Business Environment - Unit-3 - IMBA - Osmania University Unit-III: Economic Policies of India Industrial Environment and Policy Role of SSUs, and MNCs Policy of Public Sector and its role in the economy Competition Law Policies on Foreign Investment and Trade (EXIM).

1. Business
Environment
UNIT - 3
PRESENTED BY
K.BALASRI PRASAD
B.Sc(KU), M.B.A(OU), NET(UGC), (Ph.D)(MGU)
ASSISTANT PROFESSOR IN MANAGEMENT
VISHWA VISHWANI GROUP OF INSTITUTIONS

2. BBA/MBA 5 year Integrated Course II Year -III Semester
Paper No. 3.5 Business Environment
Unit -I: Business Environment and Analysis:
Nature, Composition and Scope of Business Environment. Business Environment and its impact on different kinds of business
decisions. Economic growth and Economic Development. Analysis of India’s National Income. Recent trend in the growth of
National Income and its important components: Saving, Investment, Industry, Agriculture and Tertiary Sectors.
Unit-II: Indian Financial Systems:
Evolution and Structure of Indian Financial System. Elements of Indian Financial System— Markets, Institutions, and Environment.
Money Market and the role of banking, Non-banking and Unorganized Sector. Regulatory function of RBI with special reference to Money
market. Components of Capital Market—Primary, Secondary, Debt and Equity Market. Problems and Prospects of Indian Capital
Market.
Unit-III: Economic Policies of India:
Industrial Environment and Policy. Role of SSUs, and MNCs. Policy of Public Sector and its role in the economy. Competition Law.
Polices on Foreign Investment and Trade (EXIM).
Unit-IV: Liberalisation, Privatisation, and Globalisation (LPG) in Indian Economy:
Concept of LPG, Process of LPG followed in India. Globalization and role of WTO. Regional Trading Blocks. India’s Foreign Trade
and Agreements with Trading Blocks.
Unit-V: Economic Survey and Union Budget:
Fiscal Policy and Present Tax Environment –Direct and Indirect Taxes. Concept of Value Added Tax. Current Year’s Economic Survey
and Union Budget.
References:
1. Justin Paul, 2010, “Business Environment”, McGraw-Hill Companies.
2. Misra and Puri V.K, 2010 “Indian Economy”, Himalaya Publishing House, Bombay.
3. Shaik Saleem, “Business Environment”, Pearson Edition.
4. K. Aswathappa, 2010, “Essentials of Business Environment”, HPH
5. VIvek Mittal, “Business Environment”, 2010, Excel Books, New Delhi.
22-Mar-22
2

3. Unit-III: Economic Policies of India
Industrial Environment and Policy
Role of SSUs, and MNCs
Policy of Public Sector and its role in the
economy
Competition Law
Policies on Foreign Investment and Trade
(EXIM).

4. Industrial Environment and Policy
 An industrial environment is a term used to describe working
conditions that may be outside of optimal.
 Industrial environments are usually more harsh than normal
work environments, such as an office.
 In an industrial environment, people and equipment are
exposed to more extreme conditions.
 Depending on the job, these conditions can be very severe.
 Most industrial environments are warehouses,
plants, manufacturing or fabrication facilities.
 These industrial environments often lack advanced heating and
cooling controls (HVAC), and are sometimes partially exposed to
the elements.
 Industrial environments may also increase equipment exposure
to dust and other contaminants.

5. There are several economic policies which can have
a very great impact on business.
Important economic policies are
industrial policy,
trade policy,
foreign exchange policy,
monetary policy,
fiscal policy,
foreign investment and technology policy.
Some types or categories of business are favorably affected
by government policy, some adversely affected, while it is
neutral in respect of others.

6. Industrial policy
 Industrial policy can even define the scope and role of different sectors
like private, public, joint and cooperative, or large, medium, small and
tiny.
 It may influence the location of industrial undertakings, choice of
technology, scale of operation, product mix and so on.
 In India, until the liberalization ushered in 1991, the scope of private
sector, particularly of large enterprises, was very limited.
 The development of 17 of the most important industries was reserved
for the state.
 In the development of another 12 major industries, the state was to play
a dominant role.
 In the remaining industries, cooperative enterprises, joint sector
enterprises and small-scale units were to get preferential treatment over
large entrepreneurs in the private sector.
 Further, the production of a large number of items was reserved for the
exclusive manufacture of the small-scale sector.

7. Even in respect of industries which were open to the
private sector, entry and growth were regulated by
licensing and also by, in the case of certain categories of
large firms, the MRTP (Monopolistic and Restrictive Trade Practice) Act.
The government policy, thus, limited the scope of
private business.
However, the new policy ushered in July 1991 has wide
opened all but a few industries for the private sector,
dramatically changing the business environment.
In the pre-liberalisation era, the government policy was
a severe constraint on the portfolio and growth
strategies of companies.

8. The quest for industrial development started soon after
independence in 1947.
The Industrial Policy Resolution of 1948 defined the broad
contours of the policy delineating the role of the State in
industrial development both as an entrepreneur and
authority.
This was followed by comprehensive enactment of
Industries (Development & Regulation) Act, 1951 (referred
as IDR Act) that provides for the necessary framework for
implementing the Industrial Policy and enables the Union
Government to direct investment into desired channels of
industrial activity among other things through the mechanism of
licensing keeping with national development objectives and
goals.

9. The main objectives of the Industrial Policy of the
Government are
(i) to maintain a sustained growth in productivity;
(ii) to enhance gainful employment;
(iii) to achieve optimal utilization of human resources;
(iv) to attain international competitiveness; and
(v) to transform India into a major partner and player in the
global arena.
To achieve these objectives,
 the Policy focus is on deregulating Indian industry;
 allowing freedom and flexibility to the industry in responding to market forces;
 providing a policy regime that facilitates and fosters growth.
Economic reforms initiated since 1991 envisages a significantly bigger role for private
initiatives.
The policy has been progressively liberalized over years to at present.

11. Trade Policy
The trade policy can significantly affect the fortunes of
firms.
For example, a restrictive import policy, or a policy of
protecting the home industries, may greatly help the import
competing industries, while a liberalization of the import
policy may create difficulties for such industries.
Trade policy is, often, integrated with the industrial policy.
As part of the economic liberalization and WTO compliance,
India has very substantially liberalized imports.
Domestic firms now face increasing competition from
imports. In other words, they face a growing international
competition in the domestic territory.

12. This implies that in many cases Indian firms
which do not come up to the international
standards – in quality, cost, marketing, after-
sales service etc. – will not be able to survive.
And a firm which effectively fights foreign
competition in the home market may be
provoked to think ‘why not compete with
foreign firms in the foreign markets.’
Liberalisation of imports facilitate global
sourcing and this could help many Indian firms
to become more competitive.

13. Foreign Exchange Policy
 Exchange rate policy and the policy in respect of cross-border movement
of capital are important for business.
 The abolition/liberalization of exchange controls all around the world since
the late 1970s has encouraged cross-border movement of capital.
 In India currency futures can be traded in popular exchanges like NSE, BSE
and MCX.
 The trader here needs to open a forex trading account with the broker, and
trading is done.
 Capital Inflows
 As of August 27, 2021, foreign exchange reserves in India stood at US$
633.5 billion
 India’s gross domestic product (GDP), at current prices, stood at Rs. 51.23
lakh crore (US$ 694.93 billion) in the first quarter of FY22, as per the
provisional GDP estimates for the first quarter of 2021-22.
 India’s trade and external sector had a significant impact on the GDP
growth as well as expansion in per capita income.

14.  India is presently known as one of the most important
players in the global economic landscape.
 India’s trade policies, Government reforms and inherent
economic strengths has attributed to its standing as one of
the most sought-after destination for foreign investments
in the world.
 The Government of India has been working on striking
important deals with the Governments of Japan, Australia,
and China to increase contribution towards the economic
development of the country and growth in the global
market.
 India has a potential to increase its goods and services
export to Australia to US$ 15 billion by 2025 and US$ 35
billion by 2035.

15. Foreign Investment and Technology Policy
 Until the late 1980s, when the worldwide trend towards liberalization set
in, foreign capital and technology were under severe restrictions in many
developing and socialist/communist countries.
 Restrictions on foreign capital and technology oblige not only the
foreign firms but also the domestic firms because it may come in their
way of acquiring the technology of their choice from the best source.
 Huge investments in infrastructural and other vital sectors can
significantly improve the environment for industrial development.
 A liberal foreign investment and technology policy will increase
domestic competition and would put many domestic firms, which were
shielded from foreign competition, in to problems.
 At the same time, it would benefit many domestic firms – by permitting
global sourcing of capital and technology, by increasing the quantity
and quality of domestic supply of many goods and services etc.

17. Fiscal Policy
 Government’s strategy in respect of public expenditure and revenue
can have significant impact on the business.
 The pattern of public expenditure may affect the development of
various regions, sectors and/or industries differently.
 Governments often use tax incentives or discouragements to
encourage or discourage certain activities.
For example, when an industry suffers from recession, a
reduction of taxes like excise duty or sales tax may help improve the
demand.
 A reduction in rates of direct taxes like personal income tax and
corporate tax may help increase, because of the resultant increase in
the disposable income, the spending in the economy leading to an
increase in demand.
 Governments, central as well as provincial, of many countries offer
different fiscal incentives to woo industries.

18. Monetary Policy
The central bank, by its policy towards the cost and
availability of credit, can significantly influence the savings,
investments and consumer spending in the economy.
Depending on the conditions of the economy and the general
economic policy of the government, the central bank (called
the Reserve Bank in India) may adopt an expansionary or
contractionary or neutral monetary policy.
For example, a one percentage point reduction in the
Cash Reserve Ratio or Statutory Reserve Ratio (SLR) will
significantly increase the loanable funds with the
commercial banking system.
An increase in these ratios will have the opposite effect.

19. Outcomes of New Industrial Policies
 The 1991 policy made ‘License, Permit and Quota Raj’ a thing of the past.
 It attempted to liberalize the economy by removing bureaucratic
hurdles in industrial growth.
 Limited role of Public sector reduced the burden of the Government.
 The policy provided easier entry of multinational companies,
Privatisation, removal of asset limit on MRTP companies, liberal
licensing.
 All this resulted in increased competition, that led to lower prices in
many goods such as electronics prices.
 This brought domestic as well as foreign investment in almost every
sector opened to private sector.
 The policy was followed by special efforts to increase exports.
 Concepts like Export Oriented Units, Export Processing Zones, Agri-
Export Zones, Special Economic Zones and lately National Investment
and Manufacturing Zones emerged.

20. Policy of Public Sector
The government recently released a new ‘Public Sector Enterprise
Policy’.
Under the New Policy:
1. Strategic: Atomic energy, space, defence, trans and telecom,
power, petro, coal, other minerals, banking, insurance and financial
services will be classified as strategic sectors.
2. Privatization: The remaining companies in non-strategic sectors
will be considered for privatization/merger/closure and non-
strategic sectors will be considered for privatization, where feasible
or for closure.
3. In strategic sectors, the minimum presence of existing companies
at the holding level will be retained under government control.
4. The strategic sectors have limited number of players restricting it
to maximum four public sector enterprises of the holding nature.

21. Public Sector role in Indian economy
Promoting economic development at a rapid pace by
filling gaps in the industrial structure
Promoting adequate infrastructural facilities for the
growth of the economy
Undertaking economic activity in those strategically
significant development areas, where private sector
may distort the spirit of national objective
Checking monopolies and concentration of power in the
hands of few
Promoting balanced regional development and
diversifying natural resources and other infrastructural
facilities in those less developed areas of the country

22. Reducing the disparities in the distribution of income and
wealth by bridging the gap between the rich and the poor
Creating and enhancing sufficient employment opportunities
in different sectors by making heavy investments
Attaining self-reliance in different technologies as per
requirement
Eliminating dependence on foreign aid and foreign
technology
Exercising social control and regulation through various
public finance institutions
Controlling the sensitive sectors such as distribution system,
allocating the scarce imported goods rationally etc.
Reducing the pressure of balance of payments by promoting
export and reducing imports

23. Competition Law
In India, The Competition Act, 2002 has been
enacted to ensure the sustainability of
competition in the market and also consider the
interests of the consumers and also allow the
participants of Indian market to trade with
freedom.
This law promotes the competition between
enterprises and leaves the market unbound by
the manipulation of stronger trading enterprises.
The main objectives of the Act:
To prevent practices having adverse effect on
competition

24. The key provisions include:
Section 3: dealing with anti-competitive
agreements(cartels, tie-in arrangements
Section 4: Prohibition of abuse of dominant
position.
Section 5 and 6: Deals with combination of
enterprises. The combination maybe an
acquisition or a merger.
Section 21 and 21A: Dealing with advisory.
Section 49: Deals with advocacy

25. The Competition Law and the MRTP Act.
The Monopolies and Restrictive Trade Practices Act,1969 is
currently not in force as it was repealed and replaced by the
Competition Act,2002 and the MRTP Commission was
replaced by the Competition Commission of India.
The Competition Act, 2002 received the approval of the
President of India on January 13, 2003 and was published in
Gazette of India dated January 14, 2003.
The key instruments of the Competition Act are:
The Anti-competitive agreements
The Abuse of dominance
The Mergers or Combinations
The Competition Advocacy

26. Policies on Foreign Investment and Trade
(EXIM)
 The foreign trade policy(FTP) is a set of guidelines governing and
regulating the import and export of goods and services.
 It is also known as EXIM(export-import) policy. The foreign trade
policy is regulated by foreign trade(development and regulation),
Act 1992.
 As per Section 5 of the act, the central government gets
authorized to formulate, introduce, and amend the foreign policy.
 The directorate general of foreign trade under the ministry of
commerce and industry is the governing body for promoting and
facilitating imports and exports.
 The central government also gets empowered to make provisions
relating to imports and exports as per section 3 of the act.
 The meaning of ‘import’ and ‘export’ is given under section 2(e)

27. Salient features of this foreign trade act
 Empowered the central government to revise to formulate and
announce the export and import policy and revising it on a timely
basis.
 Provides the director-general of foreign trade appointment to advise
the central government on formulating the FTP.
 Prescribes that any importer or exporter cannot run an import and
export business without holding a valid importer-exporter code
number duly granted by the director-general.
 Objectives of this act include facilitation of distribution of goods and
services to the domestic consumer at good quality with
internationally competitive prices, sustainable economic growth,
enhancement of efficiency of agricultural and technological industry
in India.
 The act also mentions that the government is authorized to punish
any person. And it is applicable if that person’s acts contravene this
act.

28. Foreign trade policy 2021-26
It aims to provide digitalisation of the whole
EXIM process.
Lays the importance of easy access to credits
to MSME’s which lack collateral.
Focus on lower import duty and tax rates on
goods imported in India or on raw materials.
Improvise the infrastructure of domestic
services and small sectors and regulate the
trade imbalance in India.

29. Objectives of foreign trade policies in India
To boost the economy and grow the EXIM process in
India.
To improve the balance of payment and trade.
To enhance the trading activities and generate a
workforce environment.
To provide consumers with goods and services of
utmost quality and with effective cost.
To raise the infrastructure of small scale industries
to keep a check on trade imbalance in the country.
To establish the advance licensing system issued by
DGFT to allow duty-free imports.

30. To remove the restrictions on goods and services,
allowed to be freely imported, mentioned under the
open general license list should be removed.
Digitalization of all the documents to reduce conflict
between exporters and DGFT
Ease of access to credits by the startups and
increasing limits.
Canalization of import goods to diversifying market
opportunities