Business environment-iipm


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Business environment-iipm

  1. 1. Business Environment
  2. 2. Nature, Components, Dynamics & Importance of Business Environment.
  3. 3. “ Business is an economic activity because it includes all those activities whose purpose is to earn profit by transfer of goods & services.”
  4. 4. “ Environment consists atoms & molecules agglomeration of things in motion, alive of men emotions, or force & resistances. There numbers are infinite & they are always present; they are always changing. -Chester Bernard “ Business, Like weather is with us everyday.” -Wheeler “ Business may be defined as human activity directed towards producing or acquiring wealth through buying or selling of goods. -C.H.Haney
  5. 5. Nature <ul><li>Interdependence </li></ul><ul><li>Dynamic </li></ul><ul><li>Unlimited effect of uncontrollable factors. </li></ul><ul><li>Media & Social Change </li></ul><ul><li>Uncertainties & Restrictions. </li></ul><ul><li>Adverse conditions </li></ul><ul><li>To keep regular vigil on the changing environment. </li></ul><ul><li>Danger of casual change </li></ul>
  6. 6. Business Environment
  7. 7. Components of Business Environment
  8. 8. “ The process by which strategist monitors the economic, legal, governmental, market, competitive supplier, technological, geographic & social setting to determine opportunities & threats of their firm.” -William F Gluicck
  9. 9. Business Decisions Internal Environment External Environment
  11. 11. Internal Environment <ul><li>Physical Assets & Facilities </li></ul><ul><li>R&D Technological Capabilities </li></ul><ul><li>Marketing Resources </li></ul><ul><li>Financial Factors </li></ul>Miscellaneous Factors
  12. 12. External Environment
  13. 13. Micro Environment “ Micro or task environment is more specific and immediate environment in which an organization conducts its business.” -Dunham & Pierce
  14. 14. 1. Supplier <ul><li>Reliability </li></ul><ul><li>Multiple Supplier </li></ul>
  15. 15. 2. Customer <ul><li>Types of Customers </li></ul><ul><ul><li>Industrial Customers </li></ul></ul><ul><ul><li>Institutional Customer </li></ul></ul><ul><ul><li>Foreign Customer </li></ul></ul><ul><ul><li>Retail Customer </li></ul></ul><ul><li>Multiple Customer </li></ul><ul><li>Globalization </li></ul><ul><li>Customer Segmentation </li></ul>
  16. 16. 3. Market Intermediates <ul><li>Types of Market Intermediates </li></ul><ul><ul><li>Middlemen </li></ul></ul><ul><ul><li>Marketing Agencies </li></ul></ul><ul><ul><li>Financial Institution </li></ul></ul><ul><ul><li>Physical Intermediates </li></ul></ul>
  17. 17. 4. Public <ul><li>Media Publics </li></ul><ul><li>Local Public </li></ul>
  18. 18. MACRO ENVIRONMENT <ul><li>Economic </li></ul><ul><li>Political </li></ul><ul><li>Social-Cultural </li></ul><ul><li>Technological </li></ul><ul><li>Natural </li></ul><ul><li>Demographic </li></ul><ul><li>International </li></ul>
  19. 19. <ul><li>MACRO ENVIRONMENT means general environment of business. Macro factors are uncontrollable in comparison to the micro forces of environment. The growth and survival of business depend upon its adaptability to macro environment factor which include </li></ul>
  20. 20. 1. ECONOMIC ENVIRONMENT <ul><li>Economic Conditions </li></ul><ul><ul><li>Boom </li></ul></ul><ul><ul><li>Depression </li></ul></ul><ul><li>Economic System </li></ul><ul><ul><li>Capitalist </li></ul></ul><ul><ul><li>Socialist </li></ul></ul><ul><ul><li>Mixed Economy </li></ul></ul><ul><li>Economic Policies </li></ul><ul><ul><li>Monetary Policy </li></ul></ul><ul><ul><li>Fiscal Policy </li></ul></ul><ul><ul><li>Foreign Trade Policy </li></ul></ul><ul><ul><li>Foreign Investment </li></ul></ul><ul><ul><li>Industrial Policy </li></ul></ul>
  21. 21. 2. POLITICAL ENVIRONMENT <ul><li>Political Ideology of Govt. </li></ul><ul><li>Political stability in the Economy. </li></ul><ul><li>Foreign Policy of Govt. </li></ul><ul><li>Defence & Military Policy. </li></ul><ul><li>Centre state relationship. </li></ul>
  22. 22. Political Environment
  23. 23. 3. Socio-Cultural Environment <ul><li>Urbanization </li></ul><ul><li>Religion </li></ul><ul><li>Tastes & Preferences </li></ul><ul><li>Customs & Tradition in Society </li></ul><ul><li>Health & Quality of Life </li></ul><ul><li>Language </li></ul>
  24. 24. 4. Technological Environment <ul><li>Innovation </li></ul><ul><li>Research & Development </li></ul><ul><li>Inflow of foreign Technology etc. </li></ul>
  25. 25. 5. Natural Environment <ul><li>Climatic & weather condition. </li></ul><ul><li>Availability of Natural resources. </li></ul><ul><li>Topographical factors: Physical features of place. </li></ul><ul><li>Pollution Control </li></ul>
  26. 26. 6. Demographic Environment <ul><li>Age Composition </li></ul><ul><li>Sex Composition </li></ul><ul><li>Education Level </li></ul><ul><li>Family size & structure </li></ul><ul><li>Urban-rural population </li></ul>
  27. 27. 7. I nternational Environment <ul><li>Globalization </li></ul><ul><li>Oil Price hike </li></ul><ul><li>International Terrorism </li></ul><ul><li>Cultural Exchange </li></ul>
  28. 28. Dynamics of Business Environment
  29. 29. Factors Effecting Business Environment <ul><li>Global Scenario </li></ul><ul><li>Indian Scenario </li></ul>
  30. 30. 1.Global Scenario <ul><li>Political & Economic Environment </li></ul><ul><li>Privatization </li></ul><ul><li>Globalization & Internationalism </li></ul>
  31. 31. 2. Indian Scenario <ul><li>Change in Govt. Policies </li></ul><ul><li>Variation in Growth Performance </li></ul><ul><li>Corrective Policy Actions </li></ul><ul><li>Change in Market Structure & Competition </li></ul><ul><li>Future Expectations & Business Speculation </li></ul><ul><li>Change in Consumer attitudes, taste & Preference </li></ul><ul><li>Infrastructure </li></ul>
  32. 32. Importance of Business Environment
  33. 33. <ul><li>For incorporating dynamic behavior of environment </li></ul><ul><li>Complete knowledge of internal environment </li></ul><ul><li>To understand international events, pressures& impact </li></ul><ul><li>Economic policies of the govt. </li></ul><ul><li>To face business problems &challenges </li></ul><ul><li>Vigilant regarding dangers </li></ul><ul><li>Administrative system </li></ul><ul><li>Optimum utilization of resources </li></ul><ul><li>Market conditions </li></ul><ul><li>Scientific & industrial advancement </li></ul><ul><li>Development & success of business </li></ul>
  35. 35. BUSINESS ENVIRONMENT RISK <ul><li>Risk is a state in which the number of possible future events or outcomes is larger than the number of events or outcomes which will actually take place </li></ul><ul><li>Risk is manifested in the probability of loss or damage to a business firm </li></ul>
  36. 36. TYPES OF BUSINESS ENVIRONMENT RISK <ul><li>LEGAL RISK : Changes in Law </li></ul><ul><li>REGULATORY RISK : Regulatory design & changes </li></ul><ul><li>POLITICAL RISK : Resulting from political changes </li></ul><ul><li>SOCIAL RISK : From Social Attitudes </li></ul><ul><li>NATURAL RISK : Natural Disasters </li></ul><ul><li>ECONOMIC RISK : Economic Changes </li></ul>
  37. 37. COUNTRY RISK ANALYSIS <ul><li>Country risk analysis is basically concerned with the performance of an economy and the behavior of the Government and the institutions which determine the Business Environment </li></ul>
  38. 38. MAJOR SOURCES OF COUNTRY RISK <ul><li>Monetary Policy </li></ul><ul><li>Fiscal Policy </li></ul><ul><li>Import controls </li></ul><ul><li>TRIMs </li></ul><ul><li>Price Control </li></ul><ul><li>Labour Policy </li></ul><ul><li>Exchange controls </li></ul>
  40. 40. TYPES OF POLITICAL RISK <ul><li>GENERAL INSTABILITY RISK </li></ul><ul><li>Due to change in the political system with a change in Govt. </li></ul><ul><li>Due to social revolution, normal election process etc </li></ul><ul><li>Due to poor Governance, poverty and exploitation </li></ul>Cntnd
  41. 41. <ul><li>2 . OPERATIONAL RISK </li></ul><ul><li>Restriction on the production, marketing, finance, human resource management or international business </li></ul><ul><li>3. OWNERSHIP RISK </li></ul><ul><li>It arises from the probability that the govt. might take actions that may lead to erosion in ownership or control in the business firm. </li></ul>Cntnd
  42. 42. <ul><li>TYPES OF OWNERSHIP RISK </li></ul>OWNERSHIP RISK Confiscation Expropriation Domestication
  43. 43. <ul><li>4. TRANSFER RISK </li></ul><ul><li>This risk applies to MNCs having ventures in foreign countries or to the domestic firms having business operations or subsidiaries Transactions </li></ul><ul><li>Transfer of profits, Funds or Assets </li></ul>
  44. 44. HOW A COMPANY MANAGES ENVIRONMENT RISK ? <ul><li>RISK AVOIDING STRATEGIES </li></ul><ul><li>Avoiding politically sensitive products </li></ul><ul><li>Avoiding sensitive regions </li></ul><ul><li>Contractual agreements </li></ul><ul><li>Tie-up with other Firms </li></ul><ul><li>RISK SHIFTING STRATEGIES </li></ul><ul><li>Risk can be shifted to other parties through Insurance </li></ul>Cntnd
  45. 45. <ul><li>3. RISK REDUCTION STRATEGIES </li></ul><ul><li>Establishing a risk-assessment system </li></ul><ul><li>Developing the local economy </li></ul><ul><li>Local Equity participation </li></ul><ul><li>Good Corporate Citizenship </li></ul><ul><li>Maintaining Good Political Relations </li></ul>
  48. 48. MEANING <ul><li>Balance of payments refers to the recording of all economic transactions of a given country. Such transactions includes receives payments from and makes payments to other countries. </li></ul>
  49. 49. Definitions <ul><li>According to Benham, ”balance of payments of a country is a record of the monetary transactions over a period with the rest of the world.” </li></ul><ul><li>According to James O Ingram, “the balance of payments is a summary record of all economic transactions between residents of one country and the rest of the world during a given period of time.” </li></ul>
  50. 50. Balance of payments Visible Invisible Capital Transfers
  51. 51. Features <ul><li>Fixed Period of Time </li></ul><ul><li>Comprehensiveness </li></ul><ul><li>Systematic Record </li></ul><ul><li>Double Entry System </li></ul><ul><li>All items –Government and Non-Government </li></ul>
  52. 52. Structure <ul><li>Balance of payments = (Exports of goods + Capital receipts + Services) – (Imports of goods + Capital payments + Services) </li></ul>
  53. 53. Disequilibrium in balance of payments <ul><li>Balanced Balance of Payments </li></ul><ul><li>Favourable Balance of Payments </li></ul><ul><li>Unfavourable Balance of Payments </li></ul>B=R-P=0 B f =R-P>0 B U =R-P<0
  54. 54. Causes Of Unfavourable Balance Of Payments <ul><li>Import Of Machinery. </li></ul><ul><li>Import Of War Equipments. </li></ul><ul><li>Price Disequilibrium. </li></ul><ul><li>Embassies. </li></ul><ul><li>Foreign Competition. </li></ul><ul><li>Payments Of Interest On Foreign Debts. </li></ul><ul><li>Less Growth In Exports. </li></ul>
  55. 55. Measures To Disequilibrium In Balance Of Payments <ul><li>Promotion Of Exports. </li></ul><ul><li>Increase In Production. </li></ul><ul><li>Encouragement To Foreign Investments. </li></ul><ul><li>Attraction Of Indian Currency. </li></ul><ul><li>Restriction On Imports. </li></ul><ul><li>Import Substitution. </li></ul>
  57. 57. FDI <ul><li>Foreign investment plays important role to accelerate the growth of any economy </li></ul><ul><li>International capital flow gives boost to the various economic sector </li></ul>
  58. 58. TYPES OF FOREIGN INVESTMENT <ul><li>PORTFOLIO INVESTMENT </li></ul><ul><li>FOREIGN DIRECT INVESTMENT </li></ul><ul><li>Wholly owned subsidiary </li></ul><ul><li>Joint Ventures </li></ul><ul><li>Acquisition </li></ul>
  59. 59. <ul><li>1. Wholly owned Subsidiary : </li></ul><ul><li>Companies with long term and substantial interest in the foreign market go for the wholly owned subsidiary. It provides the firm with complete control over production and quality </li></ul><ul><li>2. Joint Ventures: </li></ul><ul><li>Joint venture is a common strategy of entering the foreign market. Diverse types of joint overseas operations are : </li></ul>
  60. 60. <ul><li>Sharing of ownership and management in an enterprise </li></ul><ul><li>Licensing/Franchising agreement </li></ul><ul><li>through intellectual property rights </li></ul><ul><li>Patents </li></ul><ul><li>Trade marks </li></ul><ul><li>Copyrights </li></ul><ul><li>Technical Know-How </li></ul><ul><li>Marketing Skills </li></ul>
  61. 61. <ul><li>FRANCHISING : is a form of licensing in which a parent company ( The Franchiser) grants another independent entity( The Franchise ) the right to do business in a prescribed manner. The major form of franchising are as follows: </li></ul><ul><li>Manufacturer---retailer system </li></ul><ul><li>Manufacturer---wholesaler </li></ul><ul><li>Service firm-----retailer system </li></ul>
  62. 62. FACTORS LEADS TO THE FOREIGN DIRECT INVESTMENT <ul><li>Rate of Interest </li></ul><ul><li>Speculation </li></ul><ul><li>Profitability </li></ul><ul><li>Costs of Production </li></ul><ul><li>Economic Conditions </li></ul><ul><li>Government policies (Remittances, profits, taxation, Foreign exchange control, tariffs and monetary policy) </li></ul><ul><li>Political Factors </li></ul>
  63. 63. ADVANTAGES OF FDI <ul><li>Increase the level income and employment </li></ul><ul><li>Increase the tax revenue of the Govt. </li></ul><ul><li>It facilitate transfer of technology to the host country </li></ul><ul><li>It provide professionalism </li></ul><ul><li>It enables the country to increase exports and reduces imports </li></ul><ul><li>Foreign investors encourages the domestic suppliers </li></ul><ul><li>It increase competition and breaks monopoly </li></ul><ul><li>Improves the quality and the cost of inputs incurred </li></ul>
  64. 64. DISADVANTAGES OF FDI <ul><li>Flow of investment into high profit area </li></ul><ul><li>Stage of development of the country </li></ul><ul><li>Multinational can evade the economic power </li></ul><ul><li>Unfavorable effect on balance of payments </li></ul><ul><li>Interference in the national politics </li></ul><ul><li>Engage in unfair and unethical trade practices </li></ul><ul><li>Higher cost are involved to encourage FDI </li></ul>
  65. 65. TOP FIVE NATIONS IN INDIA FDI INFLOWS( IN US dollar) <ul><li>MAURITIUS 34.49 % </li></ul><ul><li>USA 17.1 % </li></ul><ul><li>JAPAN 7.33 % </li></ul><ul><li>NETHERLANDS 7.16 % </li></ul><ul><li>UK 6.54 % </li></ul>
  66. 66. FIVE TOP STATES ATTRACTING MAJOR SHARE OF FDI <ul><li>MAHARASHTRA 14.8 % </li></ul><ul><li>DELHI 12.2 % </li></ul><ul><li>TAMIL NADU 9.05 % </li></ul><ul><li>KARNATKA 7.63 % </li></ul><ul><li>GUJRAT 4.97 % </li></ul>
  68. 68. INDUSTRIAL POLICY <ul><li>The concept of “ Industrial Policy” covers all those procedures, principles, policies, rules and regulations which control the industrial undertaking of a country and shape the pattern of Industrialization. </li></ul>
  69. 69. WHY THE NEED ARISES TO CONSTITUTE THE INDUSTRIAL POLICY? <ul><li>After independence Indian Industrial production lower down </li></ul><ul><li>Inflation Increases </li></ul><ul><li>Rehabilitation problem faced by Indian due to partition </li></ul><ul><li>First phase of Industrialization started by constituting the first Industrial policy resolution,1948 </li></ul>
  70. 70. INDUSTRIAL POLICY RESOLUTION,1948, MAIN FEATURES <ul><li>The main emphasis of IP,1948 is on the mixed economy system </li></ul><ul><li>The manufacture of ARMS & AMMUNITION, the production and control of atomic energy and the ownership and management of RAILWAY TRANSPORT were to be the exclusive monopoly of the central Govt. </li></ul><ul><li>In second category, The COAL, IRON & STEEL,AIRCRAFT MANUFACTURE, SHIP BUILDING, MANUFACTURE OF TELEPHONE, TELEGRAPHS AND WIRELESS APPARATUS were undertaking by the state. </li></ul>Cntnd.
  71. 71. <ul><li>In the third category the industries of such basic importance that the central govt. would feel it necessary to plan and regulate them. </li></ul><ul><li>In the fourth category the industries are left for the private enterprise, individual as well as co-operative </li></ul>Cntnd
  72. 72. IIIrd PHASE OF INDUSTRIALISATION <ul><li>The third phase of Industrialization begins with the amendment of IP, 1956, in 1977, when the janta Govt. came into power </li></ul><ul><li>The main reasons for the change in policy are </li></ul><ul><li>Unemployment Increases </li></ul><ul><li>Rural-Urban Disparities Widened </li></ul><ul><li>Rate of Investment Come Down </li></ul><ul><li>Industrial Sickness Increases </li></ul>Cntnd
  73. 73. MAIN FEATURES OF IP, 1977 <ul><li>Development of Small Scale Sector </li></ul><ul><li>Cottage Industries </li></ul><ul><li>Tiny Sectors </li></ul><ul><li>Small Scale Industries </li></ul><ul><li>Area of Large-Scale Sector has defined </li></ul><ul><li>Basic industries essential for providing infrastructure as well as development of SSI like Cement, Steel, Oil refineries </li></ul>Cntnd
  74. 74. <ul><li>Capital goods industries for meeting the machinery requirements of basic industries </li></ul><ul><li>High technology industries which required large scale production, and which were related to agricultural and Small Scale industries development like Fertilizers, Pesticides, Petrochemicals </li></ul>
  75. 75. NEW INDUSTRIAL POLICY, 1991 <ul><li>In June 1991, Narsimha Rao Govt. took over charge and a wave of economic reforms and Liberalization come in the economy </li></ul><ul><li>In this new atmosphere, the Govt. declared broad changes in IP on July 24, 1991 </li></ul>Cntnd
  76. 76. MAIN FEATURES OF IP, 1991 <ul><li>To maintain the sustained growth in productivity </li></ul><ul><li>To enhance gainful employment </li></ul><ul><li>To achieve optimum utilization of resources </li></ul><ul><li>To attain international competitiveness </li></ul><ul><li>To transform India into a major partner and players in the global arena </li></ul>
  77. 77. POLICY MEASURES TO ATTAIN OBJECTIVES <ul><li>Liberalization of Industrial licensing policy </li></ul><ul><li>Introduction of Industrial Entrepreneur’s Memorandum </li></ul><ul><li>Liberalization of location policy </li></ul><ul><li>Liberalized policy for small scale sectors </li></ul><ul><li>NRI’s are allowed to invest up to 100 % </li></ul><ul><li>Electronic Hardware technology park(EHTP) and Software technology park(STP) to be build to enhance exports </li></ul><ul><li>Liberalized FDI policy </li></ul>
  78. 78. INDUSTRIALISAITON PATTERN <ul><li>Industrialization is the hallmark of economic growth </li></ul><ul><li>It is the process whereby industrial activity comes to play a dominant role in the economy of the country </li></ul><ul><li>Industrialization involves replacement of small scale cottage industry supplying limited local markets by the large units </li></ul><ul><li>Early years of the British Rule ( 1750-1850) </li></ul>cntnd
  79. 79. EFFECT OF WORLD WAR I(1914) ON INDUSTRIALISATION <ul><li>Localization of Industries </li></ul><ul><li>For Sugarcane North Bihar & Eastern UP-1904&1936 </li></ul><ul><li>For Cotton Mumbai followed by Ahmedabad, Kanpur, Chennai, Madurai </li></ul><ul><li>Diversification of Industries </li></ul><ul><li>Cotton-----Steal--------Coal--------Jute </li></ul>
  80. 80. MAIN FEATURES OF INDUSTRIALISATION DURING BRITISH RULE <ul><li>Import Substitution </li></ul><ul><li>Increased disparity in the Indian economy </li></ul><ul><li>Lack of Integration </li></ul><ul><li>Minimal speed effect </li></ul><ul><li>Organizational Imperfections </li></ul><ul><li>Lack of Institutional finances </li></ul>
  81. 81. <ul><li>Beginning of the modern factory system (1850-1947) </li></ul><ul><li>First Cotton textile mill by a Parsi Businessman C.N.Davar started in 1884 in Bombay </li></ul><ul><li>Development of Sugar,Paper and Steel Industries </li></ul><ul><li>Development of the railways and other public works and rise of modern industry after 1850 made India a large number of Iron and Steel in India </li></ul><ul><li>The first Iron Production started at Barkar Iron works in 1875 </li></ul><ul><li>This was followed by the setting up of the Tata Iron and Steel Company(TISCO) at Sakchi(Jamshedpur) in 1907 </li></ul>
  82. 82. INDUSTRIALISATION DURING FIVE YEAR PLANS <ul><li>1. FIRST FIVE YEAR PLAN(1951-56) </li></ul><ul><li>The first five year plan concentrated on the development of agriculture. Industrial activity was mostly directed towards the development of </li></ul><ul><li>Infrastructure facilities like power and irrigation </li></ul><ul><li>Development of consumer goods industries such as Jute, plywood, cotton textile, sugar, edible oil,paints etc </li></ul><ul><li>Expansion of capital goods industries like iron and steel, aluminium, fertilizers, chemicals and heavy machine tools </li></ul>
  83. 83. <ul><li>2. Second Five Year Plan(1956-61) </li></ul><ul><li>The second five year plan accorded a very high priority to industrial development. The major objectives were: </li></ul><ul><li>Increased output in the basic and heavy industries such as Fertilizer,chemicals,iron and steel, aluminium and heavy engineering </li></ul><ul><li>Expansion of the capacity of cement,chemical,phosphatic fertilizer,bulk drugs </li></ul>
  84. 84. <ul><li>Modernization of traditional industries like sugar, cotton textile, jute,etc where the productivity had declined due to the age structure of these plants. </li></ul><ul><li>Maximum utilization of installed capacity, especially in the public utilities and infrastructural services. </li></ul><ul><li>During the second plan, investment in the PSU’s was Rs.870 crores, whereas investment in the private sector was Rs. 675 crores </li></ul>
  85. 85. <ul><li>3. Third five year plan(1961-66) </li></ul><ul><li>The third five year plan was governed by the overriding need to complete on-going projects in basic heavy industries. The objectives of this plan were : </li></ul><ul><li>Rapid completion of all projects. </li></ul><ul><li>Increased emphasis on raw materials and producer’s input. </li></ul><ul><li>Diversification of capacity in the capital and producer goods. </li></ul><ul><li>The plan envisaged a total outlay of Rs.3000 crores in the organized industries and mining of which 1700 cr. For PSU’s and 1300 cr in private sector. </li></ul>
  86. 86. <ul><li>4. Fourth Five Year Plan(1969-74) </li></ul><ul><li>The objectives of the fourth five year plan were : </li></ul><ul><li>Maximum utilization of installed capacity in industries </li></ul><ul><li>To achieve self-reliance through import substitution and export expansion </li></ul><ul><li>To curb monopolistic tendencies </li></ul><ul><li>To channelise new investments in strict accordance with the plan priorities. </li></ul><ul><li>Total outlay on the industrial sector was Rs.5300 crores. </li></ul>
  87. 87. <ul><li>5. Fifth Five Year Plan(1974-79) </li></ul><ul><li>The objectives of the fifth plan were: </li></ul><ul><li>To achieve substantial increase in production capacity through technological expansion and improvement. </li></ul><ul><li>Creation of new capacities in accordance with the plan priorities and initiation of advance action in cases of long gestation projects. </li></ul><ul><li>To introduce a package of incentives to desire sectors of economy. </li></ul><ul><li>Total outlay was Rs.10200. </li></ul>
  88. 88. <ul><li>6. Sixth Five Year Plan(1980-85) </li></ul><ul><li>The Plan had five fold strategy to achieve rapid industrialization : </li></ul><ul><li>To increase manufacturing capacities of a variety of consumer goods and durables both in the public and private sectors. </li></ul><ul><li>To support industrial growth through the supply of intermediate and capital goods. </li></ul><ul><li>To attain technological excellence for encouraging exports of engineering goods. </li></ul><ul><li>Total outlay was Rs.20407 crores. </li></ul>
  89. 89. <ul><li>7. Seventh five year plan(1985-90) </li></ul><ul><li>The objectives of this plan were: </li></ul><ul><li>To integrate science and technology into the main stream of development </li></ul><ul><li>To create conditions for and to promote modernization, efficiency and competition in industry </li></ul><ul><li>To promote diversification of industrial production </li></ul><ul><li>To ensure balanced regional dev. </li></ul><ul><li>Total outlay was Rs.22460 crores </li></ul>
  90. 90. <ul><li>8. Eighth five year plan(1992-97) </li></ul><ul><li>The broader objective of the plan were: </li></ul><ul><li>To ensure efficiency and competitiveness was of the industrial sector through modernization and technology upgradation </li></ul><ul><li>Expansion and fuller utilization of installed capacities in power, transport, communication and water resources. </li></ul><ul><li>Greater private participation </li></ul>
  91. 91. <ul><li>9. Ninth five year plan(1997-2002) </li></ul><ul><li>The objectives of plan were : </li></ul><ul><li>Priority to agriculture and rural development </li></ul><ul><li>Ensuring environment sustainability of the development process through social mobilization and participation of people at all levels. </li></ul><ul><li>Strengthening efforts to build self-reliance. </li></ul>
  92. 92. GLOBALISATION <ul><li>Globalization is the process by which a firms activity become worldwide in scope </li></ul><ul><li>Doing, or planning to expand , business globally </li></ul><ul><li>Giving distinction between the domestic market & foreign market </li></ul><ul><li>Locating the production and other physical facilities of global business dynamics </li></ul><ul><li>Basic product development and production planning on the global consideration </li></ul><ul><li>Global sourcing of factors of production </li></ul><ul><li>Global orientation of organizational structure and management culture </li></ul>
  93. 93. FEATURES OF GLOBALISATION <ul><li>NEW MARKETS </li></ul><ul><ul><ul><li>Growing global markets in services </li></ul></ul></ul><ul><li>New financial markets </li></ul><ul><li>Deregulation of antitrust laws of mergers </li></ul><ul><li>Global Consumer markets with global brands </li></ul>Cntnd
  94. 94. <ul><li>2. NEW ACTORS </li></ul><ul><li>Multinational corporations </li></ul><ul><li>The World Trade Organization </li></ul><ul><li>International Criminal Court System </li></ul><ul><li>Regional Blocs </li></ul><ul><li>More policy Coordination groups- </li></ul><ul><li>G-77,G-7, OPEC, OECD </li></ul><ul><li>3. NEW RULES AND NORMS </li></ul><ul><li>Multilateral agreements in trade new agendas on environment and social conditions </li></ul>Cntnd
  95. 95. <ul><li>New multilateral agreements for services property rights and communication </li></ul><ul><li>Conventions and agreements on the Global environment </li></ul><ul><li>4. NEW TOOLS OF COMMUNICATION </li></ul><ul><li>Internet and electronic communication </li></ul><ul><li>Cellular phones </li></ul><ul><li>Fax machines </li></ul><ul><li>Faster and cheaper transport </li></ul><ul><li>Computer aided design </li></ul>
  96. 96. FACTORS LEADS TO GLOBALISATION <ul><li>Human Resources </li></ul><ul><li>Wide Base </li></ul><ul><li>Growing Entrepreneurship </li></ul><ul><li>Growing Domestic Market </li></ul><ul><li>Niche markets </li></ul><ul><li>Expanding Markets </li></ul><ul><li>Economic Liberalization </li></ul><ul><li>Competition </li></ul>
  97. 97. OBSTACLES TO GLOBALISATION <ul><li>Government Policy and Procedures </li></ul><ul><li>High cost of basic inputs </li></ul><ul><li>Poor Infrastructure </li></ul><ul><li>Resistance to change </li></ul><ul><li>Poor Quality Image </li></ul><ul><li>Supply problems </li></ul><ul><li>Small Size </li></ul><ul><li>Lack of Experience </li></ul><ul><li>Limited R&D and marketing research </li></ul><ul><li>Growing Competition </li></ul><ul><li>Trade barriers </li></ul>
  98. 98. Few situations that has arisen in India post liberalization <ul><li>1. Shifting of Agriculture worker to industry sector 2. Urbanization –People are shifting from rural to urban areas. 3. Opening up of trade market –export import boom. 4. Big open saturated market for products 5. A growing market for high quality and low price product 6. Gradual increase of organized retail chain. 7. Growing number of Merger and Acquisitions. 8. Lucid license policies for overseas Multinational Corporation. 9. High growth rate is showing economic prosperity in India. 10. Indian Market leaders going global. </li></ul>
  99. 99. Certain negative impacts occurred aftermath the globalization in India <ul><li>1) Unequal distribution of wealth disparity in income. 2) Rapid privatization government driven public sector units are on sale. 3) Uneven growth in respect of different sectors. 4) Extreme mechanization is reducing demand for manual labours. 5) Both employee and consumer exploitation are on rise by private sector. </li></ul>
  100. 100. PUBLIC SECTOR ENTERPRISES REFORMS <ul><li>PSE’s includes Government companies in the Central and State Sectors </li></ul><ul><li>These industries covers a wide spectrum of activities in basic and strategic industries like: </li></ul><ul><li>Steal Heavy Eng. Tourism </li></ul><ul><li>Coal Chemicals Financial </li></ul><ul><li>Minerals Fertilizers Trading </li></ul><ul><li>Petroleum Transp. Marketing </li></ul>
  101. 101. WHY THE PSE’S ? <ul><li>Public enterprises help in rapid economic growth </li></ul><ul><li>It creates the necessary infrastructure for economic development </li></ul><ul><li>To earn return on investment and generate resources for development </li></ul><ul><li>To promote redistribution of income and wealth </li></ul><ul><li>To generate employment opportunities </li></ul><ul><li>To promote balanced regional development </li></ul><ul><li>To assist the development of small-scale ind. </li></ul><ul><li>To earn foreign exchange for the economy </li></ul>
  102. 102. <ul><li>Investment in the PSE,s during plans </li></ul><ul><li>Five year Investment No.of PSE,s </li></ul><ul><li>Plan (in crores) </li></ul><ul><li>Ist plan 29 5 </li></ul><ul><li>2 nd 81 21 </li></ul><ul><li>3 rd 953 48 </li></ul><ul><li>4rth 3902 85 </li></ul><ul><li>5 th 6237 122 </li></ul><ul><li>6 th 18,225 186 </li></ul><ul><li>7 th 42,811 221 </li></ul><ul><li>8 th 1,18,492 237 </li></ul><ul><li>9 th 2,01,500 238 </li></ul><ul><li>1999 2,73,700 235 </li></ul><ul><li>2002 3,24,614 240 </li></ul><ul><li>2003 3,33,475 240 </li></ul>
  103. 103. NEED FOR PUBLIC SECTOR ENTERPRISES REFORMS <ul><li>Lack of Competition </li></ul><ul><li>Over employment </li></ul><ul><li>Long Gestation period </li></ul><ul><li>Over capitalization </li></ul><ul><li>Inefficient Management </li></ul><ul><li>Absence of Appropriate pricing policy </li></ul><ul><li>Social Objectives </li></ul><ul><li>Lack of Efficient and Trained Staff </li></ul>
  104. 104. IDENTIFICATION OF PUBLIC SECTOR ENTERPRISE AS NINE GEMS <ul><li>SAIL IOCL </li></ul><ul><li>VSNL HPCL </li></ul><ul><li>BPCL ONGC </li></ul><ul><li>BHEL NTPC </li></ul><ul><li>IPCL GAIL </li></ul><ul><li>MTNL </li></ul>
  105. 105. <ul><li>Two of these namely IPCL and VSNL have since been privatized and as on July 2003 there are only 9 NAVRATNA PSEs. The profitability of these 9 ratna was Rs.15508 crore during 2001-02 </li></ul><ul><li>Besides granting the status of Gems of the country, the Government also announced on October 3, 1997 to grant the status of Mini-Gems to 97 selected public sector profit earning enterprises. </li></ul>
  106. 106. DISINVESTMENT PROGRAMMES IN PSE’S <ul><li>The disinvestment process, which began in 1991-92 with the sale of minority stake in some public sector undertakings </li></ul><ul><li>The new policy in this regard is that the government is committed to a strong and effective public sector whose social objectives are met by its commercial functioning </li></ul><ul><li>The Govt. is committed to devolve full managerial and commercial autonomy to successful, profit making companies operating in a competitive environment </li></ul>
  107. 107. <ul><li>Generally, profit making companies will not be privatized </li></ul><ul><li>As per the National Common Minimum Programme (NCMP) the Government retain existing ‘Navratna’ Companies in the Public Sector </li></ul><ul><li>Loss making companies either sold off or closed, after all workers get their legitimate dues and compensation </li></ul><ul><li>The Government has approved the constitution of a National Investment Fund (NIF) comprising of proceeds from disinvestment of public sector units </li></ul><ul><li>The Govt. has also given in principle approval for listing of currently unlisted profitable PSEs each with a net worth in excess of Rs.200 crore, through an initial public offer (IPO) </li></ul>
  108. 108. OBJECTIVES OF DISINVESTMENT <ul><li>Modernization and up gradation of PSEs </li></ul><ul><li>Creation of new assets </li></ul><ul><li>Generation of Employment </li></ul><ul><li>Retiring of Public Debt </li></ul><ul><li>To ensure that disinvestments does not result in alienation of national assets, which through the process of disinvestments, remain where they are </li></ul>cntnd
  109. 109. <ul><li>Setting up a Disinvestment Proceeds Fund </li></ul><ul><li>Formulating the guidelines for the disinvestments of natural asset companies </li></ul><ul><li>Preparing a paper on the feasibility and modalities of setting up of Asset Management company to hold, manage and dispose the residual holding of the government in the companies in which government equity has been disinvested to a strategic partner </li></ul>
  110. 110. THE WAVE OF ECONOMIC REFORM <ul><li>The wave of economic reforms was born out of the crisis in the economy. Which climaxed in 1991. </li></ul><ul><li>The main reasons which leads to economic reforms are : </li></ul><ul><li>Increasing Fiscal deficit </li></ul><ul><li>Internal debt </li></ul><ul><li>Overall agricultural promotion, food grain product and industrial production showed negative growth. </li></ul>cntnd
  111. 111. <ul><li>Foreign Exchange reserves fell </li></ul><ul><li>Inflation rate increases to 14% </li></ul><ul><li>Confidence of International financial institutions was badly shaken </li></ul><ul><li>Due to Gulf war, the prices of oil rises </li></ul>
  113. 113. LIBERALISATION <ul><li>Liberalization of the economy means to free it from direct or physical controls imposed by the Government. </li></ul><ul><li>The various types of controls are as follows: </li></ul><ul><li>Industrial licensing system </li></ul><ul><li>Price control or financial control on goods </li></ul><ul><li>Import license </li></ul><ul><li>Foreign exchange control </li></ul><ul><li>Restrictions on investment by big business houses </li></ul>
  114. 114. MEASURES FOR LIBERALISATION <ul><li>Abolition of Industrial Licensing and Registration </li></ul><ul><li>Concession from monopolies Act </li></ul><ul><li>Freedom for expansion and production to Industries </li></ul><ul><li>Increase in investment limit of SSI </li></ul><ul><li>Freedom to import capital goods </li></ul><ul><li>Freedom to import technology </li></ul><ul><li>Free determination of Interest rate </li></ul>
  115. 115. ADVANTAGES OF LIBERALISATION <ul><li>Improvements in Industries & service sector </li></ul><ul><li>Free flow of FDI & MNCs </li></ul><ul><li>More availability of imported goods at cheaper rates </li></ul><ul><li>Quality education and careers to people </li></ul><ul><li>Improvement of technology in the field of SSI & LSI </li></ul><ul><li>Improvement in means of communication and Transport. </li></ul>
  116. 116. DISADVANTAGES OF LIBERALISAION <ul><li>Common man fails to enjoy the imported goods as they lack purchasing power </li></ul><ul><li>Danger in political independence </li></ul><ul><li>Agricultural dominated countries </li></ul><ul><li>Underdeveloped countries fail to increase their exports in comparison to imports </li></ul>
  117. 117. PRIVATISATION <ul><li>Privatization of Industries means opening the gates of Public Sector to Private sector </li></ul><ul><li>The term privatization is used in two sense </li></ul><ul><li>Transferring the ownership of public sector to private sector </li></ul><ul><li>Management and controlling of public sector by private sector without transferring the ownership </li></ul>
  118. 118. CAUSES OF PRIVATISATION <ul><li>Disintegration of Socialist Economies </li></ul><ul><li>Inefficient public sector </li></ul><ul><li>Uneconomic pricing policy </li></ul><ul><li>Burden on the Government </li></ul><ul><li>Inefficient management control </li></ul>
  119. 119. OBJECTIVE OF PRIVATISATION <ul><li>To increase the efficiency and competitive power. </li></ul><ul><li>To reduce deficit financing and public deficit </li></ul><ul><li>To strengthen industrial management </li></ul><ul><li>To earn more and more foreign currency </li></ul><ul><li>To make optimum use of economic resources </li></ul><ul><li>To achieve rapid industrial development </li></ul>
  120. 120. MEASURES FOR PRIVATISATION <ul><li>Privatization covers three sets of measures </li></ul><ul><li>1. OWNERSHIP MEASURES </li></ul><ul><li>Total denationalization </li></ul><ul><li>Joint Venture </li></ul><ul><li>Liquidation </li></ul><ul><li>Management buy-out </li></ul>Cntnd
  121. 121. <ul><li>2. ORGANISATIONAL MEASURES </li></ul><ul><li>A holding company structure </li></ul><ul><li>Leasing </li></ul><ul><li>Restructuring( Financial, Basic ) </li></ul><ul><li>3. OPERATIONAL MEASURES </li></ul><ul><li>Grant of autonomy to PE s in decision making </li></ul><ul><li>Provision of incentives to the employees </li></ul><ul><li>Freedom to acquire certain inputs from the market </li></ul><ul><li>Development of proper investment criteria </li></ul>
  122. 122. GLOBALISATION <ul><li>Globalization is the process by which a firms activity become worldwide in scope </li></ul><ul><li>Doing, or planning to expand , business globally </li></ul><ul><li>Giving distinction between the domestic market & foreign market </li></ul><ul><li>Locating the production and other physical facilities of global business dynamics </li></ul><ul><li>Basing product development and production planning on the global consideration </li></ul><ul><li>Global sourcing of factors of production </li></ul><ul><li>Global orientation of organizational structure and management culture </li></ul>
  123. 123. FEATURES OF GLOBALISATION <ul><li>NEW MARKETS </li></ul><ul><li>Growing global markets in services </li></ul><ul><li>New financial markets </li></ul><ul><li>Deregulation of antitrust laws of mergers </li></ul><ul><li>Global Consumer markets with global brands </li></ul>Cntnd
  124. 124. <ul><li>2. NEW ACTORS </li></ul><ul><li>Multinational corporations </li></ul><ul><li>The World Trade Organization </li></ul><ul><li>International Criminal Court System </li></ul><ul><li>Regional Blocs </li></ul><ul><li>More policy Coordination groups- </li></ul><ul><li>G-77,G-7, OPEC, OECD </li></ul><ul><li>3. NEW RULES AND NORMS </li></ul><ul><li>Multilateral agreements in trade new agendas on environment and social conditions </li></ul>Cntnd
  125. 125. <ul><li>New multilateral agreements for services property rights and communication </li></ul><ul><li>Conventions and agreements on the Global environment </li></ul><ul><li>4. NEW TOOLS OF COMMUNICATION </li></ul><ul><li>Internet and electronic communication </li></ul><ul><li>Cellular phones </li></ul><ul><li>Fax machines </li></ul><ul><li>Faster and cheaper transport </li></ul><ul><li>Computer aided design </li></ul>
  126. 126. FACTORS LEADS TO GLOBALISATION <ul><li>Human Resources </li></ul><ul><li>Wide Base </li></ul><ul><li>Growing Entrepreneurship </li></ul><ul><li>Growing Domestic Market </li></ul><ul><li>Niche markets </li></ul><ul><li>Expanding Markets </li></ul><ul><li>Economic Liberalization </li></ul><ul><li>Competition </li></ul>
  127. 127. OBSTACLES TO GLOBALISATION <ul><li>Government Policy and Procedures </li></ul><ul><li>High cost of basic inputs </li></ul><ul><li>Poor Infrastructure </li></ul><ul><li>Obsolescence </li></ul><ul><li>Resistance to change </li></ul><ul><li>Poor Quality Image </li></ul><ul><li>Supply problems </li></ul><ul><li>Small Size </li></ul><ul><li>Lack of Experience </li></ul><ul><li>Limited R&D and marketing research </li></ul><ul><li>Growing Competition </li></ul><ul><li>Trade barriers </li></ul>
  129. 129. FINANCIAL ENVIRONMENT <ul><li>Financial environment consists of decision taken by the companies the Monetary Policy, Fiscal Policy, & Financial Market Structure. </li></ul><ul><li>Monetary and Fiscal policy are important determinants of business prospects and investment decision </li></ul><ul><li>These policies encourage investment and production in certain priority sectors and discourages them in non-priority sector. </li></ul><ul><li>The Monetary, fiscal and financial market structure influence the aggregate supply and demand, level of employment etc. </li></ul>
  130. 130. <ul><li>MONETARY POLICY </li></ul><ul><li>Monetary policy refers to the use of instruments within the control of the RBI to influence the level of aggregate demand for goods and services </li></ul><ul><li>Monetary policy is based on money supply and money stock </li></ul><ul><li>Measures of money stock are : </li></ul><ul><li>M1 = Currency with the public + Deposits with banks </li></ul><ul><li>M2 = M1+ Post office savings bank deposits </li></ul><ul><li>M3 = M2+ Fixed deposits with banks </li></ul><ul><li>M4 = M3+ Total post of deposits. </li></ul>
  131. 131. Monetary and Fiscal Policies <ul><li>Meaning and Objectives of Monetary Policy </li></ul><ul><li>Monetary policy is concerned with the changes in the supply of money and credit. It refers to the policy measures undertaken by the central bank of the country to influence the availability, cost and use of money and credit with the help of monetary techniques to achieve specific objectives. It aims at influencing the economic activity through two major variables-a) money or credit supply, and b) the rate of interest. </li></ul><ul><li>The various objectives of Monetary Policy are </li></ul><ul><li>i) Neutrality of Money, ii) Exchange Stability, iii) Price Stability, </li></ul><ul><li>Full Employment, v) Economic Growth. </li></ul><ul><li>Instruments of Credit Control </li></ul><ul><li>Quantitative or General </li></ul><ul><li>Qualitative or Selective </li></ul>
  132. 132. <ul><li>Quantitative or General : The Quantitative weapons of credit control consist of--a) bank rate policy; b) open market operations; and c) variable cash reserve ratios. </li></ul><ul><li>Qualitative or Selective: Qualitative or Selective credit control weapons are—a) margin requirements; b) regulation of customer’s credit; c) control through directives; d) rationing of credit; e) moral suasion and publicity; and f) direct action. </li></ul><ul><li>margin requirements: The loan value of the security= The Market value of the security—The Margin. </li></ul><ul><li>Thus, the loan value of an equity share having market value of Rs. 120, at 24 percent margin requirement is : 120-24=96. Hence the maximum of loan of Rs. 96 can be granted on this security by a commercial bank. </li></ul><ul><li>b) regulation of customer’s credit: The regulation of consumer credit consists in laying down rules regarding payments and maximum maturities of installment credit for the purchase of specified durable consumer goods. It includes-minimum down payment and maximum period of payment. </li></ul>
  133. 133. <ul><li>c) control through directives: “Directives” may be in the form of oral or written statements, appeals or warnings, particularly to curb individual credit structures and to restrain the aggregate volume of loans. </li></ul><ul><li>d) rationing of credit: The Central Bank may draw the ceiling on the aggregate portfolios of commercial banks so that loans and advances do not exceed this ceiling. </li></ul><ul><li>e) moral suasion and publicity: It implies persuasion and request made by the central bank to the commercial banks to cooperate with the general monetary policy of the former. </li></ul><ul><li>f) direct action: It is the most extensively used method of qualitative as well as quantitative credit control by the central bank. It is often used as an alternative to, or in relation with, the bank rate policy or open market operations. </li></ul><ul><li>The central bank may charge a penal rate of interest, over and above the bank rate, for the credit demanded, beyond a prescribed limit. </li></ul><ul><li>The central bank may refuse to give any more credit to those banks whose borrowings are found to be in excess of their capital and reserves. </li></ul>
  134. 134. <ul><li>Fiscal Policy </li></ul><ul><li>Taxation: Direct and Indirect-Impact, Shifting and Incidence. Proportional, Progressive, Regressive. </li></ul><ul><li>Public Debt: Internal and External </li></ul><ul><li>Public Expenditure: Recession and Inflation </li></ul>
  135. 135. HOW THE RBI CONTRACT & CREATE THE CREDIT <ul><li>Different instruments have been used by the RBI to contract and create the credit in the market </li></ul><ul><li>1. Bank Rate : It is the minimum rate at which the RBI provides financial accomodation to the commercial banks </li></ul><ul><li>2. Open Market Operations : Purchase and sale of foreign exchange, Gold and company shares </li></ul>
  136. 136. <ul><li>3. Cash Reserve Ratio : The commercial banks has to keep their cash with RBI </li></ul><ul><li>4. Statutory Liquidity Ratio : Maintaining a minimum amount of liquid assets in terms of cash </li></ul>
  137. 137. SELECTIVE CREDIT CONTROL METHODS OR QUALITATIVE METHODS <ul><li>Change in margin requirement of loans </li></ul><ul><li>Rationing of credit </li></ul><ul><li>Moral persuasion </li></ul><ul><li>Credit Authorization Scheme </li></ul><ul><li>Credit Monetary arrangements </li></ul><ul><li>Loan system for delivery of bank credit </li></ul>
  138. 138. FISCAL POLICY <ul><li>Fiscal policy is related to income and expenditure of Govt. It refers to budgetary policy of Govt. </li></ul><ul><li>Fiscal policy means the use of Public finances or expenditure, taxes, borrowings and its administration to further our national income </li></ul>
  139. 139. OBJECTIVES OF FISCAL POLICY <ul><li>Mobility of Resources </li></ul><ul><li>Promotion of saving and investment </li></ul><ul><li>Removal of poverty and unemployment </li></ul><ul><li>Growth of Public Sector </li></ul><ul><li>Economic stability </li></ul><ul><li>To achieve favourable BoP </li></ul><ul><li>To support private sectors </li></ul>
  140. 140. TECHNIQUES OF FISCAL POLICY <ul><li>1. Taxation policy of Govt of India </li></ul><ul><li>Mobilization of Resources </li></ul><ul><li>Capital Formation </li></ul><ul><li>Equality of Income and Wealth </li></ul><ul><li>2. Public Expenditure Policy </li></ul><ul><li>Development of Public Enterprises </li></ul><ul><li>Infrastructure Development </li></ul><ul><li>Social Welfare </li></ul><ul><li>3. Public Debt Policy </li></ul><ul><li>Internal Debt </li></ul><ul><li>External Debt </li></ul>
  141. 141. DRAWBACKS OF FISCAL POLICY <ul><li>Instability </li></ul><ul><li>Defective Tax Structure </li></ul><ul><li>Inequality of Income </li></ul><ul><li>Failure Public Sectors </li></ul>
  142. 142. SUGGESTIONS FOR THE REFORM OF FISCAL POLICY <ul><li>Reduction in Non-Development Expenditure </li></ul><ul><li>Agricultural Taxation </li></ul><ul><li>Control over Black Money </li></ul><ul><li>More Direct Taxes </li></ul><ul><li>Reduction in Tax Evasion </li></ul>