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A report submitted for internal assessment of


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A report submitted for internal assessment of

  1. 1. A report submitted for internal assessment of Economic Environment for Business Under the guidance of Prof. Shivani Presented by; Lokesh Rana Section: FM1 IIPMIIPM TOWER, SATBARI CHANDAN HAULA, CHATTARPUR- BHATIMINES ROAD NEW DELHI
  2. 2. 1. What is MRTP and how it is sought to be regulated?2. What is UTP and how it is sought to be regulated?3. Comment on trending & success of monetary policy in India from1960-2010.4. Introduction of MNC’s in the Indian economy has been a boon aswell as bane.5. FISCAL POLICY6. FERAQ. What are MRTP and how they sought to be regulated?Ans:The MRTP Act, 1969Post-independence, many new and big firms have entered the Indian market. They had littlecompetition and they were trying to monopolize the market. The Government of Indiaunderstood the intentions of such firms. In order to safeguard the rights of consumers,Government of India passed the MRTP bill. The bill was passed and the Monopolies andRestrictive Trade Practices Act, 1969, came into existence. Through this law, the MRTPcommission has the power to stop all businesses that create barrier for the scope of competitionin Indian economy.The MRTP Act, 1969, aims at preventing economic power concentration in order to avoiddamage. The act also provides for probation of monopolistic, unfair and restrictive tradepractices. The law controls the monopolies and protects consumer interest.Restrictive Trade Practice:The traders, in order to maximize their profits and to gain power in the market, often indulge inactivities that tend to block the flow of capital into production. Such traders also bring inconditions of delivery to affect the flow of supplies leading to unjustified costs.A restrictive trade practice is a trade practice, which1. Prevents, distorts or restricts competition in any manner; or2. Obstructs the flow of capital or resources into the stream of production; or3. Which tends to bring about manipulation of prices or conditions of delivery or affected theflow of supplies in the market of any goods or services, imposing on the consumers unjustifiedcost or restrictions.Inquiry into Restrictive Practices:The Commission may inquire into any restrictive trade practice
  3. 3. 1. Upon receiving a complaint from any trade association, consumer or a registered consumer association, or 2. Upon a reference made to it by the Central or State Government or 3. Upon its own knowledge or information <Relief Available:The commission shall if after making an inquiry it is of the opinion that the practice isprejudicial to the public interest, or to the interest of any consumer it may direct that1. The practice shall be discontinued or shall not be repeated;2. The agreement relating thereto shall be void in respect of such restrictive trade practice orshall stand modified.3. The Commission may permit the party to any restrictive trade practice to take steps so that itis no longer prejudicial to the public interestAbout the MRTP Act, 1969The MRTP Act extends to the whole of India except the state of Jammu and Kashmir. This lawwas enacted: To ensure that the operation of the economic system does not result in the concentration ofeconomic power in hands of few, To provide for the control of monopolies, and To prohibit monopolistic and restrictive trade practices.Unless the Central Government otherwise directs, this act shall not apply to:1. Any undertaking owned or controlled by the Government Company,2. Any undertaking owned or controlled by the Government,3. Any undertaking owned or controlled by a corporation (not being a company) established byor under any Central, Provincial or State Act,4. Any trade union or other association of workmen or employees formed for their ownreasonable protection as such workmen or employees,5. Any undertaking engaged in an industry, the management of which has been taken over byany person or body of persons under powers by the Central Government,6. Any undertaking owned by a co-operative society formed and registered under anyCentral, Provincial or state Act,7. Any financial institution.MRTP Commission and Filing of Complaint:For the purpose of this Act, the Central Government has established a commission to be knownas the Monopolies and Restrictive Trade Practices Commission. This commission shall consist ofa Chairman and minimum 2 and maximum 8 other members, all to be appointed by the CentralGovernment. Every member shall hold the office for a period specified by the Central
  4. 4. Government. This period shall not exceed 5 years. However, the member will be eligible for re-appointment.In case of any unfair trade practice, monopolistic trade practice and/or restrictive trade practice,a complaint can be filed against such practices to the MRTP commission. The procedure forfiling a complaint is as follows: Complaint is filed either by the individual consumer or through a registered consumerorganization. The Director General of the MRTP commission would carry on the investigation for findingfacts of the case. If the prima facie case is not made, the complaint is dismissed. If the compliant is true, anorder is passed to its effect. The commission restricts and restrains the concerned party from carrying on such practices bygranting temporary injunction.Q. What is UTP and how it is sought to be regulated?Ans:Unfair Trade Practice.An unfair trade practice means a trade practice, which, for the purpose of promoting any sale,use or supply of any goods or services, adopts unfair method, or unfair or deceptive practice.Unfair practices may be categorized as under:1. False Representation:The practice of making any oral or written statement or representation which:1. Falsely suggests that the goods are of a particular standard quality, quantity, grade,composition, style or model;2. Falsely suggests that the services are of a particular standard, quantity or grade;3. Falsely suggests any re-built, second-hand renovated, reconditioned or old goods as newgoods;4. Represents that the goods or services have sponsorship, approval, performance,characteristics, accessories, uses or benefits which they do not have;5. Represents that the seller or the supplier has a sponsorship or approval or affiliation which hedoes not have;6. Makes a false or misleading representation concerning the need for, or the usefulness of, anygoods or services;7. Gives any warranty or guarantee of the performance, efficacy or length of life of the goods,that is not based on an adequate or proper test;
  5. 5. 8. Makes to the public a representation in the form that purports to be warranty or guarantee ofthe goods or services, a promise to replace, maintain or repair the goods until it has achieved aspecified result,If such representation is materially misleading or there is no reasonable prospect that suchwarranty, guarantee or promise will be fulfilled9. Materially misleads about the prices at which such goods or services are available in themarket; or10. Gives false or misleading facts disparaging the goods, services or trade of another person.2. False Offer of Bargain Price:Where an advertisement is published in a newspaper or otherwise, whereby goods or servicesare offered at a bargain price when in fact there is no intention that the same may be offered atthat price, for a reasonable period or reasonable quantity, it shall amount to an unfair tradepractice.The bargain price, for this purpose means:1. The price stated in the advertisement in such manner as suggests that it is lesser than theordinary price, or2. The price which any person coming across the advertisement would believe to be better thanthe price at which such goods are ordinarily sold.3. Free Gifts Offer and Prize SchemeThe unfair trade practices under this category are:1. Offering any gifts, prizes or other items along with the goods when the real intention isdifferent, or2. Creating impression that something is being offered free along with the goods, when in factthe price is wholly or partly covered by the price of the article sold, or3. Offering some prizes to the buyers by the conduct of any contest, lottery or game of chance orskill, with real intention to promote sales or business.4. Non-Compliance of Prescribed Standards:Any sale or supply of goods, for use by consumers, knowing or having reason to believe thatthe goods do not comply with the standards prescribed by some competent authority, inrelation to their performance, composition, contents, design, construction, finishing or packing,as are necessary to prevent or reduce the risk of injury to the person using such goods, shallamount to an unfair trade practice.
  6. 6. 5. Hoarding, Destruction, Etc.Any practice that permits the hoarding or destruction of goods, or refusal to sell the goods orprovide any services, with an intention to raise the cost of those or other similar goods orservices shall be an unfair trade practice.6. Inquiry into Unfair Trade Practices:The Commission may inquire into any unfair trade practice:1. Upon receiving a complaint from any trade association, consumer or a registered consumerassociation, or2. Upon reference made to it by the Central Government or State Government3. Upon an application to it by the Director General or4. Upon its own knowledge or information.Relief AvailableAfter making an inquiry into the unfair trade practice if the Commission is of the opinion thatthe practice is prejudicial to the public interest, or to the interest of any consumer it may directthat:1. The practice shall be discontinued or shall not be repeated;2. The agreement relating thereto shall be void in respect of such unfair trade practice or shallstand modified.3. Any information, statement or advertisement relating to such unfair trade practice shall bedisclosed, issued or published as may be specified4. The Commission may permit the party to carry on any trade practice to take steps to ensurethat it is no longer prejudicial to the public interest or to the interest of the consumer.However no order shall be made in respect a trade practice which is expressly authorised byany law in force.The Commission is empowered to direct publication of corrective advertisement and disclosureof additional information while passing orders relating to unfair trade practices.
  7. 7. Q. Comment on trending & success of monetary policy in India from 1960-2010.Ans:Reforms in the Indian Monetary Policy during 1990s:The Monetary policy of the RBI has undergone massive changes during the economic reformperiod. After 1991 the monetary policy is disassociated from the fiscal policy. Under the reformperiod an emphasis was given to the stable macro-economic situation and low inflation policy.The major changes in the Indian Monetary policy during the decade of 1990.1. Reduced Reserve Requirements: During 1990s both the Cash Reserve Ratio (CRR) and theStatutory Liquidity Ratio (SLR) were reduced to considerable extent. The CRR was at its highest15% plus and additional CRR of 10% was levied, however it is now reduced by4%. The SLR is reduced form 38.5% to a minimum of 25%.2. Increased Micro Finance: In order to strengthen the rural finance the RBI has focused moreon the Self Help Group (SHG). It comprises small and marginal farmers, agriculture and non-agriculture labour, artisans and rural sections of the society. However still only30% of the target population has been benefited.3. Fiscal Monetary Separation: In 1994, the Government and the RBI signed an agreementthrough which the RBI has stopped financing the deficit in the government budget. Thus it hasseparated the monetary policy from the fiscal policy.4. Changed Interest Rate Structure: During the 1990s, the interest rate structure was changedfrom its earlier administrated rates to the market oriented or liberal rate of interest. Interest rateslabs are now reduced up to 2 and minimum lending rates are abolished. Similarly, lendingrates above ` Two lakh are freed.5. Changes in Accordance to the External Reforms: During the 1990, the external sector hasundergone major changes. It comprises lifting various controls on imports, reduced tariffs, etc.The Monetary policy has shown the impact of liberal inflow of the foreign capital and itsimplication on domestic money supply.6. Higher Market Orientation for Banking: The banking sector got more autonomy andoperational flexibility. More freedom to banks for methods of assessing working funds andother functioning has empowered and assured market orientation.
  8. 8. Evaluation of the Monetary Policy in India:During the reforms though the monetary policy has achieved higher success in the monetarypolicy, it is not free from limitation or demerits. It needs to be evaluated on a proper scale.1. Failed in Tackling Budgetary Deficit: The higher level of the budget deficit has made themonetary policy ineffective. The automatic monetization of the deficit has led to high monetaryexpansion.2. Limited Coverage: The Monetary policy covers only commercial banking system leavingother non-bank institutions untouched. It limits the effectiveness of the monitor policy inIndia.3. Unorganized Money Market: In our country there is a huge size of the unorganized moneymarket. It does not come under the control of the RBI. Thus any tools of the monetary policy donot affect the unorganized money market making monetary policy less affective.4. Predominance of Cash Transaction: In India still there is huge dominance of the cash intotal money supply. It is one of the main obstacles in the effective implementation of themonetary policy. Because monetary policy operates on the bank credit rather on cash.5. Increase Volatility: As the Monetary policy has adopted changes in accordance to thechanges in the external sector in India, it could lead to a high amount of the volatility.There are certain drawbacks in the working of the monetary policy in India. However, duringthe economic reforms it has got different dimensions.Q. Introduction of MNC’s in the Indian economy has been a boon as well as bane.Ans:Multinational Companies in India (MNC)As the name suggests, any company is referred to as a multinational company or corporation(M. N. C.) when that company manages its operation or production or service delivery frommore than a single country.Such a company is even known as international company or corporation. As defined by I. L.O. or the International Labor Organization, a M. N. C. is one, which has its operationalheadquarters based in one country with several other operating branches in different othercountries. The country where the head quarter is located is called the home country whereas;the other countries with operational branches are called the host countries. Apart from playingan important role in globalization and international relations, these multinational companieseven have notable influence in a countrys economy as well as the world economy. The budget
  9. 9. of some of the M. N. C.s are so high that at times they even exceed the G. D. P. (Gross DomesticProduct) of a nation.These are not the sole prior causes of the Nokia, Vodafone, Fiat, Ford Motors and as the listmoves on- to flourish in India. As the basic economic data suggest that after the liberalization in1991, it has brought in hosts of foreign companies in India and the share ofU.S shows the highest. They account about 37% of the turnover from top 20 companies thatfunction in India.Why are Multinational Companies in India?There are a number of reasons why the multinational companies are coming down to India.India has got a huge market. It has also got one of the fastest growing economies in the world.Besides, the policy of the government towards FDI has also played a major role in attracting themultinational companies in India.For quite a long time, India had a restrictive policy in terms of foreign direct investment. As aresult, there was lesser number of companies that showed interest in investing in Indianmarket. However, the scenario changed during the financial liberalization of the country,especially after 1991. Government, nowadays, makes continuous efforts to attract foreigninvestments by relaxing many of its policies. As a result, a number of multinational companieshave shown interest in Indian market.Profit of MNCs in India:It is too specify that the companies come and settle in India to earn profit. A company enlargesits jurisdiction of work beyond its native place when they get a wide scope to earn a profit andsuch is the case of the MNCs that have flourished here. More over India has wide market fordifferent and new goods and services due to the ever increasing population and the varyingconsumer taste. The government FDI policies have somehow benefited them and drawn theirattention too. The restrictive policies that stopped the companys inflow are howeverwithdrawn and the country has shown much interest to bring in foreign investment here.Besides the foreign directive policies the labour competitive market, market competition andthe macro-economic stability are some of the key factors that magnetize the foreign MNCs here.Following are the reasons why multinational companies consider India as a preferreddestination for business: Huge market potential of the country FDI attractiveness Labour competitiveness Macro-economic stabilityAdvantages of the growing MNCs to India:
  10. 10. There are certain advantages that the underdeveloped countries like and the developingcountries like India derive from the foreign MNCs that establishes. They are as under:Initiating a higher level of investment. Reducing the technological gap The natural resources are utilized in true sense. The foreign exchange gap is reduced Boosts up the basic economic structure. Inter connectivity increased amongst nations. New technology invent (bio-friendly, ecological). Monopoly reduction. Employment generation. Outsourcing generation, Technology transferDisadvantages of MNCs:Roses do not come without thrones. Disadvantages of having MNCs in a developing countrylike India are as under- Pollution and Environmental hazards Some MNCs come only for tax benefits only Exploitation of natural resources Lack of employment opportunities Diffusion of profits and Forex Imbalance Working environment and conditions Slows down decision making Economic distressQ. FISCAL POLICY:The fiscal policy is concerned with the raising of government revenue and incurring ofgovernment expenditure. To generate revenue and to incur expenditure, the governmentframes a policy called budgetary policy or fiscal policy. So, the fiscal policy is concerned withgovernment expenditure and government revenue.The fiscal policy is designed to achieve certain objectives as follows:-
  11. 11. 1. Development by effective Mobilisation of ResourcesThe principal objective of fiscal policy is to ensure rapid economic growth and development.This objective of economic growth and development can be achieved by Mobilisation ofFinancial Resources.The central and the state governments in India have used fiscal policy to mobilise resources.The financial resources can be mobilised by:-Taxation: Through effective fiscal policies, the government aims to mobilise resources by wayof direct taxes as well as indirect taxes because most important source of resource mobilisationin India is taxation.Public Savings: The resources can be mobilised through public savings by reducinggovernment expenditure and increasing surpluses of public sector enterprises.Private Savings: Through effective fiscal measures such as tax benefits, the government canraise resources from private sector and households. Resources can be mobilised throughgovernment borrowings by ways of treasury bills, issue of government bonds, etc., loans fromdomestic and foreign parties and by deficit financing.2. Efficient allocation of Financial ResourcesThe central and state governments have tried to make efficient allocation of financial resources.These resources are allocated for Development Activities which includes expenditure onrailways, infrastructure, etc. While Non-development Activities includes expenditure ondefence, interest payments, subsidies, etc.But generally the fiscal policy should ensure that the resources are allocated for generation ofgoods and services which are socially desirable. Therefore, Indias fiscal policy is designed insuch a manner so as to encourage production of desirable goods and discourage those goodswhich are socially undesirable.3. Reduction in inequalities of Income and WealthFiscal policy aims at achieving equity or social justice by reducing income inequalities amongdifferent sections of the society. The direct taxes such as income tax are charged more on therich people as compared to lower income groups. Indirect taxes are also more in the case ofsemi-luxury and luxury items, which are mostly consumed by the upper middle class and theupper class. The government invests a significant proportion of its tax revenue in theimplementation of Poverty Alleviation Programmes to improve the conditions of poor people insociety.4. Price Stability and Control of InflationOne of the main objectives of fiscal policy is to control inflation and stabilize price.Therefore, the government always aims to control the inflation by reducing fiscal deficits,introducing tax savings schemes, Productive use of financial resources, etc.5. Employment Generation
  12. 12. The government is making every possible effort to increase employment in the country througheffective fiscal measure. Investment in infrastructure has resulted in direct and indirectemployment. Lower taxes and duties on small-scale industrial (SSI) units encourage moreinvestment and consequently generate more employment. Various rural employmentprogrammes have been undertaken by the Government of India to solve problems in ruralareas. Similarly, self-employment scheme is taken to provide employment to technicallyqualified persons in the urban areas.6. Balanced Regional DevelopmentAnother main objective of the fiscal policy is to bring about a balanced regional development.There are various incentives from the government for setting up projects in backward areassuch as Cash subsidy, Concession in taxes and duties in the form of tax holidays, Finance atconcessional interest rates, etc.7. Reducing the Deficit in the Balance of PaymentFiscal policy attempts to encourage more exports by way of fiscal measures like Exemption ofincome tax on export earnings, Exemption of central excise duties and customs, Exemption ofsales tax and octroi, etc.The foreign exchange is also conserved by providing fiscal benefits to import substituteindustries, imposing customs duties on imports, etc.The foreign exchange earned by way of exports and saved by way of import substitutes helps tosolve balance of payments problem. In this way adverse balance of payment can be correctedeither by imposing duties on imports or by giving subsidies to export.8. Capital FormationThe objective of fiscal policy in India is also to increase the rate of capital formation so as toaccelerate the rate of economic growth. An underdeveloped country is trapped in vicious(danger) circle of poverty mainly on account of capital deficiency. In order to increase the rate ofcapital formation, the fiscal policy must be efficiently designed to encourage savings anddiscourage and reduce spending.9. Increasing National IncomeThe fiscal policy aims to increase the national income of a country. This is because fiscal policyfacilitates the capital formation. This results in economic growth, which in turn increases theGDP, per capita income and national income of the country.10. Development of InfrastructureGovernment has placed emphasis on the infrastructure development for the purpose ofachieving economic growth. The fiscal policy measure such as taxation generates revenue to thegovernment. A part of the governments revenue is invested in the infrastructure development.Due to this, all sectors of the economy get a boost.11. Foreign Exchange EarningsFiscal policy attempts to encourage more exports by way of Fiscal Measures like, exemption ofincome tax on export earnings, exemption of sales tax and octroi, etc. Foreign exchange
  13. 13. provides fiscal benefits to import substitute industries. The foreign exchange earned by way ofexports and saved by way of import substitutes helps to solve balance of payments problem.Conclusion on Fiscal Policy:The objectives of fiscal policy such as economic development, price stability, social justice, etc.can be achieved only if the tools of policy like Public Expenditure, Taxation, Borrowing anddeficit financing are effectively used.Though there are gaps in Indias fiscal policy, there is also an urgent need for making Indiasfiscal policy a rationalised and growth oriented one.The success of fiscal policy depends upon taking timely measures and their effectiveadministration during implementation.Q. FERAAns.The Foreign Exchange Regulation Act (FERA) was legislation passed by the IndianParliament in 1973 by the government of Indira Gandhi and came into force with effect fromJanuary 1, 1974. FERA imposed stringent regulations on certain kinds of payments, the dealingsin foreign exchange and securities and the transactions which had an indirect impact on theforeign exchange and the import and export of currency.The purpose of the act, inter alia, was to "regulate certain payments, dealings in foreignexchange and securities, transactions indirectly affecting foreign exchange and the import andexport of currency, for the conservation of foreign exchange resources of the country".Coca-Cola was Indias leading soft drink until 1977 when it left India after a new governmentordered the company to turn over its secret formula for Coca-Cola and dilute its stake in itsIndian unit as required by the Foreign Exchange Regulation Act (FERA). In 1993, the company(along with PepsiCo) returned after the introduction of Indias Liberalization policy.FERA was repealed in 1999 by the government of Atal Bihari Vajpayee and replaced by theForeign Exchange Management Act, which liberalized foreign exchange controls andrestrictions on foreign investment.FERA: Regulated in India by the Foreign Exchange Regulation Act (FERA), 1973. Consisted of 81 sections. FERA Emphasized strict exchange control. Control everything that was specified, relating to foreign exchange. Law violators were treated as criminal offenders. Aimed at minimizing dealings in foreign exchange and foreign securities.FERA was introduced at a time when foreign exchange (Forex) reserves of the country werelow, Forex being a scarce commodity. FERA therefore proceeded on the presumption that all
  14. 14. foreign exchange earned by Indian residents rightfully belonged to the Government of Indiaand had to be collected and surrendered to the Reserve bank of India (RBI). FERA primarilyprohibited all transactions, except one’s permitted by RBI.OBJECTIVES: To regulate certain payments. To regulate dealings in foreign exchange and securities. To regulate transactions, indirectly affecting foreign exchange. To regulate the import and export of currency. To conserve precious foreign exchange. The proper utilization of foreign exchange so as to promote the economic development of thecountry.