to save food-grains: Scientific Storage Pest control measures are also popularized
  • Improving Distribution: Strengthening the distribution network Wide network of ration / fair price shops Statutory rationing of food grains in case of severe shortage For Insulating prices from the market fluctuations, bufferStock operations are undertaken. In case of shortage releases are made from the stocks to Ensure lowering of prices Provision has been made to supply food grains to the poor at Prices lower than that for the others.
  • Stabilizing Prices: Fixation of minimum support price Procurement on announced prices for building reserves and Feeding public distribution system Fixation of issue prices usually lower for fair price shops Subsidies for ration shops In case of excessive supplies food grains are purchased and stocked to prevent prices from falling below the MSP State Trading has also been under taken to reduce distribution Costs and to check speculative trading on the part of private traders
  • Controlling Demand : Government has adopted three measures 1. Rationing 2. Wholesale Traders and retailers are required to declare their stocks 3. Measures are adopted to reduce population growth Reducing Poverty: 3 types of measures are relevant 1. Augmenting general growth; expansion of SSI and cottage industry; employment generation 2. Measures adopted to transfer resources to the poor; agriculture credit, subsidies, land ceilings
  • 3. Formulating anti-poverty programs like: Swaran Jayanti Gram Swarozgar Yojana Jawahar Gram Samridhi Yajana Prime Minister’s Rozgar Yojana etc… These programs are meant to improve the economic conditions Of the poor To expand employment opportunities for the weaker section
  • Suggestions to Revive The Agriculture Growth 1. Increase the area under double cropping cultivation 2. Increase the Fertiliser use : 28 kg / hectare in Assam & 328 kg / hectare in Punjab 3. Increase in Electric Supply for promoting irrigation 9 kw / hectare 30 kw / hectare 34 kw / hectare 80-300 kw/h 1000 kwh Assam Orissa Himachal Pradesh Kerala, J & K, Bihar, M P, WB, UP AP, Rajasthan, Punjab, Tamilnadu 4. Augmenting Irrigation Programs
  • Public Distribution System The name suggests that it is a mere means of making available Some essential food items at low price but it has other relevance too Instrumental in development of the economy Real wages of the workers are protected (food security) Price levels of several consumption goods is kept stable Anti – Poverty Measures Food security for the poor, under employed
  • Steps that are involved in Public Distribution System Procurement: for the purpose of collecting produce from Farmers at a fixed and profitable price government fixes MSP before the harvest. FCI undertakes operations to procure and distribute food Grains. Storage: Food grains are stored in a scientific manner ; Buffer stock; and selling stock Distribution: objective is, unbiased distribution to vulnerable Sections. The distribution should be timely and location should be Closer to the buyers
  • Food Corporation of India Food Corporation of India (FCI) is the main agency responsible for the execution of the food policies of the Central Government. Functions of the FCI primarily relate to the purchase, storage, movement, transportation, distribution and sale of foodgrains on behalf of the Central Government.
  • FCI is a perfect example of an efficient supply chain Minimum Support Price PROCUREMENT FARMERS DISTRIBUTION To the PDS and To the Deficit Areas Central Point
  • Role of FCI Increase Level of Procurement Insulation from price fluctuations Dependence on Imports should decline Reduction in storage losses Uninterrupted supplies and advanced planning Integrated approach Continuous regulated expansion to cover all areas
  • Public Private Partnership
  • • A Public Private Partnership (PPP) is a partnership between the public and private sector for the purpose of delivering a project or service, which would traditionally be provided by the public sector. • PPPs involve the private sector partner providing a 'bundle' of services such as design, construction and maintenance. • Bundling thus differs from traditional contracting out, whereby separate contracts are let for each service. • Public-Private Partnerships (PPP) are collaborative efforts, between private and public sectors, with clearly identified partnership structures, shared objectives, and specified performance indicators for delivery
  • There are a number of reasons governments are attracted to PPPs. • Value for money; • Appropriate risk transfer to the private sector • Early project delivery; • Gains from innovation; • Avoiding the need to borrow to finance infrastructure investment; • Access to improved services.
  • There are four major ‘drivers’ to determine whether a PPP is value for money. • Risk transfer, • Whole-of-life costing • Innovation and • Asset utilization. Risks Involved: 1. construction, 2. the market demand for services (demand risk), 3. the cost of operations and maintenance, 4. declarations of force majeure, (an unexpected and disruptive event that may operate to excuse a party from a contract) 5. changes to the law and regulations.
  • • TDC - Traditional Design and Construction The Government, as principal, prepares a brief setting out project requirements before inviting tenders for the design and construction of the project. Private sector contractors undertake to design the project in accordance with the brief, and construct it for an agreed sum, which may be fixed or subject to escalation. • O&M - Operation and Maintenance Contract These projects involve the private sector operating a publiclyowned facility under contract with the Government.
  • • LDO - Lease - Develop - Operate This type of project involves a private developer being given a long-term lease to operate and expand an existing facility. The private developer agrees to invest in facility improvements and can recover the investment plus a reasonable return over the term of the lease. • BOM - Build - Own - Maintain This type of arrangement involves the private sector developer building, owning and maintaining a facility. The Government leases the facility and operates it using public sector staff.
  • • BOOT - Build - Own - Operate - Transfer Projects of the Build-Own-Operate-Transfer (BOOT) type involve a private developer financing, building, owning and operating a facility for a specified period. At the expiration of the specified period, the facility is returned to the Government. • BOO - Build - Own - Operate The Build-Own-Operate (BOO) project operates similarly to a BOOT project, except that the private sector owns the facility in perpetuity. The developer may be subject to regulatory constraints on operations and, in some cases, pricing.
  • Special Economic Zones • A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. • "Nationwide" laws may be suspended inside a special economic zone.
  • • “….it is a specifically delineated duty-free enclave and shall deemed to be a foreign territory for the purposes of trade operations and duties and tariffs” • The purpose - “... to provide an internationally competitive and hassle-free environment for exports”
  • what is special? • Exemption from taxes, various subsidies and tax sops hassle-free • Exemption from stringent labour and environment regulations • Single window clearance • Land acquisition upto 1000 hactare Only. • 35% of the area for industrial activity – the rest of the area for entertainment and residential as well as other commercial activities!
  • Reasons to develop SEZs • Enhance foreign investment and promote exports from the country. • Need for a level playing field for the domestic enterprises and manufacturers to be competitive globally. • Growth Inclusiveness.
  • • India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. • With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000.
  • The main objectives of the SEZ Act (a) Generation of additional economic activity (b) Promotion of exports of goods and services; (c) Promotion of investment from domestic and foreign sources; (d) Creation of employment opportunities; (e) Development of infrastructure facilities;
  • - Main benefits sought from SEZs are: * Faster economic growth * Employment generation on a large scale * Earning more foreign exchange * Infusion of modern technologies & their demonstration and spread effects * Economies in production due to clustering
  • FACILITIES NOTIFIED FOR DEVELOPERS OF SEZs • 100% FDI allowed for: i. townships with residential, educational and recreational facilities. ii. Franchise for basic telephone service in SEZ. Income Tax exemption to developers for any block of 10 years in 15 years • Duty free import/domestic procurement of goods for development, operation and maintenance of SEZs • Exemption from Service Tax and the Central Sales Tax
  • • Income of infrastructure from investment in SEZ exempt from Income Tax . • Investment made by individuals etc in a SEZ also eligible for exemption under section 88 of Income Tax Act. • Developer permitted to transfer infrastructure facility for Operation and Maintainence, inclusive of Income Tax benefits.
  • • Guidelines issued on generation, transmission and distribution of power in SEZs. • Allocation of power to SEZs from central quota. • Freedom in allocation of space and built up area to approved SEZ units on commercial basis. • Authorised to provide and maintain services like water, electricity, security, restaurants and recreation centers on commercial lines
  • FACILITIES NOTIFIED FOR SEZ UNITS • No license required for import. • In addition to manufacturing, trading and services also allowed. • Freedom to subcontract. • Single window approval by Development Commissioner of the zone.
  • • No license needed to manufacture items reserved for SSI sector • 100% FDI allowed in manufacturing through automatic route except in sectors such as defense, atomic energy. • No cap on foreign investments for items reserved for SSI.
  • • Customs and Excise : Duty free import or domestic procurement of goods for development, operation and maintenance of SEZ units. • Central Sales Tax Act : Exemption to sales made from Domestic Tariff Area to SEZ units.
  • • Income Tax Act: • 100% IT exemption (10A) for first 5 years, 50% for 2 years thereafter and 50% of reinvestment for 3 years . • Permitted to carry forward losses. • Offshore Banking Units allowed to have full IT exemption for 3 years and 50% for next two years. • Service Tax: Exemption from Service Tax to SEZ units.
  • Types of SEZ • Free trading and Warehousing Zones – Focus is on warehousing – Objective: to focus on developing trade related infrastructure to facilitate import and export of goods and services. • SEZ for Multi-product – Units may be set up for manufacturing of two or more goods / services in a sector. OR – Goods / Services falling in two or more sectors
  • • SEZ for Specific Sectors – Meant exclusively for one or more products / services in a sector. – Mundra SEZ : Promoted by Adani Group for Textile – Has strategic location for raw material access – Has multi-modal connectivity for convenient logistics. (in-zone sea, air, and rail tracks)
  • • • • • • • • • • Nokia Tamil Nadu QuarkCity Chandigarh Flextronics Tamil Nadu Mahindra World City Tamil Nadu Motorola, DELL and Foxconn Apache SEZ (Adidas Group) Andhra Pradesh Divvy's Laboratories Andhra Pradesh Rajiv Gandhi Technology Park Chandigarh ETL Infrastructure IT SEZ Chennai Hyderabad Gems Limited Hyderabad For further information visit, www.sezindia.nic.in
  • Infrastructure
  • Infrastructure contributes to economic growth, • Both through supply and demand channels by reducing costs of production, • Contributing to the diversification of the economy and • Providing access to the application of modern technology, raising the economic returns to labour. • contributes to raising the quality of life by creating amenities, providing consumption goods (transport and communication services) and contributing to macroeconomic stability
  • Infrastructure sector plays an important role to counter balance against slowing economic activity and lower consumption.
  • Multiple Issues on Infrastructure Development Cross-Border Infrastructure Regional Level International Coordination, planning and finance Regional Integration Managing Disparities National Level National Networks Decentralization Inclusive Development Sub-national Level Rural Networks Modality of Financing. Public Private Partnership Poverty Reduction Participatory Development
  • Low spending on infrastructure has been a major impediment for growth in India Recognizing the need Gvt. Of India has increased investment on Infrastructure in Budget 2009-10 and 2010-11 Rural Infrastructure Rs. 1200 crs. Power Generation Rs. 800 crs. National Highway Development Rs. 10,667 crs. Road cum railway bridge projects have been taken up as National Projects
  • Various Infrastructure Elements ENERGY BANKING & FINANCE WATER INSURANCE ROAD OIL & GAS AVAIATION RAILWAYS PORTS & SHIPPING MINING & METALS
  • Power India is power deficient : Energy shortages of approx. 8% Peak power shortages of approx. 10-12% T&D losses are high: 30% - 50%. The Government plans to add 1 lakh MW of generation capacity by 2012 - 77,000 MW in the public sector and 23,000 MW from the private sector. Hydel projects aggregating 50000 MW to be developed by 2017 – huge untapped potential in the North-East and Jammu & Kashmir
  • Transmission sector - Capital investment of USD 150 billion required in next 10-15 years to develop a National Grid, first transmission system in private sector. Distribution sector – Successful implementation of distribution reforms (as in Delhi) expected to encourage similar steps in other urban areas in the country.
  • Power Progress Electricity Act aims to revitalize the power sector (commercially viable) Generation (including captive power plants) freed from licensing Sale of power to third parties (other than bankrupt state utilities) allowed Distribution reform encouraged PPP in transmission – 1200 km transmission line project by Powerlinks Transmission Limited under implementation
  • T & D Losses Divided into Three Parts Technical Losses Thefts by State Electricity Board Staff; where Meters are installed unofficially off the record Theft by consumers; either by hooking or hampering the meter
  • How they Can be handled Reduction in Technical Loss is easier part Initially distribution lines were extended in haphazard manner leading to load development Reconfiguring the loads offers an immediate scope for loss reduction It could be done using load flow analysis Detecting unofficial loads Physical detection RPF & Tala took over Noida and North Delhi a PPP model
  • Replace Faulty meters Private Players have a Unique Consumer Numbers even if it Was a hut. Whereas in SEBs the consumer record is inevitably incomplete Getting meters read is a major effort in the State of Orissa 40% meters were not read. There are flat charges, charged from many consumers Using non-hookable insulated wires.
  • Electricity Theft in Rural Areas A Case Study from Rajasthan. Conducted by Prayas, an NGO
  • • Study was conducted in a primarily agricultural electricity distribution Sub-division in South Rajasthan. • Thrust was mainly on identifying a different approach to Institutional reforms in the Power Sector • Large scale Privatisation Model that has been pushed by World Bank. • The Study focuses on distribution losses in Rural areas.
  • Measures of Rajasthan State Electricity Board To check distribution losses. • Installation of Meters; • Release of connections to all applicants in agriculture Category; • Strengthening Vigilance;
  • Findings of the Study: • Non-Tribal agriculturally developed area accounts for most of the electricity consumption. • Urgent need for maintenance of distribution system. • Commercial losses constitute the major portion of distribution losses. • Unaccounted energy can be categorised in • defective meters • wrong meter reading • illegal hooking
  • • Illegal hooking is rampant in agricultural categories. • General mass of consumers expressed support and willingness to undertake social vigilance. • Politically powerful lobby of rich farmers opposed the project. • Illegal connections out-numbered legal connections.
  • Reasons Identified by Prayas for high level of Electricity Theft • Backlog of Electricity Connections; giving a moral Justification. • Poor and Interrupted Power Supply; • Corruption; • High Entry Cost; Rs. 25000 for small farmers. • High Tariff; Rs. 200 per month, whereas use of kerosene is Rs. 20-25 per month.
  • Recommendations • Pure Technical approach is not sufficient to control Theft; • Release of Temporary connections; • Conversion of flat rate into meter; • Region specific commercial policy.
  • Railway Turn Around • Shift towards Market Orientation and Customer Focus. • Focus on Revenue Generation rather than cost control. • Leasing out of the catering and parcel service businesses. • IR attracted private investments under the wagon investment schemes. • This freed up resources for utilisation in more remunerative activities. • Bringing down working expenses was achieved through measures such as the freeze on filling up vacancies and improving technical efficiency.
  • • Increased use of technology resulted in improving technical efficiency in services. • IR also focused on the sub-strategy capacity enhancement and ensured better capacity utilisation. Through enhanced axle-load and reduction in turnaround time of wagons by 14%, IR increased wagon capacity available per day by 36%. • The number of employees, which peaked at 1.652 million in 1991, was brought down progressively to 1.472 million by 2003, and to 1.412 million by 2006. •One of the elements of retrenchment is to trim excess staff. The approach that IR adopted was not to fill up vacancies created by retirement or other reasons.
  • Dedicated Freight Corridor • A dedicated freight corridor exclusively for running freight trains at a maximum permissible speed of 100 Kmph. • DFC will not add to the capacity of the Indian Railways, but will improve transit. • DFC will reduce transit time between Delhi and Mumbai from 60 hours to 36 hours. • It will also reduce the cost of operation. • The total length of the route for DFC is 2,700 km. • Currently the trains handling containers are single stack containers, but DFC will have double stack containers of 25 tonne axle load, which will increase the cargo handling capacity to 25 per cent.
  • • The length of a conventional goods train is 650 m and runs at 75 km per hour, whereas for DFC the length of the train will be 1.5 km and will run on the speed of 100 km per hour. • The Railways will spend Rs 2,000 crore on signalling, and will procure fixed signalling equipment. • Advanced Signaling System facilitating better and efficient operation of trains. • Transfer trains from the existing corridor to the DFC and vice versa through predetermined Junction arrangement, equipped with grade separators to facilitate smooth transfer of trains between the two networks.
  • Dedicated Freight Corridor The salient features of the project are: · Primarily Double Line corridor (except where Single Line is justified on traffic considerations) running parallel to the existing corridors, so as to maximize the usage of available railway land; · The track sub structure like formation, bridges etc are to be fit for 32.5-ton axle load but the track super structure like track, sleepers, ballast etc are to be fit for 25-ton axle load. · The loop length on the proposed corridor to be 1500 meters long to facilitate running of long haul trains.
  • • Western Corridor will start from the Jawaharlal Nehru Port to Dadri connecting Baroda, Ahmedabad, Palanpur, Jaipur and Rewari to Tughlakabad and Dadri. • The western corridor comprising mainly of container traffic has envisaged about four logistic parks, one each near cities like Delhi, Jaipur, Ahemdabad and Boroda. • Eastern Corridor will start from Ludhiana to Sonnagar via Ambala, Saharanpur, Khurja and Allahabad. • Both the corridors would be joined by a link between Dadri and Khurja, the feeder routes of this corridor connecting ports of Gujarat.
  • Roads -Progress & Issues Status of NHDP and other NHAI projects (kms) Total Completed Under Implementation To be awarded GQ 5846 3121 2725 NS-EW 7274 653 410 6211 Port Connectivity 356 69 229 58 Issues  Road Networks have fallen way behind growth in traffic  Budgets for expansion and maintenance are inadequate Others 777 194 121 462 Total 14253 4037 3485 6731 Source - NHAI website Need to move away from road construction to road service
  • Roads Issues  Focus on asset creation not management  NHAI is managing through short term tolling/ maintenance contracts  Long term contracts  Future toll revenues can be securitised  Maintenance responsibility with private sector
  • Indian Aviation CURRENT SCENARIO Number of Aircraft (Scheduled Operation) 321 Passengers – Domestic ( Millions) – International( Millions) 69 Number of airports / airstrips – AAI – International Airports Number of Airlines 14 26 454 97 16
  • Airport Infrastructure Development Policy Framework 􀂃 Airport development in India- traditionally in public sector. 􀂃 AAI Act and Aircraft Rules amended ( 2004) to enable private participation. 􀂃 Public Private Participation (PPP) Model now the cornerstone of airport development. 􀂃 100% FDI permitted in Greenfield Airports( Feb 2006)- Development of new airports permissible entirely in Private Sector as well.
  • Airport Development- Focus Areas •Existing airports • Capacity Constraints • AIRSIDE • TERMINALS • Spread of Growth at other airports • Development of Regional Airports
  • Initiatives On Airports Metro airports Delhi & mumbai, the two major international Airports restructured through jv route (2006) Greenfield Airports New greenfield airports under construction at Hyderabad and Bangalore. Non Metro Airports State owned AAI taking up select 35 non-metro airports for modernisation. CITY SIDE DEVELOPMENT OF NON-METRO AIRPORTS THROUGH PPP
  • Opportunities • Indian aviation growing at a spectacular pace. • Investment opportunities- US $ 110 billion by 2020 – New Aircraft US $ 80 billion – Airport Infrastructure US $ 30 billion • Other areas- Steady induction of new aircraft - Potential to become regional Maintenance Hub - Investment of US $ 100 million each already committed by Boeing and Airbus. Training - demand for trained manpower - New Flying Training Institute at Gondia